WALTER INDUSTRIES INC /NEW/, S-1, 1995-05-02

WALTER INDUSTRIES INC /NEW/
S-1, 1995-05-02
IRON & STEEL FOUNDRIES

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As filed with the Securities and Exchange Commission on May 2, 1995
Registration No. 33-

================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________________
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
______________________________

WALTER INDUSTRIES, INC.
(Exact name of registrant as specified in charter)
Delaware 6711 13-3429953
(State or other jurisdiction (Primary Standard Industrial (IRS Employer
of incorporation or organization) Classification Code Number) Identification
Number)

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/
______________________________
<TABLE><CAPTION>
CALCULATION OF REGISTRATION FEE

Proposed
Title of each Amount Maximum Proposed Maximum
Class of Securities to be Offering Price Aggregate Amount of
to be Registered Registered per Share(1) Offering Price(1) Registration Fee
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per share 27,167,631 shares $12.19 $331,173,422 $114,197.73

(1) Estimated solely for the purpose of calculating the registration fee.

The registrant hereby amends this Registration Statement on such date or dates as may be
necessary to delay its effective date until the registrant shall file a further amendment which
specifically states that this Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on
such date as the Commission, acting pursuant to said Section 8(a), may determine.

</TABLE>

<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; Outside
Back Cover Page of Back Cover Page
Prospectus

3. Summary Information and Prospectus Summary; Certain Risk
Risk Factors Factors; The Company; Recent
History; Selected Historical
Consolidated Financial Data

4. Use of Proceeds Not Applicable

5. Determination of Offering Inside Front Cover Page; Plan of
Price 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 Capital Stock;
to be Registered Certain 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 Certain Indebtedness;
Description of Capital Stock

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

<PAGE>

SUBJECT TO COMPLETION, DATED MAY 2, 1995

PROSPECTUS
- ----------
_____ Shares

WALTER INDUSTRIES, INC.

Common Stock

This Prospectus relates to the offering from time to time of up to ________
shares (the "Shares") of Common Stock, par value $.01 per share (the "Common
Stock"), that were issued by Walter Industries, Inc. (the "Company" or "Walter
Industries"), a Delaware corporation formerly named Hillsborough Holdings
Corporation, to certain creditors and stockholders 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 1121(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, 50,494,313 shares of Common Stock, including the
Shares, were issued following the Effective Date of the Plan of Reorganization
and, as of June __, 1995, constituted all of the shares of Common Stock
outstanding.

The Shares 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 Shares by any of the Selling Security Holders. See "Plan of Distribution."
______________________________

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

Through the date hereof, there has been no established public trading
market for the Common Stock. Pursuant to the Plan of Reorganization, the Common
Stock was issued to a limited number of investors. Application will be made to
list the Common Stock on the New York Stock Exchange. There can be no assurance
that any active trading market will develop or will be sustained for the Common
Stock or as to the price at which the Common Stock may trade or that the market
for the Common Stock will not be subject to disruptions that will make it
difficult or impossible for the holders of Common Stock to sell shares in a
timely manner, if at all, or to recoup their investment in the Common Stock. See
"Certain Risk Factors -- Liquidity; Absence of Public Market."

______________________________

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 June __, 1995

[End of Cover Page]

1
<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.

2
<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
Shares from time to time on terms to be determined at the time of sale. To the
extent required, the specific Shares to be sold, the names of the Selling
Security Holders, the respective purchase prices and public offering prices,
historical trading information for the Common Stock, 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 Shares 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 Shares
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 Shares 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 Shares
purchased by them may be deemed to be underwriting commissions or discounts
under the Securities Act. See "Description of Capital Stock -- Common Stock
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. Upon listing of the Common Stock on the New York Stock Exchange (the
"NYSE"), such reports and other information also could be inspected at the
offices of the NYSE, 20 Broad Street, New York, N.Y. 10005.

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 Shares 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. Upon listing of such Common Stock on the NYSE, such Registration
Statement also could be inspected at the offices of the NYSE, 20 Broad Street,
New York, N.Y. 10005. 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 24 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 the largest
domestic manufacturer of ductile iron pressure pipe and fittings. The Group also
manufactures valves and hydrants and fittings.

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 6.5 million tons of coal in fiscal 1994. 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 Products Group produces furnace and foundry grades of coke,
industrial chemicals, slag wool products, aluminum sheet, aluminum foil,
castings, patterns and tooling and resin coated sand.

The Building Materials Group produces window and door screens, window
balances, fireplace inserts, fireplaces and accessories, and municipal and
original equipment manufacturer castings. 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

<PAGE>

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 (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
Co., Ltd. (Bermuda) ("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.

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
distributed to certain creditors and stockholders of the Company and its
subsidiaries and $490,000,000 aggregate principal amount of the Company's 12.19%
Series B Senior Notes Due 2000 (the "Series B Notes") were distributed to
certain creditors.

Also pursuant to the Plan of Reorganization, (i) 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 Shares.

<PAGE>
Summary Consolidated Historical Financial Data

The following data, insofar as it relates to each of the fiscal years 1990
through 1994, has been derived from annual financial statements, including the
consolidated balance sheets at May 31, 1994 and 1993 and the related
consolidated statements of operations and retained earnings (deficit) and of
cash flows for the three years ended May 31, 1994 and notes thereto appearing
elsewhere herein. The data for the nine months ended February 28, 1994 and 1995
has been derived from unaudited financial statements also appearing herein
which, in the opinion of management, include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair statement of the results for
the unaudited interim periods. Results of operations for the nine months ended
February 28, 1995 are not indicative of the results to be expected for the
entire year. All of the information presented below should be read in
conjunction with the Consolidated Financial Statements and related notes
thereto, the pro forma consolidated financial data of the Company (the "Pro
Forma Consolidated Financial Data") and related notes thereto and the other
information contained elsewhere in this Prospectus.

<TABLE><CAPTION>
Nine months ended
Years ended May 31, February 28,
--------------------------------------------------------- ----------------------
1990(1) 1991(1) 1992 1993(3) 1994 1994 1995
---------- ---------- ---------- ---------- ---------- ---------- ----------
(Dollars in thousands) (Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Summary of Operations:

Sales and revenues . . . . $1,376,319 $1,326,397 $1,366,581 $1,318,986 $1,328,524 $ 985,030 $1,042,661
Cost of sales (exclusive of
depreciation) . . . . . . 858,334 826,455 891,882 804,411 845,061 623,357 682,930
Interest and amortization of
debt expense . . . . . . 321,019 209,511 177,060 171,581 155,470 118,129 107,747

Provision for income taxes
(credit) . . . . . . . . (10,809) 19,454 12,463 24,328 28,917 25,372 21,988
Income (loss) before
discontinued operations and
cumulative effect of
accounting change(1)(3) . (49,415) 20,632 22,342 46,594 7,175 9,066 6,120

Net income (loss) . . . . . (68,915) 14,462 22,342 (58,014) 7,175 9,066 6,120
Ratio of earnings from
continuing operations to
fixed charges(2) . . . . -- 1.19 1.18 1.39 1.22 1.28 1.24

Additional Financial Data:

Total assets . . . . . . $3,366,719 $3,276,211 $3,171,266 $3,223,234 $3,140,892 $3,162,660 $3,098,947

Long-term senior debt . . 1,192,062 1,073,919 946,782 1,046,971 871,970 907,504 784,815
Liabilities subject to
Chapter 11 proceedings . 1,959,998 1,883,704 1,845,328 1,725,631 1,727,684 1,727,345 1,728,215
Stockholders equity (deficit) (265,958) (253,282) (230,119) (287,737) (282,353) (278,671) (276,233)

</TABLE>

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

(2) 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 expense and the portion (one-third) of rent
expense deemed to represent interest. For the year ended May 31, 1990, the
loss from continuing operations plus fixed charges was inadequate to cover
fixed charges. The coverage deficiency was $61.2 million. On a pro forma
basis for the fiscal year ended May 31, 1994 and the nine months ended
February 28, 1995, after giving effect to the Plan of Reorganization and
the related transactions as if they had occurred as of June 1, 1993, the
loss from continuing operations plus fixed charges would have been
inadequate to cover fixed charges. The coverage deficiencies would have
been $29.4 million and $17.0 million, respectively. See "Prospectus Summary
-- Summary Pro Forma Consolidated Financial Data."

(3) 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.

8
<PAGE>

Summary Pro Forma Consolidated Financial Data

The following unaudited summary pro forma consolidated financial data were
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 balance sheet presentation purposes on February 28, 1995 and for
statement of operations purposes as of June 1, 1993.

The pro forma consolidated financial data do not purport to be indicative
of the financial position or results of operations that would actually have been
reported had such transactions in fact been consummated on such dates or of the
financial position or 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 related notes thereto, the Pro Forma
Consolidated Financial Data and related notes thereto and the other information
contained elsewhere in this Prospectus.

<TABLE><CAPTION>
Year ended Nine months ended
May 31, 1994 February 28, 1995
----------------------------------------------
(Dollars in thousands)

<S> <C> <C>
Summary of Operations:
Sales and revenues . . . . . . . . . . . . . . . . . . . . . . . . $ 1,323,867 $ 1,037,669
Cost of sales (exclusive of depreciation) . . . . . . . . . . . . . 845,061 682,930
Interest and amortization of debt expense . . . . . . . . . . . . . 229,275 166,717
Provision for income taxes . . . . . . . . . . . . . . . . . . . . 4,566 5,221
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (32,682) (21,323)

Additional Financial Data:
February 28, 1995
-----------------------
<S> <C>
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,023,607
Long term senior debt . . . . . . . . . . . . . . . . . . . . . . . 2,238,465
Stockholders equity (deficit) . . . . . . . . . . . . . . . . . . . 352,433

</TABLE>

Contemporaneous Debt 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 $________ aggregate principal amount of Series B Notes 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 Certain Indebtedness -- Series B Senior
Notes -- Senior Note Registration Rights Agreement." The Company will not
receive any proceeds from the contemporaneous offering of the Series B Notes,
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
Shares 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 February 28, 1995, the Company had total
consolidated debt of approximately $2,238,465,000 (as adjusted to give effect to
the Plan of Reorganization and related transactions) and a ratio of total
consolidated debt to stockholders' equity of approximately 6.4 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, primarily as a result of higher
interest expense, the Company would have reported losses of $21.3 million and
$32.7 million for the nine months ended February 28, 1995 and for the year ended
May 31, 1994, respectively. See "Pro Forma Consolidated Financial Data" 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 described herein will provide Mid-
State Homes, Inc. ("Mid-State Homes") with the funds needed to purchase the
instalment notes and mortgages generated by 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 Series B 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 Shares, 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 to make its principal
and interest payments as and when required with funds derived from its
operations and available borrowings. 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 Financial Data,"
"Selected Historical Consolidated Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Financial
Condition" and " -- Liquidity and Capital Resources" and "Description of
Certain Indebtedness."

<PAGE>

Borrowings under the Bank Revolving Credit Facility bear interest at rates
that fluctuate. As of March 31, 1995, there were no borrowings under this
facility, however there were $22,066,146 face amount of letters of credit
outstanding thereunder. See "Description of Certain Indebtedness -- Bank
Revolving Credit Facility."

Accounting Presentation

The Company emerged from bankruptcy on March 17, 1995. Accordingly, the
Company's Consolidated Balance Sheets after February 28, 1995 and its
Consolidated Statements of Operations and Retained Earnings (Deficit) for
periods after February 28, 1995 will not be comparable to the Consolidated
Financial Statements for prior periods included elsewhere herein. Among other
things, the Consolidated Statement of Operations for the year ended May 31, 1995
will include 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." The Company was not
required to adopt "fresh start" accounting as outlined in AICPA Statement of
Position 90-7 "Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code."

Dividend Policy;
Restrictions on Payment of Dividends

The Company has never paid dividends on its common stock and has no present
intention of paying any dividends on the Common Stock. In addition, the
covenants in certain debt instruments to which the Company is a party restrict
the ability of the Company to pay dividends. Under the Bank Revolving Credit
Facility, the Company may pay cash dividends only after August 31, 1995 in an
amount during any twelve-month period not to exceed the lesser of $5,500,000 and
the Company's Available Cash Flow (as defined in the Bank Revolving Credit
Facility) during the four most recently completed fiscal quarters, and only
provided that the Company has met or exceeded certain financial ratio tests and
that no default under the Bank Revolving Credit Facility has occurred or would
result from the payment of such dividends. In addition, the Indenture prohibits
the Company from making Restricted Payments (defined to include cash dividends);
provided, however, the Company is permitted to declare and pay a regular
quarterly cash dividend not to exceed $.025 per share on its Common Stock and to
pay additional cash dividends in limited amounts (as determined under the
Indenture), in each case, so long as no default under the Indenture has occurred
or would result from the payment of such cash dividend and certain other
conditions are satisfied. See "Dividend Policy" and "Description of Certain
Indebtedness -- Series B Senior Notes -- Covenants" and "-- Bank Revolving
Credit Facility."

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 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 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 Series B Notes when such
amounts become due and payable under the terms of the Indenture. See
"Description of Certain Indebtedness -- Bank Revolving Credit Facility."

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

<PAGE>

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 tests, including minimum interest coverage and fixed charge
coverage ratios and maximum leverage ratios, 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 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 Shares. See "Description of Certain 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 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. A significant portion of Jim Walter Resources' sales 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") 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

<PAGE>

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 called for by the Veil
Piercing Settlement, and such plan of reorganization is consummated, Section
524(g) of the Bankruptcy Code would be an additional 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

Through the date hereof, there has been no established public trading
market for the Common Stock. Pursuant to the Plan of Reorganization the Common
Stock was issued to a limited number of investors. Application will be made to
list the Common Stock on the New York Stock Exchange. There can be no assurance
that any active trading market will develop or will be sustained for the Common
Stock or as to the price at which the Common Stock may trade or that the market
for the Common Stock will not be subject to disruptions that will make it
difficult or impossible for the holders of Common Stock to sell shares in a
timely manner, if at all, or to recoup their investment in the Common Stock.

The prices at which the Shares 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 Common Stock

No prediction can be made as to the effect, if any, that future sales of
Shares, or the availability of Common Stock for future sale, will have on the
market price of the Common Stock prevailing from time to time. Sales of
substantial amounts of Common Stock, or the perception that such sales could
occur, could adversely affect prevailing market prices for the Common Stock.
Pursuant to the Plan of Reorganization, an aggregate of 50,494,313 shares of
Common Stock were issued. Pursuant to Section 1145 of the Bankruptcy Code, all
of such shares of Common Stock are freely tradeable without registration under
the Securities Act, except for shares that were issued to an "underwriter" (as
defined in Section 1145(b) of the Bankruptcy Code) or that are subsequently
acquired by an "affiliate" of the Company. Except in limited circumstances, none
of the holders of such shares has agreed to restrict or otherwise limit in any
way such holder's ability to dispose of such shares of Common Stock. See
"Description of Capital Stock -- Common Stock Registration Rights Agreement." No
assurance can be given that sales of substantial amounts of Common Stock 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 Common Stock. See "Market for the Common Stock."

<PAGE>

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 $186,866,715 with respect
to fiscal years ended August 31, 1980, August 31, 1983 through August 31, 1987,
and May 31, 1988 (nine months) through 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.

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 Shares 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 Brothers Inc.
("Lehman"), 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

<PAGE>

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 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 five major operating groups
follows.

<PAGE>

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

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 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

<PAGE>

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.

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.

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
distributed to certain creditors and stockholders of the Company and its
subsidiaries and $490,000,000 aggregate principal amount of Series B Notes were
distributed to certain creditors of the Company and its subsidiaries.

Also pursuant to the Plan of Reorganization, (i) 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."

DIVIDEND POLICY

The Company has never paid dividends on its common stock and has no present
intention of paying any dividends on the Common Stock. The declaration and
payment of future dividends to holders of Common Stock will be at the discretion
of the Company's Board of Directors and will depend upon many factors, including
the Company's financial condition, earnings, capital requirements of its
operating subsidiaries, legal requirements and such other factors as the Board
of Directors deems relevant.

Under the DGCL, the Company may only declare and pay dividends out of
surplus (as defined in the DGCL), or, if there is no surplus and subject to
certain conditions, net profits for the fiscal year in which the dividend is
declared and/or the preceding fiscal year.

Under the Bank Revolving Credit Facility, the Company may pay cash
dividends only after August 31, 1995 in an amount during any twelve-month period
not to exceed the lesser of $5,500,000 and the Company's Available Cash Flow (as
defined in the Bank Revolving Credit Facility) during the four most recently
completed fiscal quarters, provided that the Company has met or exceeded certain
financial ratio tests and that no default under the Bank Revolving Credit
Facility has occurred or would result from the payment of such dividends. In
addition, the Indenture prohibits the Company from making Restricted Payments
(defined to include cash dividends); provided, however, the Company is permitted
to declare and pay a regular quarterly cash dividend not to exceed $.025 per
share on its Common Stock and to pay additional cash dividends in limited
amounts (as determined under the Indenture), in each case, so long as no default
under the Indenture has occurred or would

<PAGE>

result from the payment of such cash dividend and certain other conditions are
satisfied. See "Description of Certain Indebtedness -- Series B Senior Notes --
Covenants" and "-- Bank Revolving Credit Facility."

MARKET FOR THE COMMON STOCK

Through the date hereof there has been no established public trading market
for the Common Stock. See "Certain Risk Factors -- Liquidity; Absence of Public
Market." 50,494,313 shares of Common Stock were issued pursuant to the Plan of
Reorganization and, as of June __, 1995, constituted all of the outstanding
shares of Common Stock. Beginning six months after the Effective Date of the
Plan of Reorganization, up to 4,374,453 additional shares of Common Stock may be
issued to certain current and former stockholders of the Company pursuant to the
Plan of Reorganization. See "Security Ownership of Management and Principal
Stockholders" and "Description of Capital Stock -- Future Stock Issuances." In
reliance on the exemption provided by Section 1145 of the Bankruptcy Code, none
of the Common Stock was or will be registered under the Securities Act in
connection with its issuance pursuant to the Plan of Reorganization; however,
_______ of those shares are being registered hereby for resale by the Selling
Security Holders pursuant to certain registration rights. See "Description of
Capital Stock -- Common Stock Registration Rights Agreement." The remaining
______ shares are freely tradeable without registration under the Securities
Act, except for any shares that were issued to an "underwriter" (as defined in
Section 1145(b) of the Bankruptcy Code) or that are subsequently acquired by an
"affiliate" of the Company, all of which shares will be "restricted securities"
within the meaning of Rule 144 under the Securities Act ("Rule 144"). Shares of
Common Stock which are "restricted securities" within the meaning of Rule 144
may not be resold in absence of registration under the Securities Act other than
in accordance with Rule 144 or another exemption from registration. See
"Description of Capital Stock -- Common Stock Registration Rights Agreement" for
a discussion of the rights of certain stockholders of the Company to request
registration of sales of their shares of Common Stock. As of _________, 1995,
there were approximately ____ holders of record of Common Stock and there were
no outstanding options or warrants to purchase, or securities convertible into,
Common Stock.

18
<PAGE>

CAPITALIZATION

The following table sets forth the consolidated capitalization of the
Company and its subsidiaries as of February 28, 1995, as adjusted on a pro forma
basis to reflect financings consummated in March 1995 and all of the
distributions and adjustments required by the Plan of Reorganization. The
Company's capitalization at February 28, 1995 while a debtor-in-possession under
the Chapter 11 Cases is not meaningful. This table should be read in conjunction
with the Company's Pro Forma Consolidated Financial Data and related notes
thereto.

<TABLE><CAPTION>
February 28, 1995
Pro Forma
--------------------------------
(Dollars in thousands)
<S> <C>
Long-Term Senior Debt:
Mid-State Trust II Mortgage-Backed Notes . . . . . . . . . . . . . . . . $ 605,750
Mid-State Trust III Asset Backed Notes . . . . . . . . . . . . . . . . . 179,065
Mid-State Trust IV Asset Backed Notes . . . . . . . . . . . . . . . . . . 959,450
Mid-State Trust V Variable Funding Loan(1) . . . . . . . . . . . . . . . --
12.19% Series B Senior Notes Due 2000 . . . . . . . . . . . . . . . . . . 490,000
Bank Revolving Credit Facility(2) . . . . . . . . . . . . . . . . . . . . --
Other Senior Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,200
----------
$2,238,465
==========

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 . . . . . . . . . . . . . . . . . . . . . $1,159,386
Retained Earnings (Deficit) . . . . . . . . . . . . . . . . . . . . . . . ( 804,021)
Excess of Additional Pension Liability
over Unrecognized Prior Years Service Cost . . . . . . . . . . . . . . . ( 3,437)
----------
$ 352,433
==========
</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 Indebtedness -- Bank
Revolving Credit Facility."

<PAGE>

PRO FORMA CONSOLIDATED FINANCIAL DATA

The following unaudited pro forma consolidated balance sheet and pro forma
consolidated statements of operations were 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 balance sheet presentation
purposes on February 28, 1995 and for statement of operations purposes as of
June 1, 1993.

The Pro Forma Consolidated Financial Data do not purport to be indicative
of the financial position or results of operations that would actually have been
reported had such transactions in fact been consummated on such dates or of the
financial position or 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 related notes thereto and the other
information contained elsewhere in this Prospectus.

20
<PAGE>
<TABLE><CAPTION>

Pro Forma Consolidated Balance Sheet
(Unaudited)

February 28, 1995
----------------------------------------------------
As Reported Adjustments Pro Forma
---------------- ---------------- -----------------
(Dollars in thousands)
<S> <C> <C> <C>
ASSETS
Cash, including short-term investments . . . . . . . . . . . . $ 204,959 $ (134,294)(1) $ 70,665
Short-term investments, restricted . . . . . . . . . . . . . . 88,650 50,070(2) 138,720
Instalment notes receivable . . . . . . . . . . . . . . . . . . 4,232,403 4,232,403
Less - Provision for possible losses . . . . . . . . . . . . (26,471) (26,471)
Unearned time charges . . . . . . . . . . . . . . . . . (2,846,660) (2,846,660)
----------- ----------- -----------
Net . . . . . . . . . . . . . . . . . . . . . . . . . . 1,359,272 -- 1,359,272
Trade receivables . . . . . . . . . . . . . . . . . . . . . . . 124,947 124,947
Less - Provision for possible losses . . . . . . . . . . . . (8,228) (8,228)
----------- ----------- -----------
Net . . . . . . . . . . . . . . . . . . . . . . . . . . 116,719 -- 116,719
Other notes and accounts receivable . . . . . . . . . . . . . . 30,034 30,034
Inventories, at lower of cost (first in, first out or average)
or market:
Finished goods . . . . . . . . . . . . . . . . . . . . . . . 101,854 101,854
Goods in process . . . . . . . . . . . . . . . . . . . . . . 28,375 28,375
Raw materials and supplies . . . . . . . . . . . . . . . . . 50,726 50,726
Houses held for resale . . . . . . . . . . . . . . . . . . . 2,857 2,857
----------- ----------- -----------
Total inventories . . . . . . . . . . . . . . . . . . . . . 183,812 -- 183,812
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . 17,137 17,137
Property, plant and equipment, at cost . . . . . . . . . . . . 1,153,866 1,153,866
Less - Accumulated depreciation, depletion and amortization . (506,609) (506,609)
----------- ----------- -----------
Net . . . . . . . . . . . . . . . . . . . . . . . . . . 647,257 -- 647,257
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . 6,050 6,050
Unamortized debt expense . . . . . . . . . . . . . . . . . . . 23,285 8,884(3) 32,169
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . 39,119 39,119
Excess of purchase price over net assets acquired . . . . . . . 382,653 382,653
----------- ----------- -----------
$ 3,098,947 $ (75,340) $ 3,023,607
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Bank overdrafts . . . . . . . . . . . . . . . . . . . . . . . . $ 19,916 $ 19,916
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . 60,963 $ 19,110(4) 80,073
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . 121,781 (25,021)(5) 96,760
Income taxes payable . . . . . . . . . . . . . . . . . . . . . 32,160 (140,907)(6) (108,747)
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . 54,783 54,783
Long-term senior debt . . . . . . . . . . . . . . . . . . . . . 784,815 1,453,650(7) 2,238,465
Accrued postpetition interest on secured obligations . . . . . 298,557 (282,861)(8) 15,696
Accumulated postretirement health benefits obligation . . . . . 225,769 225,769
Other long-term liabilities . . . . . . . . . . . . . . . . . . 48,221 238(9) 48,459
Liabilities subject to Chapter 11 proceedings
Short-term notes payable . . . . . . . . . . . . . . . . . . 78,033 (78,033)(10) --
Accounts payable . . . . . . . . . . . . . . . . . . . . . . 64,497 (64,497)(10) --
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . 95,643 (95,643)(10) --
Income taxes payable . . . . . . . . . . . . . . . . . . . . 47,066 (47,066)(10) --
Long-term senior debt . . . . . . . . . . . . . . . . . . . . 416,629 (416,629)(10) --
Long-term subordinated debt . . . . . . . . . . . . . . . . . 1,026,109 (1,026,109)(10) --
Other long-term liabilities . . . . . . . . . . . . . . . . . 238 (238)(10) --

Stockholders' equity (deficit)
Common stock, $.01 par value per share . . . . . . . . . . . 311 194(11) 505
Capital in excess of par value . . . . . . . . . . . . . . . 155,293 1,004,093(11) 1,159,386
Retained earnings (deficit) . . . . . . . . . . . . . . . . . (428,400) (375,621)(12) (804,021)
Excess of additional pension liability over unrecognized
prior years service cost . . . . . . . . . . . . . . . . . (3,437) (3,437)
----------- ----------- -----------
Total stockholders' equity (deficit) . . . . . . . . . . . (276,233) 628,666 352,433
----------- ----------- -----------
$ 3,098,947 $ (75,340) $ 3,023,607
=========== =========== ===========
</TABLE>

21
<PAGE>
The Company was not required to adopt "fresh start" accounting as outlined
in AICPA Statement of Position 90-7 "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code". Accordingly, the pro forma
consolidated balance sheet at February 28, 1995 reflects assets and liabilities
at historical values, adjusted for liabilities satisfied and debt and Common
Stock issued in connection with the Plan of Reorganization.

Changes from historical amounts in the pro forma consolidated balance sheet
consist of the following adjustments (all amounts in thousands):

(1) Cash has been reduced $134,294 to give effect to following sources and
(uses):

(a) Net proceeds from issuance of Mid State
Trust IV Asset Backed Notes (Also, see $ 922,325
Note 2(b) below)
(b) The Series B and Series C Senior
Extendible Reset Notes escrow has been 6,490
reclassified from short-term
investments, restricted
(c) Cash payments made in accordance with
the Plan of Reorganization include the
following:
(i) Administrative and Priority claims (40,700)
(ii) Revolving Credit and Working (488,393)
Capital bank claims
(iii) Series B and Series C Senior (330,953)
Extendible Reset Notes claims
(iv) Miscellaneous other secured claims (766)
(v) Unsecured industrial revenue bonds (4,860)
(vi) Trade accounts payable and accrued (61,704)
expenses
(vii) Subordinated bondholder claims (48,452)
(viii) Veil Piercing Settlement (31,548)
(ix) Other Chapter 11 related payments,
including indenture trustee and
bank agent fees, litigation
expenses, cash collateralization of
letters of credit, financing fees
on new indebtedness, bonus awards
and funding of retiree health
benefits (55,733)
----------
$(134,294)
==========

(2) Short-term investments, restricted have been increased $50,070 to give
effect to the following adjustments:

(a) Segregated collections on Mid-State $ 10,460
Trust IV instalment notes receivables
(b) Proceeds from issuance of Mid-State
Trust IV Asset Backed Notes set aside
for payment to trade creditors on 20,000
remaining 25% of allowed claims six
months after Effective Date of Plan of
Reorganization (Also, see Note l(a)
above)
(c) Cash collateralization of letters of 20,600
credit
(d) Establishment of trust fund for retiree 5,500
health benefits
(e) Reclassification of Series B and Series
C Senior Extendible Reset Notes escrow (6,490)
---------

$ 50,070
=========

(3) Unamortized Debt Expense has been increased $8,884 to give effect to the
following adjustments:

(a) Mid-State Trust IV debt expense $ 9,995
capitalized
(b) Mid-State Trust V and Bank Revolving 3,044
Credit Facility debt expenses
capitalized
(c) Write off of remaining balances of
long-term subordinated debt unamortized
debt expense (4,155)
---------
$ 8,884
=========

(4) Accounts payable has been increased $19,110,
representing the remaining 25% due trade
creditors six months following the Effective
Date of the Plan of Reorganization.

(5) Accrued expenses have been reduced $25,021,
representing payments on administrative
expenses that had been accrued in the
historical financial statements as of
February 28, 1995.

(6) Income taxes payable has been reduced
$140,907 to give effect to the following
adjustments:

(a) Tax benefit resulting from $562,165 of
additional expenses, including $128,927
of additional interest and amortization
of debt discount and expense, $390,000
for the Veil Piercing Settlement, and
$43,238 of other expenses not recorded
on the historical financial statements $(186,544)

(b) Reinstatement of income taxes payable
included in liabilities subject to
Chapter 11 proceedings (see
"Management's Discussion and Analysis of
Financial Condition and Results of
Operations -- Financial Condition") 45,637
------
$(140,907)
=========

22
<PAGE>
(7) Long-term senior debt has been increased $1,453,650 to give effect to the
public issuance by Mid-State Trust IV of $959,450 of Asset Backed Notes,
the issuance of $490,000 of Series B Notes and the reinstatement of $4,200
of industrial revenue bonds.

(8) Accrued postpetition interest on secured obligations has been reduced
$282,861 to give effect to the repayment of interest that had been accrued
but unpaid on secured indebtedness subject to Chapter 11 proceedings
reflected on the historical financial statements.

(9) Other long term liabilities has been increased $238 reflecting the
reclassification from liabilities to Chapter 11 proceedings.

(10) Liabilities subject to Chapter 11 proceedings have been eliminated.
Pursuant to the Plan of Reorganization, the Company and its subsidiaries
repaid or reinstated all of its secured and unsecured claims and senior and
subordinated indebtedness.

(11) Common Stock and Capital in Excess of Par Value have been increased by $194
and $1,004,093, respectively, reflecting cancellation of the common stock
of the Company outstanding prior to the Effective Date of the Plan of
Reorganization and the issuance of 50,494,313 shares of Common Stock
pursuant to the Plan of Reorganization.

(12) Retained earnings (deficit) has been adjusted $375,621 to give to effect
the after tax charge resulting from the $562,165 additional expenses
described in Note 6(a) above.

Pro Forma Consolidated Statement of Operations
(Unaudited)

Pro Forma Consolidated Statement of Operations
(Unaudited)
For the year ended May 31, 1994
As Reported Adjustments Pro-Forma
------------------- --------------------------------------
(Dollars in thousands except per share amounts)
<S> <C> <C>
Sales and revenues:
Net sales . . . . . . . . . . . . . . . . . . . . . . . $1,068,387 $1,068,387
Time charges . . . . . . . . . . . . . . . . . . . . . 238,097 238,097
Miscellaneous . . . . . . . . . . . . . . . . . . . . . 17,383 17,383
Interest income from Chapter 11 proceedings . . . . . . 4,657 $ (4,657)(1) --
---------- ---------- ----------
1,328,524 (4,657) 1,323,867
---------- ---------- ----------
Costs and expenses:
Cost of sales . . . . . . . . . . . . . . . . . . . . . 845,061 845,061
Depreciation, depletion and amortization . . . . . . . 71,035 71,035
Selling, general and administrative . . . . . . . . . . 127,901 127,901
Postretirement health benefits . . . . . . . . . . . . 25,585 25,585
Provision for possible losses . . . . . . . . . . . . . 4,611 4,611
Chapter 11 costs . . . . . . . . . . . . . . . . . . . 14,254 (14,254)(2) --
Interest and amortization of debt discount and expense 155,470 73,805(3) 229,275
Amortization of excess of purchase price over net assets
acquired . . . . . . . . . . . . . . . . . . . . . . 48,515 48,515
---------- ---------- ----------
1,292,432 59,551 1,351,983
---------- ---------- ----------
36,092 (64,208) (28,116)
Provision for income taxes:
Current . . . . . . . . . . . . . . . . . . . . . . . . (41,598) 24,351(4) (17,247)
Deferred . . . . . . . . . . . . . . . . . . . . . . . 12,681 12,681
---------- ---------- ----------
Net income (loss) . . . . . . . . . . . . . . . . . . . . $ 7,175 $ (39,857) $ (32,682)
========== ========== ==========
Net loss per share . . . . . . . . . . . . . . . . . . . $ (0.64)
==========
Weighted average shares outstanding(5) . . . . . . . . . 50,988,626

</TABLE>

23
<PAGE>
<TABLE><CAPTION>

Pro Forma Consolidated Statement of Operations
(Unaudited)

For the nine months ended February 28, 1995
As Reported Adjustments Pro Forma
------------------- --------------------------------------
(Dollars in thousands except per share amounts)

<S> <S> <C> <C>
Sales and revenues:
Net sales . . . . . . . . . . . . . . . . . . . . . . . $ 848,717 $ 848,717
Time charges . . . . . . . . . . . . . . . . . . . . . 165,905 165,905
Miscellaneous . . . . . . . . . . . . . . . . . . . . . 23,047 23,047
Interest income from Chapter 11 proceedings . . . . . . 4,992 $ (4,992)(1) --
---------- ---------- ----------
1,042,661 (4,992) 1,037,669
---------- ---------- ----------
Costs and expenses:
Cost of sales . . . . . . . . . . . . . . . . . . . . . 682,930 682,930
Depreciation, depletion and amortization . . . . . . . 53,094 53,094
Selling, general and administrative . . . . . . . . . . 97,814 97,814
Postretirement health benefits . . . . . . . . . . . . 19,524 19,524
Provision for possible losses . . . . . . . . . . . . . 3,422 3,422
Chapter 11 costs . . . . . . . . . . . . . . . . . . . 19,752 (19,752)(2) --
Interest and amortization of debt discount and expense 107,747 58,970(3) 166,717
Amortization of excess of purchase price over net assets
acquired . . . . . . . . . . . . . . . . . . . . . . 30,270 30,270
---------- ---------- ----------
1,014,553 39,218 1,053,771
---------- ---------- ----------
28,108 (44,210) (16,102)
Provision for income taxes:
Current . . . . . . . . . . . . . . . . . . . . . . . . (40,357) 16,767(4) (23,590)
Deferred . . . . . . . . . . . . . . . . . . . . . . . 18,369 18,369
---------- ---------- ----------
Net income (loss) . . . . . . . . . . . . . . . . . . . . $ 6,120 $ (27,443) $ (21,323)
========== ========== ==========
Net loss per share . . . . . . . . . . . . . . . . . . . $ (0.42)
==========
Weighted average shares outstanding(5) . . . . . . . . . 50,988,626

</TABLE>

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

(1) Interest income from Chapter 11 proceedings of $4,657 for the year ended
May 31, 1994 and $4,992 for the nine months ended February 28, 1995, which
would not have been realized assuming the Plan of Reorganization became
effective June 1, 1993, has been eliminated.

(2) Chapter 11 costs of $14,254 for the year ended May 31, 1994 and $19,752 for
the nine months ended February 28, 1995, which would not have been incurred
assuming the Plan of Reorganization became effective June 1. 1993, have
been eliminated.

(3) Interest and amortization of debt discount and expense has been increased
by $73,805 for the year ended May 31, 1994 and $58,970 for the nine months
ended February 28, 1995 to give retroactive effect as if all indebtedness
to be repaid pursuant to the Plan of Reorganization was so done as of June
1, 1993 and the $490 million of Series B Notes had been outstanding for the
full year ended May 31, 1994 and the nine months ended February 28, 1995.
Borrowings under the Mid-State Trust IV Asset Backed Notes were assumed to
increase during the period June 1, 1993 through November 30, 1994
proportionately with the 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 three-month period December 1, 1994 through
February 28, 1995. This time period is subsequent to the Mid-State Trust IV
cut-off date for purchases of instalment notes from 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 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 Plan of
Reorganization; see "Description of Capital Stock -- Future Stock
Issuances").
24
<PAGE>

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

The following data, insofar as it relates to each of the fiscal years 1990
through 1994, has been derived from annual financial statements, including the
consolidated balance sheets at May 31, 1994 and 1993 and the related
consolidated statements of operations and retained earnings (deficit) and of
cash flows for the three years ended May 31, 1994 and notes thereto appearing
elsewhere herein. The data for the nine months ended February 28, 1994 and 1995
has been derived from unaudited financial statements also appearing herein
which, in the opinion of management, include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair statement of the results for
the unaudited interim periods. Results of operations for the nine months ended
February 28, 1995 are not indicative of the results to be expected for the
entire year. All of the information presented below should be read in
conjunction with the Consolidated Financial Statements and related notes
thereto, the Pro Forma Consolidated Financial Data and related notes thereto and
the other information contained elsewhere in this Prospectus.

<TABLE><CAPTION>
Nine months ended
Years ended May 31, February 28,
---------------------------------------------------------- -----------------------
1990(1) 1991(1) 1992 1993(3) 1994 1994 1995
----------- ----------- ----------- ----------- ----------- ----------- -----------
(Dollars in thousands) (Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Summary of Operations:

Sales and revenues . . . $1,376,319 $1,326,397 $1,366,581 $1,318,986 $1,328,524 $ 985,030 $1,042,661
Cost of sales (exclusive
of depreciation) . . . 858,334 826,455 891,882 804,411 845,061 623,357 682,930
Interest and amortization
of debt expense . . . . 321,019 209,511 177,060 171,581 155,470 118,129 107,747
Provision for income
taxes (credit) . . . . (10,809) 19,454 12,463 24,328 28,917 25,372 21,988
Income (loss) before
discontinued operations
and cumulative effect of
accounting change(1)(3) (49,415) 20,632 22,342 46,594 7,175 9,066 6,120
Net income (loss) . . . . (68,915) 14,462 22,342 (58,014) 7,175 9,066 6,120
Ratio of earnings from
continuing operations to
fixed charges(2) . . . -- 1.19 1.18 1.39 1.22 1.28 1.24

Additional Financial Data:
Gross capital
expenditures . . . . . . $60,920 $69,046 $68,349 $71,708 $69,831 $46,525 $52,163
Net property, plant and
equipment . . . . . . . . 694,157 683,777 664,622 663,040 657,863 655,975 647,257
Total assets . . . . . . 3,366,719 3,276,211 3,171,266 3,223,234 3,140,892 3,162,660 3,098,947
Long term senior debt . . 1,192,062 1,073,919 948,782 1,046,971 871,970 907,504 784,815
Liabilities subject to
Chapter 11 proceedings 1,959,998 1,883,704 1,845,328 1,725,631 1,727,684 1,727,345 1,728,215
Stockholders equity
(deficit) . . . . . . . . (265,958) (253,282 (230,119) (287,737) (282,353) (278,671) (276,233)

Employees at end of
period . . . . . . . . . 8,167 8,104 7,645 7,545 7,676 7,571 7,809

</TABLE>

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

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

25
<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-38 to F-39 and F-43 to F-44, which presents
sales and operating income by operating group, and the Company's Pro Forma
Consolidated Financial Data and the notes thereto.

The Company's results of operations do not reflect the consummation of the
Plan of Reorganization and the transactions contemplated thereby. Accordingly,
the future results of operations of the Company will generally not be comparable
to the periods discussed below due to the Chapter 11 Cases and the effects of
the Plan of Reorganization, the transactions contemplated thereby and related
financings. See "Pro Forma Consolidated Financial Data."

Results of Operations

Nine Months ended February 28, 1995 and 1994. Net sales and revenues for
the nine months ended February 28, 1995 increased $57.6 million, or 5.9%, over
the prior year period, with a 5.1% increase in volume and a .8% increase in
pricing and/or mix. The increase in net sales and revenues was the result of
improved sales and revenues in the Building Materials, Industrial Products and
Water and Waste Water Transmission Products Groups, partially offset by lower
sales and revenues in the Homebuilding and Related Financing and Natural
Resources Groups.

Building Materials Group sales and revenues were $5.7 million, or 13.7%,
greater than the prior year period. The increase resulted from improved sales
volumes and prices for window components and metal building and foundry
products. The Group incurred an operating loss of $3.5 million compared to
operating income of $700,000 in the 1994 period. The loss for the nine months
ended February 28, 1995 was largely the result of higher manufacturing costs in
the window components business due to increased raw material costs, especially
aluminum, a major raw material component, and costs associated with the
consolidation and relocation during 1995 of the JW Window Components Inc.'s
Hialeah, Florida and Columbus, Ohio operations to Elizabethton, Tennessee. In
addition, increased manufacturing costs for metal building products, which
resulted in slightly lower operating income, were the result of higher raw
material costs, primarily scrap metal, and reduced efficiencies, including
startup problems associated with the relocation of the Vestal Manufacturing
Company's steel fabrication operation in May 1994.

Industrial Products Group sales and revenues were $35.3 million, or 27.4%,
ahead of the prior year period. Increased sales volumes of aluminum foil and
sheet products, foundry coke, chemicals. industrial castings, patterns and
tooling and resin coated sand and higher selling prices for aluminum foil and
sheet products and furnace coke were partially offset by lower sales volumes of
furnace coke and slag wool. The Group's operating income of $9.4 million was
$2.0 million greater than the prior year period. The improved performance
resulted from the sales increases and higher gross profit margins for furnace
coke, chemicals and industrial castings, partially offset by reduced margins for
foundry coke, slag wool, patterns and tooling and resin coated sand.

Water and Waste Water Transmission Products Group sales and revenues were
$39.0 million, or 15.9%, ahead of the prior year period. The increase was the
result of higher sales volumes and prices for ductile iron pressure pipe,
fittings and valves and hydrants. The order backlog for pressure pipe at
February 28, 1995 was 158,251 tons, which represents shipments in excess of
three months, compared to 131,413 tons at February 28, 1994. Operating income of
$21.7 million exceeded the prior year period by $5.7 million. The effect of
higher sales volumes and pricing on this highly capital intensive product group
was the primary reason for the substantially higher percentage increase in
operating profits, but was partially offset by higher raw material prices,
especially scrap, a major raw material component.

Homebuilding and Related Financing Group sales and revenues were $14.6
million, or 4.6%, below the prior year period. This performance reflects a 6.0%
decrease in the number of homes sold, from 3,338 units in 1994 to 3,138 units in
1995, partially offset by an increase in the average selling price per home sold
from $38,100 in 1994 to $39,900 in 1995. The decrease in unit sales reflects
continuing strong competition in virtually

<PAGE>

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 February 28, 1995 was 1,678 units (all
of which are expected to be completed within the following twelve months)
compared to 1,764 units at February 28, 1994. In addition, time charge income
(revenues received from Mid-State Homes' instalment note portfolio) decreased
from $176.4 million in 1994 to $165.9 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 $58.2 million was $15.7 million below the prior year period. 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 and the decrease in time charge income, partially offset by the
increase in average selling price per home sold and lower interest expense in
1995 ($94.6 million) as compared to that incurred in 1994 ($97.5 million).

Natural Resources Group sales and revenues were $9.3 million, or 3.8%,
below the 1994 period. The decrease resulted from lower sales prices for coal
and methane gas and decreases in outside coal, gas and timber royalty income,
partially offset by greater coal and methane gas sales volumes and a $6.1
million gain from the sale of certain excess real estate. A total of 4.99
million tons of coal was sold in the 1995 period versus 4.91 million tons in the
1994 period, a 1.6% 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 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
$3.46 from $45.45 in the 1994 period to $41.99 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 shutdown from
November 17, 1993 through December 16, 1993 and from early April 1994 until May
16, 1994 as a result of 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
spontaneous heating 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 will be recovered from business interruption
insurance. Operating income of $13.9 million exceeded the prior year period by
$6.9 million. The improved performance principally resulted from the gain on the
sale of certain excess real estate and increased sales volumes of coal and
methane gas, partially offset by decreases in selling prices for coal and
methane gas, lower outside coal, gas and timber royalty income and slightly
higher costs per ton of coal produced.

Cost of sales, exclusive of depreciation, of $682.9 million was 80.5% of
net sales versus $623.4 million and 79.0% in the 1994 period. The cost of sales
percentage increase was primarily the result of lower gross profit margins on
home sales, foundry coke, slag wool, patterns and tooling, resin coated sand,
window components and metal building products, partially offset by improved
margins for pipe products, furnace coke, chemicals and industrial castings.

Selling, general and administrative expenses (exclusive of postretirement
health benefits) of $97.8 million were 9.4% of net sales and revenues in the
1995 period versus $94.7 million and 9.6% in 1994.

Chapter 11 costs of $19.8 million were $8.9 million greater than the prior
period due to the filing of the various plans of reorganization (the Company and
creditors each filing several amended plans of reorganization preceding the Plan
of Reorganization), printing, mailing and noticing costs associated with the
various plans of reorganization and litigation relating to the various plans of
reorganization. See "Certain Risk Factors -- Accounting Presentation."

<PAGE>
Interest and amortization of debt discount and expense decreased $10.4
million. The decrease was principally the result of reductions in the
outstanding debt balances on the Mortgage-Backed Notes and Mid-State Trust III
Asset Backed Notes (see "Business and Properties -- Mid-State Homes" and Note 5
of Notes to Financial Statements) and lower amortization of debt discount and
expense, partially offset by higher interest rates. Interest in the amount of
$847.1 million ($122.8 million in the nine months ended February 28, 1995 and
1994) on unsecured obligations has not been accrued in the 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 does 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.

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 provision for income taxes for the 1994
period included federal income taxes at the 35% statutory rate. In addition, FAS
109 requires that deferred tax liabilities and assets be adjusted in the period
of enactment for the effect of an enacted change in tax laws or rates. The
Company estimated that such one-time charge was $2.5 million and such amount was
included in the provision for deferred income taxes in the 1994 period.

The net income for the nine months ended February 28, 1995 was $6.120
million as compared to $9.066 million in the 1994 period reflecting all of the
previously mentioned factors as well as the impact of slightly higher
postretirement health benefits, partially offset by greater Chapter 11 interest
income that resulted from increased short-term investments available for
operations.

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 resulted from improved sales and revenues in the Homebuilding and
Related Financing, Building Materials, Industrial Products and Water and Waste
Water Transmission Products Groups, partially offset by lower sales and revenues
in 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 this year versus last year. The decrease in unit sales reflects
continuing strong competition in virtually every Jim Walter Homes sales region.
Jim Walter Homes' backlog at May 31, 1994 was 2,065 units (all of which are
expected to be completed prior to the end of fiscal 1995) compared to 1,831
units at May 31, 1993. Time charge income (revenues received from Mid-State
Home'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 exceeded the prior year period 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.

Building Materials Group sales and revenues were $4.6 million, or 8.9%,
greater than the prior year. The increase principally resulted from improved
sales prices and volumes for window components and greater metal building and
foundry products sales volumes. The Group's operating income of $2.1 million was
$280,000 below the prior year. The lower performance was the result of the
increased manufacturing costs in the window components and metal building and
foundry businesses, partially offset by the increased sales.

Industrial Products Group sales and revenues were $9.1 million, or 5.3%,
ahead of the prior year. Increased sales volumes of aluminum foil, foundry coke,
castings, resin coated sand and chemicals and higher selling prices for furnace
coke were partially offset by lower sales volumes of slag wool and patterns and
tooling
28

<PAGE>
and lower selling prices for aluminum foil and sheet. The Group's operating
income of $11.9 million was $1.9 million greater than the prior year.
The improved performance resulted from the sales increase and higher gross
profit margins for furnace coke and slag wool, partially offset by reduced
margins for chemicals, foundry coke, castings, resin coated sand and patterns
and tooling.

Water and Waste Water Transmission Products Group sales and revenues were
$24.4 million, or 7.6%, 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 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, which represents approximately three months shipments, compared to 121,173
tons at May 31, 1993. Operating income of $25.5 million exceeded the prior year
period by $10.6 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.

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 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. 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. Mine
No. 5 was shut down from November 17, 1993 through December 16, 1993 as a
precautionary measure as a result of air monitoring tests detecting evidence
of spontaneous combustion heatings in a section of the mine. Mine No. 5 was
shut down for a substantial portion of the period from July 9, 1990 through
September 16, 1990 when a similar problem occurred. The heatings were a result
of pyritic sulfur concentrations occurring in the coal seam being exposed to
air. Representatives of Jim Walter Resources, MSHA, Alabama State Mine
Inspectors and the UMWA investigated the problem. Because the area of the
suspected heatings 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 spontaneous
combustion heatings. MSHA approved the resumption of operations at the mine on
December 17, 1993. In early April 1994 the spontaneous heatings 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 spontaneous heatings 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 such date; however a portion of the increased costs will be recovered
from business interruption insurance. 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 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 volumes 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, industrial 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 11 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 Mortgage-Backed Notes and Mid-State

<PAGE>
Trust III Asset Backed Notes (see "Business and Properties -- Mid-State Homes"
and Note 5 of Notes to Financial Statements) and lower amortization of debt
discount and expense, partially offset by higher interest rates. Interest in the
amount of $724.3 million ($163.7 million in the current year) on unsecured
obligations has not been accrued in the 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 does 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 (see Notes 2, 3 and 5 of Notes to Financial Statements).

Amortization of excess of purchase price over net assets acquired
(goodwill) increased $9.1 million. The income resulted from adjustments to
amortization of the goodwill due to greater payoffs received in advance of
maturity on the instalment note portfolio (see Note 1 of Notes to Financial
Statements).

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 and the filing of two amended plans of reorganization (see
Notes 2 and 10 of Notes to Financial Statements).

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, Building Materials and Industrial Products
Groups.

Water and Waste Water Transmission Products Group sales and revenues were
$3.7 million, or 1.1%, below the prior year. The decrease was basically the
result of lower ductile iron pressure pipe sales volume due to continued weak
construction activity and rehabilitation work, partially offset by improved
selling prices. 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 $19.1 million was $5.4 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, 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
22% 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
the 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

<PAGE>
contract, partially offset by lower selling prices to the Japanese 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, 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.

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 a
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 paying out. The Group's 1993 adjusted operating
income of $90.9 million 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.

Building Materials Group sales and revenues were $4.7 million, or 9.9%,
ahead of the prior year. The increase resulted from improved window components
and metal building and foundry products sales volumes, partially offset by lower
overall sales prices and/or mix. The Group's 1993 adjusted operating income of
$2.8 million was $474,000 greater than the prior year as the increased sales
volumes and improved operating efficiencies in the metal building and foundry
business more than offset the lower selling prices and increased manufacturing
costs in the window components business.

Industrial Product Group sales and revenues were $6.5 million, or 4.0%,
greater than the prior year. Increased sales volumes of foundry coke, chemicals,
castings 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 $12.8 million exceeded the prior year by $1.6 million. The improved
performance was the result of the increased sales volumes and improved gross
profit margins for castings, partially offset by 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 industrial 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.

<PAGE>
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 11 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 (see Notes 2, 3 and 5 of Notes to Financial Statements) and
lower interest rates, partially offset by greater amortization of debt discount
and expense. Interest in the amount of $560.6 million ($163.7 million in 1993)
on unsecured obligations has not been 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 does 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 (see Notes
2, 3 and 5 of Notes to Financial Statements).

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 (see Note 6 of Notes to Financial Statements) and slightly
higher interest income from Chapter 11 proceedings, partially offset by a $4.6
million increase in Chapter 11 costs.

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 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 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 depressed the bid value of such notes.

On March 17, 1995, the Company and 32 of its subsidiaries emerged from
bankruptcy. Pursuant to the Plan of Reorganization, 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 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;

- - 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 are entitled to receive following the Effective Date
of the Plan of Reorganization a combination of cash, Series B Notes and
Common Stock having an aggregate value equal to their prepetition claims.
Pre-LBO bondholders received following the Effective Date of the Plan of
Reorganization additional Common Stock having an aggregate value equal to
$11.3 million in settlement of the Fraudulent Conveyance Lawsuit.

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 $186,866,715 with respect to fiscal years ended August 31,
1980, August 31, 1983 through August 31, 1987, and May 31, 1988 (nine months)
through May 31, 1991. Objections to the proofs of claim have been filed by the
Company and the various issues are

<PAGE>
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.

See "Capitalization" for the consolidated capitalization of the Company
and its subsidiaries as of February 28, 1995, as adjusted on a pro forma basis
to reflect financings consummated 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."

The assets of Mid-State Trusts II, III and IV are not available to satisfy
claims of general creditors of Mid-State Homes, 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 proceeds of the underlying
instalment notes and are nonrecourse to Mid-State Homes and the Company and its
subsidiaries.

On February 27, 1995, Mid-State Homes established Mid-State Trust V to
provide temporary financing to Mid-State Homes for its current purchases of
instalment notes and mortgages from Jim Walter Homes. As of March 3, 1995, Mid-
State Trust V entered into a Variable Funding Loan Agreement (the "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
secured by the instalment notes and mortgages purchased by Mid-State Trust V
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. See
"Business and Properties -- Mid-State Homes."

The Series B 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 Certain Indebtedness -- Series B Senior
Notes."

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 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 Indebtedness -- Bank Revolving Credit Facility."

The Series B Notes, the Bank Revolving Credit Facility and the Variable
Funding Loan Agreement contain many restrictive and financial covenants,
including restrictions on additional borrowings, dividends, capital
expenditures, minimum earnings before interest, taxes, depreciation and
amortization expense, leverage ratios, interest coverage and other matters.

Liquidity and Capital Resources

The Company normally uses its cash flows for three principal purposes: (1)
for working capital requirements; (2) for capital expenditures for expansion of
existing businesses, productivity improvement, cost reduction and replacements
necessary to maintain the business; and (3) to provide a return to lenders and
stockholders.

Working capital is required to fund adequate levels of inventories and
accounts receivable. Commitments for capital expenditures at February 28, 1995
are not material; however it is estimated that gross capital expenditures of the
Company and its subsidiaries for the year ending May 31, 1995 will approximate
$82 million.

Because the Company's operating cash flow is significantly influenced by
the general economy and, in particular, the level of construction, prior 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
Trusts II, III and IV financings will be required over the next four years in
order to repay borrowings under the Variable Funding Loan Agreement. The Company
also believes that under present operating conditions sufficient operating cash
flow will be generated

<PAGE>
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 Series B 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 and 1994 and for the first three quarters of fiscal year 1995:

<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
Interest and amortization of debt expense . . 42,802 42,507 41,930 44,342
Provision for income taxes . . . . . . . . . 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)

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
Interest and amortization of debt expense . . 40,112 40,375 37,642 37,341
Provision for income taxes . . . . . . . . . 10,390 9,659 5,323 3,545
Net income (loss) . . . . . . . . . . . . . . 1,392 6,817 857 (1,891)

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)

<CAPTION>
Fiscal Year 1995
For the quarters ended
-------------------------------------------------------
Aug. 31, 1994 Nov. 30, 1994 Feb. 28, 1995
------------------------------------ ------------------
(Dollars in thousands)
(Unaudited)
<S> <C> <C> <C>
Summary of Operations:
Sales and revenues . . . . . . . . . . . . . . . . . $ 340,640 $ 363,330 $ 338,691
Cost of sales (exclusive of depreciation) . . . . . . 224,119 237,737 221,074
Interest and amortization of debt expense . . . . . . 36,463 36,290 34,994
Provision for income taxes . . . . . . . . . . . . . 6,857 9,109 6,022
Net income (loss) . . . . . . . . . . . . . . . . . . 1,433 4,920 (233)

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

</TABLE>

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

<PAGE>
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-38 to F-39 and F-43 to F-44.

Jim Walter Homes

Jim Walter Homes, Inc. ("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, 1994, 1993 and 1992:

<TABLE><CAPTION>
Percent of Unit Sales
------------------------------------------

Fiscal Year Ended May 31, Units Sold Shell Various Stages 90% Complete
-------------------------------------- ------------- ----------- --------------- -------------
<S> <C> <C> <C> <C>
1994 . . . . . . . . . . . . . . . . 4,331 23% 10% 67%
1993 . . . . . . . . . . . . . . . . 4,784 26 12 62
1992 . . . . . . . . . . . . . . . . 5,305 29 13 58
</TABLE>

During the fiscal years 1994, 1993 and 1992 the average net sales price of
a home was $38,300, $37,000 and $34,600, respectively. In the nine-month periods
ended February 28, 1995 and 1994, units sold were 3,138 and 3,338 at average net
sale prices of $39,900 and $38,100, respectively.

Jim Walter Homes' backlog as of May 31, 1994 was 2,065 units, compared to
1,831 units at May 31, 1993. Such backlog as of February 28, 1995 was 1,678
units, compared to 1,764 units at February 28, 1994. The average time to
construct a home ranges from four to twelve weeks.

Jim Walter Homes currently operates 104 branch offices located in 17
states, serving 24 states, primarily in the southern region of the United
States. Of such branch offices, approximately 75% 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 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.

<PAGE>
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.
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 decrease.

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, 1994, 1993 and 1992, Jim Walter Homes' net
sales and revenues amounted to $166.0 million, $177.2 million and $183.5
million, respectively. In the nine-month periods ended
37

<PAGE>
February 28, 1995 and 1994, such net sales and revenues amounted to $125.4
million and $127.3 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 ("Mortgage-Backed Notes") of Mid-
State Trust II after paying the expenses associated with the sale of such
Mortgage-Backed Notes. The outstanding balance at February 28, 1995 of such
Mortgage-Backed Notes was $605,750,000. At February 28, 1995 such Mid-State
Trust II instalment notes and mortgages had a gross book value of $1,451,761,000
and an economic balance of approximately $875,954,000.

Under the Mid-State Trust II indenture for the 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 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 Mortgage-Backed Notes. The
guarantor did not approve any additional distribution for the April 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 (the "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 February 28, 1995 of
such Asset Backed Notes was $179,065,000. At February 28, 1995, such Mid-State
Trust III instalment notes and mortgages had a gross book value of $485,081,000
and an economic balance of $243,426,000.

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 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.

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.

Mid-State Trust II's, Mid-State Trust III's and Mid-State Trust IV's
revenues 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, 1994, 1993 and 1992, Mid-State Homes'
revenues amounted to $255.3 million, $235.7 million and $219.9 million,
respectively, including revenues of Mid-State Trust II of $164.5 million, $161.8
million and $160.3 million, respectively, and revenues of Mid-State Trust III of
$27.5 million and $23.2 million in the years ended May 31, 1994 and 1993,
respectively. In the nine-month periods

<PAGE>
ended February 28, 1995 and 1994, such revenues amounted to $176.9 million and
$189.1 million, respectively, including revenues of Mid-State Trust II of
$106.8 million and $122.8 million, respectively, and revenues of Mid-State
Trust III of $18.0 million and $20.4 million, respectively. Mid-State Trust
IV commenced operations on March 16, 1995.

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
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 non-recourse to Mid-State Homes or the Company and its
subsidiaries.

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 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 "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.

Jim Walter Resources

The operations of Jim Walter Resources, Inc. ("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, 1994 were estimated to be approximately
258 million tons, of which 233 million tons relate to the four Blue Creek mines.

A summary of the reserves is as follows:

<PAGE>
<TABLE><CAPTION>
ESTIMATED RECOVERABLE(1) COAL RESERVES AS OF MAY 31, 1994
(In Thousands of Tons)

Classifi- JWR's
Reserves(2) cations(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 1992 1993 1994
- -------- ------ --------- ------------ -------- --------- ---------- ------ -------- ----- ----- ----- ----- ----- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
No. 3 Mine 63,889 63,889 -- 47,037 16,852 S/M 1,446 62,443 8.2 0.56 14,469 2,403 1,564 1,347
No. 4 Mine 77,193 77,193 -- 45,676 31,517 S/M 5,884 71,309 9.4 0.69 14,240 2,342 2,417 2,257
No. 5 Mine 30,500 30,500 -- 25,354 5,146 S/M 27,871 2,629 8.8 0.66 14,334 1,819 1,326 1,074
No. 7 Mine 61,480 61,480 -- 34,890 26,590 S/M 16,831 44,649 8.0 0.65 14,499 2,314 2,012 1,849
------- ------- --------- -------- ------- ------ ------- ------- --- ---- ------ ----- ----- -----
233,062 233,062 -- 152,957 80,105 52,032 181,030 8,878 7,319 6,527
Bessie(8) 24,919 -- 24,919 14,880 10,039 S/M 658 24,261 11.0 1.30 13,655 -- -- --
------- ------- --------- -------- ------- ------- ------- --- ---- ------ ----- ----- -----
TOTAL 257,98 233,062 24,919 167,837 90,144 52,690 205,291 8,878 7,319 6,527
====== ======= ========== ======= ======= ======= ======= ===== ===== ======
</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 1994, 1993 and 1992 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:

Facility Location Sq. Footage
- ------------------------------------------- ---------------- -------------
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

Of the Mining Division's approximately 9.5 million tons of current annual
production, 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 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

40
<PAGE>
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 reflect 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 from
May 1995 through August 1995 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 was also shut down from November 17, 1993 through December 16,
1993 as a precautionary measure as a result of air monitoring tests detecting
evidence of spontaneous combustion heatings in a section of the mine. The
heatings were the result of pyritic sulfur concentrations occurring in the coal
seam being exposed to air. Representatives of Jim Walter Resources, MSHA,
Alabama State Mine Inspectors and the UMWA investigated the problem. Because the
area of the suspected heatings 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 spontaneous
combustion heatings. MSHA approved the resumption of operations at the mine on
December 17, 1993.

In early April 1994, the spontaneous heatings 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 spontaneous heatings 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 such date;
however, a portion of the increased costs will be recovered from business
interruption insurance.

In the three years ended May 31, 1994, 1993 and 1992, the Mining Division's
net sales and revenues were $290.3 million, $324.4 million and $393.7 million,
respectively, including $5.7 million, $7.1 million and $9.6 million,
respectively, to Sloss Industries, Inc., a wholly owned subsidiary of the
Company ("Sloss Industries"). In the nine-month periods ended February 28, 1995
and 1994, such net sales and revenues amounted

<PAGE>
to $211.0 million and $224.3 million, respectively, including $4.4 million and
$4.5 million, respectively to 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 February 1995,
there were 258 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
Coal Gas, Inc., 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 a subsidiary of Sonat, Inc. ("Sonat"). 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 is 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, manages the operational
activities of the De-Gas Division and Sonat.

In the three years ended May 31, 1994, 1993 and 1992, the De-Gas Division's
net sales and revenues amounted to $23.0 million, $22.5 million and $21.7
million, respectively. In the nine-month periods ended February 28, 1995 and
1994, such net sales and revenues amounted to $15.2 million and $16.7 million,
respectively.

U.S. Pipe

U.S. Pipe and Foundry Company ("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, 1994, 1993 and 1992, U.S. Pipe's net sales
and revenues amounted to $357.2 million, $331.2 million and $332.2 million,
respectively. In the nine-month periods ended February 28, 1995 and 1994, such
net sales and revenues amounted to $295.2 million and $254.3 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 of
potable water and the remaining 25%-30% is used in the transmission of waste
water and industrial

<PAGE>
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 1994. U.S. Pipe has 36 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, 1994 was 111,907 tons
compared to 121,173 tons at May 31, 1993. Such backlog at February 28, 1995 was
158,251 tons, which represents in excess of three months' shipments, compared to
131,413 tons at February 28, 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

<PAGE>
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, 1994, approximately
40% 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, 1994, 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 1994, 1993 and 1992, 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, 1994, approximately 89% was sold to
Armstrong World Industries and 11% 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, 1994, 1993 and 1992, Sloss Industries' net
sales and revenues amounted to $81.7 million, $77.5 million and $76.2 million,
respectively, including $9.4 million, $8.7 million and $8.9 million,
respectively, to U.S. Pipe. In the nine-month periods ended February 28, 1995
and 1994, such

44
<PAGE>
net sales and revenues amounted to $63.0 million and $59.5 million,
respectively, including $7.8 million and $6.6 million, respectively, to U.S.
Pipe.

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 1994, JW Aluminum sold 100.2 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 110 million pounds per year,
based on the present product mix. In April 1995, JW Aluminum began operating a
new continuous caster enabling it to increase capacity to approximately 125
million pounds per year.

In the three years ended May 31, 1994, 1993 and 1992, JW Aluminum's net
sales and revenues amounted to $87.3 million, $82.3 million and $78.8 million,
respectively, including $2.1 million, $1.6 million and $1.0 million,
respectively, to JW Window Components (as defined below). In the nine-month
periods ended February 28, 1995 and 1994, such net sales and revenues amounted
to $91.9 million and $60.4 million, respectively, including $4.1 million and
$1.3 million, respectively, to JW Window Components.

JW Window Components

JW Window Components, Inc. ("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, 1994, 1993 and 1992, net sales and
revenues for JW Window Components amounted to $38.7 million, $36.4 million and
$33.1 million, respectively. In the nine-month periods ended February 28, 1995
and 1994, such net sales and revenues amounted to $32.3 million and $28.6
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

<PAGE>
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 contains an option to purchase the plant at the
end of the third year. The transaction also included the execution by Southern
Precision and Borden, Inc. of a sales agreement, a license agreement and other
ancillary agreements.

In the three years ended May 31, 1994, 1993 and 1992, Southern Precision's
net sales and revenues amounted to $11.0 million, $10.7 million and $11.8
million, respectively, including $2.2 million, $1.6 million and $1.8 million,
respectively, to U.S. Pipe. In the nine-month periods ended February 28, 1995
and 1994, such net sales and revenues amounted to $10.4 million and $7.5
million, respectively, including $1.8 million and $1.3 million, respectively, to
U.S. Pipe.

Vestal Manufacturing

Vestal Manufacturing Company ("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, 1994, 1993 and 1992, Vestal
Manufacturing's net sales and revenues amounted to $17.4 million, $15.2 million
and $13.8 million, respectively. In the nine-month periods ended February 28,
1995 and 1994, such net sales and revenues amounted to $14.7 million and $12.7
million, respectively.

United Land

United Land owns approximately 70,000 acres of land and also owns
approximately 114,000 acres of mineral rights, 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, 1994, 1993 and 1992, United Land's net
sales and revenues amounted to $9.2 million, $9.3 million and $10.8 million,
respectively. In the nine-month periods ended February 28, 1995 and 1994, such
net sales and revenues amounted to $17.2 million, including the gain on the sale
of certain excess real estate, and $7.1 million, respectively.

Walter Land

Walter Land Company ("Walter Land") is a land sales operation with an
inventory at May 31, 1994 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

<PAGE>
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, 1994, 1993 and 1992,
Walter Land's net sales and revenues amounted to $247,000, $241,000 and
$702,000, respectively. In the nine-month periods ended February 28, 1995 and
1994, such net sales and revenues amounted to $190,000 and $208,000,
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, 1994, 1993,
and 1992, Cardem Insurance's net sales and revenues amounted to $12.0 million,
$14.1 million and $13.4 million, respectively. In the nine-month periods ended
February 28, 1995 and 1994, such net sales and revenues amounted to $8.8 million
and $9.6 million, respectively.

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, 1994 were approximately $3.2
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 estimated to be $5.2 million in the fiscal year ended May 31,
1995, and are anticipated in the next five years to average $6.0 million per
year.

<PAGE>
U.S. Pipe is currently preparing a cleanup plan 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. Although the plan is not complete, management
does not believe the cleanup costs will have a material adverse effect on
financial condition or results of operation 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 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, 1994, the Company and its subsidiaries employed approximately
7,700 people, of whom approximately 4,800 were hourly workers and approximately
2,900 were salaried employees. Approximately 4,100 employees were represented by
unions under collective bargaining agreements, of which approximately 1,666 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. An 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. 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. 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.

<PAGE>
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 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 to resolve 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.

<PAGE>
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. Pursuant to 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. The forms of notice were
approved by the Bankruptcy Court. The Class Representative and Celotex each
filed proofs 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 and its subsidiaries party to the Chapter 11 Cases. 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 Series B Notes to a fund (the "Celotex Settlement Fund Recipient") that
will hold the money 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
supplemental injunctions, such as the ones contemplated in the Veil Piercing
Settlement, that will 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),

<PAGE>
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 injunction under Section 524(g).
Although there is no assurance that it will be confirmed and consummated, if the
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.

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, they have reached an
oral agreement with the attorney for the homeowners pursuant to which the
economic balances of the accounts of the homeowners, almost all of which are
owned by Mid-State Trust II, would be reduced by less than $2 million in the
aggregate. In addition, Jim Walter Homes and Mid-State Homes would be obligated
to pay plaintiffs' attorney fees. No assurance can be given that any settlement
will be finalized, or that the Bankruptcy Court, which has jurisdiction over the
proceedings, will approve the settlement.

Jim Walter Homes and Mid-State Homes also are defendants in a class action
in a case pending in the United States District Court for the District of South
Carolina by purchasers of houses constructed by Jim Walter Homes in South
Carolina since December 27, 1989 in which the plaintiffs contend 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 and that the penalties for the
alleged violations of such provisions include forfeiture of all finance charges
paid or due in the future and a penalty of twice the amount of finance charges
received by the lender. Jim Walter Homes and Mid-State Homes do not believe that
these provisions apply to the credit sale of homes and that, if the statute was
violated, the applicable damages are limited to a penalty of between $100 and
$1,000 per sale. However, they have agreed to a proposed settlement of the
litigation which would involve a reduction of the mortgages owned by the class
members in an aggregate principal amount not to exceed $15.5 million, to be
reduced by cash payments of $1,000 to former homeowners who no longer have
mortgage balances (not to exceed $300,000 in the aggregate), a waiver of the
first two months mortgage payments and the payment of legal fees. Notice of the
proposed settlement has been sent to the members of the class. Jim Walter Homes
and Mid-State Homes also have 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 and Mid-State Homes do not believe that their liability, if any,
with respect to these accounts, almost all of which are owned by Mid-State Trust
II, is very large, primarily because of the effect of the statute of
limitations.

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

MANAGEMENT

Directors and Executive Officers

Set forth below is a list showing the names, ages (as of April 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.

<PAGE>
Name Age Position
- ---- --- --------

James W. Walter 72 Chairman and Director.

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

Kenneth J. Matlock 66 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 67 Director.

Robert I. Shapiro 44 Director.

Michael T. Tokarz 45 Director.

James W. Walter has been the Chairman and a Director of the Company since
1988. 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. 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, 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 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

<PAGE>
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 April 1, 1995) and
positions of the executive officers of the Company who are not Directors of the
Company.

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

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

Frank A. Hult 43 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 65 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.

<PAGE>
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.

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 will consist 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.

<PAGE>
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.

After the Initial Three Year Term, 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

<PAGE>
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 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 year ended May 31, 1994 for services rendered in all capacities:

<PAGE>
<TABLE><CAPTION>
SUMMARY COMPENSATION TABLE

Annual Compensation
-----------------------------------------
Name and Year ended All Other
Principal Position May 31,(1) Salary Bonus Compensation(2)
--------------------------- ----------------- -------------------- -------------------- -----------------------
<S> <C> <C> <C> <C>
G. Robert Durham, 1994 $447,564 $400,000 $69,275
President and CEO

James W. Walter, Chairman 1994 350,000 400,000 53,880

Kenneth J. Matlock, 1994 231,048 235,000 36,000
Executive Vice President
and Chief Financial
Officer

William H. Weldon, Senior 1994 168,583 160,000 25,798
Vice President--Finance
and Chief Accounting
Officer

William N. Temple, Senior 1994 173,878 120,000 8,815
Vice President and Group
Executive; President of
U.S. Pipe

</TABLE>

(1) Disclosure is only provided as to the last full fiscal year 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) The amounts shown in this column 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.

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, 1994 and
is based on social security covered compensation in effect on June 1, 1994:

PENSION PLAN TABLE

Years of Service
Remuneration 15 20 25 30 35

$150,000 31,364 41,819 52,274 62,728 73,183
$175,000 36,895 49,194 61,492 73,791 86,089
$200,000 42,427 56,569 70,711 84,853 98,995
$225,000 47,958 63,944 79,830 95,916 111,902
$250,000 53,489 71,319 89,149 106,978 124,808
$300,000 64,552 86,069 107,586 129,103 150,620
$350,000 75,614 100,819 126,024 151,228 176,433
$400,000 86,677 115,569 144,461 173,353 202,245
$450,000 97,739 130,319 162,899 195,478 228,058
$500,000 108,802 146,069 181,336 217,603 253,870
$550,000 119,864 159,819 199,774 239,728 279,683
$600,000 130,927 174,569 218,211 261,853 305,495

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

<PAGE>
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"), Coast to Coast Advertising, Inc. and Walter Home
Improvement, 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 nine
(9) 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 has agreed to employ Mr. Durham as, and Mr. Durham
has 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 shall automatically be renewed on June 1, 1995 and shall continue from
year to year 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 during the term of the Durham
Employment Agreement (to May 31, 1995), he shall become entitled to receive his
base salary for the balance of the term plus, if such termination is without
cause (defined as gross negligence or willful misconduct that is materially
detrimental to the Company) a pro rata amount of incentive compensation for the
year in which the employment is terminated. If Mr. Durham is terminated during
any period of renewal of the Durham Employment Agreement, 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 the term 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 provides retirement benefits for all
salaried employees of the Company and certain of its subsidiaries, the Company
makes contributions to the Supplemental Profit Sharing Plan only for 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 ended August 31, 1994,
only three employees, Messrs. Walter, Durham and Matlock, qualified for
participation in the Supplemental Profit Sharing Plan.

Compensation Committee Interlocks or Insider Participation in Compensation
Decisions

During the fiscal year ended May 31, 1994, James W. Walter, Chairman and a
Director of the Company, and G. Robert Durham, President and Chief Executive
Officer 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

<PAGE>
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, 1994, Booker's
sales of building supplies and materials to such subsidiary totaled $5,964,867.

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

SECURITY OWNERSHIP OF MANAGEMENT AND
PRINCIPAL STOCKHOLDERS

The following tables furnish information, as of March 17, 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.)

Ownership of Directors and Executive Officers
---------------------------------------------

Name of Beneficial Owner Number of Percent of
------------------------ --------- ----------
Shares Class
------ -----

James W. Walter, 39,338(4) *
Chairman and Director

Howard L. Clark, Jr. (1) (1)
Director

Eliot M. Fried (1) (1)
Director

Robert I. Shapiro (1) (1)
Director

Michael T. Tokarz 5,900,725(2) 11.7(2)
Director

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

Kenneth J. Matlock 5,176(4) *
Director, Executive Vice
President and Chief
Financial Officer

William H. Weldon, 4,140(4) *
Senior Vice
President--Finance
and Chief Accounting
Officer

William N. Temple, 2,070(4) *
Senior Vice President and
Group Executive;
President of U.S. Pipe

All Directors and 5,975,257(3)(4) 11.8(3)(4)
executive officers as a
group
____________________

* Does not own more than 1% of outstanding Common Stock

(1) Messrs. Clark, Fried and Shapiro are the Vice Chairman and Managing
Directors, respectively, of Lehman. See "Ownership of Principal
Stockholders" below for information concerning Lehman's ownership of
shares.

(2) 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 thus Mr. Tokarz may be
deemed to be a "beneficial owner" of the shares owned by the KKR Investors
(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.

Up to 4,006,064 additional shares of Common Stock may be distributed to the
KKR Investors under the Plan of Reorganization (see Footnote (3) under
"Ownership of Principal Stockholders" below and "Description of Capital
Stock -- Future Stock Issuances"). If all such shares were distributed to
the KKR Investors, Mr. Tokarz may be deemed to be a

<PAGE>
"beneficial owner" of approximately 9,906,789 shares of Common Stock, or
18.1% of the shares of Common Stock outstanding after giving effect to such
issuance.

(3) Includes 5,900,725 shares of Common Stock held by the KKR Investors which
are deemed to be beneficially owned by Mr. Tokarz. See Footnote (2). Does
not include shares of Common Stock owned by Lehman. See Footnote (1).

(4) Pursuant to the Plan of Reorganization, approximately 3,017, 397, 317, 158
and 458,397 additional shares of Common Stock will 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 to be issued
to the KKR Investors; see Footnotes (2) and (3)), respectively, six months
after the Effective Date of the Plan of Reorganization. In addition,
3,880,140 additional shares of Common Stock will be issued to an escrow
account six months after the Effective Date of 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. See "Description of Capital
Stock -- Future Stock Issuances." If all such shares were distributed to
Messrs. Walter, Matlock, Weldon and Temple and to all Directors and
executive officers as a group (including the 4,006,064 shares to be
distributed to the KKR Investors), such persons would hold approximately
66,044, 8,690, 6,950, 3,474 and 10,031,915 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 18.3% 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
- -------------------- ---------------- ----------------

The Celotex Settlement Fund Recipient 10,941,326(1) 21.7(1)
1 Metro Center
4010 Boy Scout Boulevard
Tampa, Florida 33607

Lehman Brothers Inc. 7,734,008 to 15.3 to 15.9(2)(4)
3 World Financial Center 8,040,460(2)(4)
New York, NY 10285

The KKR Investors (JWC 5,900,725(3) 11.7(3)
Associates, L.P.,
JWC Associates II, L.P. and
KKR Partners II, L.P.)
c/o Kohlberg Kravis Roberts & Co., L.P.
9 West 57th Street
New York, NY 10009

(1) If all the shares of Common Stock that may be issued to the KKR Investors
and other former stockholders are issued (see Footnote (3)), 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."

(2) If all the shares of Common Stock that may be issued to the KKR Investors
and other former stockholders are issued (see Footnote (3)), the percentage
would be reduced to approximately 14.1% to 14.7%

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 (1) above.

(3) The shares of Common Stock are held by the KKR Investors as follows:
5,724,035 shares are held by JWC Associates, L.P.; 37,930 shares are held
by JWC Associates II, L.P.; and 138,760 shares are held by KKR Partners II,
L.P. KKR Associates is the sole general partner of each of the KKR
Investors. 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.

60
<PAGE>
Pursuant to the Plan of Reorganization, approximately 452,684 additional
shares of Common Stock will be issued to the KKR Investors (and 41,629
shares to other former stockholders) six months after the Effective Date of
the Plan of Reorganization. In addition, 3,880,140 additional shares of
Common Stock will be issued to an escrow account six months after the
Effective Date of the Plan of Reorganization. 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. See "Description of Capital
Stock -- Future Stock Issuances." If all such shares were distributed to
the KKR Investors, the KKR Investors would hold approximately 9,906,789
shares of Common Stock, or 18.1% of the shares of Common Stock then
outstanding after giving effect to such issuance.

(4) As a result of errors by the balloting agent in recording elections to
receive cash and Series B 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 presently is not determinable.
When an order of the Bankruptcy Court as to validity of certain elections
based on a hearing held April 30, 1995 is final and not subject to appeal,
such number of shares will be finally determinable.

DESCRIPTION OF CERTAIN INDEBTEDNESS

Series B Senior Notes

The following summary of certain provisions of the Indenture dated as of
March 17, 1995 (the "Indenture") between the Company and United States Trust
Company of New York, as trustee (the "Trustee"), governing the Series B Notes
does not purport to be complete, and is qualified in its entirety by reference
to the relevant provisions of the Indenture, which is filed as an exhibit to the
Registration Statement of which this Prospectus forms a part and to which
exhibit reference is hereby made. Unless otherwise defined herein, terms defined
in the Indenture shall have their respective defined meanings when used herein.

The Notes. Pursuant to the Plan of Reorganization, the Company issued
$490,000,000 aggregate principal amount of Series B Notes to certain prepetition
creditors of the Company. The Notes are secured obligations of the Company
maturing on March 15, 2000 and bearing interest at 12.19% per annum. Interest is
payable semi-annually on September 15 and March 15 of each year, commencing on
September 15, 1995. The Notes rank senior in right of payment to certain
subordinated indebtedness of the Company and pari passu with other senior
indebtedness of the Company. The collateral securing the Notes is described
below in "Collateral Security."

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, 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
that if there is a partial redemption, at least $150 million aggregate principal
amount of Notes must remain outstanding immediately after such redemption. In
addition, upon the occurrence of a Change of Control, each Holder will have the
right to require the Company to purchase all or any part (equal to $1,000 or an
integral multiple thereof) of such Holder's Notes pursuant to the Change of
Control Offer at a price equal to 101% of the aggregate principal amount thereof
plus accrued and unpaid interest, if any, to the date of purchase. Under the
terms of the Indenture, if the Company or any one of its Subsidiaries
consummates an Asset Sale and does not apply any portion of the Net Cash
Proceeds of the sale to either repaying Indebtedness under the Bank Revolving
Credit Facility or, in certain circumstances, investing aggregate proceeds of
less than $25 million during any twelve- month period in a Related Business,
then the Company will be obligated to use the Excess Proceeds to either redeem
the Notes (on a pro rata basis if the available amount is less than the
outstanding principal amount of the Notes plus accrued and unpaid interest, if
any) at a redemption price equal to 100% of the principal amount thereof plus
accrued and unpaid interest, if any, to the date of redemption or to 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 equal to 100% of the principal amount thereof plus accrued
and unpaid interest, if any, to the date of purchase, provided that at least
$150 million aggregate principal amount of Notes must remain outstanding
immediately following such redemption or offer to repurchase.

<PAGE>
Collateral Security. Pursuant to the Indenture, the Company and certain of
its Subsidiaries (defined with respect to the Company not to include Mid-State
Homes and its Subsidiaries or Cardem Insurance) entered into 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, whether currently owned or hereafter acquired
or created, 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 such pledged Capital Stock.

Events of Default. In general, the following events constitute events of
default under the Indenture: (i) the failure by the Company to pay interest on
the Notes for 5 Business Days after becoming due; (ii) the failure by the
Company to pay principal of or premium, if any, on the Notes, whether at
maturity, upon acceleration or otherwise; (iii) the failure of the Company or
any of its Subsidiaries to perform certain obligations under the Pledge
Agreement or any Subsidiary Pledge Agreement or the Trustee being entitled to
exercise any remedies pursuant to certain provisions of the Pledge Agreement or
any Subsidiary Pledge Agreement; (iv) the failure to comply with certain
provisions of the Indenture regarding Change of Control, Asset Sales and
mergers, consolidations and sales of assets; (v) the failure of the Company or
any of its Subsidiaries to comply with certain provisions of the Indenture for
30 days after receipt of written notice thereof; (vi) with certain exceptions,
the failure by the Company or any of its Subsidiaries to comply with any of its
covenants or the breach of any of its representations and warranties under the
Indenture, the Pledge Agreement or any Subsidiary Pledge Agreement for 60 days
after receipt of written notice thereof; (vii) a default or defaults under one
or more agreements 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.

Covenants. In general, the Indenture contains covenants which, among other
things, 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 Cardem Insurance) to (i) incur, directly or indirectly, any Indebtedness
(including Acquired Indebtedness), unless, at any time after September 1, 1995,
(a) 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 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 (b) no Default or
Event of Default shall have occurred and be continuing because of the incurrence
of such Indebtedness, (ii) incur any Liens, or (iii) enter into sale and
leaseback transactions; (B) the Company, Mid-State Homes and their respective
Subsidiaries to (i) make a Restricted Payment (defined to include dividends in
respect of, and redemptions of, Capital Stock, optional prepayments of
Indebtedness subordinate to the Series B Notes and the making of certain
investments) unless (a) 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, (b) 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 described in clause (A)(i) above, and (c)
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
a certain amount; except that the Company may declare or pay a regular quarterly
Common Stock cash dividend at a rate not to exceed $.025 per share if no Default
or Event of Default has occurred and is continuing or would result therefrom and
if 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 (other than

<PAGE>
Subordinated Indebtedness) described in clause (A)(i) above, (ii) enter into
transactions with Affiliates or holders of 5% or more of the Company's or
Mid-State's or any of their respective Subsidiaries' Common Stock (other than
with the Company, Mid-State Homes or a Wholly Owned Subsidiary of either) on
terms that would be less favorable to the Company, Mid-State Homes
or their respective Subsidiaries than would be the case on a transaction
negotiated on an arm's-length basis or otherwise not detrimental to the Company
or any Subsidiary, (iii) sell or dispose of any Capital Stock of their
respective Subsidiaries; (C) the Subsidiaries of the Company to encumber, among
other things, their ability to pay dividends or make any other distributions to
the Company; and (D) the Company to consolidate or merge with, or dispose of all
or substantially all of its assets to, any other Person unless (i) the entity
formed by such consolidation, merger or conveyance is a corporation organized
and existing under United States law, 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, 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
(iv) 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. In addition,
the Indenture contains covenants requiring the Company to (i) make regular
reports to Holders of Notes and to file all such reports with the Commission for
public availability and (ii) with certain exceptions, to maintain its corporate
existence and the corporate, partnership or other existence of its Subsidiaries
and to maintain licenses and franchises of the Company and its Subsidiaries.

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 ("Series B Note Holders") of Series B Notes pursuant to which the
Company agreed to file the registration statement referred to under "Prospectus
Summary -- Contemporaneous Debt Offering" and use its reasonable best efforts to
keep such registration statement continuously effective for up to one year.
Under the Senior Note Registration Rights Agreement, the Series B Note Holders
have certain demand and "piggyback" registration rights and certain other rights
and obligations, all on terms substantially similar to those contained in the
Common Stock Registration Rights Agreement. See "Description of Capital Stock --
Common Stock Registration Rights Agreement."

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 March 31, 1995, there were no borrowings outstanding under
this facility; however, letters of credit in the aggregate face amount of
$22,066,146 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 is not a party to or
governed by this facility.

<PAGE>
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 June __, 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. See "Certain Risk Factors -- Dividend Policy; Restrictions on Payment
of Dividends" and "Dividend Policy". 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 (including the Shares offered
hereby) 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 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

<PAGE>
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 22, 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 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 11, 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 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.

<PAGE>
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 the National Association of
Securities Dealers Automated Quotation System 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 of
which this Prospectus forms a part (the "Initial Common 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
66

<PAGE>
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 Common Stock Holders owning at least a majority of the shares of
Registrable Common Stock being registered (the "Majority Selling Common Stock
Holders") and reasonably acceptable to the Company. In addition, if the managing
underwriter advises the Company in writing that, in its opinion, the number of
shares requested to be registered exceeds the number that can be sold within a
price range specified by the Majority Common Stock Selling Holders, the shares
requested to be included by Common Stock Holders shall be included in the
registration on a pro rata basis in preference to any other shares which the
Company or any person wishes to include in such registration.

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 Series B 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, 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 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 Majority Selling Common Stock Holders (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.

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.

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 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 June 15, 1995 at any time
when the Company, in the good faith judgment of its Board of Directors,
reasonably believes that the filing

<PAGE>
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.

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
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 Shares by Non-United States Holders (as defined
below) as of the date hereof. This discussion does not address all aspects of
United States federal income taxation and does not deal with foreign, state and
local

<PAGE>
consequences that may be relevant to such Non-United States Holders in light of
their personal circumstances. 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.
Persons considering the purchase, ownership or disposition of Shares 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 "Non-United States Holder" of Shares means a holder who
is not (i) a citizen or resident of the United States, (ii) a corporation,
partnership or other entity created or organized in or under the laws of the
United States or any political subdivision thereof or (iii) an estate or trust
the income of which is subject to United States federal income taxation
regardless of its source.

Payment of Dividends

If the Company pays dividends on its Shares, such dividends paid to a Non-
United States Holder of Shares will be subject to withholding of United States
federal income tax rate at a 30% rate or such lower rate as may be specified by
an applicable income tax treaty, unless the dividends are effectively connected
with the conduct of a trade or business of the Non-United States Holder within
the United States. Dividends that are effectively connected with the conduct of
a trade or business within the United States are subject to United States
federal income tax on a net income basis at applicable graduated individual or
corporate rates. Any such effectively connected dividends received by a foreign
corporation may, under certain circumstances, be subject to an additional
"branch profits tax" at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty.

Under current United States Treasury regulations, dividends paid to an
address outside the United States are presumed to be paid to a resident of such
country for purposes of the withholding discussed above, and, under the current
interpretation of United States Treasury regulations, for purposes of
determining the applicability of a tax treaty rate. Under proposed Treasury
regulations not currently in effect, however, a Non-United States Holder of
Shares who wishes to claim the benefit of an applicable treaty rate would be
required to satisfy applicable certification and other requirements. Certain
certification and disclosure requirements must be complied with in order to be
exempt from withholding under the effectively connected income exception. A Non-
United States Holder of Shares eligible for a reduced rate of United States
withholding tax pursuant to an income tax treaty may obtain a refund of any
excess amounts withheld by filing an appropriate claim for refund with the IRS.

Sale or Exchange

A Non-United States Holder will generally not be subject to United States
federal income tax with respect to gain recognized on a sale, exchange or other
disposition of Shares unless (i) the gain is effectively connected with the
conduct of a trade or business of the Non-United States Holder in the United
States, (ii) in the case of a Non-United States Holder who is an individual and
holds the Shares as capital assets, such holder is present in the United States
for 183 days or more in the taxable year of sale, exchange or other disposition
and certain other conditions are met, or (iii) the Company is or has been a
"U.S. real property holding corporation" for United States federal income tax
purposes. The Company is not and does not anticipate becoming a "U.S. real
property holding corporation" for United States federal income tax purposes.

Backup Withholding and Information Reporting

Payments of dividends to a Non-United States Holder at an address outside
the United States will generally not be subject to information reporting and
backup withholding. The payment of the proceeds of the sale, exchange or other
disposition of Shares to or through the United States office of a broker is
subject to information reporting and backup withholding at a rate of 31% unless
the owner certifies its non-United States status under penalties of perjury or
otherwise establishes an exemption. Backup withholding and information reporting
will not apply if a foreign office of a broker (as defined in applicable
Treasury regulations) pays the proceeds of the sale of Shares to the owner
thereof. If, however, such 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 broker has

<PAGE>
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 payments of dividends 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.

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 SHARES, INCLUDING
THE APPLICATION OF FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS.

SELLING SECURITY HOLDERS

The following table sets forth information with respect to the Shares
offered hereby beneficially owned by each of the Selling Security Holders as of
_________, 1995. The Shares 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.

Number of Shares of
Common Stock Owned
Selling Security Holder and Registered Hereunder
- ----------------------- ------------------------

Lehman Brothers Inc. . . . . . 8,040,460
JWC Associates L.P. . . . . . 5,724,035
JWC Associates II, L.P. . . . 37,930
KKR Partners II, L.P. . . . . 138,760
William Carr . . . . . . . . . 7,246
Donald M. Kurucz . . . . . . . 2,484
Kenneth J. Matlock . . . . . . 5,176
Robert W. Michael . . . . . . . 7,246
Sam J. Salario . . . . . . . . 5,176
William N. Temple . . . . . . . 2,070
David L. Townsend . . . . . . . 1,656
James W. Walter . . . . . . . . 39,338
William H. Weldon . . . . . . . 4,140
The Celotex Corporation, in its
capacity as the Celotex
Settlement Fund Recipient . . 10,941,326
AIF II, L.P. . . . . . . . . . 2,210,588

------------
Total . . . . . . . . . .
============

PLAN OF DISTRIBUTION

The Company will receive no proceeds from this offering. The Shares 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 Shares through underwriters, dealers or agents, who may receive
compensation

<PAGE>
in the form of underwriting discounts, concessions or commissions from the
Selling Security Holders and/or the purchasers of Shares for whom they may act
as agent. The Selling Security Holders and any underwriters, dealers or agents
that participate in the distribution of Shares may be deemed to be underwriters,
and any profit on the sale of Shares 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 Shares 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 Shares 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 Shares 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 Shares 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.

Under applicable rules and regulations under the Exchange Act any person
engaged in a distribution of the Shares may not simultaneously engage in market-
making activities with respect to such Shares 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 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 Shares by the Selling Security Holders. All of the foregoing
may affect the marketability of the Shares and the ability of any person or
entity to engage in market-making activities with respect to the Shares.

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 Shares, without further clearance from
the NASD, is 8%.

Pursuant to the Common Stock Registration Rights Agreement, the Company is
obligated to pay substantially all of the expenses incident to the registration,
offering and sale of the Shares 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 Capital
Stock -- Common Stock Registration Rights Agreement".

LEGAL MATTERS

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

71
<PAGE>

EXPERTS

The consolidated financial statements as of May 31, 1994 and 1993 and for
each of the three years in the period ended May 31, 1994 included in this
Prospectus have been so included in reliance on the report (which contains an
explanatory paragraph relating to the Company's ability to continue as a going
concern as described in Notes 2 and 10 to the financial statements) of Price
Waterhouse LLP, independent certified public accountants, given on the authority
of said firm as experts in auditing and accounting.

<PAGE>
INDEX TO DEFINED TERMS

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

Adversary Proceeding . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Alabama Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Apollo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Asbestos Claimants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Asset Backed Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Bank Revolving Credit Facility . . . . . . . . . . . . . . . . . . . . . . . 65
Bankruptcy Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Bankruptcy Court . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Best Insurors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Black Warrior Methane . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Black Warrior Transmission . . . . . . . . . . . . . . . . . . . . . . . . . 44
Booker . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Cardem Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Celotex . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Celotex Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Celotex Settlement Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Celotex Settlement Fund Beneficiary . . . . . . . . . . . . . . . . . . . . . 68
Celotex Settlement Fund Recipient . . . . . . . . . . . . . . . . . . . . . . 52
CERCLA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Channel One . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Chapter 11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Chapter 11 Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Charter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Class . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Class Representative . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Class U-7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Commission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Common Stock Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Common Stock Registration Rights Agreement . . . . . . . . . . . . . . . . . 68
Common Stock Value Per Share . . . . . . . . . . . . . . . . . . . . . . . . 66
Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . 5
DGCL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Dixie Building Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Durham Employment Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 60
Effective Date of the Plan of Reorganization . . . . . . . . . . . . . . . . 1
EPA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
FAS 106 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
FAS 109 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Federal Income Tax Claims . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Federal Income Tax Claims Differential . . . . . . . . . . . . . . . . . . . 66
Fraudulent Conveyance Lawsuit . . . . . . . . . . . . . . . . . . . . . . . . 6
HAC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Indemnitees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Independent Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Initial Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Initial Common Stock Shelf Registration . . . . . . . . . . . . . . . . . . . 68
Initial Settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Initial Three Year Term . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

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

Interested Stockholder . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
IRC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
IRS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
J.W. Railroad . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
J-II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Jim Walter Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Jim Walter Homes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Jim Walter Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
JW Aluminum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
JW Window Components . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Kaneb . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
KKR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
KKR Director . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
KKR Investors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
LBO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Lehman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Lehman Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Majority Selling Common Stock Holders . . . . . . . . . . . . . . . . . . . . 69
Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Mid-State Homes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Mine No. 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Mine No. 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Mine No. 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Mortgage-Backed Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
MSHA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Named Executive Officers . . . . . . . . . . . . . . . . . . . . . . . . . . 58
NASD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
New Alabama Power Contract . . . . . . . . . . . . . . . . . . . . . . . . . 29
Non-United States Holder . . . . . . . . . . . . . . . . . . . . . . . . . . 71
NYSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Original Jim Walter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Original Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Outstanding Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Pension Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Pension Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Plan of Reorganization . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Pro Forma Consolidated Financial Data . . . . . . . . . . . . . . . . . . . . 8
Profit Sharing Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Registrable Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Released Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Rule 144 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 203 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Securities Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Selling Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Senior Note Registration Rights Agreement . . . . . . . . . . . . . . . . . . 65
Series B Note Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Series B Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Settlement Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Shelf Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Significant Stockholder . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Sloss Industries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
SNG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Sonat . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
South Carolina Statute . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Southern Precision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

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

Stockholder's Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Supplemental Pension Plan . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Supplemental Profit Sharing Plan . . . . . . . . . . . . . . . . . . . . . . 59
Tag-Along and Voting Rights Agreement . . . . . . . . . . . . . . . . . . . . 68
Tag-Along Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Tender Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
U.S. Pipe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
UMWA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Variable Funding Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Variable Funding Loan Agreement . . . . . . . . . . . . . . . . . . . . . . . 35
Veil Piercing Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Veil Piercing Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Veil Piercing Settlement . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Veil Piercing Settlement Tax Savings Amount . . . . . . . . . . . . . . . . . 66
Veil Piercing Settlement Tax Savings Event . . . . . . . . . . . . . . . . . 66
Veil Piercing Trial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Vestal Manufacturing . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Walter Industries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Walter Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

<PAGE>

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
Pages

Walter Industries, Inc. and Subsidiaries

<S> <C>
Financial Statements:
---------------------
Report of Independent Certified Public Accountants . . . . . . F-2

Consolidated Balance Sheet--May 31, 1994 and 1993 . . . . . . F-3

Consolidated Statement of Operations and Retained Earnings
(Deficit)
for the Years Ended May 31, 1994, 1993 and 1992 . . . . . F-4

Consolidated Statement of Cash Flows
for the Years Ended May 31, 1994, 1993 and 1992 . . . . . F-5

Notes to Financial Statements . . . . . . . . . . . . . . . . . F-6 to F-37

Segment Information for the Years Ended May 31, 1994, 1993
and 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . F-38 to F-39

Interim Financial Statements (Unaudited):
-----------------------------------------
Consolidated Balance Sheet--February 28, 1995 and 1994 . . . . F-40

Consolidated Statement of Operations and Retained Earnings
(Deficit)
for the Nine Months Ended February 28, 1995 and 1994 . . F-41

Consolidated Statement of Cash Flows
for the Nine Months Ended February 28, 1995 and 1994 . . . F-42

Segment Information for the Nine Months Ended February 28,
1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . F-43 to F-44
</TABLE>

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, 1994 and 1993, and the
results of their operations and their cash flows for each of the
three years in the period ended May 31, 1994, 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.

The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern. As discussed in Notes 2 and 10 to the financial
statements, on December 27, 1989, Walter Industries, Inc. and
substantially all of its subsidiaries each filed a voluntary
petition for reorganization under Chapter 11 of Title 11 of the
United States Code, thereby raising substantial doubt about their
ability to continue as a going concern. The Company filed a fourth
amended joint plan of reorganization and a related disclosure
statement with the Bankruptcy Court on June 22, 1994 and June 29,
1994, respectively. The accompanying consolidated financial
statements do not include any adjustments that might result from
the outcome of the petitions for reorganization.

As discussed in Note 11 to the consolidated 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 8, 1994

F-2

<PAGE>

<TABLE><CAPTION>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET

May 31,
--------------------------------------
1994 1993
------------------ ------------------
(in thousands)
<S> <C> <C>
ASSETS
Cash (includes short-term investments of $177,040,000
and $172,553,000) (Note 5) . . . . . . . . . . . . . . . . . . . . . . . . . $ 203,303 $ 190,370
Short-term investments, restricted (Note 3) . . . . . . . . . . . . . . . . . . 107,552 105,620

Instalment notes receivable (Notes 3, 5 and 6) . . . . . . . . . . . . . . . . 4,176,040 4,187,316
Less - Provision for possible losses . . . . . . . . . . . . . . . . . . . . (26,301) (26,579)
Unearned time charges . . . . . . . . . . . . . . . . . . . . . . . . . (2,790,560) (2,773,878)
---------- ----------
Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,359,179 1,386,859

Trade receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135,431 143,259
Less - Provision for possible losses . . . . . . . . . . . . . . . . . . . . (7,392) (7,324)
---------- ----------
Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128,039 135,935
Other notes and accounts receivable . . . . . . . . . . . . . . . . . . . . . . 10,774 15,625
Inventories, at lower of cost (first in, first out or average) or market:
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95,270 94,360
Goods in process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,090 23,421
Raw materials and supplies . . . . . . . . . . . . . . . . . . . . . . . . . 48,533 47,153
Houses held for resale . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,686 1,705
---------- ----------
Total inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172,579 166,639

Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,335 7,902

Property, plant and equipment, at cost (Note 4) . . . . . . . . . . . . . . . . 1,123,939 1,075,068
Less - Accumulated depreciation, depletion and amortization . . . . . . . . . (466,076) (412,028)
---------- ----------
Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 657,863 663,040

Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,753 5,568
Unamortized debt expense . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,656 46,622
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,936 37,616
Excess of purchase price over net assets acquired (Note 1) . . . . . . . . . . 412,923 461,438
---------- ----------
$3,140,892 $3,223,234
========== ==========

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Bank overdrafts (Note 5) . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 29,879 $ 17,921
Accounts payable (Note 2) . . . . . . . . . . . . . . . . . . . . . . . . . . . 59,468 52,696
Accrued expenses (Note 2) . . . . . . . . . . . . . . . . . . . . . . . . . . . 122,665 116,238
Income taxes payable (Notes 2 and 6) . . . . . . . . . . . . . . . . . . . . . 21,543 19,135
Deferred income taxes (Note 6) . . . . . . . . . . . . . . . . . . . . . . . . 73,152 85,833
Long-term senior debt (Notes 2 and 5) . . . . . . . . . . . . . . . . . . . . . 871,970 1,046,971
Accrued postpetition interest on secured obligations (Notes 2 and 5) . . . . . 258,032 210,199
Accumulated postretirement health benefits obligation (Note 11) . . . . . . . . 209,962 189,905
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 48,890 46,442
Liabilities subject to Chapter 11 proceedings (Notes 2, 3 and 5) . . . . . . . 1,727,684 1,725,631
Stockholders' equity (deficit) (Notes 1, 5, 7 and 8):
Common stock, $.01 par value per share: Authorized - 50,000,000 shares
Issued - 31,120,773 shares . . . . . . . . . . . . . . . . . . . . . . . . 311 311
Capital in excess of par value . . . . . . . . . . . . . . . . . . . . . . . 155,293 155,293
Retained earnings (deficit), per accompanying statement . . . . . . . . . . . (434,520) (441,695)
Excess of additional pension liability over unrecognized prior years
service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,437) (1,646)
---------- ----------
Total stockholders' equity (deficit) . . . . . . . . . . . . . . . . . . . (282,353) (287,737)
---------- ----------
$3,140,892 $3,223,234
========== ==========

</TABLE>
F-3

<PAGE>

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

For the years ended May 31,
--------------------------------------------------
1994 1993 1992
---------------- ---------------- ----------------
(in thousands)
<S> <C> <C> <C>
Sales and revenues:
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,068,387 $1,072,615 $1,139,048
Time charges (Note 3) . . . . . . . . . . . . . . . . . . . . . . 238,097 218,696 195,001
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . 17,383 23,160 28,172
Interest income from Chapter 11 proceedings (Note 2) . . . . . . 4,657 4,515 4,360
---------- ---------- ----------
1,328,524 1,318,986 1,366,581
---------- ---------- ----------
Cost and expenses:
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . 845,061 804,411 891,882
Depreciation, depletion and amortization (Note 4) . . . . . . . . 71,035 70,483 82,801
Selling, general and administrative . . . . . . . . . . . . . . . 127,901 124,616 129,372
Postretirement health benefits (Note 11) . . . . . . . . . . . . 25,585 23,474 --
Provision for possible losses . . . . . . . . . . . . . . . . . . 4,611 4,236 5,787
Chapter 11 costs (Note 2) . . . . . . . . . . . . . . . . . . . . 14,254 9,802 5,172
Interest and amortization of debt discount and expense
(Interest on unsecured debt obligations not accrued since
December 27, 1989 - $163,685,000 in each year) (Notes 2, 4 and
5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155,470 171,581 177,060
Amortization of excess of purchase price over net assets
acquired (Note 1) . . . . . . . . . . . . . . . . . . . . . . . 48,515 39,461 39,702
---------- ---------- ----------
1,292,432 1,248,064 1,331,776
---------- ---------- ----------
36,092 70,922 34,805
Provision for income taxes (Note 6):
Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (41,598) (48,141) (35,957)
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,681 23,813 23,494
---------- ---------- ----------

Income from operations before cumulative effect of accounting
change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,175 46,594 22,342
Cumulative effect of change in accounting principle -
postretirement benefits other than pensions (net of income tax
benefit of $61,823,000) (Note 11) . . . . . . . . . . . . . . . . -- (104,608) --
---------- ---------- ----------
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . 7,175 (58,014) 22,342

Retained earnings (deficit) at beginning of year . . . . . . . . . (441,695) (383,681) (406,023)
---------- ---------- ----------
Retained earnings (deficit) at end of year . . . . . . . . . . . . $ (434,520) $ (441,695) $ (383,681)
========== ========== ==========

</TABLE>

F-4

<PAGE>

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

For the years ended May 31,
-------------------------------------------------
1994 1993 1992
---------------- --------------------------------
(in thousands)
<S> <C> <C> <C>
OPERATIONS
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . $ 7,175 $(58,014) $ 22,342
Charges to income not affecting cash:
Depreciation, depletion and amortization . . . . . . . . . . . 71,035 70,483 82,801
Provision for deferred income taxes . . . . . . . . . . . . . . (12,681) (23,813) (23,494)
Accumulated postretirement health benefits obligation (Note
11) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,057 189,905 --
Adjustment to deferred taxes for accounting change (Note 11) . -- (61,823) --
Provision for other long-term liabilities . . . . . . . . . . . 280 (781) 6,782
Amortization of excess of purchase price over net assets
acquired (Note 1) . . . . . . . . . . . . . . . . . . . . . . 48,515 39,461 39,702
Amortization of debt discount and expense . . . . . . . . . . . 17,597 22,148 19,715
------- ------- -------
151,978 177,566 147,848

Decrease (increase) in:
Short-term investments, restricted . . . . . . . . . . . . . . (1,932) 1,334 4,374
Instalment notes receivable, net (a) . . . . . . . . . . . . . 27,680 (23,607) (47,835)
Trade and other receivables, net . . . . . . . . . . . . . . . 12,747 1,429 (457)
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . (5,940) 627 12,118
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . (3,433) 236 1,404
Increase (decrease) in:
Bank overdrafts (Note 5) . . . . . . . . . . . . . . . . . . . 11,958 (9,758) 7,906
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . 6,772 (1,692) 425
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . 6,427 (1,682) 15,663
Income taxes payable . . . . . . . . . . . . . . . . . . . . . 2,408 9,111 (18,036)
Accrued postpetition interest on secured obligations . . . . . 47,833 32,605 47,868
Liabilities subject to Chapter 11 proceedings (Note 2):
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . 1,438 811 714
Accrued expense . . . . . . . . . . . . . . . . . . . . . . . (152) 4 (136)
Income taxes payable . . . . . . . . . . . . . . . . . . . . . -- -- 1,429
Other long-term liabilities . . . . . . . . . . . . . . . . . -- -- (244)
------- ------- --------
Cash flows from operations . . . . . . . . . . . . . . . . . 257,784 186,984 173,041
------- ------- --------

FINANCING ACTIVITIES
Issuance of long-term senior debt . . . . . . . . . . . . . . . . 2,000 256,128 --
Addition to unamortized debt expense . . . . . . . . . . . . . . -- (4,794) --
Retirement of long-term senior debt (Note 5) . . . . . . . . . . (178,865) (161,959) (127,258)
Decrease in liabilities subject to Chapter 11 proceedings (Notes
2 and 5):
Short-term notes payable . . . . . . . . . . . . . . . . . . . -- -- (2,805)
Long-term senior debt . . . . . . . . . . . . . . . . . . . . -- (121,217) (37,958)
-------- --------- --------
Cash flows from financing activities . . . . . . . . . . . . (176,865) (31,842) (168,021)
-------- -------- --------

INVESTING ACTIVITIES
Additions to property, plant and equipment, net of normal
retirements . . . . . . . . . . . . . . . . . . . . . . . . . . (65,858) (68,901) (63,646)
Decrease (increase) in investments . . . . . . . . . . . . . . . (185) (128) 1,137
(Increase) in other assets . . . . . . . . . . . . . . . . . . . (1,943) (1,617) (5,485)
------- -------- -------
Cash flows from investing activities . . . . . . . . . . . . . (67,986) (70,646) (67,994)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents . . . . . . 12,933 84,496 (62,974)
Cash and cash equivalents at beginning of year . . . . . . . . . 190,370 105,874 168,848
-------- -------- --------
Cash and cash equivalents at end of year (Note 5) . . . . . . . . $203,303 $190,370 $105,874
======== ======== ========

(a) Consists of sales and resales, net of repossessions and provision for possible losses, of $197,472,000,
$207,340,000, and $207,648,000 and cash collections on account and payouts in advance of maturity of
$225,152,000, $183,733,000, and $159,813,000 for the years ended May 31, 1994, 1993 and 1992, respectively.

</TABLE>

F-5

<PAGE>

WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS

NOTE 1 - Organization and Acquisition

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. The excess of purchase price over net assets
acquired in connection with the Acquisition is being amortized over
periods ranging up to twenty years.

The consolidated financial statements include the accounts of the
Company and all of its subsidiaries. All significant intercompany
balances have been eliminated.

NOTE 2 - Reorganization Proceedings

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 (the "Bankruptcy Court") for the Middle
District of Florida, Tampa Division (the "Reorganization
Proceedings"). 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 pending asbestos-related
litigation which prevented the Debtors from completing a refinancing
or from selling assets to reduce their debt which, together with
turmoil in the high yield bond markets, depressed the bid value of
such notes.

F-6

<PAGE>

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

The consolidated financial statements of the Company have been
prepared on a "going-concern" basis which contemplates the realization
of assets and the liquidation of liabilities in the ordinary course of
business; however, as a result of the Chapter 11 filings, such
realization of assets and liquidation of liabilities are subject to a
significant number of uncertainties. These financial statements
include adjustments and reclassifications that have been made to
reflect the liabilities which have been deferred under the
Reorganization Proceedings. Interest in the amount of $724,306,000
($163,685,000 in the current fiscal year) on unsecured debt
obligations has not been accrued in the consolidated financial
statements since the date of the filing of petitions for
reorganization. This estimate is based on the balances of the
unsecured debt obligations and their interest rates as of the petition
date. Such interest rates do not necessarily presently govern the
respective rights of the Company, its subsidiaries and the various
lenders. Instead, the rights of the parties will be determined in
connection with the Reorganization Proceedings.

The discussion below sets forth various aspects of the
Reorganization Proceedings, but is not intended to be an exhaustive
summary. For additional information regarding the effect on the
Debtors of the Reorganization Proceedings, reference should be made to
the Bankruptcy Code, the rules and regulations promulgated pursuant to
the Bankruptcy Code and the case law thereunder. Each creditor should
consult with its own counsel regarding the impact of the
Reorganization Proceedings on such creditor's claims.

Pursuant to provisions of the Bankruptcy Code and an order of the
Bankruptcy Court dated December 28, 1989, the Debtors were authorized
to continue to operate their businesses and own and manage their
properties and assets as debtors in possession. The Bankruptcy Code
authorizes the Debtors to enter into transactions, including the sale
or lease of property of their estates and to use property of their
estates, in the ordinary course of their businesses without prior
approval of the Bankruptcy Court. The sale or lease of property of the
estates other than in the ordinary course of business and certain
other transactions (for example, secured financing), whether or not in
the ordinary course of business, are subject to prior approval by the
Bankruptcy Court.

As a result of the filing of petitions for reorganization, the
maturity of all unpaid principal of, and interest on, the senior and
subordinated indebtedness of the Debtors became immediately due and
payable in accordance with the terms of the instruments governing such
indebtedness. The Debtors will not be able to borrow additional funds
under any of their prepetition credit arrangements. Pursuant to the
applicable provisions of the Bankruptcy Code, all pending legal
proceedings against the Debtors were automatically stayed upon the
filing of such petitions.

Under the Chapter 11 filings, a significant portion of claims in
existence at the filing date ("prepetition") are stayed ("deferred")
while the Company continues to manage the business. The Bankruptcy
Code defines "claim" to include a right to payment whether or not such
right is reduced to judgment, liquidated, unliquidated, fixed,
contingent, matured, unmatured, disputed, undisputed, legal,
equitable, secured or unsecured. Claims which were contingent or
unliquidated at the commencement of the Reorganization Proceedings
constitute claims under the Bankruptcy Code. Such claims, including,
without limitation, those that may arise in connection with rejection
of executory contracts, including leases, as well as those that might
arise in connection with environmental and pension-related matters,
could be significant. It is not possible to quantify the amount of
such claims at this time. Under the Bankruptcy Code, a creditor's
claim is treated as secured only to the extent of the value of such
creditor's collateral, and the balance of such creditor's claim is
treated as unsecured. Depending upon the outcome of the Reorganization
Proceedings and the value of a secured creditor's collateral, if any,
secured creditors may not be entitled to claim interest on their
claims for the period after December 27, 1989. Generally, unsecured
debt does not accrue interest after the filing.

Only holders of "allowed claims" may vote on and participate in
distributions under any plan or plans of reorganization that may be
proposed. A claim is allowed to the extent (i) the claim is not listed
as contingent, disputed or unliquidated on the Debtors bankruptcy
schedules filed in January 1990, as amended, or (ii) a proof of claim
is filed and not successfully objected to by a party in interest.

F-7

<PAGE>

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

Additional prepetition claims and liabilities may arise, some of
which may be significant, subsequent to the filing date for various
reasons. To the extent a creditor must file a proof of claim, such
proof must be filed by a date fixed by the Bankruptcy Court as the
last day to file proofs of claim (the "Bar Date"). At a hearing on
July 23, 1992, the Bankruptcy Court set a Bar Date of October 30, 1992
in the Reorganization Proceedings for all claims other than any
potential claims related to asbestos personal injury or property
damage. At a hearing on December 16, 1992, the Bankruptcy Court set a
second Bar Date of March 1, 1993 in the Reorganization Proceedings for
new creditors added by amended schedules filed by certain of the
Debtors on November 23, 1992. On August 31, 1993, the Bankruptcy Court
set a third Bar Date of November 30, 1993 for creditors added by
amended schedules filed by the Debtors on July 12, 1993. No provision
has been included in the accompanying financial statements for any
prepetition claims and additional liabilities that may arise from
resolution of any claims filed.

The amount included as liabilities subject to Chapter 11
proceedings reflected on the Company's consolidated balance sheet
consists of the following:

May 31,
----------------------
1994 1993
---------- ----------

(in thousands)

Short-term notes payable . . $78,033 $78,033
Accounts payable . . . . . . 64,338 62,900
Accrued expenses . . . . . . 95,847 95,999
Income taxes payable . . . . 47,066 47,066
Long-term senior debt (Notes
3 and 5) . . . . . . . . . . 416,629 416,629
Long-term subordinated debt
(Note 5) . . . . . . . . . . 1,025,533 1,024,766
Other long-term liabilities . 238 238
---------- ----------
$1,727,684 $1,725,631
========== ==========

As debtors in possession, the Debtors have the right, subject to
Bankruptcy Court approval and certain other limitations, to assume or
reject certain executory contracts, including unexpired leases. In
this context, "assumption" means that the Debtors agree to perform
their obligations and cure certain existing defaults under the
contract or lease, and "rejection" means that the Debtors are relieved
from their obligations to perform further under the contract or lease
and are subject only to a claim for damages for the breach thereof.
Any claim for damages resulting from the rejection of an executory
contract or an unexpired lease is treated as a general unsecured claim
in the Reorganization Proceedings.

Unless the Bankruptcy Court, upon request of a non-Debtor party and
after notice and a hearing, fixes a date by when the Debtors must
elect to assume or reject an executory contract, the Debtors may
assume or reject such contracts in a plan or plans of reorganization.
With respect to unexpired non-residential real property leases,
including mineral leases and interests, the Bankruptcy Code provides
that a Debtor has 60 days after the commencement of a Chapter 11 case
in which to assume or reject such leases unless the Bankruptcy Court,
for cause shown, extends such 60 day period. Pursuant to an order of
the Bankruptcy Court dated August 31, 1993, the time within which the
Debtors must assume or reject their non-residential real property
leases was extended through and including October 31, 1993. The
Debtors filed a motion to extend, until confirmation of a plan of
reorganization, the time for assumption or rejection of their non-
residential real property leases. On March 4, 1994, the Bankruptcy
Court entered an order approving the Debtors motion. On February 25,
1991, the Debtors received Bankruptcy Court approval to assume
substantially all of their mineral leases and interests.

The Bankruptcy Code permits the Bankruptcy Court to appoint a
trustee on request of a party in interest (including a creditor,
equity security holder, committee or indenture trustee) or the United
States Trustee. In order for a trustee to be appointed, a requesting
party, after notice and a hearing, must show cause, such as gross
mismanagement by current

F-8

<PAGE>

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

management, or demonstrate that such appointment is in the best
interest of creditors, equity security holders and other interests of
the estates.

In addition, the Bankruptcy Code permits the Bankruptcy Court to
appoint an examiner on request of a party in interest (including a
creditor, equity security holder, committee or indenture trustee) or
the United States Trustee, if the Bankruptcy Court does not order the
appointment of a trustee, to conduct such investigation of a debtor as
is appropriate.

For 120 days after the date of the filing of a voluntary Chapter 11
petition, a debtor has the exclusive right to file a plan of
reorganization with the Bankruptcy Court (the "Exclusivity Period").
If a debtor files a plan of reorganization during the 120-day
Exclusivity Period, no other party may file a plan of reorganization
until 180 days after the date of filing of the Chapter 11 petition.
Until the end of this 180-day period (the "Acceptance Period") the
debtor has the exclusive right to solicit acceptances of the plan. The
Bankruptcy Court may shorten or extend the 120- and 180-day periods
for cause shown. If a debtor fails to file a plan during the
Exclusivity Period or, if such plan has been filed, fails to obtain
acceptance of such plan from impaired classes of its creditors and
equity security holders during the Acceptance Period, any party in
interest, including a creditor, an equity security holder, a committee
of creditors or equity security holders or an indenture trustee may
file a plan. Additionally, if the Bankruptcy Court were to appoint a
trustee, the Exclusivity Period, if not previously terminated, would
terminate.

The initial Exclusivity Period for each of the Debtors would have
expired on April 26, 1990 and the initial Acceptance Period would have
expired on June 26, 1990. The Debtors filed various motions to extend
the Exclusivity Period which were granted. Pursuant to an order of the
Bankruptcy Court dated April 15, 1992, the Exclusivity Period expired
June 15, 1992 and the Acceptance Period was to expire on August 14,
1992.

On June 15, 1992, the Debtors filed with the Bankruptcy Court and
presented to the creditor constituencies a joint plan of
reorganization and related disclosure statement prior to the
expiration of the Exclusivity Period. Subsequent to August 1992, the
Debtors were granted various extensions of the Acceptance Period and
adjournments of the hearing for approval of the disclosure statement
dated June 15, 1992, while negotiations continued with the various
creditor constituencies toward a consensual plan of reorganization.
Pursuant to an order of the Bankruptcy Court dated July 7, 1993, the
Bankruptcy Court extended the Acceptance Period until August 2, 1993,
ruling that no further extensions would be granted beyond August 2,
1993. On July 14, 1993, the Bankruptcy Court entered an order fixing
January 1, 1994 as the last date when a plan of reorganization and
disclosure statement could be filed by a party in interest and that
all plans of reorganization and disclosure statements filed by such
date would be heard on a date and time to be fixed by future order of
the Bankruptcy Court.

On September 22, 1993, the Debtors filed with the Bankruptcy Court
and presented to the creditor constituencies their first amended joint
plan of reorganization (the "Debtors First Amended Plan") and first
amended related disclosure statement. The Debtors First Amended Plan
provided for payment in full of all allowed claims (plus post-petition
interest at varying rates) using cash, issuance of new indebtedness,
issuance of common stock equal to approximately a 46% ownership
interest (subject to Debtors option to substitute additional debt
securities in lieu of common stock proposed to be issued under the
Debtors First Amended Plan), or a combination thereof. In addition,
the Debtors First Amended Plan provided that holders of subordinated
debt claims would additionally share in a portion of any increase in
the Debtors unencumbered instalment notes receivable portfolio after
May 31, 1993 through issuance of additional debt securities ("Value
Sharing").

Such Value Sharing was designed to provide compensation to holders
of subordinated debt claims during the delay in consummation of the
Debtors First Amended Plan required in order to resolve the asbestos-
related litigation. Under the Debtors First Amended Plan certain
claims and the equity interest in the Company were impaired; therefore
the Debtors First Amended Plan was subject to acceptance by vote of
the holders of each such class of impaired claims and the holders of
the Company's common stock. Confirmation and consummation of the
Debtors First Amended Plan were subject to the satisfaction of various
conditions including dismissal with prejudice of any and all claims
and actions

F-9

<PAGE>

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

against the Debtors or any assets of the Debtors relating to or in
connection with the asbestos-related litigation (see Note 10).

On December 16, 1993, AIF II, L.P., certain affiliates of AIF II,
L.P. and certain accounts managed or controlled by such affiliates;
Lehman Brothers Inc.; the Official Bondholders Committee and the
Official Committee of General Unsecured Creditors (collectively, the
"Bondholders Plan Proponents") filed a Joint Plan of Reorganization of
Debtors Proposed by Certain Creditor Proponents dated as of December
16, 1993 (the "Bondholders Plan"). The Bondholders Plan was predicated
upon a settlement of the Veil Piercing Litigation which contemplated a
distribution of debt and equity securities having a value equal to
$525 million, subject to reduction in the event the shareholders of
the Company supported the Bondholders Plan and executed the Veil
Piercing Settlement Agreement (as said term was defined in the
Bondholders Plan) by a date certain, to the Veil Piercing Claims Trust
(as said term was defined in the Bondholders Plan). The Bondholders
Plan was premised upon a negotiated estimate of the going concern
enterprise value of the Debtors on a consolidated basis in an amount
equal to $2.525 billion. The Bondholders Plan provided for payment in
full of all allowed claims (plus post-petition interest at varying
rates with respect to certain secured and unsecured claims) using
cash, issuance of new indebtedness, issuance of common stock, or a
combination thereof. The Bondholders Plan provided for no recovery by
the shareholders of the Company unless the shareholders supported the
Bondholders Plan and executed the Veil Piercing Settlement Agreement
by a date certain. Confirmation and effectiveness of the Bondholders
Plan were subject to the satisfaction of various conditions including
the final resolution and settlement, approved by final orders, of all
asserted and unasserted claims arising out of or relating to the
asbestos-related litigation and all LBO-Related Issues (as said term
was defined in the Bondholders Plan).

On December 28, 1993, Chemical Bank and Bankers Trust Company
(collectively, the "Bank Agents"), as agents under the Bank Credit
Agreement dated as of September 10, 1987, as amended, and the Working
Capital Credit Agreement dated as of December 29, 1987, as amended,
filed the Bank Agents' Joint Plan of Reorganization dated as of
December 28, 1993 (the "Bank Agents Plan"). The Bank Agents Plan is
predicated upon a settlement of the asbestos-related litigation which
contemplates a distribution of common stock having a value equal to
the allowed amount of the "Celotex Disputed Claims" (as said term is
defined in the Bank Agents Plan). The Bank Agents Plan contemplates
that the allowed amount of the Celotex Disputed Claims shall be
determined by: (a) agreement between the holders of such claims and
the Bank Agents, (b) a final order of the Bankruptcy Court or (c) an
order of the Bankruptcy Court estimating the allowed amount of such
claims. The Bank Agents Plan provides for payment in full in cash of
all secured allowed claims (including post-filing date interest at
varying rates of interest) and the distribution of common stock to
holders of unsecured allowed claims (including trade creditors and
subordinated bondholders) in full satisfaction of unsecured allowed
claims (including post-filing date interest at rates to be agreed to
by the Bank Agents or, if no agreement, rates to be determined by the
Bankruptcy Court). The Bank Agents Plan provides for a recovery by the
shareholders of the Company only to the extent shares of common stock
are available after payment in full of unsecured allowed claims.
Effectiveness of the Bank Agents Plan is subject to various conditions
including the Company's ability to obtain third party financing in an
amount sufficient to enable the Debtors to make the cash payments
required under the Bank Agents Plan and to meet the Debtors
contemplated working capital and letter of credit needs.

On December 30, 1993, LaSalle National Bank (the "Senior Note
Trustee"), as the successor trustee under the indenture dated as of
January 1, 1988, as amended, filed the Series B & C Senior Note
Trustee's Joint Plan of Reorganization of Debtors dated as of December
30, 1993 (the "Senior Note Trustee Plan"). While the Senior Note
Trustee Plan was not predicated upon a settlement of the asbestos-
related litigation, the plan provided for the issuance of "New Notes"
(as said term was defined in the Senior Note Trustee Plan) to fund any
settlement which might be approved by the Debtors and the Series B & C
Senior Note Trustee. The Senior Note Trustee Plan was premised upon an
"Equity Value" (as said term was defined in the Senior Note Trustee
Plan) of $783.8 million. The Senior Note Trustee Plan provided for
payment in full in cash of all secured allowed claims (including post-
filing date interest at varying rates) and payment in full of
unsecured allowed claims (including post-filing date interest at
varying rates) by using cash, issuance of new indebtedness, issuance
of common stock (subject to dilution in the event a settlement of the
asbestos-related litigation was achieved), or a combination thereof.
In addition, the Senior Note Trustee Plan provided that the
shareholders of the Company would retain their common stock interests,
subject to dilution in the event a settlement of

F-10

<PAGE>

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

the asbestos-related litigation was reached. Effectiveness of the
Senior Note Trustee Plan was subject to various conditions which were
similar to the conditions set forth in the Debtors First Amended Plan.

By order dated February 25, 1994, the Bankruptcy Court (i) fixed
April 20, 1994 as the last date to file any further amendments or
supplements to the Plan, the Bondholders Plan, the Bank Agents Plan or
the Senior Note Trustee Plan, (ii) allowed one additional party to
file, by April 20, 1994, a plan of reorganization and related
disclosure statement on behalf of his clients, (iii) fixed April 20,
1994 as the last date for requesting a copy of a plan and disclosure
statement filed by the above noted parties, (iv) fixed May 6, 1994 as
the last date for any party in interest to file objections to the
disclosure statements and (v) scheduled a hearing for May 19, 1994 and
continuing, if necessary, through May 20, 1994 to consider approval of
disclosure statements.

On April 20, 1994, the Debtors, the Senior Note Trustee and the
Bondholders Plan Proponents each filed an amended plan of
reorganization and an amended disclosure statement. The Bank Agents
did not file any further amendment or supplement to the Bank Agents
Plan. The one additional party did not file a plan of reorganization
and disclosure statement on behalf of his clients.

The Debtors Second Amended Joint Plan of Reorganization dated as of
April 19, 1994 (the "Debtors Second Amended Plan") modified the
Debtors First Amended Plan in four significant ways. First, the
Debtors Second Amended Plan amended the formula for calculating post-
filing date interest with respect to the secured claims of the
Revolving Credit Banks (as defined in the Debtors Second Amended Plan)
and the Working Capital Banks (as defined in the Debtors Second
Amended Plan). The Debtors Second Amended Plan provided for interest
on the adjusted pre-filing date principal claims of the Revolving
Credit Banks and the Working Capital Banks to accrue at the Chemical
Bank Prime Rate (as defined in the Debtors Second Amended Plan) in
effect from time to time plus 1-1/2% per annum, compounded on each of
January 1, April 1, July 1 and October 1 commencing April 1, 1990.

Second, with respect to pre-filing date unsecured claims, other
than Subordinated Note Claims (as defined in the Debtor's Second
Amended Plan), the Debtors Second Amended Plan no longer provided for
the payment of post-filing date interest.

Third, with respect to Subordinated Note Claims, the Debtors Second
Amended Plan did not provide for the payment of post-filing date
interest nor for Value Sharing.

Finally, the Debtors Second Amended Plan provided for the
shareholders of the Company to retain approximately 75% interest in
the Company (subject to the Debtors option to substitute additional
debt securities in lieu of common stock presently proposed to be
issued under the Debtors Second Amended Plan).

The Senior Note Trustee's First Amended Joint Plan of
Reorganization of Debtors dated as of April 20, 1994 (the "Senior Note
Trustee Amended Plan") did not in any material way amend the
provisions of the Senior Note Trustee Plan.

The First Amended Joint Plan of Reorganization of Debtors Proposed
by Certain Creditor Proponents dated as of April 20, 1994 (the
"Bondholders Amended Plan") amended the Bondholders Plan in three
significant ways. First, the Bondholders Amended Plan annexed to it a
Veil Piercing Settlement Agreement dated as of April 18, 1994.

Second, the treatment of Subordinated Note Claims was amended to
reflect an Agreement for Settlement of Pre-LBO Issues and Treatment of
Subordinated Notes Pursuant to Chapter 11 Plan dated as of March 23,
1994.

Finally, the Bondholders Amended Plan amended the definition of
"Qualified Securities" (debt instruments to be issued under the
Bondholders Amended Plan to holders of Subordinated Note Claims and as
part of the consideration to be paid under the Veil Piercing
Settlement Agreement) to provide for subordinated unsecured notes to
be issued by the Company.

F-11

<PAGE>

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

On April 25, 1994, the Bank Agents filed a motion to defer the
Bankruptcy Court's consideration of the Bank Agents Plan and the
related disclosure statement until the earlier of December 31, 1994,
and the date on which the Bankruptcy Court denies approval of the
Bondholders Plan Proponents disclosure statement. The Bank Agents
motion was granted by the Bankruptcy Court on May 18, 1994.

On May 6, 1994, objections to the Company's disclosure statement
were filed by the Bondholders Plan Proponents, the California
Department of Toxic Substances Control and California Regional Water
Quality Control Board (the "California EPA"), Mississippi State Tax
Commission, Raul Delgado, et al, (the "Texas Homeowners"), the Senior
Note Trustee and Purnie Melcher, Mary Melcher, Richard Melcher and
Curtis Melcher. Objections to the Bondholders Plan Proponents
disclosure statement were filed by the Company, the California EPA,
the Senior Note Trustee and the Texas Homeowners. Objections to the
Senior Note Trustee's disclosure statement were filed by the Company,
the Bondholders Plan Proponents, the California EPA and the Texas
Homeowners.

On May 11, 1994, the Bondholders Plan Proponents filed with the
Bankruptcy Court their (i) Second Amended Joint Plan of Reorganization
of Debtors Proposed by Certain Creditor Proponents dated as of May 11,
1994; (ii) Second Amended Disclosure Statement for Creditor
Proponents' Settlement Plan; and (iii) Supplement to Second Amended
Disclosure Statement for Creditor Proponents' Settlement Plan
(collectively, the "Bondholders Plan Proponents Second Amended Plan
Documents") and on May 17, 1994, the Bondholders Plan Proponents filed
with the Bankruptcy Court their (i) Third Amended Joint Plan of
Reorganization of Debtors Proposed by Certain Creditor Proponents
dated as of May 17, 1994; (ii) Third Amended Disclosure Statement for
Creditor Proponents' Settlement Plan; and (iii) Supplement to Third
Amended Disclosure Settlement for Creditor Proponents' Settlement Plan
(collectively, the "Bondholders Plan Proponents Third Amended Plan
Documents").

By motion dated May 13, 1994, the Company sought the entry of an
order striking the Bondholders Plan Proponents Second Amended Plan
Documents on the basis that the filing of such documents was in
violation of the Bankruptcy Court's February 25, 1994 order.

At the hearing held on May 18, 1994, the Bankruptcy Court denied
the Company's motion to strike but determined that the Bankruptcy
Court would not consider the Bondholders Plan Proponents Second
Amended Plan Documents or the Bondholders Plan Proponents Third
Amended Plan Documents at the May 19, 1994 disclosure statement
hearing.

On May 18, 1994, the Senior Note Trustee filed a motion to defer
the Bankruptcy Court's consideration of the Senior Note Trustee
Amended Plan and related disclosure statement, which motion was
granted on May 19, 1994.

On May 19, 1994, the Bankruptcy Court held a hearing to consider
approval of the disclosure statements filed on April 20, 1994, by the
Company and the Bondholders Plan Proponents. At the conclusion of the
hearing, the Bankruptcy Court fixed June 9, 1994 as the last day to
file any further amendments to the Debtors Second Amended Plan and
related disclosure statement and the Bondholders Amended Plan and
related disclosure statement and fixed June 17, 1994 as the date by
when objections to the Company's and the Bondholders Plan Proponents
amended disclosure statements could be filed. In addition, the
Bankruptcy Court scheduled a status conference for June 15, 1994 to
consider further procedures with respect to the Company's and
Bondholders Plan Proponents amended plans of reorganization and
disclosure statements.

On June 9, 1994, the Debtors filed the Debtors Third Amended Joint
Plan for Reorganization dated as of June 9, 1994 (the "Debtors Third
Amended Plan") and the Third Amended Disclosure Statement dated June
9, 1994. The Debtors Third Amended Plan modified the Debtors Second
Amended Plan in two significant ways. First, the Debtors Third Amended
Plan modified the formula for calculating post-petition interest with
respect to the secured claims of the Revolving Credit Banks and the
Working Capital Banks. The Debtors Third Amended Plan provides for
interest on the adjusted pre-filing date principal claims of the
Revolving Credit Banks and the Working Capital Banks to accrue at the
(i) Chemical Bank Prime Rate in effect from time to time plus 2-1/2%
per annum, compounded on each of January 1, April 1, July 1 and
October 1 commencing on April 1, 1990 for the period from the Filing
Date to December 31, 1994

F-12

<PAGE>

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

and (ii) rate of 13% per annum, compounded on each of January 1, April
1, July 1 and October 1 commencing April 1, 1995 for the period from
January 1, 1995 to the Effective Date.

In addition, the Debtors Third Amended Plan modified the formula
for calculating post-petition interest with respect to and treatment
of Series B & C Senior Note Claims. If the Holders of Series B & C
Senior Note Claims accept the Debtors Third Amended Plan, interest on
the principal amount accrued and unpaid from the Filing Date to the
Effective Date will accrue at the rate of either (i) 14-5/8% per annum
for the Series B Senior Extendible Reset Notes and 14-1/2% per annum
for the Series C Senior Extendible Reset Notes if the holders of such
notes receive a combination of cash and debt securities on account of
their Allowed Claims or (ii) 13-5/8% per annum for the Series B Senior
Extendible Reset Notes and 13-1/2% per annum for the Series C Senior
Extendible Reset Notes if the holders of such notes receive all cash
on account of their Allowed Claims. In the event holders of Series B &
C Senior Note Claims do not accept the Debtors Third Amended Plan,
then post-filing date interest will accrue at the rate of 9% per
annum.

On June 9, 1994, the Bondholders Plan Proponents filed their Second
Amended Joint Plan of Reorganization of Debtors Proposed by Certain
Creditor Proponents (the "Bondholders Second Amended Plan") and their
Second Amended Disclosure Statement for Creditor Proponents'
Settlement Plan. The Bondholders Second Amended Plan modified the
Bondholders Amended Plan in two significant ways. First, post-filing
date interest on Series B & C Senior Note Claims (principal amount due
and owing on the Filing Date together with interest on such principal
amount accrued and unpaid as of the Filing Date) will accrue (i) with
respect to the amount of such Claims paid in cash, at the rate of 13%
per annum for the period from the Filing Date to June 30, 1994 and 14-
5/8% per annum from July 1, 1994 to the Effective Date or (ii) with
respect to the amount of such claims paid in debt securities, at the
rate of 14% per annum for the period from the Filing Date to June 30,
1994 and 14-5/8% per annum for the period from July 1, 1994 to the
Effective Date.

In addition, the Bondholders Second Amended Plan provides that the
shareholders of the Company may purchase their pro rata share of the
shares of the Class B Common Stock that would otherwise be
distributable to holders of Subordinated Note Claims or distributable
under the Veil Piercing Settlement Agreement at a cash exercise price
equal to the "New Common Stock Value Per Share".

On June 15, 1994, the Bankruptcy Court held a status conference
with respect to the disclosure statements filed by the Debtors and the
Bondholders Plan Proponents on June 9, 1994. At the status conference,
the Debtors and the Bondholders Plan Proponents suggested the
following procedures and the fixing of the following dates in
connection with the disclosure statement approval process: (i) June
21, 1994 was fixed as the last date by which the Debtors and the
Bondholders Plan Proponents could serve amended and restated plans of
reorganization, which amended and restated plans of reorganization
were to be filed with the Bankruptcy Court on June 22, 1994; (ii) June
28, 1994 was fixed as the last date by which the Debtors and the
Bondholders Plan Proponents could serve amended and restated
disclosure statements, which amended and restated disclosure
statements were to be filed with the Bankruptcy Court on June 29,
1994; (iii) July 6, 1994 was fixed as the last date by which parties
in interest, other than the clients of Allen Potter, Esq., could serve
written objections to the amended and restated disclosure statements
filed by the Debtors and the Bondholders Plan Proponents on June 29,
1994, which objections are to be filed with the Bankruptcy Court no
later than July 7, 1994; (iv) July 8, 1994 was fixed as the last date
by which the clients of Allen Potter, Esq. could serve and file
written objections to amended and restated disclosure statements filed
by the Debtors and the Bondholders Plan Proponents; (v) during the
period July 7 through July 11, 1994, the Debtors and the Bondholders
Plan Proponents are to confer and attempt in good faith to resolve any
objections to the amended and restated disclosure statements; (vi)
prior to July 7, 1994, the Debtors and the Bondholders Plan Proponents
are to attempt to resolve technical balloting and solicitation issues
and serve and file, either jointly or separately, a motion regarding
such issues and procedures which motion is scheduled to be heard on
July 13, 1994; (vii) on July 12, 1994, the Debtors and the Bondholders
Plan Proponents shall each file with the Bankruptcy Court a pleading
setting forth, without legal argument, unresolved objections to the
amended and restated disclosure statements filed by the Debtors and
the Bondholders Plan Proponents; and (viii) a hearing is scheduled for
July 13, 1994 at which the Bankruptcy Court will hear argument
concerning any unresolved objections to the amended and restated
disclosure statements filed by the Debtors and the Bondholders Plan
Proponents. On June 28, 1994, the Bankruptcy Court entered an order
confirming the aforementioned procedures and dates.

F-13
<PAGE>

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

On June 22, 1994, the Debtors filed their Fourth Amended Joint Plan
of Reorganization dated as of June 21, 1994 (the "Debtors Fourth
Amended Plan"). The Debtors Fourth Amended Plan did not materially
modify the Debtors Third Amended Plan. The Bondholder Plan Proponents
did not file a further amended plan of reorganization.

On June 29, 1994, the Debtors and the Bondholders Plan Proponents
each filed an amended disclosure statement.

The process pursuant to which the Debtors Fourth Amended Plan or
any further amended plan of reorganization filed by the Debtors and
the Bondholders Second Amended Plan or any further amended plan of
reorganization filed by the Bondholders Plan Proponents may be
confirmed necessarily will be complex and may be delayed pending
further developments in the asbestos-related litigation involving the
Company (see Note 10). Accordingly, the timing of such confirmation
necessarily cannot be predicted.

The Debtors Fourth Amended Plan and/or the Bondholders Second
Amended Plan will be sent, along with a disclosure statement approved
by the Bankruptcy Court to all members of classes of impaired
creditors and equity security holders for acceptance or rejection. In
general, the Bankruptcy Code provides that a claim or interest is
impaired under a plan unless such plan proposes to pay such claim or
interest in full or leave it unaltered. In order to be accepted, at
least two-thirds in amount and a majority in number of holders of
allowed claims or interests in each class that is impaired who
actually vote, must accept the plan. Following acceptance or rejection
of any plan by impaired classes of creditors and equity security
holders, the Bankruptcy Court at a noticed hearing would consider
whether to confirm the plan. Among other things, for confirmation the
Bankruptcy Court at a noticed hearing is required to find that (i)
each holder of a claim or interests in each impaired class of
creditors and equity security holders will, pursuant to the plan,
receive at least as much as the class would have received in a
liquidation under Chapter 7 of the Bankruptcy Code, (ii) each impaired
class of creditors and equity security holders has accepted the plan
by the requisite vote and (iii) confirmation of the plan is not likely
to be followed by the liquidation or need for further financial
reorganization of the debtor or any successor unless the plan proposes
such liquidation or reorganization.

If any impaired class of creditors or equity security holders does
not accept a plan, and assuming that all of the other requirements of
the Bankruptcy Code are met, the proponent of the plan may invoke the
so-called "cram down" provisions of the Bankruptcy Code. Under these
provisions, the Bankruptcy Court may confirm a plan notwithstanding
the nonacceptance of the plan by an impaired class of creditors or
equity security holders if certain requirements of the Bankruptcy Code
are met including but not limited to finding that the proposed plan
and any settlement contemplated therein (i.e. the Veil Piercing
Settlement Agreement) is fair and equitable. These requirements may
necessitate provision in full for senior classes of creditors and/or
equity security holders before provision for a junior class could be
made.

The Company cannot now predict whether, or at what time, the
Debtors Fourth Amended Plan, the Bondholders Second Amended Plan or
any further amended plans by either party may be confirmed or the
ultimate terms thereof.

NOTE 3 - 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 $4,176,040,000 an amount of $3,870,826,000 is due after one
year. Instalment payments estimated to be receivable within each of
the five years from May 31, 1994 are $305,214,000, $295,254,000,
$287,645,000, $281,172,000 and $274,592,000, respectively, and
$2,732,163,000 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

F-14

<PAGE>

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

were accelerated. The aggregate amount of instalment notes receivable
having at least one payment ninety or more days delinquent was 3.23%
and 3.12% of total instalment notes receivable at May 31, 1994 and
1993, respectively.

Mid-State Homes, Inc. ("Mid-State"), an indirect wholly-owned
subsidiary of the Company, is the settlor and sole beneficiary of two
business trusts established under the laws of Delaware, Mid-State
Trust II ("Trust II") and Mid-State Trust III ("Trust III"). The
Trusts were organized for the purpose of purchasing instalment notes
receivable from Mid-State from the net proceeds from the issuance of
the Mortgage-Backed Notes and the Asset Backed Notes described in Note
5. Assets of Trust II and Trust III, including the instalment notes
receivable, are not available to satisfy claims of general creditors
of the Company and its subsidiaries. Of the gross amount of instalment
notes receivable at May 31, 1994 of $4,176,040,000 with an economic
balance of $2,051,261,000, receivables owned by Trust II had a gross
book value of $1,631,212,000 and an economic balance of $972,093,000
and receivables owned by Trust III had a gross book value of
$523,048,000 and an economic balance of $256,904,000.

Restricted short-term investments include (i) temporary investment
of reserve funds and collections on instalment notes receivable owned
by Trust II which are available only to pay expenses of Trust II and
principal and interest on the Mortgage-Backed Notes ($73,000,000),
(ii) temporary investment of reserve funds and collections on
instalment notes receivable owned by Trust III which are available
only to pay expenses of Trust III and principal and interest on the
Asset Backed Notes ($12,971,000), (iii) cash securing letters of
credit ($3,037,000) and (iv) miscellaneous other segregated accounts
restricted to specific uses ($18,544,000), including $6,271,000 from
proceeds of sale of assets set aside to offer to purchase Series B and
Series C Senior Extendible Reset Notes.

NOTE 4 - Property, Plant and Equipment

Property, plant and equipment are summarized as follows (see Note 1
regarding purchase accounting):

May 31,
-----------------------
1994 1993
-----------------------
(in thousands)
Land and mine . . . . . . . . $200,337 $200,000
Land improvements . . . . . . 18,941 17,349
Buildings and leasehold
improvements . . . . . . . . 104,999 99,597
Mine development costs . . . 123,761 116,576
Machinery and equipment . . . 663,898 617,987
Construction in progress . . 12,003 23,559
---------- ----------
Total . . . . . . . . . . $1,123,939 $1,075,068
========== ==========

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, 1994, 1993 and 1992
was immaterial. Interest paid in cash for the years ended May 31,
1994, 1993 and 1992 was $91,293,000, $117,853,000 and $109,477,000,
respectively.

F-15

<PAGE>

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

NOTE 5 - Debt

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.

As a result of the Reorganization Proceedings, the maturity of all
unpaid principal of, and interest on, substantially all of the
indebtedness of the Debtors became immediately due and payable in
accordance with the terms of the instruments governing such
indebtedness.

While the Reorganization Proceedings are pending, the Debtors are
prohibited from making any payments of obligations owing as of the
petition date, except as permitted by the Bankruptcy Court.
Furthermore, the Debtors will not be able to borrow additional funds
under any of their prepetition credit arrangements.

At the date of the filing of the Reorganization Proceedings the
Company and various of its subsidiaries were borrowing under a Working
Capital Agreement which also provided for the issuance of letters of
credit. An aggregate of $78,033,000 of borrowings and $17,549,000 of
letters of credit are outstanding under this agreement at May 31,
1994. Under the terms of the Working Capital Agreement, overdue
principal and, to the extent permitted by law, overdue interest bear
interest at a rate equal to 3-1/2% per annum in excess of the
reference rate of Chemical Bank (the "Reference Rate") in effect from
time to time, provided that no loan will bear interest after maturity
at a rate per annum less than 1% in excess of the rate of interest
applicable thereto at maturity.

Since the beginning of the Reorganization Proceedings certain of
the Debtors have consummated an agreement, as amended, with two
commercial banks with respect to a $25 million letter of credit
facility. Pursuant to the terms of such "New Letter of Credit
Agreement", upon issuance of a letter of credit, the applicable
Debtors will deposit with the issuing bank an amount of cash equal to
the stated amount of the letter of credit. At May 31, 1994, $3,037,000
of letters of credit were outstanding under this agreement. Since the
beginning of the Reorganization Proceedings certain of the Debtors
have also consummated an agreement with the lenders pursuant to which
the lenders agree to renew letters of credit issued under the Working
Capital Agreement that were outstanding at the time of filing of the
petitions for reorganization (the "Replacement Letter of Credit
Agreement"). To the extent that the letters of credit under the
Replacement Letter of Agreement are renewed during the Reorganization
Proceedings, these Debtors have agreed to reimburse the issuing bank
for any draws under such letters of credit, which obligation shall be
entitled to an administrative expense claim under the Bankruptcy Code.
In addition, the obligations of the Debtors under such Replacement
Letter of Credit Agreement shall continue to be secured by the
collateral which secures the Debtors' obligations under the Bank
Credit Agreement and the Working Capital Agreement. The Bankruptcy
Court approved the Debtors' entering into the New Letter of Credit
Agreement in May 1990. The New Letter of Credit Agreement currently
terminates on June 30, 1995.

F-16

<PAGE>

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

Long-term debt, in accordance with its contractual terms, consisted
of the following at each year end:

May 31,
-----------------------
1994 1993
----------- -----------
(in thousands)
Senior debt:
Mortgage-Backed Notes (less unamortized discount
of $1,864,000 in 1993) . . . . . . . . . . . . . $671,000 $811,122
Asset Backed Notes . . . . . . . . . . . . . . . . 200,970 229,585
Revolving Credit Agreement . . . . . . . . . . . . 228,249 228,249
Series B Senior Extendible Reset Notes . . . . . . 176,300 176,300
Series C Senior Extendible Reset Notes . . . . . . 5,000 5,000
Other . . . . . . . . . . . . . . . . . . . . . . 7,080 13,344
------- ------
Total senior debt . . . . . . . . . . . . . . . 1,288,599 1,463,600
--------- ---------

Subordinated debt:
Senior Subordinated Extendible Reset Notes . . . . 443,046 443,046
Subordinated Notes . . . . . . . . . . . . . . . . 350,000 350,000
13-1/8% Subordinated Notes . . . . . . . . . . . . 50,000 50,000
13-3/4% Subordinated Debentures . . . . . . . . . 100,000 100,000
10-7/8% Subordinated Debentures (less unamortized
discount of $7,513,000 and $8,280,000) . . . . . 82,487 81,720
------- ------
Total subordinated debt . . . . . . . . . . . . 1,025,533 1,024,766
--------- ---------
Less: Amount included as liabilities subject to
Chapter 11 proceedings (Note 2) . . . . . . . . .(1,442,162) (1,441,395)
----------- -----------
Total consolidated long-term debt . . . . . . . $871,970 $1,046,971
======== ===========

The Mortgage-Backed Notes (see Note 3) were issued by Trust II
(which did not file a petition for reorganization) 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, 1994 is $87,000,000, $87,000,000, $87,000,000, $ 87,000,000 and
$64,600,000, respectively.

The Asset Backed Notes (see Note 3) issued by Trust III, 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.

Set forth in the following paragraphs is a description of the terms
of the Company's various senior, senior subordinated and subordinated
debt agreements as in effect on the petition date. Such provisions do
not necessarily presently govern the respective rights of the Company,
its subsidiaries and the various lenders. Instead, the rights of the
parties will be determined in connection with the Reorganization
Proceedings.

The Company, Old Walter Industries and certain operating
subsidiaries of the Company (the "Revolving Loan Borrowers"), on a
joint and several basis, were initially permitted to borrow up to an
aggregate of $800,000,000 under the terms of a credit agreement dated
as of September 10, 1987, as amended, with various banks (the
"Revolving Credit Agreement"), of which $700,000,000 was a term loan
and $100,000,000 was a revolving loan. The commitment under the
Revolving Credit Agreement had been reduced to $242,292,000 at the
petition date and was scheduled to be fully repaid by quarterly
payments through June 30, 1991. Additionally, the commitment would
have been reduced by the proceeds of

F-17

<PAGE>

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

certain asset sales. Interest, at the option of the Revolving Loan
Borrowers, was at (i) the Reference Rate plus 1-1/2%, (ii) a LIBOR
rate plus 2-1/4% or (iii) a certificate of deposit rate plus 2-1/2%. A
commitment fee of 1/2 of 1% per annum was required based on the daily
average unutilized commitment. In fiscal 1991, pursuant to an order of
the Bankruptcy Court, $7,356,000 of proceeds from the sale of an asset
held as security for the Revolving Credit Agreement and setoff of bank
accounts were turned over to the lenders with reservation of rights as
to application of such payment. The Company has applied such payment
to a reduction of principal ($5,794,000 to the Revolving Credit
Agreement and $1,562,000 to the Working Capital Agreement). In June
1991, pursuant to an order of the Bankruptcy Court, $10,704,000 of
proceeds from the prepayment of the promissory note received in
connection with the sale of Apache Building Products Company in 1988,
plus $350,000 of interest earned thereon, held in a segregated escrow
account were applied as a reduction of principal ($8,249,000 to the
Revolving Credit Agreement and $2,805,000 to the Working Capital
Agreement). Bankers Trust Company and Chemical Bank, as agents for the
various bank lenders under the Revolving Credit Agreement (the
"Revolving Credit Banks"), appealed the Bankruptcy Court's order,
permitting the application of proceeds to the principal of the
indebtedness only, to the District Court (as defined in Note 10). On
April 29, 1992, the District Court reversed the Bankruptcy Court's
order and remanded the case to the Bankruptcy Court for further
proceedings and determinations on the issues of whether the Revolving
Credit Banks are oversecured creditors, the reasonable, relevant,
applicable interest rate and whether the Debtors will ultimately prove
to be solvent. At May 31, 1994, $228,249,000 principal amount of loans
were outstanding. Under the terms of the Revolving Credit Agreement,
overdue principal and, to the extent permitted by law, overdue
interest bear interest at a rate equal to 3-1/2% per annum in excess
of the Reference Rate in effect from time to time, provided that no
loan will bear interest after maturity at a rate per annum less than
1% in excess of the rate of interest applicable thereto at maturity.

The Series B Senior Extendible Reset Notes and Series C Senior
Extendible Notes were bearing interest at rates of 14-5/8% and 14-
1/2%, respectively, on the petition date, payable semi-annually, in
cash, on January 1 and July 1 and were to mature on January 1, 1990
unless the Senior Note Issuers (three subsidiaries of the Company)
elected to extend the notes for one or more additional one-year
periods. In the event the maturity was extended, the interest rate
would be reset to the interest rate per annum these notes should bear
in order to have a bid value of 101% of the principal amount as of the
reset date. In no event, however, would the interest rate be reset
below the interest rate then in effect.

The Senior Note Issuers are the following principal operating
subsidiaries: Jim Walter Homes, Inc., Jim Walter Resources, Inc. ("Jim
Walter Resources") and United States Pipe and Foundry Company
("U.S.Pipe"). See Note 14 for Summarized Financial Information of the
Senior Note Issuers.

The Senior Subordinated Extendible Reset Notes were bearing
interest at a rate of 16-5/8% per annum on the petition date until
reset as described herein, payable semi-annually on January 1 and July
1, in cash or, at the option of the Subordinated Note Issuers (two
subsidiaries of the Company who are also the issuers of the
Subordinated Notes) on or before January 1, 1993, by delivering
additional Senior Subordinated Extendible Reset Notes (valued at their
principal amount). The Senior Subordinated Extendible Reset Notes were
to mature on January 1, 1990, unless the Subordinated Note Issuers
elected to extend the notes for one or more additional one-year
periods. In the event the maturity was extended, the interest rate
would be reset to the interest rate per annum these notes should bear
in order to have a bid value of 101% of the principal amount as of the
reset date. In no event, however, would the interest rate be reset
below the interest rate then in effect.

The Subordinated Notes were bearing interest at a rate of 17% per
annum on the petition date payable semi-annually, in cash, on January
1 and July 1.

The Subordinated Note Issuers are the following principal operating
subsidiaries: Jim Walter Homes, Inc. and U.S. Pipe. See Note 14 for
Summarized Financial Information of the Subordinated Note Issuers.

Subordinated debt assumed by Old Walter Industries from Original
Jim Walter in connection with the Acquisition includes the (i) 13-1/8%
Subordinated Notes, (ii) 13-3/4% Subordinated Debentures and (iii) 10-
7/8% Subordinated Debentures (which were sold at a discount to yield
12-3/4% to maturity).

F-18

<PAGE>

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

The Company's various debt agreements had covenants which, among
other things, restricted incurrence of additional indebtedness,
dividend payments, mergers, consolidations and sales of assets by the
Company and its subsidiaries, and required the Company to maintain
certain financial ratios. However, as a result of the automatic stay
resulting from the filing of the Reorganization Proceedings, neither
the indenture trustees nor the holders of the Company's debt may
enforce any rights, exercise any remedies or realize on any claims in
the event the Company or any of its subsidiaries fails to comply with
any of the covenants contained in the various debt agreements.

NOTE 6 - Income Taxes

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

<TABLE><CAPTION>
May 31, 1994 May 31, 1993 May 31, 1992
------------------------------------------------------------------
Current Deferred Current Deferred Current Deferred
---------- ---------- ---------- ---------- ---------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
United States . . . . . . . . . . $38,712 $(11,716) $44,093 $(22,682) $ 34,349 $(23,494)
State and local . . . . . . . . . 2,886 (965) 4,048 (1,131) 1,608 --
------ -------- ------- -------- -------- ---------
Total . . . . . . . . . . . . . . $41,598 $(12,681) $48,141 $(23,813) $ 35,957 $(23,494)
======= ======== ======= ========= ======== ========

</TABLE>

Federal income tax paid for fiscal 1994, 1993 and 1992 was
approximately $37.1 million, $35.9 million, and $52.7 million. State
income tax payments approximated the amounts provided above.

The Company adopted Statement of Financial Accounting Standards No.
109 ("FAS 109"), "Accounting for Income Taxes" in 1993. 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. Previously, the
Company used the FAS 96 asset and liability method that gave no
recognition to future events other than the recovery of assets against
liabilities which reversed in the same time period. The change to FAS
109 did not require any change to the financial statements.

Deferred income taxes result from timing differences in the
recognition of revenue and expense for tax and financial reporting
purposes. The tax effect of such timing differences is summarized as
follows:

May 31,
----------------------------------------
1994 1993 1992
----------------------------------------
(in thousands)

<S> <C> <C> <C>
Effect of tax loss and tax credit carryforwards . . . . . . . . . . $ -- $ -- $ 4,779
Revenues recognized on the instalment sales method for tax purposes
and on the accrual basis for financial reporting . . . . . . (11,899) (11,271) (13,123)
Excess of book over tax depreciation . . . . . . . . . . . . . . . (3,197) (6,149) (10,850)
Postretirement benefit obligation . . . . . . . . . . . . . . . . . (6,690) (7,594) --
Amortization of investment tax credit . . . . . . . . . . . . . . . -- (219) (384)
Mine development expense . . . . . . . . . . . . . . . . . . . . . 1,936 913 573
Timing differences relating to accrued expenses . . . . . . . . . . 5,156 2,364 (3,542)
Enacted tax rate change . . . . . . . . . . . . . . . . . . . . . . 2,833 -- --
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145 (726) (947)
------ -------- --------

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(11,716) $(22,682) $(23,494)
======== ======== ========

</TABLE>

F-19

<PAGE>

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

May 31,
-------------------------
1994 1993 1992
---- ---- ----
(in thousands)

Statutory tax rate . . . . . . . . . . 35.0% 34.0% 34.0%
Effect of:
Adjustment to deferred taxes . . . . 5.3 -- --
State and local income tax . . . . . 3.3 2.7 3.0
Percentage depletion . . . . . . . . (1.7) (8.3) (13.8)
Enacted tax rate change . . . . . . . 9.4 -- --
Amortization of net investment tax
credit . . . . . . . . . . . . . . . . -- (.3) (1.1)
Nonconventional source fuel credit . (10.8) (7.7) (15.2)
Amortization of excess of purchase
price over net assets acquired . . . . 47.1 19.0 38.9
Benefit of capital loss carryforward
(8.5) (4.7) (10.2)
Other, net . . . . . . . . . . . . . 1.0 (.4) .2
---- ---- ----

Effective tax rate . . . . . . . . . . 80.1% 34.3% 35.8%
==== ==== ====

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,
-------------------
1994 1993
------------------
(in thousands)
Instalment sales method for instalment notes
receivable in prior years . . . . . . . . . $52,549 $62,608
Depreciation . . . . . . . . . . . . . . . 117,053 93,701
Difference in basis of assets under purchase
accounting . . . . . . . . . . . . . . . . 27,269 28,119
Capital loss carryforward . . . . . . . . . (12,600) (15,800)
Accrued expenses . . . . . . . . . . . . . (43,716) (28,044)
Postretirement benefits other than pensions (80,003) (70,551)
Valuation allowance . . . . . . . . . . . . 12,600 15,800
------ ------

Total deferred tax liability . . . . . . . $73,152 $85,833
======= =======

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

For book purposes the Company recognized a long-term capital loss
of approximately $75.0 million in fiscal 1989. This loss was
recognized for tax purposes in fiscal 1992 and is deductible to the
extent of capital gains of approximately $8.8 million, $9.9 million
and $10.4 million in years ended May 31, 1994, 1993 and 1992,
respectively. The remaining capital loss is available as a carryback
to fiscal 1991 to be offset against capital gains of approximately
$8.3 million and as a carryforward to the succeeding three years. The
Company has established a valuation allowance of $12.6 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 three year carryforward period.
If certain substantial changes in the Company's ownership should
occur, there would be an annual limitation on the amount of such loss
carryforward which

F-20
<PAGE>

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

could be utilized. 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.

NOTE 7 - Stockholders' Equity

KKR Associates, a New York limited partnership, is the sole general
partner of three partnerships which own a total of 28,500,000 shares
of the outstanding common stock of the Company.

The Company entered into common stock subscription agreements,
dated as of December 1, 1987 (the "Management Common Stock
Subscription Agreements"), with certain individuals who are former or
current members of management (the "Management Investors") under which
an aggregate of 893,500 shares of common stock remain outstanding. The
Management Common Stock Subscription Agreements generally provide the
Company with a right of first refusal with respect to any bona fide
offer from a third party to purchase any or all of such Management
Investor's shares of common stock commencing after January 7, 1993;
provided that such transfer restrictions and right of first refusal
will terminate in the event of a public offering of the Company's
common stock.

NOTE 8 - Stock Options

Under stock option plans approved by stockholders in October 1987,
an aggregate of 3,318,182 shares of the Company's common stock have
been reserved for the grant and issuance of incentive and non-
qualified stock options (the "Options"). Options for 1,618,568 shares,
all of which are exercisable, were outstanding at May 31, 1994. The
exercise price of each Option granted is $5.00 per share, the fair
market value at date of grant. During 1994, 1993 and 1992 options for
59,727, 384,909 and 16,591 shares were cancelled.

NOTE 9 - Related Party Transactions

Following its incorporation, the Company retained KKR to provide
financial, financial advisory and consulting services to the Company
in connection with the Acquisition and the Merger, for which the
Company paid to KKR a fee of $35 million. KKR has agreed to provide
management consulting and financial services to the Company and its
subsidiaries on an annually renewable basis. Effective with the
commencement of the Reorganization Proceedings, current payment of
these consulting fees was suspended. The annual rate at such time was
$550,000.

NOTE 10 - Litigation and Other Matters

Note 1 contains a description of the organization of the Company
and the acquisition of Original Jim Walter. On April 21, 1988, the
Company sold all of the outstanding capital stock of JWC Holdings, the
parent corporation of Jim Walter Corporation (formerly J-II) and its
subsidiaries, including The Celotex Corporation ("Celotex") and its
subsidiaries. Celotex is a co-defendant with other miners,
manufacturers and distributors of asbestos-containing products in a
very large number of lawsuits filed throughout the United States
alleging injuries to the health of persons exposed to asbestos-

F-21

<PAGE>

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

containing products. Original Jim Walter had been named as a defendant
in certain asbestos-related lawsuits from time to time and the Company
understands that Original Jim Walter's corporate successor, Jim Walter
Corporation, currently is a co-defendant in a number of the asbestos-
related lawsuits filed against Celotex. As discussed below, the
Company and certain of its subsidiaries and other affiliates have been
served with process as a co-defendant in a number of these lawsuits.
The Company understands that prior to the Tender Offer Celotex ceased
to be engaged in the mining, manufacturing and distribution of the
asbestos-containing products that have given rise to the
aforementioned asbestos-related lawsuits against Celotex. Because Jim
Walter Corporation, Celotex and their respective affiliates are not
affiliates of the Company, neither the Company, Old Walter Industries
nor any of their respective affiliates can make any representation as
to the status of the asbestos-related litigation pending against Jim
Walter Corporation, Celotex and their respective affiliates, the
amount of the alleged damages sought from Jim Walter Corporation,
Celotex and their respective affiliates in those lawsuits, the
insurance coverage available to them to satisfy asbestos-related
claims, or any other matter related to such litigation.

The Company understands that the extent of the alleged injuries in
the asbestos-related lawsuits filed against Celotex varies from case
to case, many of the complaints against Celotex request punitive
damages in addition to the compensatory damages and the aggregate
damages sought in these cases is very substantial. In addition to
these personal injury cases, a substantial number of actions, some of
which are styled as class actions, have been filed against Celotex and
numerous co-defendants seeking very substantial aggregate damages for
the cost of detecting, analyzing, repairing and/or removing asbestos-
containing materials in buildings owned or operated by the plaintiffs.
The Company understands that the number of asbestos-related lawsuits
filed against Celotex has continued to grow in recent years and the
magnitude of the additional claims that are expected to be asserted
against Celotex in the future cannot be accurately predicted at this
time. The Company understands that the cost to Celotex to date of
settling or otherwise disposing of asbestos-related lawsuits has been
very substantial and that a substantial portion of such cost has been
borne by insurance carriers pursuant to their insurance policies or
settlement agreements with Celotex. The Company believes, however,
that (i) most of Celotex' available insurance coverage prior to late
1977 has been exhausted, (ii) since late 1977, most of Celotex'
insurance policies have excluded coverage for asbestosis, which is the
basis for most of the personal injury claims pending against Celotex,
(iii) beginning in late 1977, an increasing number of Celotex'
policies have excluded coverage for other asbestos-related diseases
and Celotex and its insurers dispute the scope of most of those
exclusions, (iv) since late 1984, coverage for asbestos-related
personal injury and property damage claims generally have been
excluded from Celotex policies, (v) Celotex' insurers dispute whether
any of Celotex' policies cover any asbestos-related property damage
claims and (vi) no insurance is available for punitive damages in many
jurisdictions. The insurance coverage disputes referred to above are
the subject of litigation. The uncertain outcome and possible adverse
consequences of the insurance coverage disputes referred to above, the
continued growth in the number of asbestos-related lawsuits filed
against Celotex and the very substantial aggregate damages alleged
therein and the possibility that future disposition costs could exceed
those experienced to date by Celotex, could impair the ability of
Celotex to continue to satisfy asbestos-related claims. On October 12,
1990, Celotex and its wholly-owned subsidiary, Carey Canada, Inc. each
filed a petition for reorganization under Chapter 11 of the Bankruptcy
Code with the United States Bankruptcy Court for the Middle District
of Florida, Tampa Division. The Chapter 11 cases were assigned to the
Honorable Thomas E. Baynes, Jr. As a result thereof and pursuant to
the automatic stay provisions contained in Sec.362 of the Bankruptcy
Code, all actions (other than those actions set forth in Sec.362(b) and,
as discussed below, other than, for certain limited purposes, the
Declaratory Judgement Proceeding commenced by the Debtors) commenced
against Celotex prior to October 12, 1990 were stayed pending any
future modification of the automatic stay under the Bankruptcy Code.
On May 8, 1991, the Debtors filed a motion in the Celotex Chapter 11
case seeking to have the automatic stay lifted so as to allow the
Debtors to continue to prosecute the Declaratory Judgment Proceeding
against Celotex and others. On June 4, 1991, Judge Baynes granted the
Debtors motion for the limited purpose of permitting them to file and
proceed with a motion for summary judgment and to prosecute or defend
any appeals arising from or related to such motion.

A substantial number of the asbestos-related lawsuits filed against
Celotex relate to the asbestos-related operations of a predecessor
corporation of Rapid-American Corporation, a Delaware corporation
("Rapid-American"), which subsequently were transferred by Rapid-
American to a corporation which was merged into Celotex in 1972.
According to Rapid-American's Annual Report on Form 10-K for the
fiscal year ended January 31, 1989, Rapid-American is a co-

F-22

<PAGE>

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

defendant in a number of personal injury and property damage cases.
Each of Celotex and its predecessor corporation had indemnified Rapid-
American and its predecessor corporation against all liabilities
relating to those operations for a limited time period. The extent of
the indemnification is currently a matter of dispute.

As stated above, the Company and certain of its subsidiaries and
other affiliates have been served with process as a co-defendant in a
number of the asbestos-related lawsuits described above. One of these
lawsuits is a class action filed in federal court in Beaumont, Texas
that involves approximately 3,000 plaintiffs alleging asbestos-related
personal injuries. Plaintiffs in the class action added Old Walter
Industries as a defendant alleging, among other things, that (i)
Original Jim Walter and its successors, including Jim Walter
Corporation and HAC, are liable for all damages caused by the products
manufactured, sold and distributed by Celotex by reason, among other
things, of operating Celotex as a division, and conspiring with
Celotex and other co-defendants to market harmful products; (ii) the
distribution by HAC of substantially all of its assets to Old Walter
Industries constituted a fraudulent conveyance; and (iii) Old Walter
Industries is a successor to the liabilities of HAC and is thus liable
to the plaintiffs for injuries caused by Celotex and certain named
subsidiaries and/or predecessor companies of Celotex, and Original Jim
Walter and its successors, including HAC and Jim Walter Corporation.

Another asbestos-related lawsuit is a purported class action filed
on July 13, 1989 in state court in Beaumont, Texas against the
Company, Old Walter Industries, KKR, KKR Associates, Jim Walter
Corporation, HAC, Celotex, Drexel Burnham Lambert Incorporated
("Drexel Burnham"), Drexel Burnham Lambert Group, Inc. ("Drexel
Burnham Group"), and certain directors and executive officers of the
Company, Old Walter Industries and Original Jim Walter (i.e., John B.
Carter, Jr., Perry Golkin, Henry R. Kravis, Paul E. Raether, George R.
Roberts, Michael T. Tokarz and Gene M. Woodfin) that purports to
involve all persons pursuing unsatisfied personal injury or wrongful
death claims against Celotex or Jim Walter Corporation based upon
exposure to asbestos. The action originally named as defendants, in
addition to those individuals and entities named above, James O.
Alston, Joe B. Cordell and James W. Walter, directors and executive
officers of the Company, Old Walter Industries and Original Jim
Walter. Subsequently, plaintiffs voluntarily dismissed their claims
against Messrs. Alston, Cordell and Walter. On December 26, 1989,
plaintiffs filed their Second Amended Original Petition and
Application for Temporary Injunction. Plaintiffs allege, among other
things, that (i) Original Jim Walter and its successors, including Jim
Walter Corporation and HAC, are liable for all damages caused by the
products manufactured, sold and distributed by Celotex by reason,
among other things, of operating Celotex as a division; (ii) the
distribution by HAC of substantially all of its assets to Old Walter
Industries constituted a fraudulent conveyance; (iii) Old Walter
Industries is a successor to the liabilities of HAC and the corporate
separateness of Old Walter Industries and HAC should be disregarded,
and thus Old Walter Industries is liable to the plaintiffs for
injuries caused by Celotex and its predecessors and Original Jim
Walter and its successors, including HAC and Jim Walter Corporation;
(iv) the corporate separateness of the Company and Old Walter
Industries should be disregarded; (v) the sales and transfers of
assets by Old Walter Industries are fraudulent; and (vi) the
individual defendants, KKR, KKR Associates, Drexel Burnham, Drexel
Burnham Group and the Company conspired to effect the allegedly
fraudulent transfers of assets from and to Old Walter Industries. The
relief requested by the plaintiffs includes, among other things, (i)
enjoining each defendant from transferring any assets formerly owned
by Original Jim Walter (and any proceeds from the disposition
thereof); (ii) requiring each defendant to account for all transfers
of such assets or proceeds; (iii) requiring each defendant to transfer
such assets and proceeds to Celotex to be held in trust for the
benefit of the plaintiffs; (iv) appointing a receiver to take charge
of such assets and proceeds or of any other property of any defendant;
(v) holding the defendants jointly and severally liable for damages
equal to the fair market value of any assets formerly owned by
Original Jim Walter which have been sold and cannot be recovered; and
(vi) punitive damages, interest and costs. Plaintiffs also requested
the Beaumont state court to issue a temporary injunction enjoining the
Company from selling or otherwise transferring or encumbering its
stock in any corporation that owns assets formerly owned by Original
Jim Walter or Old Walter Industries. The Company agreed to give the
plaintiffs 15 days prior notice of any closing of any disposition of
stock of a corporation which owns assets formerly owned by Original
Jim Walter or its subsidiaries. On September 12 through 15, 1989, the
Beaumont state court held a hearing on the defendants' motions to
dismiss the action for lack of personal jurisdiction. These motions
were denied. On October 11, 1989, plaintiffs filed a motion for class
certification. On October 16, 1989, defendants KKR, KKR Associates,
and Messrs. Kravis, Roberts, Raether, Tokarz and Golkin filed a motion
for a change of venue. Discovery was conducted with respect to the
class certification and venue

F-23
<PAGE>

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

motions. The Beaumont state court did not hold a hearing on either the
motion for Class Certification or the motion to change venue.

Some of the other asbestos-related lawsuits pending against the
Company and its subsidiaries involve claims against the Company and
its subsidiaries and request relief from the Company and its
subsidiaries similar to one or more of the claims involved and
remedies requested in the lawsuits pending against the Company and its
subsidiaries in Beaumont, Texas. On December 27, 1989, the Debtors
commenced the Reorganization Proceedings. As a result of the automatic
stay provisions of the Bankruptcy Code, all pending litigation against
the Debtors was automatically stayed. On December 29, 1989, plaintiffs
moved before the Beaumont state court to sever the claims against the
Company and Old Walter Industries from their claims against the
remaining defendants. On January 2, 1990, the Beaumont state court
action was removed to the United States Bankruptcy Court for the
Eastern District of Texas, Beaumont Division. On January 5, 1990,
certain defendants in that action moved to transfer the lawsuit to the
United States District Court for the Middle District of Florida, Tampa
Division (the "District Court"). The plaintiffs in that action moved
to remand that action to state court. All proceedings in that action
have been stayed by agreement of the parties and order of the District
Court pending resolution of the abstention issues in the
Reorganization Proceedings in the Bankruptcy Court. Other asbestos-
related lawsuits pending against the Company and its subsidiaries
allege personal injuries arising out of exposure to asbestos and
further allege, among other things, that (i) each named defendant has
been or is now engaged, directly or indirectly, in the manufacture,
supply, sale or otherwise placing into the stream of commerce,
asbestos or asbestos-containing products and (ii) defendants should be
held liable on the theories of strict products liability and
negligence for plaintiffs' injuries. None of the complaints filed in
such latter actions contain, at this time, corporate veil-piercing or
fraudulent conveyance claims. The relief requested by the plaintiffs
in these actions includes, among other things, general damages,
punitive damages and special damages in amounts to be proven at the
time of trial. There can be no assurance that the Company, its
subsidiaries or other affiliates will not, in the future, be named as
co-defendants in other asbestos-related lawsuits, whether currently
pending or subsequently commenced, or that temporary or preliminary
injunctive relief against the sale by the Company of any of its assets
will not be granted in any such pending or future lawsuit prior to
judgment. Based on the advice of outside counsel, the Company believes
that it and its affiliates have and would have a variety of
meritorious procedural and substantive defenses to the claims made or
any claims which may be made against them in pending or future
asbestos-related lawsuits. Accordingly, the Company believes that such
claims are and would be without foundation or merit and intends to
defend such cases vigorously. Plaintiffs have not specified the amount
of compensatory and punitive damages they seek from the Company and
its affiliates in the lawsuits pending in Beaumont, Texas and most of
the other asbestos-related lawsuits against the Company and its
affiliates referred to above. Such alleged damages are expected to be
very substantial and, accordingly, if judgments against the Company
and its subsidiaries are rendered in such lawsuits, the Company and
its subsidiaries could be materially adversely affected.

On January 2, 1990, the Debtors commenced the Declaratory Judgment
Proceeding against Jim Walter Corporation, Celotex and all known
individuals who had filed suit against the Debtors seeking to hold
them liable for asbestos-related liabilities of Celotex. The
Declaratory Judgment Proceeding requested the Bankruptcy Court to
declare and adjudicate that (i) the corporate veil between Jim Walter
Corporation and Celotex may not be pierced, (ii) the leveraged buyout
of Original Jim Walter was not a fraudulent conveyance, nor were any
subsequent transactions entered into as a part of that leveraged
buyout fraudulent transfers, (iii) neither the Company, Old Walter
Industries nor any of their subsidiaries or affiliates is the
successor in interest to the asbestos-related liabilities of either
Jim Walter Corporation or Celotex and (iv) neither the Company, Old
Walter Industries nor any of their subsidiaries or affiliates is
liable for the asbestos-related liabilities of either Jim Walter
Corporation or Celotex.

On January 2, 1990, the Debtors also commenced another proceeding
by filing in the Bankruptcy Court a Complaint to Extend the Automatic
Stay (the "Injunction Proceeding") wherein the Debtors sought to
enjoin all actions against Jim Walter Corporation and all other non-
debtors on corporate veil piercing or related theories, and further
seeking a permanent injunction staying all such actions, including the
previously disclosed proposed class-action lawsuit filed in state
court in Beaumont, Texas. That action was removed to the United States
Bankruptcy Court for the Eastern District of Texas, Beaumont Division
by certain of the defendants after the Debtors commenced the
Reorganization Proceedings.

F-24
<PAGE>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)

A motion to transfer said action to the Bankruptcy Court is now
pending, as well as a motion filed by the plaintiffs to remand said
action to the state court in Beaumont.

On January 9, 1990, the Debtors filed their Motion for Preliminary
Injunction in the Injunction Proceeding seeking a preliminary
injunction extending the automatic stay under Sec.362 of the Bankruptcy
Code to enjoin the prosecution of any action in which plaintiffs seek
to hold Jim Walter Corporation and other non-Debtors responsible for
the asbestos-related liabilities of Jim Walter Corporation's
subsidiary, Celotex, on a piercing the corporate veil or similar legal
theory.

On January 19, 1990, an asbestos claimant filed a motion in the
Bankruptcy Court requesting the Bankruptcy Court to dismiss and
abstain from deciding or, in the alternative, to stay the Declaratory
Judgment Proceeding. The asbestos claimant also opposed the Debtors'
motion for a preliminary injunction. A hearing on the pending motions
was held on January 22, 1990. Subsequently, the asbestos claimant,
joined by four additional claimants, also moved to dismiss the
Injunction Proceeding.

On April 13, 1990, and as amended, the Bankruptcy Court issued its
proposed findings of fact, conclusions of law and recommendation
pursuant to Bankruptcy Rule 9011 which recommended, among other
things, that the District Court deny the asbestos claimants' motion to
abstain from deciding, or to stay, the Declaratory Judgment Proceeding
as to the Debtors. The asbestos claimants subsequently filed
objections to the proposed findings of fact, conclusions of law and
recommendations with the District Court. On April 20, 1990, the
Bankruptcy Court entered orders (i) deferring a ruling on the asbestos
claimants' motion to dismiss the Injunction Proceeding until the
District Court decided whether or not to adopt the Bankruptcy Court's
recommendation and (ii) preliminarily enjoining all asbestos-related
personal injury and property damage claimants and their attorneys and
agents and all other persons acting on their behalf from commencing or
continuing any civil action in any United States federal or state
court in which such persons are attempting to assert claims against
non-Debtors that are based on the right to pierce the corporate veil
between Celotex and Jim Walter Corporation or that relate to or are
connected with claims that attempt to impose liability on the Debtors
for asbestos-related claims. The asbestos claimants filed an appeal of
the preliminary injunction with the District Court. On February 5,
1991, the District Court entered an order denying the asbestos
claimants' action for leave to appeal an interlocutory order, thus
letting stand the preliminary injunction of the Bankruptcy Court
entered on April 20, 1990 enjoining all asbestos-related personal
injury and property damage claimants and their attorneys and agents
and all other persons acting on their behalf from commencing or
continuing any civil action in any United States federal or state
court in which such persons are attempting to assert claims against
non-Debtors that are based on the right to pierce the corporate veil
between Celotex and Jim Walter Corporation or that relate to or are
connected with claims that attempt to impose liability on the Debtors
for asbestos-related claims.

On May 17, and May 22, 1990, the asbestos claimants filed motions
in the Bankruptcy Court and in the District Court, respectively, each
seeking stay of the Declaratory Judgment Proceeding, each of which was
denied by those courts on May 17 and June 5, 1990, respectively. Also
on May 17, 1990, certain asbestos defendants filed a motion in
District Court for withdrawal of reference as to the Declaratory
Judgment Proceeding from the Bankruptcy Court. On July 11, 1990, the
District Court issued an order dated June 29, 1990 which declined to
rule on the asbestos claimants' motion for withdrawal of reference
until after the Bankruptcy Court ruled on any motion for summary
judgment.

On September 2, 1992, the asbestos claimants filed a renewed
request to withdraw the reference in the District Court. On September
14, 1992, the Debtors filed a memorandum of law responsive to the
asbestos claimants renewal request. On September 15, 1992, the
District Court entered an order denying the asbestos claimants' motion
to withdraw the reference. The District Court held that while the
asbestos claimants could have their claims heard by a jury, they were
not entitled to a jury trial on the claims of piercing the corporate
veil and fraudulent conveyance because those claims are equitable in
nature. On September 22, 1992, the asbestos claimants filed a motion
for reconsideration and, pleading in the alternative, requested the
District Court to certify the order for interlocutory review in the
United States Circuit Court of Appeals for the Eleventh Circuit
("Court of Appeals"). On October 5, 1992, the Debtors filed their
Memorandum of Law in opposition to the asbestos claimants' motion for
reconsideration. On February 23, 1993, the District Court entered an
order denying the motion for reconsideration and request for
certification of interlocutory appeal. On March 3, 1993, the

F-25
<PAGE>

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

asbestos claimants filed a petition for a writ of mandamus with the
Court of Appeals. On April 13, 1993, the Debtors filed their response
to the writ of mandamus. On April 19, 1993, the Court of Appeals
denied the asbestos claimants petition for such writ of mandamus.

On July 11, 1990, the District Court adopted the Bankruptcy Court's
proposed findings of fact, conclusions of law and recommendation
pursuant to Bankruptcy Rule 9011, and denied the asbestos claimants'
motion to abstain from deciding, or to stay, the Declaratory Judgment
Proceeding. As a result of the District Court's decisions, absent any
reversal on reconsideration or appeal, the Bankruptcy Court was
empowered to rule on a motion for summary judgment in the Declaratory
Judgment Proceeding.

On July 17, 1990, the asbestos claimants filed a motion in the
District Court seeking reconsideration of the July 11, 1990 order
denying the motion for abstention, and, in the alternative, seeking
certification of that order for interlocutory appeal to the Court of
Appeals pursuant to 28 U.S.C. Sec.1292. The asbestos claimants also
sought a stay pending determination of their motion. On July 30, 1990,
the Debtors opposed the July 17, 1990 motion.

On December 6, 1990, the District Court entered an order (a)
denying the asbestos claimants' motion to reconsider the District
Court's decision of July 11, 1990 which adopted the Bankruptcy Court's
recommendation to deny the asbestos defendants' motion to require the
Bankruptcy Court to abstain from considering the Declaratory Judgment
Proceeding commenced by the Debtors against the asbestos defendants;
(b) giving the asbestos claimants ten (10) days from the date of the
order to seek interlocutory appeal to the Court of Appeals and (c)
granting the asbestos claimants' motion to stay further prosecution of
the Declaratory Judgment Proceeding pending the outcome of the
interlocutory appeal. On December 17, 1990, the asbestos claimants
filed their Petition for Permission to Appeal with the Court of
Appeals. On February 5, 1991, the Court of Appeals denied the asbestos
claimants' Petition for Permission to Appeal. By so ruling, the Court
of Appeals let stand the District Court's ruling of December 6, 1990
denying the asbestos claimants' motion to reconsider the District
Court's decision of July 11, 1990, which adopted the Bankruptcy
Court's recommendation to deny the asbestos claimants' motion to
abstain in such proceeding. On March 19, 1991, the asbestos claimants
filed with the District Court a Renewed Motion for Reconsideration of
their Motion to Abstain, which also sought to continue the stay in the
Bankruptcy Court. On April 16, 1991, the District Court entered an
order confirming that its stay of proceedings in the Bankruptcy Court
had expired. In addition, the District Court denied the asbestos
claimants Renewed Motion for Reconsideration of their Motion to
Abstain. Because the District Court's stay was lifted, the Declaratory
Judgment Proceeding went forward in the Bankruptcy Court under
schedules that were set by the Bankruptcy Court.

Discovery in the Declaratory Judgment Proceeding was to have been
concluded on July 6, 1990 pursuant to a Bankruptcy Court order.
Subsequent to issuance of that order, certain discovery disputes arose
between Jim Walter Corporation and the asbestos claimants centered
upon issues relating to whether or not certain documentation was
subject to various privileges and thus protected. After protracted
litigation wherein various issues were appealed to the District Court
and the Court of Appeals, on June 15, 1992 Jim Walter Corporation and
the asbestos claimants entered into a stipulation regarding the
resolution of all their then pending discovery disputes, without
either party waiving their right for further review, if necessary.

Following a hearing on January 8, 1992, the Bankruptcy Court
ordered that any motions for summary judgment in the Declaratory
Judgment Proceeding be filed by March 1, 1992 and set oral arguments
for April 16, 1992. On February 28, 1992, the Debtors filed their
Motion for Summary Judgment and supporting affidavits. On April 9,
1992, the asbestos claimants filed their Response to Debtors' Motion
for Summary Judgment, and on May 7, 1992, filed a Supplemental
Response to the Debtors' Motion for Summary Judgment. On April 16,
1992, oral arguments were heard by the Bankruptcy Court on the
Debtors' Motion for Summary Judgment. On May 29, 1992, the Debtors
filed their Statement of Undisputed Facts and Memorandum of Law in
Support of their Motion for Summary Judgment. On May 29, 1992,
asbestos claimants filed their Brief in Opposition to Debtors' Motion
for Summary Judgment.

F-26

<PAGE>

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

On August 25, 1992, the Bankruptcy Court entered an order denying
the Debtors' Motion for Summary Judgment. On September 3, 1992, the
Debtors filed a motion to reopen the record to make additional
findings of fact pursuant to Rule 43(e) of the Federal Rules of Civil
Procedure. On September 18, 1992, the asbestos claimants filed their
opposition to the Debtors' motion. On October 8, 1992, the Bankruptcy
Court denied the Debtors' motion to reopen the record to make
additional findings of fact.

On September 14, 1992, the Debtors filed a motion to strike the
asbestos claimants' demand for a jury trial and on September 21, 1992,
the Debtors filed a motion for a pre-hearing conference to resolve all
motions pending before the Bankruptcy Court. On October 7, 1992, the
Bankruptcy Court entered an order granting the Debtors' motion to
strike the asbestos claimants demand for jury trial.

On July 29, 1992, the asbestos claimants served discovery requests
upon the Debtors, Celotex, Jim Walter Corporation and other parties
not defendants to the Declaratory Judgment Proceeding. Upon a motion
for protective order by one of the non-party witnesses, which was
granted by order dated October 7, 1992, the Bankruptcy Court suspended
all discovery in the adversary proceeding, and indicated that it would
enter, without a hearing, an order on the issue of additional
permitted discovery, if any, on the veil piercing question and, if
appropriate, describe the scope of any production of documents.

On October 5, 1992, the asbestos claimants filed a motion for pre-
trial conference to address a number of issues, including but not
limited to the nature and scope of discovery. On October 30, 1992, the
Bankruptcy Court entered orders denying all pending motions for pre-
trial conference stating that the parties had not obtained further
relief from the automatic stay in the Celotex bankruptcy case.

On October 30, 1992, Celotex filed Proofs of Claim in each of the
Debtor's bankruptcy cases claiming that each Debtor is liable for all
claims which Celotex may hold (1) predicated upon a piercing the
corporate veil, alter ego, instrumentality, agency, conspiracy and any
related theory of law, equity or admiralty; (2) arising out of the
leveraged buyout of Original Jim Walter which resulted in the January
7, 1988 transfer by Hillsborough Acquisition Corporation of
substantially all of its assets to the Company; (3) arising out of the
transfer of Celotex assets for less than reasonably equivalent value;
and (4) arising out of that certain Stock Purchase Agreement dated
April 21, 1988 and amendments thereto. The total amount of the Proofs
of Claim included all scheduled and filed claims against Celotex in
their bankruptcy proceedings, all unfiled present asbestos-related
personal injury and property damage claims and all future asbestos-
related personal injury claims against Celotex. On November 6, 1992,
the Debtors filed their objections to the claims of Celotex. On
November 25, 1992, the Bankruptcy Court sustained the Debtors
objections to the Proofs of Claim filed by Celotex without prejudice
to the right to file Proofs of Claim, if appropriate, at the
conclusion of the veil piercing litigation.

On November 13, 1992, the Debtors filed a motion in the Celotex
bankruptcy case for limited relief from the automatic stay for the
sole purpose of permitting a trial on the veil piercing claims in the
Declaratory Judgment Proceeding and the prosecution or defense of any
appeals arising from or relating to the decision in such trial. On
December 4, 1992, the asbestos claimants filed a cross-motion for
relief from the automatic stay requesting that the automatic stay be
lifted to permit Celotex to participate in all aspects of the
Declaratory Judgment Proceeding. On December 9, 1992, Judge Baynes
granted relief from the automatic stay, permitting Celotex to
participate in all aspects of the Declaratory Judgment Proceeding up
through final judgment.

On December 15, 1992, the Debtors, asbestos claimants, Celotex and
Jim Walter Corporation filed a Joint Motion for Pre-Trial Conference
which the Bankruptcy Court granted.

On January 13, 1993, a pre-trial conference was held. As a result
of the pre-trial conference, the Bankruptcy Court entered two orders
on February 3, 1993. One order identified five discrete issues to be
tried. The other order set forth a detailed schedule for any discovery
which remained. On February 16, 1993, the Debtors filed a Motion for
Reconsideration in the Bankruptcy Court seeking a reconsideration of
the discovery schedule which the Debtors believe to

F-27

<PAGE>

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

be unnecessarily long. In the motion for reconsideration, the
Debtors proposed a more condensed discovery schedule which would lead
to a trial of the remaining issues by July 1993. The Bankruptcy Court
granted the motion for reconsideration and held a hearing on March 17,
1993, wherein the Bankruptcy Court agreed to review the issue and
enter an order accordingly. At a hearing held on April 22, 1993, the
Bankruptcy Court stated that the trial on the remaining issues would
commence December 13, 1993.

On February 18, 1993, the Debtors served upon the asbestos
claimants discovery requests in the form of interrogatories and
requests for production of documents. On February 18, 1993, the
asbestos claimants served upon the Debtors (i) discovery requests in
the form of interrogatories and requests for production of documents
and (ii) deposition notices which included document production
requests on certain parties not defendants to the Declaratory Judgment
Proceeding. The Debtors, Jim Walter Corporation, the asbestos
claimants, and other non-party defendants filed responses and motions
for protective orders regarding certain discovery requests which
motions were heard on March 17, 1993. The Bankruptcy Court entered an
order from the bench both granting and denying particular subject
matters contained in the motions for protective orders. The Bankruptcy
Court gave all parties until April 10, 1993 to comply with the
discovery requests in accordance with the Bankruptcy Court's guidance.
The Debtors produced additional documents in accordance with the
Bankruptcy Court's order and answered additional interrogatories.

On April 15, 1993, the asbestos claimants filed motions to compel
the Debtors, Jim Walter Corporation and Celotex to respond to their
discovery requests with more detailed financial documents. At a
hearing on April 22, 1993, the Bankruptcy Court denied in almost its
entirety the asbestos claimants motion to compel filed against the
Debtors. The motions to compel filed against Jim Walter Corporation
and Celotex were continued to allow the parties to comply by April 30,
1993. On April 21, 1993, the asbestos claimants served Request for
Admissions on the Debtors, Jim Walter Corporation and Celotex. On May
21, 1993, all parties served their responses to said Request for
Admissions.

On June 14, 1993, the Debtors filed a pre-conference statement
requesting the Bankruptcy Court to set definite dates for discovery
and all other pretrial matters. Prior to the June 16, 1993 status
conference, the Debtors, asbestos claimants and other interested
parties agreed to stipulate to certain dates contained within the
Debtor's proposal.

On June 21, 1993, the asbestos claimants served additional
discovery on the Debtors, Celotex and Jim Walter corporation. The
Debtors served responses thereto on July 1, 1993. On July 7, 1993, the
Debtors filed a motion for protective order striking certain of the
asbestos claimants' discovery requests.

On July 14, 1993, the Debtors, Jim Walter Corporation, Celotex and
the asbestos claimants entered into a stipulation that modified the
previously agreed upon discovery dates in the Declaratory Judgment
Proceeding and set a firm pre-trial schedule leading to a December 13,
1993 trial date, which the Bankruptcy Court approved by order dated
August 17, 1993.

On July 16, 1993, the asbestos claimants filed a Petition for Writ
of Certiorari with the United States Supreme Court, seeking review of
the decision of the Court of Appeals for the Eleventh Circuit denying
the asbestos claimants' Writ of Mandamus on the issue of their right
to a jury trial on veil piercing issues. On August 18, 1993, the
Company filed its brief in opposition to the asbestos claimants
Petition for Writ of Certiorari. On August 25, 1993, the asbestos
claimants filed a reply brief. On October 4, 1993, the United States
Supreme Court denied the petition for certiorari.

On August 12, 1993, the Bankruptcy Court entered an order which
denied the asbestos claimants motions to compel discovery against one
non-party which, in effect, upheld the accountant-client privilege.

On October 5, 1993, the Debtors filed a motion in the Bankruptcy
Court which sought to limit the trial on the veil piercing claims in
the Declaratory Judgment Proceeding to six days which was denied by
the Bankruptcy Court at a hearing held November 3, 1993.

F-28

<PAGE>

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

On October 18, 1993, the Debtors, Jim Walter Corporation and the
asbestos claimants filed their designation of testifying experts. On
October 22, 1993, the Company filed a motion seeking to preclude the
testimony of certain of the asbestos claimants designated experts. On
November 16, 1993, the Bankruptcy Court entered an order that
precluded the testimony of three of the asbestos claimants designated
experts and limited the testimony of two of the other asbestos
claimants designated experts.

On October 21, 1993, the Bankruptcy Court entered an order which
directed that, in order to assure the trial in the veil piercing
adversary proceeding not be unduly prolonged, all parties must file
all mutually agreed upon exhibits, premarked and accompanied by a log
identifying each, no later than November 15, 1993. The parties
thereafter entered into a stipulation which extended the time to file
exhibits to December 7, 1993. A hearing to decide the admissibility of
those exhibits in dispute was held November 29, 1993. The Bankruptcy
Court ruled on the appropriate submission of certain grouped documents
and limited by date the admissibility of other exhibits. The
Bankruptcy Court scheduled a hearing for December 6, 1993 to consider
any other motions which had been filed and to consider the
admissibility of any other exhibits not decided at the November 29,
1993 hearing. On December 13, 1993, the Bankruptcy Court entered an
order disposing of all outstanding motions relating to testimony by
experts.

On October 25, 1993, the asbestos claimants filed certain motions
to compel production of documents and compliance with subpoena from
third parties which were not parties to the adversary proceeding. At a
hearing held November 3, 1993, the Bankruptcy Court allowed production
of certain documents which were withheld under attorney-client
privilege. By order dated November 5, 1993, the Bankruptcy Court
denied the asbestos claimants motion to compel production of certain
accountant's workpapers, holding that the accountant-client privilege
was applicable.

On November 24, 1993, the Bankruptcy Court entered an order denying
the asbestos claimants motion to reschedule the pre-trial conference
scheduled for November 29, 1993 and the final evidentiary hearing
scheduled to commence December 13, 1993. On December 6, 1993, the
asbestos claimants filed a renewed motion for continuance which sought
to continue the final evidentiary hearing until January 1994. On
December 8, 1993, the Bankruptcy Court entered an order denying the
renewed motion to reschedule the final evidentiary hearing. On
December 8,1993, the asbestos claimants filed an Emergency Petition
for Writ of Mandamus in the District Court which sought to have the
District Court enter an order continuing the final evidentiary
hearing. At a hearing held on December 9, 1993, the District Court
denied the asbestos claimants' Emergency Petition for Writ of
Mandamus.

On December 13, 1993, the final evidentiary hearing commenced in
the Bankruptcy Court and concluded on December 17, 1993. Post-trial
briefs were submitted by the Company, Jim Walter Corporation and the
asbestos claimants on March 16, 1994.

On April 18, 1994, the Bankruptcy Court issued its Findings of
Fact, Conclusions of Law and Memorandum Decision (the "Veil Piercing
Decision"). In the Veil Piercing Decision, the Bankruptcy Court found
that there was no basis for piercing the corporate veil, finding for
the Debtors on every contested factual issue. In every case, the
Bankruptcy Court found that Original Jim Walter's actions were
motivated by sound business judgment and were consistent with sound
business practices as recognized in the corporate business world. The
Veil Piercing Decision addressed six specific factual issues:

- Cash Management. Original Jim Walter had maintained a cash
management system for all subsidiaries, including Celotex. The
Bankruptcy Court found that the cash management system was totally
consistent with sound business practices widely recognized in the
corporate business world.

- Corporate Assessment. Original Jim Walter recovered certain costs,
including interest costs, through a corporate assessment charged to
all subsidiaries, including Celotex. The Bankruptcy Court found
nothing inherently improper in the assessment by a parent of
charges incurred on behalf of the subsidiary. The Bankruptcy Court
further stated that forcing the subsidiary to seek services from
third parties would not have been either an efficient or economic
manner to conduct its business.

F-29
<PAGE>

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

- Line of Business Reporting. Original Jim Walter and its
subsidiaries reported results according to lines of business. The
Bankruptcy Court found this to be a proper manner for a parent to
oversee the operation of its subsidiaries.

- Decision Making Process. The Bankruptcy Court rejected claims that
Original Jim Walter management was improperly involved in the
decision making processes of its subsidiaries, including capital
acquisition and disposition decisions, instead finding that the
involvement by Original Jim Walter in these areas was proper within
the accepted standards of the corporate business world.

- Motivation to Sell Assets. The Bankruptcy Court found that the
asbestos claimants failed to prove that Original Jim Walter took
any actions intended to evade any possible liability resulting from
the asbestos litigation. The Bankruptcy Court found that the
liquidation process was a result of sound proper business judgment
and not motivated by any desire to injure the Asbestos Claimants or
denude Celotex of its assets.

- Repayment of Intercompany Payables. The Bankruptcy Court rejected
the claim that it was improper for Celotex to have repaid
intercompany payables owing to Original Jim Walter. The Bankruptcy
Court found that those Original Jim Walter receivables were debts
of Celotex. The Bankruptcy Court explicitly rejected the argument
that there was an obligation to leave funds in Celotex, rather than
repay valid debts to Original Jim Walter, because of Celotex'
asbestos liabilities.

A Final Judgment was also entered on April 18, 1994 holding that
the corporate veil between Celotex and Jim Walter Corporation shall
not be pierced.

On April 26, 1994, the asbestos claimants filed a Notice of Appeal
with the District Court appealing the Final Judgment entered by the
Bankruptcy Court on April 18, 1994. On May 7, 1994, the asbestos
claimants filed their statement of issues and designated those items
which were to be included in the record on appeal. On May 19, 1994,
the Debtors filed their counter designation of items to be included in
the record on appeal.

On June 3, 1994, the asbestos claimants filed emergency motions in
the District Court to modify the briefing schedule and to modify page
limits in the filing of briefs. On June 6, 1994, the District Court
granted the asbestos claimants' emergency motion to modify the
briefing schedule. On June 21, 1994, the Debtors filed an emergency
motion on consent to expedite ruling on the asbestos claimants motion
to modify page limits. On June 23, 1994, the District Court denied the
asbestos claimants' motion to modify the page limits in the filing of
briefs and ordered that the asbestos claimants serve and file their
principal brief on or before July 18, 1994 and the Debtors file and
serve their brief within 15 days thereafter. The asbestos claimants
may then serve and file a reply brief within 10 days of the Debtors'
service of their brief.

On April 28, 1994, the Debtors commenced an adversary proceeding in
the Celotex Chapter 11 Proceeding seeking the entry of a judgment
declaring that under applicable law, an action to pierce the corporate
veil between Celotex and Original Jim Walter is property of Celotex'
Chapter 11 estate and therefore Celotex, as a debtor in possession,
has the exclusive right to assert a corporate veil piercing action
against Original Jim Walter on behalf of all Celotex creditors. The
adversary proceeding seeks the entry of judgment declaring that all
creditors of Celotex are therefore bound by the Veil Piercing
Decision. Contemporaneous with the adversary proceeding, the Debtors
filed a motion for summary judgment with respect to its complaint. On
May 18, 1994, Celotex filed a motion to strike the Debtors' motion for
summary judgment as being untimely filed.

On June 17, 1994, Celotex and Carey Canada filed motions to dismiss
Count (iii) of the complaint for failure to state an actual case or
controversy with any named defendant, or, in the alternative, require
the complaint to be amended. Further, Celotex and Carey Canada state
that the adversary proceeding is properly stayed, and therefore their
time to answer or otherwise respond should be deferred.

F-30

<PAGE>

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

While the Bankruptcy Court has granted the Debtors the relief
sought, there can be no assurance that its ruling will be affirmed
upon appeal. Moreover, the Debtors necessarily cannot predict the
timing of any appellate proceedings. If the asbestos health and/or
asbestos property damage claimants ultimately prevail on their
allegations that the Debtors may be liable for claims asserted against
Celotex, it is not possible at this time: (i) to quantify the amount
of these claims, although the Debtors believe these claims will be
substantial; (ii) to predict how these claims will be treated in any
plan or plans of reorganization; (iii) to determine the impact of
these claims on the operations of the Debtors; or (iv) to predict
their ability to confirm a plan or plans of reorganization.

JWC Holdings, Jim Walter Corporation, Celotex and the other
subsidiaries of JWC Holdings have indemnified the Company and its
affiliates against any liability or expense incurred as a result of
any asbestos-related lawsuit. However, there can be no assurance that
the Company and its affiliates will be reimbursed by Jim Walter
Corporation and its subsidiaries pursuant to the aforementioned
indemnity for any liability or expense resulting therefrom.

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 11 - 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, 1994, 1993 and 1992, was $9.7
million, $16.5 million and $20.1 million, respectively. The decrease
in pension expense in fiscal 1994 from the prior year is due
principally to no contributions being required to be made to the
United Mine Workers of America 1950 Pension Plan Trust as such trust
had no unfunded vested benefits. 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,

-------------------------------------
1994 1993 1992

------------------------ ------------
(in thousands)
Service cost-benefits earned during
the period . . . . . . . . . . . . $5,334 $5,233 $4,849
Interest cost on projected benefit
obligation . . . . . . . . . . . . 16,333 15,634 14,695
Actual return on assets . . . . . . (19,352) (18,131) (25,212)
Net amortization and deferral . . . 3,145 3,174 11,954
------ ----- -------
Net pension costs . . . . . . . . $5,460 $5,910 $6,286
====== ====== =======

F-31

<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, 1994 May 31, 1993
--------------------------------- ---------------------------------
Plans in which Plans in which
--------------------------------- ---------------------------------
Assets exceed Accumulated Assets exceed Accumulated
accumulated benefits exceed accumulated benefits exceed
benefits assets benefits assets
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Actuarial present value of accumulated benefit
obligations:
Vested benefits . . . . . . . . . . . . . . . . $133,348 $ 41,353 $ 115,915 $ 37,492
Non-vested benefits . . . . . . . . . . . . . . 5,599 1,604 4,639 1,626
-------- -------- --------- --------
$138,947 $ 42,957 $ 120,554 $ 39,118
======== ======== ========== ========

Plan assets at fair value, primarily stocks and
bonds . . . . . . . . . . . . . . . . . . . . . $187,443 $ 27,012 $ 176,551 $ 24,926
Projected benefit obligations . . . . . . . . . . 166,386 42,957 149,258 39,118
-------- -------- --------- --------
Plan assets in excess of (less than) projected
benefit obligations . . . . . . . . . . . . . . 21,057 (15,945) 27,293 (14,192)
Unamortized portion of transition (asset)
obligation at June 1, 1986 . . . . . . . . . . (11,281) 5,002 (12,546) 5,709
Unrecognized net loss (gain) from actual
experience different from that assumed . . . . 808 2,903 (5,318) 79
Prior service cost not recognized . . . . . . . . 836 2,487 985 2,540
Contribution to plans after measurement date . . 879 819 1,369 771
-------- -------- --------- --------
Prepaid (accrued) pension cost . . . . . . . . . 12,299 (4,734) 11,783 (5,093)
Additional liability . . . . . . . . . . . . . . -- (10,393) -- (8,224)
-------- -------- --------- --------
Prepaid pension cost (pension liability)
recognized in the balance sheet . . . . . . . . $ 12,299 $(15,127) $ 11,783 $(13,317)
======== ======== ========== ========
</TABLE>

The projected benefit obligations were determined using an assumed
discount rate of 8.0% in fiscal 1994 and 9.0% in fiscal 1993 and,
where applicable, an assumed rate of increase in future compensation
levels of 5% in fiscal 1994 and 6% in fiscal 1993. 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 $43.0 million at May 31, 1994. 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 $25.6 million in 1994 and $23.5 million in 1993. Amounts paid for
postretirement benefits were $5.5 million in 1994, $6.5 million in
1993 and $3.9 million in 1992.

F-32

<PAGE>

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

The net periodic postretirement benefit cost includes the following
components:

For the years ended May 31,
---------------------------
1994 1993
------------------
(in thousands)
Service cost . . . . . . . . $9,302 $8,495
Interest cost . . . . . . . 16,283 14,979
------ ------
Net periodic
postretirement benefit cost . $25,585 $23,474
======= =======

The accumulated postretirement benefits obligation at May 31, 1994
and 1993 are as follows:

May 31,
---------------------
1994 1993
-------------------
(in thousands)

Retirees . . . . . . . . . . $72,779 $70,220
Fully eligible, active
participants . . . . . . . . 26,234 23,493
Other active participants . . 122,228 96,192
------- ------
Accumulated postretirement
benefit obligation . . . . . 221,241 189,905
Unrecognized net loss . . . . (11,279) --
------- ------
Postretirement benefit
liability recognized in
the balance sheet . . . . . $209,962 $189,905
======== ========

The principal assumptions used to measure the accumulated
postretirement benefit obligation include a discount rate of 8% in
fiscal 1994 and 9% in fiscal 1993 and a health care cost trend rate of
13% declining to 6.0% over a twelve year period and remaining level
thereafter in fiscal 1994 and a health care cost trend rate of 14%
declining to 6.5% in fiscal 1993. The change in the assumptions used
to calculate the accumulated postretirement benefits obligation
resulted in an unrecognized net loss of $11.3 million. A one percent
increase in the health care cost component would increase the
accumulated postretirement benefit obligation by approximately $35.1
million and increase net periodic postretirement benefit cost for 1994
by approximately $5.1 million.

Certain subsidiaries of the Company maintain profit sharing plans.
The total cost of these plans for the years ended May 31, 1994, 1993
and 1992 was $3.1 million, $3.0 million and $2.7 million,
respectively.

NOTE 12 - 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. In addition, because of the Company's petition for
reorganization (see Note 2) and the

F-33

<PAGE>

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

asbestos-related litigation (see Note 10) estimates are either not
practicable or are subject to a much wider degree of uncertainty than
would normally be the case.

The following methods and assumptions were used to estimate fair
value disclosures:

Cash (including short-term investments) and short-term
investments-restricted - The carrying amount reported in the
balance sheet approximates fair value.

Instalment notes receivable - In connection with the
Reorganization Proceedings, the Debtors financial advisor made a
valuation of the mortgage portfolio at May 31, 1993, which has
been adjusted to reflect the estimated increase in value
resulting from the addition of net new mortgage notes during
fiscal 1994. This estimated value ranges from $1.065 billion to
$1.104 billion as compared to a net carrying value of $487.2
million (net of indebtedness of $872 million secured by certain
of the instalment notes receivable). Value of mortgage-backed
instruments such as instalment notes receivable are very
sensitive to changes in interest rates.

Debt - Due to the uncertainties arising from the Debtors'
petitions for reorganization, the asbestos-related litigation
and the preliminary status of plan of reorganization
negotiations there are no reliable market quotations or other
valid market comparisons and accordingly, it is impracticable to
estimate a fair value of the Company's various outstanding debt
instruments.

NOTE 13 - Segment Information

Information relating to the Company's business segments is set
forth on pages F-38 and F-39.

NOTE 14 - Summarized Financial Information

The consolidated financial statements presented herein are of the
Company, which is a guarantor of the obligations of the Senior Note
Issuers and the Subordinated Note Issuers (see Note 5). Summarized
financial information for the Senior Note Issuers and the Subordinated
Note Issuers is set forth below:

F-34

<PAGE>

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

Senior Note Issuers Subordinated Note Issuers
------------------------------------ -------------------------------------
For the years ended May 31, For the years ended May 31,
------------------------------------ -------------------------------------
1994 1993 1992 1994 1993 1992
----------- ----------- ----------- ----------- ----------- -----------
(in thousands) (in thousands)

<S> <C> <C> <C> <C> <C> <C>
INCOME DATA
Net sales and revenues . . . . . . $ 839,146 $858,560 $ 932,056 $524,840 $ 510,944 $516,368
Cost of sales (exclusive of
depreciation, depletion and
amortization) . . . . . . . . . . 661,748 630,917 730,655 404,761 390,550 384,346
Other operating expenses . . . . . 103,187 103,257 119,224 77,242 74,221 77,013
Postretirement health benefits
(Note 11) . . . . . . . . . . . . 20,931 19,307 -- 6,281 5,870 --
Chapter 11 costs . . . . . . . . . 7,048 4,845 3,000 4,350 2,933 1,664
Interest and amortization of debt
expense . . . . . . . . . . . . . 42,803 43,092 45,990 28,304 28,625 30,226
Amortization of excess purchase
price . . . . . . . . . . . . . . 21,436 21,498 21,431 23,182 23,244 23,181
-------- -------- -------- --------- -------- --------
(18,007) 35,644 11,756 (19,280) (14,499) (62)
Provision for income taxes (Note 6) 396 (14,785) 392 (3,215) (3,469) (8,000)
-------- -------- -------- --------- -------- --------
Income (loss) from operations
before cumulative effect of
accounting change . . . . . . . . (17,611) 20,859 12,148 (22,495) (17,968) (8,062)

Cumulative effect of change in
accounting principle --
postretirement benefits other
than pensions (net of income tax
benefit) (Note 11) . . . . . . . -- (82,513) -- -- (26,725) --
-------- -------- -------- --------- -------- --------
Net income (loss) . . . . . . . . . $ (17,611) $(61,654) $ 12,148 $(22,495) $ (44,693) $ (8,062)
========== ========== ========== ========== ========== ==========

ASSETS
Cash (includes short-term
investments) . . . . . . . . . . $ 22,673 $ 23,753 $ 21,531 $ 22,638 $ 23,714 $ 21,479
Short-term investments, restricted 6,927 8,652 10,986 3,910 5,699 8,195
Trade and other receivables, net . 100,490 114,169 112,877 82,197 72,582 70,436
Inventories . . . . . . . . . . . . 132,850 128,647 129,848 102,986 93,384 90,534
Prepaid expenses . . . . . . . . . 8,177 4,921 5,531 3,610 3,300 3,938
Intercompany receivables . . . . . 1,914,257 1,723,343 1,545,659 1,419,685 1,264,689 1,153,071
Property, plant and equipment, net 522,070 525,779 523,763 169,186 172,962 173,930
Unamortized debt expense and other
assets . . . . . . . . . . . . . 27,269 33,563 39,520 18,171 25,671 32,433
Excess of purchase price over net
assets acquired . . . . . . . . . 284,238 305,673 327,171 307,386 330,568 353,812
-------- -------- -------- --------- -------- --------
$3,018,951 $2,868,500 $2,716,886 $2,129,769 $1,992,569 $1,907,828
========== ========== ========== ========== ========== ==========

LIABILITIES AND STOCKHOLDER'S
EQUITY (DEFICIT)
Bank overdrafts . . . . . . . . . . $ 21,752 $ 13,590 $ 21,347 $ 12,184 $ 9,758 $ 14,108
Accounts payable and accrued
expenses . . . . . . . . . . . . 113,235 115,162 123,105 60,285 57,694 61,878
Income taxes payable (Note 6) . . . 7,548 7,209 6,557 5,600 5,036 4,853
Deferred income taxes (Note 6) . . 56,282 63,514 128,401 34,146 40,812 66,433
Intercompany payables . . . . . . . 693,786 578,132 483,491 698,066 570,337 483,369
Long-term senior debt . . . . . . . -- 6,264 -- -- -- --
Accrued postpetition interest on
secured obligations . . . . . . . 194,621 152,633 110,821 132,683 104,665 76,741
Accumulated postretirement health
benefits obligation (Note 11) . . 166,631 150,904 -- 53,009 48,492 --
Other long-term liabilities . . . . 37,368 36,178 37,404 7,543 6,949 7,598
Liabilities subject to Chapter 11
proceedings . . . . . . . . . . . 1,733,187 1,731,865 1,731,406 1,445,394 1,444,575 1,444,253
Stockholder's equity (deficit) . . (5,459) 13,049 74,354 (319,141) (295,749) (251,405)
-------- -------- -------- --------- -------- --------
$3,018,951 $2,868,500 $2,716,886 $2,129,769 $1,992,569 $1,907,828
========== ========== ========== ========== ========== ==========

</TABLE>

F-35

<PAGE>

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

NOTE 15 - Subsequent Event (Unaudited - Subsequent to Date of
Accountants' Report)

On December 9, 1994, a Consensual Plan of Reorganization
("Consensual Plan") and a Supplement to Disclosure Statement for
Amended Joint Plan of Reorganization dated as of December 9, 1994 was
filed with the Bankruptcy Court. The proponents of the Consensual
Plan included the Company, the Bondholders Plan Proponents and KKR,
the Company's largest shareholder. The Consensual Plan of
Reorganization was confirmed by the Bankruptcy Court on March 2, 1995,
and became effective on March 17, 1995. 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 Plan.

The essential terms of the Consensual Plan are as follows.
Revolving Credit and Working Capital Bank Claims, Series B and C
Senior Note Claims, and Other Unsecured Creditors (i.e., trade
----
creditors) will receive the full allowed amounts of their claims plus
interest at negotiated amounts. Subordinated Note claims will receive
a combination of cash, new debt securities and shares of new common
stock having an aggregate value equal to their prepetition claims. In
addition, pre-LBO Subordinated Note claims will receive shares of new
common stock having an estimated aggregate value equal to $11.3
million in settlement of the fraudulent conveyance action commenced by
the indenture trustee for the pre-LBO bonds. The asbestos related
veil piercing claimants will receive cash, new debt securities, and
new common stock with an aggregated value of $375 million in
settlement of all asbestos related veil piercing claims. In addition,
the attorneys for the asbestos related veil piercing claimants will
receive a cash payment of $15 million. The Company's current
stockholders will receive shares of new common stock having a
reorganization value equal to $150 million and the right to receive
additional shares of new common stock upon realization of certain
future tax benefits.

In connection with the Consensual Plan, on March 16, 1995, pursuant
to approval by the Bankruptcy Court, Mid-State Homes, Inc., a
wholly-owned indirect subsidiary of the Company, sold mortgage
installment notes having a gross amount of $2,020,258,000 and an
economic balance of $826,671,000 to Mid-State Trust IV, a business
trust in which Mid-State Homes owns all the beneficial interest. 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
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. The assets of Mid-State Trust IV
are not available to satisfy claims of general creditors of Mid-State
Homes, or the Company and its subsidiaries. The liabilities of
Mid-State Trust IV for its publicly issued debt are to be satisfied
solely from proceeds of the underlying installment notes and are
non-recourse to Mid-State Homes and the Company and its subsidiaries.

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 installment notes receivable from Jim Walter
Homes. On March 3, 1995, Mid-State 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 installment
notes and mortgages Mid-State Trust V purchases from Mid-State Homes.

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 sublimit for trade and
standby letters of credit not in excess of $40 million and a
sub-facility for swingline advances in an amount not in excess of $15
million.

The Company expects to take a pre-tax charge of approximately
$562.2 million ($375.6 million net of tax) of additional expenses
related to consummation of the Consensual Plan, including
approximately $128.9 million of additional interest expense, $390
million for the Veil Piercing Settlement, and $43.3 million of other
expenses, in the fourth quarter of the fiscal year ended May 31, 1995.

F-36

<PAGE>

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

The anticipated financial statement impact of the Company's
emergence from Chapter 11 proceedings, in accordance with the
Consensual Plan, has been reflected in the pro-forma financial
statements beginning on page 22 of the Prospectus. The pro-forma
capitalization of the Company after effects of emergence are included
on page 21 of the Prospectus.

F-37
<PAGE>

WALTER INDUSTRIES, INC. AND SUBSIDIARIES
SEGMENT INFORMATION

For the years ended May 31,
----------------------------------------------------------
1994 1993 1992
------------------- --------------------- ----------------
(in thousands)
<S> <C> <C> <C>
Sales and Revenues:
Homebuilding and related financing . . . . . . . . . . $ 424,530 $ 419,378 $ 409,071
Building materials . . . . . . . . . . . . . . . . . . 56,111 51,539 46,887
Industrial products . . . . . . . . . . . . . . . . . . 180,615 171,541 165,007
Water and waste water transmission products . . . . . . 345,136 320,740 324,400
Natural resources (e) . . . . . . . . . . . . . . . . . 319,410 351,017 419,274
Corporate . . . . . . . . . . . . . . . . . . . . . . . 2,722 4,771 1,942
---------- ---------- ----------
Consolidated sales and revenues (a)(f) . . . . . . . $1,328,524 $1,318,986 $1,366,581
========== ========== ==========

Contributions to Operating Income:
Homebuilding and related financing . . . . . . . . . . $ 101,954 $ 88,902 $ 82,718
Building materials . . . . . . . . . . . . . . . . . . 2,074 2,354 2,343
Industrial products . . . . . . . . . . . . . . . . . . 11,873 9,997 11,226
Water and waste water transmission products . . . . . . 25,545 14,990 24,492
Natural resources . . . . . . . . . . . . . . . . . . . (1,175) 50,807 16,020
---------- ---------- ----------
140,271 167,050 136,799
Less-Unallocated corporate interest and other
expense (b) . . . . . . . . . . . . . . . . . . . (104,179) (96,128) (101,994)
Income taxes . . . . . . . . . . . . . . . . . . . . (28,917) (24,328) (12,463)
---------- ---------- ----------

Income from operations (c) . . . . . . . . . . . $ 7,175 $ 46,594 $ 22,342
========== ========== ==========
Depreciation, Depletion and Amortization:

Homebuilding and related financing . . . . . . . . . . $ 3,093 $ 3,113 $ 3,059
Building materials . . . . . . . . . . . . . . . . . . 1,570 1,421 1,103
Industrial products . . . . . . . . . . . . . . . . . . 8,915 8,654 9,118
Water and waste water transmission products . . . . . . 15,399 15,079 14,492
Natural resources . . . . . . . . . . . . . . . . . . . 40,326 40,714 53,556
Corporate . . . . . . . . . . . . . . . . . . . . . . . 1,732 1,502 1,473
---------- ---------- ----------

Total . . . . . . . . . . . . . . . . . . . . . . . $ 71,035 $ 70,483 $ 82,801
========== ========== ==========
Gross Capital Expenditures:

Homebuilding and related financing . . . . . . . . . . $ 3,210 $ 6,284 $ 6,357
Building materials . . . . . . . . . . . . . . . . . . 1,115 998 709
Industrial products . . . . . . . . . . . . . . . . . . 9,752 8,344 7,284
Water and waste water transmission products . . . . . . 13,613 12,084 16,379
Natural resources . . . . . . . . . . . . . . . . . . . 40,224 42,941 36,993
Corporate . . . . . . . . . . . . . . . . . . . . . . . 1,917 1,057 627
---------- ---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . $ 69,831 $ 71,708 $ 68,349
========== ========== ==========

</TABLE>

F-38
<PAGE>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
SEGMENT INFORMATION (continued)

Homebuilding and related financing . . . . . . . . . . $1,832,919 $1,907,199 $1,899,737
Building materials . . . . . . . . . . . . . . . . . . 55,568 57,343 57,564
Industrial products . . . . . . . . . . . . . . . . . . 132,685 129,392 129,723
Water and waste water transmission products . . . . . . 475,369 478,234 496,890
Natural resources . . . . . . . . . . . . . . . . . . . 450,468 475,533 477,150
Corporate (d) . . . . . . . . . . . . . . . . . . . . . 193,883 175,533 110,202
---------- ---------- ----------

Total . . . . . . . . . . . . . . . . . . . . . . . $3,140,892 $3,223,234 $3,171,266
========== ========== ==========
</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 Products Group to the Water and Waste Water
Transmission Products Group of $19,359,000, $18,667,000 and
$16,661,000 and sales of the Natural Resources Group to the
Industrial Products Group of $5,650,000, $7,121,000 and
$9,552,000 in 1994, 1993 and 1992, respectively.
(b) Excludes interest expense incurred by the Homebuilding and
Related Financing Group of $128,828,000, $137,945,000 and
$136,955,000 in 1994, 1993 and 1992, 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 $25,585,000 and
$23,474,000 in 1994 and 1993. A breakdown by segment is as
follows:

For the years ended May 31,
----------------------------------
1994 1993
---------------- ----------------
(in thousands)

<S> <C> <C>
Homebuilding and related financing . . . . . $ 2,170 $ 1,991
Building materials . . . . . . . . . . . . . 504 463
Industrial products . . . . . . . . . . . . . 3,158 2,821
Water and waste water transmission products . 4,391 4,136
Natural resources . . . . . . . . . . . . . . 14,681 13,437
Corporate . . . . . . . . . . . . . . . . . . 681 626
------- -------
$25,585 $23,474
======= =======
</TABLE>

(d) Primarily cash and corporate headquarters buildings and
equipment.
(e) Includes sales of coal of $289,279,000, $321,834,000 and
$392,674,000 in 1994, 1993 and 1992, respectively.
(f) Export sales, primarily coal, were $155,966,000, $183,188,000
and $206,546,000 in 1994, 1993 and 1992, respectively. Export
sales to any single geographic area do not exceed 10% of
consolidated net sales and revenues.

F-39
<PAGE>

WALTER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited)

<TABLE><CAPTION>
February 28,
----------------------------------------------
1995 1994
----------------------------------------------
(in thousands)

<S> <C> <C>
ASSETS
Cash (includes short-term investments of $176,934,000 and
$157,065,000) . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 204,959 $ 196,367
Short-term investments, restricted . . . . . . . . . . . . . . . . . 88,650 104,036
Instalment notes receivable . . . . . . . . . . . . . . . . . . . . . 4,232,403 4,196,355
Less -
Provision for possible losses . . . . . . . . . . . . . . . . (26,471) (26,477)
Unearned time charges . . . . . . . . . . . . . . . . . . . . (2,846,660) (2,798,419)
---------- -----------
Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,359,272 1,371,459
Trade receivables . . . . . . . . . . . . . . . . . . . . . . . . . . 124,947 131,649
Less - Provision for possible losses . . . . . . . . . . . . . . . (8,228) (8,258)
---------- ---------
Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116,719 123,391
Other notes and accounts receivable . . . . . . . . . . . . . . . . . 30,034 14,823
Inventories, at lower of cost (first in, first out or average) or
market:
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . 101,854 92,259
Goods in process . . . . . . . . . . . . . . . . . . . . . . . . 28,375 26,341
Raw materials and supplies . . . . . . . . . . . . . . . . . . . 50,726 49,825
Houses held for resale . . . . . . . . . . . . . . . . . . . . . 2,857 2,186
---------- ---------
Total inventories . . . . . . . . . . . . . . . . . . . . . . 183,812 170,611
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 17,137 14,366
Property, plant and equipment, at cost . . . . . . . . . . . . . . . 1,153,866 1,099,350
Less - Accumulated depreciation, depletion and amortization . . . . (506,609) (443,375)
---------- ---------
Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 647,257 655,975
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,050 5,690
Unamortized debt expense . . . . . . . . . . . . . . . . . . . . . . 23,285 35,100
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,119 38,705
Excess of purchase price over net assets acquired . . . . . . . . . . 382,653 432,137
---------- ---------
$3,098,947 $3,162,660
========== ==========

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Bank overdrafts . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 19,916 $ 35,029
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . 60,963 51,385
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 121,781 121,000
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . 32,160 29,163
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . 54,783 71,823
Long-term senior debt . . . . . . . . . . . . . . . . . . . . . . . . 784,815 907,504
Accrued postpetition interest on secured obligations . . . . . . . . 298,557 245,462
Accumulated postretirement health benefits obligation . . . . . . . . 225,769 206,380
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . 48,221 46,240
Liabilities subject to Chapter 11 proceedings . . . . . . . . . . . . 1,728,215 1,727,345
Stockholders' equity (deficit):
Common stock, $.01 par value per share:
Authorized - 50,000,000 shares
Issued - 31,120,773 shares . . . . . . . . . . . . . . . . . . . 311 311
Capital in excess of par value . . . . . . . . . . . . . . . . . 155,293 155,293
Retained earnings (deficit), per accompanying statement . . . . . (428,400) (432,629)
Excess of additional pension liability over unrecognized prior
years service cost . . . . . . . . . . . . . . . . . . . . . . . (3,437) (1,646)
---------- ---------
Total stockholders' equity (deficit) . . . . . . . . . . . . . (276,233) (278,671)
---------- ---------
$3,098,947 $3,162,660
========== ==========

</TABLE>

F-40

<PAGE>

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

<TABLE><CAPTION>
For the nine months ended
February 28,
----------------------------------------------
1995 1994
----------------------------------------------
(in thousands)
<S> <C> <C>
Sales and revenues:
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 848,717 $ 788,800
Time charges . . . . . . . . . . . . . . . . . . . . . . . . . . . 165,905 176,402
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,047 16,443
Interest income from Chapter 11 proceedings . . . . . . . . . . . . 4,992 3,385
---------- ---------
1,042,661 985,030
---------- ---------
Costs and expenses:
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . 682,930 623,357
Depreciation, depletion and amortization . . . . . . . . . . . . . 53,094 51,471
Selling, general and administrative . . . . . . . . . . . . . . . . 97,814 94,682
Postretirement health benefits . . . . . . . . . . . . . . . . . . 19,524 19,189
Provision for possible losses . . . . . . . . . . . . . . . . . . . 3,422 3,593
Chapter 11 costs . . . . . . . . . . . . . . . . . . . . . . . . . 19,752 10,870
Interest and amortization of debt discount and expense (Interest on
unsecured obligations not accrued - $122,764,000 in 1995 and
1994) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107,747 118,129
Amortization of excess of purchase price over net assets acquired . 30,270 29,301
---------- ---------
1,014,553 950,592
---------- ---------
28,108 34,438
Provision for income taxes:
Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (40,357) (39,382)
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,369 14,010
---------- ---------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,120 9,066

Retained earnings (deficit) at beginning of period . . . . . . . . . (434,520) (441,695)
---------- ---------
Retained earnings (deficit) at end of period . . . . . . . . . . . . $ (428,400) $(432,629)
========== ==========

</TABLE>

F-41
<PAGE>

WALTER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)

<TABLE><CAPTION>
For the nine months ended
February 28,
----------------------------------------------
1995 1994
------------------------- --------------------
(in thousands)
<S> <C> <C>
OPERATIONS
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,120 $ 9,066
Charges to income not affecting cash:
Depreciation, depletion and amortization . . . . . . . . . . . . 53,094 51,471
Provision for deferred income taxes . . . . . . . . . . . . . . . (18,369) (14,010)
Accumulated postretirement health benefits obligation . . . . . . 15,807 16,475
Provision for other long-term liabilities . . . . . . . . . . . . (669) (202)
Amortization of excess of purchase price over net assets acquired 30,270 29,301
Amortization of debt discount and expense . . . . . . . . . . . . 9,207 13,514
------ -------
95,460 105,615

Decrease (increase) in:
Short-term investments, restricted . . . . . . . . . . . . . . . 18,902 1,584
Instalment notes receivable, net . . . . . . . . . . . . . . . . (93) 15,400
Trade and other receivables, net . . . . . . . . . . . . . . . . (7,940) 13,346
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . (11,233) (3,972)
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . (5,802) (6,464)

Increase (decrease) in:
Bank overdrafts . . . . . . . . . . . . . . . . . . . . . . . . . (9,963) 17,108
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . 1,495 (1,311)
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . (884) 4,762
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . 10,617 10,028
Accrued postpetition interest on secured obligations . . . . . . 40,525 35,263
Liabilities subject to Chapter 11 proceedings:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . 159 1,294
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . (204) (152)
------ -------
Cash flows from operations . . . . . . . . . . . . . . . . . . 131,039 192,501
------ -------
FINANCING ACTIVITIES
Issuance of long-term senior debt . . . . . . . . . . . . . . . . . -- 2,000
Retirement of long-term senior debt . . . . . . . . . . . . . . . . (87,155) (142,887)
Additions to unamortized debt expense . . . . . . . . . . . . . . . (260) --
------ -------
Cash flows from financing activities . . . . . . . . . . . . . (87,415) (140,887)
------ -------
INVESTING ACTIVITIES
Additions to property, plant and equipment, net of normal
retirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . (42,488) (44,406)
(Increase) in investments . . . . . . . . . . . . . . . . . . . . . (297) (122)
Decrease (increase) in other assets . . . . . . . . . . . . . . . . 817 (1,089)
------ -------
Cash flows from investing activities . . . . . . . . . . . . . (41,968) (45,617)
------ -------
Net increase in cash and cash equivalents . . . . . . . . . . . . . . 1,656 5,997

Cash and cash equivalents at beginning of period . . . . . . . . . . 203,303 190,370
------ -------
Cash and cash equivalents at end of period . . . . . . . . . . . . . $204,959 $ 196,367
========= =========

</TABLE>

F-42

<PAGE>

WALTER INDUSTRIES, INC. AND SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited)

Nine months ended
February 28,
----------------------------------------------
1995 1994
---------------------- -----------------------
(in thousands)
<S> <C> <C>
Sales and Revenues:

Homebuilding and related financing . . . . . . . . . . . . . . . . $ 305,256 $ 319,898
Building materials . . . . . . . . . . . . . . . . . . . . . . . . 46,993 41,323
Industrial products . . . . . . . . . . . . . . . . . . . . . . . . 163,867 128,577
Water and waste water transmission products . . . . . . . . . . . . 284,513 245,534
Natural resources (e) . . . . . . . . . . . . . . . . . . . . . . . 236,392 245,717
Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,640 3,981
---------- ---------

Consolidated sales and revenues (a) . . . . . . . . . . . . . . . $1,042,661 $ 985,030
========== =========
Contributions to Operating Income (b):

Homebuilding and related financing . . . . . . . . . . . . . . . . $ 58,230 $ 73,949
Building materials . . . . . . . . . . . . . . . . . . . . . . . . (3,492) 700
Industrial products . . . . . . . . . . . . . . . . . . . . . . . . 9,423 7,470
Water and waste water transmission products . . . . . . . . . . . . 21,715 15,983
Natural resources . . . . . . . . . . . . . . . . . . . . . . . . . 13,864 6,928
---------- ---------
99,740 105,030
Less-Unallocated corporate interest and other expense (c) . . . (71,632) (70,592)
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . (21,988) (25,372)
---------- ---------

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,120 $ 9,066
========== =========
Depreciation, Depletion and Amortization:

Homebuilding and related financing . . . . . . . . . . . . . . . . $ 2,487 $ 2,475
Building materials . . . . . . . . . . . . . . . . . . . . . . . . 1,302 1,175
Industrial products . . . . . . . . . . . . . . . . . . . . . . . . 7,084 6,636
Water and waste water transmission products . . . . . . . . . . . . 11,808 11,692
Natural resources . . . . . . . . . . . . . . . . . . . . . . . . . 28,988 28,268
Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,425 1,225
--------- ---------

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 53,094 $ 51,471
========== =========
Gross Capital Expenditures:

Homebuilding and related financing . . . . . . . . . . . . . . . . $ 2,894 $ 2,541
Building materials . . . . . . . . . . . . . . . . . . . . . . . . 4,707 672
Industrial products . . . . . . . . . . . . . . . . . . . . . . . . 12,576 5,822
Water and waste water transmission products . . . . . . . . . . . . 7,070 8,309
Natural resources . . . . . . . . . . . . . . . . . . . . . . . . . 24,694 27,656
Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 222 1,525
---------- ---------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 52,163 $ 46,525
========== =========

</TABLE>

F-43

<PAGE>

WALTER INDUSTRIES, INC. AND SUBSIDIARIES
SEGMENT INFORMATION (Continued)
(Unaudited)

February 28,
----------------------------------------------
1995 1994
----------------------------------------------
(in thousands)
<S> <C> <C>
Identifiable Assets:
Homebuilding and related financing . . . . . . . . . . . . . . . . $1,761,847 $1,842,590
Building materials . . . . . . . . . . . . . . . . . . . . . . . . 57,749 53,776
Industrial products . . . . . . . . . . . . . . . . . . . . . . . . 151,552 130,210
Water and waste water transmission products . . . . . . . . . . . . 443,973 451,194
Natural resources . . . . . . . . . . . . . . . . . . . . . . . . . 460,628 480,739
Corporate (d) . . . . . . . . . . . . . . . . . . . . . . . . . . . 223,198 204,151
---------- ---------

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,098,947 $3,162,660
========== ==========

</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:
-- Sales of the Industrial Products Group to the Water and Waste
Water Transmission Products Group of $15,920,000 and $13,330,000
in the nine months ended February 28, 1995 and 1994,
respectively.
-- Sales of the Natural Resources Group to the Industrial Products
Group of $4,427,000 and $4,518,000 in the nine months ended
February 28, 1995 and 1994, respectively.
(b) Includes postretirement health benefits of $19,524,000 and
$19,189,000 in the nine months ended February 28, 1995 and 1994,
respectively. A breakdown by segment is as follows:

<TABLE><CAPTION>
Nine months ended
February 28,
----------------------------------
1995 1994
----------------------------------
(in thousands)

<S> <C> <C>
Homebuilding and related financing . . . . . $ 1,722 $ 1,628
Building materials . . . . . . . . . . . . . 382 378
Industrial products . . . . . . . . . . . . . 2,326 2,369
Water and waste water transmission products . 3,272 3,293
Natural resources . . . . . . . . . . . . . . 11,303 11,010
Corporate . . . . . . . . . . . . . . . . . . 519 511
------- -------
$19,524 $19,189
======== ========

</TABLE>

(c) Excludes interest expense incurred by the Homebuilding and
Related Financing Group of $94,564,000 and $97,519,000 in the
nine months ended February 28, 1995 and 1994, respectively.
(d) Primarily cash and corporate headquarters buildings and
equipment.
(e) Includes sales of coal of $209,368,000 and $223,054,000 in the
nine months ended February 28, 1995 and 1994, respectively.

F-44

<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 ________ Shares
Prospectus and any Prospectus Supplement, and
information or and representations not herein
contained, if given or made, must not be relied
upon as having been authorized. This Prospectus Walter Industries,
or any Prospectus Supplement does not constitute Inc.
an offer to sell, or a solicitation of an offer
to buy, the securities offered hereby to any
person or by anyone in any jurisdiction in which Common Stock
such offer or solicitation may not be made.
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 PROSPECTUS
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 Company since the date hereof or
thereof.
___________________________
TABLE OF CONTENTS
Page

Available Information . . . . . . . . . . . 4
Additional Information . . . . . . . . . . 4 _________, 1995
Prospectus Summary . . . . . . . . . . . . 5
Certain Risk Factors . . . . . . . . . . . 11
The Company . . . . . . . . . . . . . . . . 16
Recent History . . . . . . . . . . . . . . 17
Dividend Policy . . . . . . . . . . . . . . 18
Market for the Common Stock . . . . . . . . 19
Capitalization . . . . . . . . . . . . . . 20
Pro Forma Consolidated Financial Data . . . 21
Selected Historical Consolidated
Financial Data . . . . . . . . . . . 27
Management's Discussion and Analysis of
Financial Condition and Results of
Operations . . . . . . . . . . . . . 28
Business and Properties . . . . . . . . . . 38
Management . . . . . . . . . . . . . . . . 53
Security Ownership of Management and
Principal Stockholders . . . . . . . 61
Description of Certain Indebtedness . . . . 63
Description of Capital Stock . . . . . . . 66
Certain Federal Income Tax Consequences . . 70
Selling Security Holders . . . . . . . . . 72
Plan of Distribution . . . . . . . . . . . 72
Legal Matters . . . . . . . . . . . . . . . 73
Experts . . . . . . . . . . . . . . . . . . 74
Index to Defined Terms . . . . . . . . . . 75
Index to Financial Statements . . . . . . . F-1

<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution.

Registration fee . . . . . . . . . . . . . . . . . $114,197.73
Blue Sky fees and expenses . . . . . . . . . . . . *
Printing and engraving expenses . . . . . . . . . *
Legal fees and expenses . . . . . . . . . . . . . *
Accounting fees and expenses . . . . . . . . . . . *
Miscellaneous . . . . . . . . . . . . . . . . . . *
---------
Total . . . . . . . . . . . . . . . . . $ *
=========
_____________
* To be provided by amendment.

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

II-1

<PAGE>

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 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 Shares 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, approximately 50,494,313 shares of
Common Stock were issued for distribution to certain creditors and stockholders
of the Company and its subsidiaries and approximately $490,000,000 principal
amount of Series B Senior Notes were issued for distribution to certain
creditors of the Company and its subsidiaries. All such securities were issued
as of or following the Effective Date of the Plan of Reorganization 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

Exhibit Number Description
- -------------- -----------

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(a) -- Restated Certificate of Incorporation of the Company

3(b) -- By-Laws of the Company

4(a)(i) -- Restated Certificate of Incorporation of the Company (see Exhibit
3(a))

4(a)(ii) -- By-Laws of the Company (see Exhibit 3(b))

4(b) -- Specimen Stock Certificate

4(c)(i) * -- 12.19% Series B Senior Note Indenture

4(c)(ii) *-- Form of Company Pledge Agreement (included as Exhibit B to Exhibit
4(c)(i))

4(c)(iii) *
-- Form of Subsidiary Pledge Agreement (included as Exhibit C to
Exhibit 4(c)(i))

4(c)(iv) *-- Form of 12.19% Series B Senior Note Certificate (included as
Exhibit A to Exhibit 4(c)(i))

5 * -- Opinion of Simpson Thacher & Bartlett regarding legality of the
securities being registered

10(a) -- Stockholder's Agreement

10(b)(i) -- Form of Common Stock Registration Rights Agreement

10(b)(ii) *
-- Form of Senior Note Registration Rights Agreement

10(c) -- Durham Employment Agreement

10(d) -- Second Amended and Restated Veil Piercing Settlement Agreement
(included as Exhibit 3A to Exhibit 2(a)(i))

10(e) * -- 12.19% Series B Senior Note Indenture (see Exhibit 4(c))

10(f) * -- Bank Revolving Credit Facility

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)

II-3

<PAGE>
Exhibit Number Description
- -------------- -----------

24 -- Powers of Attorney

27 -- Financial Data Schedule
_________________

* To be filed by amendment.

(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.

(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 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-4

<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, hereunto duly authorized in the City of Tampa, State of Florida on
the 29th day of April, 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 has been signed by the following persons in the
capacities indicated on April 29, 1995.

Signature Title
- --------- -----

* 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
- --------------------------------- Financial Officer and Director (Principal
Kenneth J. Matlock Financial Officer)

/s/ William H. Weldon Senior Vice President-Finance
- --------------------------------- and Chief Accounting Officer (Principal
William H. Weldon 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

*By /s/ William H. Weldon
--------------------------
William H. Weldon
Attorney-in-fact

II-5

<PAGE>

INDEX TO FINANCIAL STATEMENT SCHEDULES

Financial Statement Schedules Page
----------------------------- ----

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

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>

SCHEDULE V

WALTER INDUSTRIES, INC. AND SUBSIDIARIES

PROPERTY, PLANT AND EQUIPMENT
For the Year Ended May 31, 1994

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 . . . . . . . . . . $ 200,000 $ 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>

(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>

SCHEDULE V

WALTER INDUSTRIES, INC. AND SUBSIDIARIES

PROPERTY, PLANT AND EQUIPMENT
For the Year Ended May 31, 1993

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 . . . . . . . . . . $ 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-3

<PAGE>

SCHEDULE V

WALTER INDUSTRIES, INC. AND SUBSIDIARIES

PROPERTY, PLANT AND EQUIPMENT
For the Year Ended May 31, 1992

<TABLE><CAPTION>
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 . . . . . . . . . . $ 198,390 $ 550 $ 83 $ 70 $198,927
Land improvements . . . . . . . . . . 11,278 64 3 5,217 16,556
Building and leasehold improvements . 96,448 4,394 1,200 (695) 98,947
Machinery and equipment . . . . . . . 520,342 4,718 11,312 53,470 567,218
Mine development costs . . . . . . . 113,856 -- -- 2,720 116,576
Construction in progress . . . . . . 15,876 58,623 -- (57,240) 17,259
--------- ------- ------- ------- --------
$ 956,190 $68,349 $12,598 $ 3,542 $1,015,483
========= ======= ======= ======= =========

</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, 1994

Additions
Balance at Charged to Balance
Beginning Cost and Retirements at End
Classification of Year 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-5

<PAGE>

SCHEDULE VI

WALTER INDUSTRIES, INC. AND SUBSIDIARIES

ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF
PROPERTY, PLANT AND EQUIPMENT
For the Year Ended May 31, 1993

<TABLE><CAPTION>
Additions
Balance at Charged to Balance
Beginning Cost and Retirements at End
Classification of Year 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-6

<PAGE>

SCHEDULE VI

WALTER INDUSTRIES, INC. AND SUBSIDIARIES

ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF
PROPERTY, PLANT AND EQUIPMENT
For the Year Ended May 31, 1992

<S> <C> <C> <C> <C> <C>
Land and minerals . . . . . . . . . . $25,717 $6,649 $ -- $ -- $32,366
Land improvements . . . . . . . . . . 2,073 1,508 -- 622 4,203
Building and leasehold improvements . 17,788 10,790 612 2,197 30,163
Machinery and equipment . . . . . . . 216,028 61,271 6,587 27 270,739
Mine development costs . . . . . . . 10,807 2,583 -- -- 13,390
------- ------ ------ ------- ------
$272,413 $82,801 $7,199 $ 2,846 $350,861
======== ======= ======= ======= ========
</TABLE>

S-7

<PAGE>

SCHEDULE VIII

WALTER INDUSTRIES, INC. AND SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS
For the Year Ended May 31, 1994

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 . . . . . . . . . . . . . . . $26,579 $ 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-8

<PAGE>

SCHEDULE VIII

WALTER INDUSTRIES, INC. AND SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS
For the Year Ended May 31, 1993

<S> <C> <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>

S-9

<PAGE>

SCHEDULE VIII

WALTER INDUSTRIES, INC. AND SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS
For the Year Ended May 31, 1992

<S> <C> <C> <C> <C>
Reserves (provision for possible losses)
deducted from instalment notes
receivable . . . . . . . . . . . . . . . $24,985 $2,117 $1,137(1) $25,965
======= ===== ====== =======
Reserve (provision for possible losses)
deducted from trade receivables . . . . . $6,203 $3,670 $3,793(1) $6,080
======= ===== ====== =======

Accrued workmen's compensation(3) . . . . . $2,618 $ 793 $ --(2) $3,411
======= ===== ====== =======

Black lung reserves(3) . . . . . . . . . . $22,569 $ -- $ 224(4) $22,345
======= ===== ====== =======
</TABLE>

S-10

<PAGE>
<TABLE><CAPTION>
EXHIBIT INDEX

Exhibit Number Description Page
- -------------- ----------- ----
<C> <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(a) -- Restated Certificate of Incorporation of the Company

3(b) -- By-Laws of the Company

4(a)(i) -- Restated Certificate of Incorporation of the Company (see Exhibit
3(a))

4(a)(ii) -- By-Laws of the Company (see Exhibit 3(b))

4(b) -- Specimen Stock Certificate

4(c)(i) * -- 12.19% Series B Senior Note Indenture

4(c)(ii) *-- Form of Company Pledge Agreement (included as Exhibit B to Exhibit
4(c)(i))

4(c)(iii) *
-- Form of Subsidiary Pledge Agreement (included as Exhibit C to
Exhibit 4(c)(i))

4(c)(iv) *-- Form of 12.19% Series B Senior Note Certificate (included as
Exhibit A to Exhibit 4(c)(i))

5 * -- Opinion of Simpson Thacher & Bartlett regarding legality of the
securities being registered

10(a) -- Stockholder's Agreement

10(b)(i) -- Form of Common Stock Registration Rights Agreement

10(b)(ii) *
-- Form of Senior Note Registration Rights Agreement

10(c) -- Durham Employment Agreement

10(d) -- Second Amended and Restated Veil Piercing Settlement Agreement
(included as Exhibit 3A to Exhibit 2(a)(i))

10(e) * -- 12.19% Series B Senior Note Indenture (see Exhibit 4(c))

10(f) * -- Bank Revolving Credit Facility

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)

24 -- Powers of Attorney

27 -- Financial Data Schedule
</TABLE>
_________________

* To be filed by amendment.

(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.

Exhibit 2(a)(iii)

UNITED STATES BANKRUPTCY COURT
MIDDLE DISTRICT OF FLORIDA
TAMPA DIVISION

In re: Chapter 11
Jointly Administered
HILLSBOROUGH HOLDINGS CORPORATION, Case No. 89-9715-8P1
BEST INSURORS, INC., Case No. 89-9740-8P1
BEST INSURORS OF MISSISSIPPI, INC., Case No. 89-9737-8P1
COAST TO COAST ADVERTISING, INC., Case No. 89-9727-8P1
COMPUTER HOLDINGS CORPORATION, Case No. 89-9724-8P1
DIXIE BUILDING SUPPLIES, INC., Case No. 89-9741-8P1
HAMER HOLDINGS CORPORATION, Case No. 89-9735-8P1
HAMER PROPERTIES, INC., Case No. 89-9739-8P1
HOMES HOLDINGS CORPORATION, Case No. 89-9742-8P1
JIM WALTER COMPUTER SERVICES, INC., Case No. 89-9723-8P1
JIM WALTER HOMES, INC., Case No. 89-9746-8P1
JIM WALTER INSURANCE SERVICES, INC., Case No. 89-9731-8P1
JIM WALTER RESOURCES, INC., Case No. 89-9738-8P1
JIM WALTER WINDOW COMPONENTS, INC., Case No. 89-9716-8P1
JW ALUMINUM COMPANY, Case No. 89-9718-8P1
JW RESOURCES HOLDINGS CORPORATION, Case No. 89-9719-8P1
J.W.I. HOLDINGS CORPORATION, Case No. 89-9721-8P1
J.W. WALTER, INC., Case No. 89-9717-8P1
JW WINDOW COMPONENTS, INC., Case No. 89-9732-8P1
LAND HOLDINGS CORPORATION, Case No. 89-9720-8P1
MID-STATE HOMES, INC., Case No. 89-9725-8P1
MID-STATE HOLDINGS CORPORATION, Case No. 89-9726-8P1
RAILROAD HOLDINGS CORPORATION, Case No. 89-9733-8P1
SLOSS INDUSTRIES CORPORATION, Case No. 89-9743-8P1
SOUTHERN PRECISION CORPORATION, Case No. 89-9729-8P1
UNITED LAND CORPORATION, Case No. 89-9730-8P1
UNITED STATES PIPE AND FOUNDRY COMPANY, Case No. 89-9744-8P1
U.S. PIPE REALTY, INC., Case No. 89-9734-8P1
VESTAL MANUFACTURING COMPANY, Case No. 89-9728-8P1
WALTER HOME IMPROVEMENT, INC., Case No. 89-9722-8P1
WALTER INDUSTRIES, INC., Case No. 89-9745-8P1
WALTER LAND COMPANY and Case No. 89-9736-8P1
JW RESOURCES, INC., Case No. 90-11997-8P1

Debtors.

<PAGE>

ORDER CONFIRMING AMENDED JOINT PLAN OF
REORGANIZATION DATED AS OF DECEMBER 9, 1994. AS MODIFIED
--------------------------------------------------------

Walter Industries, Inc. (formerly named Hillsborough Holdings

Corporation) ("Walter Industries"), debtor and debtor in possession herein,

for and on behalf of itself and its affiliated debtors and debtors in

possession herein (together with Walter Industries, the "Debtors"), the KKR

Proponents(1), the Bondholders Committee, Apollo, Lehman Brothers Inc.

("Lehman"), the Creditors Committee and the Ad Hoc Committee of Pre-LBO

Bondholders (the "Ad Hoc Committee") (collectively, the "Consensual Plan

Proponents"), having jointly filed with this Court under chapter 11 of the

Bankruptcy Code, 11 U.S.C. Sec. 101 et seq. (the "Bankruptcy Code"), the Amended
-- ---
Joint Plan of Reorganization dated as of December 9, 1994 (the "Consensual

Plan"), as modified by the Modification dated and filed with this Court on

March 1, 1995 (the Consensual Plan, as modified, together with all exhibits

thereto, the "Modified Consensual Plan"), which Plan constitutes a

modification of the Creditors' Joint Plan of Reorganization dated as of

August 1, 1994 (the "Creditors' Plan"); and hearings having been held before

this Court on May 19, 1994, June 15, 1994, July 13, 1994 and July 28, 1994 on

notices to all creditors, shareholders and other parties in interest to the

Chapter 11 Cases to consider (a) the Debtors' Fifth Amended Disclosure

Statement dated as of July 25, 1994 (the "Debtors' Disclosure Statement") and

(b) the Disclosure Statement for Creditors' Plan dated as of August 1, 1994

(the "Creditors' Disclosure Statement") and predecessor versions thereof; and

the Debtors' Disclosure Statement and the Creditors' Disclosure

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

(1) All capitalized terms not otherwise defined herein
shall have the meanings ascribed to them in the
Modified Consensual Plan (as defined herein) and the
exhibits thereto, including, but not limited to, the
Second Amended and Restated Veil Piercing Settlement
Agreement.

<PAGE>

Statement having been approved by order of this Court dated August 2, 1994

(the "August 2 Order"); and pursuant to the August 2 Order, the Court having

(a) fixed July 13, 1994 (the "Record Date") as the record date for

determining which Holders of Claims against and Interests in the Debtors

would be entitled to vote on both the Debtors' Fifth Amended Joint Plan of

Reorganization dated as of July 25, 1994 (the "Debtors' Plan") and the

Creditors' Plan and September 23, 1994 as the last date to vote on the

Debtors' Plan and the Creditors' Plan, (b) scheduled hearings to commence on

October 17, 1994 (which commenced that day and continued October 18 and 19,

1994) (the "October 17 Hearing") to consider (i) the contested matter filed

by the Debtors asserting, among other things, that unsecured creditors are

not entitled to post-petition interest on their Claims, and any response

thereto filed by the Bondholders Committee, Apollo, Lehman, the Creditors

Committee and the Ad Hoc Committee (collectively, the "Creditor Proponents"),

(ii) the Creditor Proponents' application seeking approval of the Amended and

Restated Veil Piercing Settlement Agreement dated as of August 1, 1994, and

the Debtors' motion to void that Agreement, and (iii) any properly asserted

objections or challenges to the ballots cast on the Debtors' Plan and/or the

Creditors' Plan, (c) fixed November 10, 1994 as the last date to file

objections to confirmation of the Debtors' Plan and/or the Creditors' Plan,

and (d) scheduled a status conference respecting the confirmation hearing for

November 16, 1994, at which time the Court was to fix a date for the

commencement of the hearing on confirmation of the Debtors' Plan and/or the

Creditors' Plan; and a copy of (a) the Debtors' Plan and Debtors' Disclosure

Statement, (b) the Creditors' Plan and Creditors' Disclosure Statement and

Holders of Claims against and Interests in the Debtors as provided in the

August 2 Order; and

<PAGE>

acceptances having been solicited from Holders of Claims against and

Interests in the Debtors within the time and in the manner required by the

August 2 Order; and ballots, inter alia, indicating the acceptance or
----- ----
rejection of the Debtors' Plan and/or the Creditors' Plan by Holders of

Claims against and Interests in the Debtors having been received and tallied

by Donlin, Racano & Company, Inc. (the "Ballot Agent"), the Court-authorized

balloting agent; and the Ballot Agent having filed with the Court (a) the

Declaration of Carole G. Donlin Certifying the Ballots Accepting and

Rejecting the Creditors' Joint Plan of Reorganization Under Chapter 11 of the

Bankruptcy Code dated as of October 4, 1994, together with the amended

schedule (the "Creditors' Plan Voting Certification"), and (b) the

Declaration of Carole G. Donlin Certifying the Ballots Accepting and

Rejecting the Debtors' Fifth Amended Joint Plan of Reorganization Under

Chapter 11 of the Bankruptcy Code dated as of September 30, 1994; and the

Creditors' Plan Voting Certification having certified that (a) Holders of

Claims in Classes S-1, S-2, S-6, U-3 (other than Classes U-3A, U-3K, U-3U, U-

3Z, U-3DD, U-3EE, and U-3FF), U-4, U-5 and U-6 voted to accept the Creditors'

Plan and (b) Holders of Claims in Classes U-3A, U-3K, U-3U, U-3Z, U-3DD, U-3EE

and U-3FF and Holders of Interests in Class E-1 voted to reject the

Creditors' Plan; and the Debtors and the Creditor Proponents having completed

the record with respect to testimony on the "going concern" value of the

Debtors and the value of the Debtors on a hypothetical chapter 7 liquidation

basis at the October 17 Hearing and the Court having heard certain evidence

concerning the fairness of the Amended and Restated Veil Piercing Settlement

Agreement at that hearing; and representatives of the Debtors, the KKR

Proponents, Apollo, Lehman, the Bondholders Committee, the Creditors

Committee and the Veil Piercing Claimants having announced to the Court on

October 20, 1994 that an agreement in principle

<PAGE>

had been reached with respect to the terms and conditions of a consensual

modification of the Creditors' Plan; and the Consensual Plan Proponents

having filed the Amended Joint Plan of Reorganization dated as of November

22, 1994 and the Supplement to Disclosure Statement for Amended Joint Plan of

Reorganization dated as of November 22, 1994 (the "November 22 Disclosure

Statement Supplement") on November 22, 1994; and by order dated November 22,

1994, the Court having scheduled a hearing for December 15, 1994 (the

"December 15 Hearing") to consider the adequacy of the November 22 Disclosure

Statement Supplement and any modifications thereto; and the Consensual Plan

Proponents having reached a definitive agreement on the terms and conditions

of the Consensual Plan; and the Consensual Plan Proponents having filed the

Consensual Plan and the Supplement to Disclosure Statement for Amended Joint

Plan of Reorganization dated as of December 9, 1994 (the "Disclosure

Statement Supplement") on December 9, 1994; and after hearing all parties in

interest wishing to be heard at the December 15 Hearing with respect to: (a)

the adequacy of the Disclosure Statement Supplement; (b) the Motion of the

Consensual Plan Proponents for an Order (1) Determining Those Holders of

Claims and Interests Entitled to Have the Opportunity to Change the Votes

They Previously Cast on the Creditors' Plan With Respect to the Consensual

Plan, (2) Determining the Amount for which Class U-7 Claims Shall Be

Provisionally Allowed for Purposes of Voting on the Consensual Plan and (3)

Approving the Form of Ballot to be Used by Class U-7; (c) the Joint Motion of

the Consensual Plan Proponents for an Order Setting Bar Date for Class U-7

Claims (Veil Piercing Claimants) and Approving Form of Notice; and (d) the

Motion of the Consensual Plan Proponents for an Order (A) Establishing (1)

the Date of the Hearing on Confirmation of the Consensual Plan and the Motion

for Approval of the Second Amended and

<PAGE>

Restated Veil Piercing Settlement Agreement (the "VPSA"), and (2) Deadlines

Regarding Vote Changes by the Resolicitation Classes and Voting by Class U-7

on, and Additional Election Under and Objections to, the Consensual Plan, (B)

Approving Other Procedures Relating to Vote Changes by the Resolicitation

Classes and Voting By Class U-7 on the Consensual Plan and the Tabulation of

Votes or Vote Changes, and (C) Approving the Transmittal of Various Materials

Respecting the Consensual Plan Confirmation Process; and adequate notice of

the December 15 Hearing having been provided; and the Court having entered an

order (the "December 15 Order"), inter alia, (a) approving the Disclosure
----- ----
Statement Supplement as containing adequate information in accordance with

Section 1125 of the Bankruptcy Code; (b) determining that only Holders of

Claims against and/or Interests in the Debtors in any of Classes S-1, S-2, S-

6, U-3A, U-3K, U-3U, U-3Z, U-3DD, U-3EE, U-3FF, U-4, U-5, U-6 and E-1 (the

"Resolicitation Classes") as of the Record Date who timely voted to accept or

reject the Creditors' Plan (the "Resolicitation Holders") would be given an

opportunity to change their votes on the Creditors' Plan and to have such

changed votes apply to the Consensual Plan; (c) determining that each

Resolicitation Holder who failed to complete, execute and return a vote

change certificate (the "Resolicitation Ballot") prior to the Resolicitation

Deadline, as defined herein, would be deemed to have voted to accept or

reject the Consensual Plan in the same manner as such Resolicitation Holder

voted on the Creditors' Plan; (d) approving the Class U-4 Exchange Election

Form; (e) fixing January 24, 1995 (the "Resolicitation Deadline") as the last

date for a Resolictation Holder who is the record owner of the Claim against

or an Interest in any Debtor, to deliver its Resolicitation Ballot and/or

Class U-4 Exchange Election Form to the Ballot Agent; (f) fixing January 19,

1995 as the last date for a Resolicitation Holder that is the beneficial

owner of a

<PAGE>

Claim against or an Interest in any Debtor, but that is not the record owner

of such Claim or Interest, to deliver its Resolicitation Ballot and/or Class

U-4 Exchange Election Form to the record owner of such Claim or Interest; (g)

permitting each Holder of a Class U-7 Claim to vote on the Consensual Plan,

and determining that solely for purposes of voting on the Consensual Plan,

each Holder of a Class U-7 Claim would have an Allowed Claim in the amount

of $1.00 and setting February 22, 1995 as the last date for any Holder of a

Class U-7 Claim to submit a Class U-7 Ballot; (h) directing the Ballot Agent

to send to each Resolicitation Holder, each Indenture Trustee, the Securities

and Exchange Commission (the "SEC") and the Office of the United States

Trustee (the "UST"), on or before December 23, 1994, a transmittal package

(the "Resolicitation Package") containing (1) the notice of the confirmation

hearing date, procedures and deadlines with respect to confirmation of the

Consensual Plan, approval of the VPSA and related matters (the "Confirmation

Hearing Notice"), (2) a blacklined copy of the Consensual Plan marked to

reflect modifications contained therein as compared to the Creditors' Plan,

(3) the Disclosure Statement Supplement, (4) one or more Resolicitation

Ballots for use by a Resolicitation Holder who is the beneficial owner of a

Claim against or Interest in the Debtors, (5) with respect to each qualifying

Class U-4 Resolicitation Holder, a Class U-4 Exchange Election Form, and (6)

where applicable, a master Resolicitation Ballot and a master Class U-4

Exchange Election Form upon which record holder nominees would record and

tabulate each timely received Resolicitation Ballot and/or Class U-4 Exchange

Election Form from each Resolicitation Holder that is not the record owner of

a Claim against or Interest in the Debtors; (i) directing the Ballot Agent to

send on or before December 23, 1994, a transmittal package (the "Class U-7

Solicitation Package") containing (1) the Confirmation Hearing Notice, (2)

the

<PAGE>

Consensual Plan (including a copy of the VPSA), (3) the Disclosure Statement

Supplement, (4) a ballot for voting on the Consensual Plan (the "Class U-7

Ballot"), (5) the notice of the Class U-7 Bar Date, as defined below, and (6)

the notice relating to the settlement of the Debtors' objections to both the

Veil Piercing Proof of Claim and the Celotex Proof of Claim pursuant to the

VPSA to (A) each Veil Piercing Claimant known to have filed a proof of claim

against any of the Debtors or Celotex, (B) each Veil Piercing Claimant listed

in the schedule of liabilities filed in the Chapter 11 Cases and/or in the

Celotex Chapter 11 Case, (C) counsel of record for each Veil Piercing

Claimant who commenced a legal action against any of the Debtors or Celotex,

(D) each Holder of a Claim against or Interest in Celotex that was listed in

the schedule of liabilities filed by Celotex in the Celotex Chapter 11 Case,

(E) the law firms of Caplin & Drysdale, Chartered, Baron & Budd, Greitzer and

Locks, Ness Motley Loadholt Richardson & Poole, (F) the SEC and (G) the UST;

(j) directing the Ballot Agent to send, on or before December 23, 1994, a

transmittal package (the "Non-Voting Package") containing (1) the

Confirmation Hearing Notice, (2) the Consensual Plan, (3) the Disclosure

Statement Supplement and (4) a notice of non-voter status to (A) all persons

and entities, other than Resolicitation Holders or Holders of Class U-7

Claims, that filed proofs of Claim or Interest against any Debtor that were

not disallowed or withdrawn on or before the Supplemental Record Date, as

defined herein, (B) all persons and entities, other than Resolicitation

Holders or Holders of Class U-7 Claims, listed in the Schedules as of the

Supplemental Record Date, (C) all other known Holders of Claims against or

Interests in the Debtors as of the Supplemental Record Date, (D) any party in

interest that filed a request for notice which request was not withdrawn as

of the Supplemental Record Date, (E) each of the Indenture Trustees, (F) the

SEC and (G) the UST;

<PAGE>

(k) fixing November 18, 1994 (the "Supplemental Record Date") as the date for

determining which Holders of Claims against and Interests in the Debtors are

entitled to receive the Non-Voting Package; (1) directing publication of a

summary form of the Confirmation Hearing Notice (the "Confirmation Hearing

Publication Notice") (1) on or before December 23, 1994 in (i) the national

editions of The New York Times, The Wall Street Journal and USA Today and
------------------------------------------- ---------
(ii) each of the publications listed in Exhibit J to the December 15 Order,

and (2) on or before Janaury 15, 1995 in the national editions of The New
-------
York Times, The Wall Street Journal and USA Today; (m) fixing February 22,
---------- ----------------------- ---------
1995 as the last date for Holders of Class U-7 Claims to deliver Class U-7

Ballots to the Ballot Agent; (n) fixing Janaury 24, 1995 with respect to

Holders of Claims against and Interests in the Debtors, other than Holders of

Class U-7 Claims, and February 22, 1995 with respect to Holders of Class U-7

Claims, as the last date to file objections to confirmation of the Consensual

Plan and objections to the Court's approval of the VPSA; and (o) scheduling

the hearing to consider confirmation of the Consensual Plan and the hearing

to approve the VPSA for March 1, 1995, and providing that the hearing shall

continue, if necessary, on March 2 and March 3, 1995 until concluded; and by

order dated December 15, 1994, the Court having fixed February 22, 1995 (the

"Class U-7 Bar Date") as the last date for a Holder of a Class U-7 Claim to

file a proof of claim in the Chapter 11 Cases; and the Celotex Proof of Claim

and the Veil Piercing Proof of Claim having been timely filed prior to the

Class U-7 Bar Date; and the Ballot Agent having filed affidavits of service

with the Court evidencing that the Resolicitation Packages, the Class U-7

Solicitation Packages and the Non-Voting Packages were served in accordance

with the provisions of the December 15 Order; and affidavits of publication

having

<PAGE>

been filed with the Court evidencing that the Summary Confirmation Hearing

Notice was published in accordance with the provisions of the December 15

Order; and the Consensual Plan Proponents and the putative representative of

the class of Veil Piercing Claimants (the "Settlement Class") having filed

their joint motion dated December 14, 1994 for an order (a) applying

Bankruptcy Rule 7023 to the contested matters relating to the Veil Piercing

Proof of Claim, (b) certifying a class of Veil Piercing Claimants for

settlement purposes only, (c) approving the form of "Notice of Pendency of

Contested Matter Relating to Class Proof of Claim, Proposed Settlement of

Class Proof of Claim, Hearing to Consider Proposed Settlement, Class

Certification, Right to be Excluded from, and Right to Appear and Object"

(the "Class Settlement Notice") and the Summary Class Settlement Notice for

publication, (d) approving procedures concerning the dissemination of the

Class Settlement Notice and the publication of the Summary Class Settlement

Notice, and (e) scheduling a hearing on March 1, 1995 to determine whether

the VPSA should be approved by the Court as fair, reasonable and adequate,

and in the best interests of the Settlement Class (the "Class Motion"); and

pursuant to an order of the Court dated December 15, 1994 (the "Second

December 15 Order"), the Court having granted that portion of the Class

Motion which sought interim relief, including the appointment of the class

representative of and counsel for the Settlement Class; and due and

sufficient notice of the Class Motion having been (a) provided by the mailing

of the Class Settlement Notice to (1) all known potential members of the

Settlement Class to the extent identified on the schedules of liabilities

filed in the Chapter 11 Cases and/or in the Celotex Chapter 11 Case, or

having made a demand against the Debtors and/or Celotex in respect of a

Settlement Claim, (2) counsel of record for potential members of the

Settlement Class in all pending actions against the

<PAGE>

Debtors in respect of Settlement Claims and (3) all known creditors of

Celotex appearing on its schedules to the extent not included in (a) above

and (b) by publication of the Summary Class Settlement Notice in accordance

with the provisions of the Second December 15 Order; and the Consensual Plan

Proponents and counsel for the Settlement Class having filed the joint motion

dated January 10, 1995 for an order approving the VPSA (the "Settlement

Motion"); and the Celotex Bankruptcy Court having entered an order on

February 13, 1995 authorizing and directing Celotex to render performance

under the VPSA subject only to the right of the Legal Representative for

Unknown Claimants appointed in the Celotex Chapter 11 Case (the "Legal

Representative") to object thereto at a hearing to be held before the Celotex

Bankruptcy Court on February 17, 1995; and the Legal Representative having

filed no objection to the VPSA but rather having recommended approval of the

VPSA to the Celotex Bankruptcy Court at the February 17, 1995 hearing; and

all timely filed ballots by Holders of Class U-7 Claims (Veil Piercing

Claimants) and all timely Resolicitation Ballots having been received and

tallied by the Ballot Agent; and the Ballot Agent having filed with the Court

the Declaration of Louis A. Recano Certifying the Ballots Accepting and

Rejecting the Amended Joint Plan of Reorganization dated as of December 9,

1994 under Chapter 11 of the Bankruptcy Code dated as of February 24, 1995

(the "Resolicitation and U-7 Ballot Certification"); and the Consensual Plan

Proponents and counsel for the Settlement Class having filed a joint motion

dated February 27, 1995 for an order approving the VPSA and the Settlement of

the Veil Piercing Proof of Claim pursuant to Bankruptcy Rule 7023(e) (the

"Class Settlement Motion"); and timely objections to confirmation of the

Consensual Plan having been filed only by (a) the United States on behalf of

the United States Environmental Protection Agency (the "EPA Objection"), (b)

NationsBank of Texas,

<PAGE>

N.A., as trustee, (the "NationsBank Objection"), (c) the United States on

behalf of the Internal Revenue Service (the "IRS Objection"), (d) J. Randy

Craps, Kathy D. Craps, David B. Bookhardt, Maria B. Bookhardt, Brian Carrier

and Bonnie L. Carrier (the "Craps Objection"), (e) Kanab Services, Inc.,

Kaneb Energy Company, Kaneb Energy Partners, Ltd. and Kaneb Operating

Company, Ltd. (the "Kaneb Objection"), (f) Aetna Casualty and Surety Company

(the "Aetna Objection"), (g) the County of Anderson et al. (the "Texas
-- --

Counties' Objection"), (h) the California Department of Toxic Substances

Control and California Regional Water Quality Control Board, San Francisco

Bay Region (the "DTSC Objection"), (i) Barnett Banks Trust Company, N.A. (the

"Barnett Banks Objection") and (j) IBJ Schroder Bank & Trust Company (the

"IBJ Schroder Objection") (collectively, the "Confirmation Objections"); and

no objection having been filed to the VPSA; and a full evidentiary hearing to

consider (1) confirmation of the Modified Consensual Plan, (2) the

Confirmation Objections not withdrawn or settled prior to March 1, 1995, (3)

the approval and the fairness, reasonableness and adequacy of the VPSA as

requested in the Class Settlement Motion, and the Settlement Motion and (4)

other matters relating to confirmation having been held on March 1, 1995 (the

"Confirmation Hearing"); and upon the entire record of the Chapter 11 Cases,

including, without limitation, the minutes taken before the Court at the

October 17 Hearing and the Confirmation Hearing; and after finding that due,

sufficient and adequate notice of the Confirmation Hearing, the Class

Settlement Motion, the Settlement Motion and the Class Motion have been given

to all interested persons and parties in interest; and after due deliberation

and good and sufficient cause appearing therefor, and

IT APPEARING AND THE COURT HAVING FOUND AND CONCLUDED, THAT:

a. The Court has exclusive jurisdiction over the Chapter 11 Cases

pursuant to 28

<PAGE>

U.S.C. Sec. 1334(a) and 157(a) and the July 11, 1984 "Order of General

Reference" of the United States District Court for the Middle District of

Florida (Hodges, C.J.), inter alia, referring all cases under title 11 to the
----- ----
Court.

b. Venue of the Chapter 11 Cases is proper in this district pursuant

to 28 U.S.C. Sec. 1408 and 1409.

c. The matters considered by the Court at the Confirmation Hearing

were "core" proceedings pursuant to 28 U.S.C. Sec. 157(b)(2) over which the

Court has jurisdiction to enter final orders.

d. Notice of the following dates was due, sufficient, adequate and

appropriate under the circumstances and satisfied the requirements of all

applicable laws, including, without limitation, the Bankruptcy Code, the

Federal Rules of Civil Procedure, the Federal Rules of Bankruptcy Procedure

(the "Bankruptcy Rules") and the Due Process Clause of the United States

Constitution: (i) the date of the Confirmation Hearing; (ii) the last date

and time to file objections to confirmation of the Consensual Plan; (iii) the

last dates and times for receipt of ballots with respect to the Creditors'

Plan, and the Class U-7 Ballots and Resolicitation Ballots with respect to

the Consensual Plan; (iv) the dates of the hearings on the Class Motion and

the last date and time to file objections to the Class Motion and/or opt out

of the Settlement Class; and (v) the date of the hearing on the Class

Settlement Motion and the last date and time to file objections to the Class

Settlement Motion.

e. The Modified Consensual Plan constitutes a modification of the

Creditors' Plan pursuant to Section 1127(a) of the Bankruptcy Code.

f. Pursuant to Bankruptcy Rule 1015(b) and an order of the Court, the

Chapter 11

<PAGE>

Cases are being jointly administered. The Chapter 11 Cases have not been

substantively consolidated and the Modified Consensual Plan is not based on a

substantive consolidation of the Chapter 11 Cases.

g. The solicitation by the Creditor Proponents of ballots for

acceptance or rejection of the Creditors' Plan, the Subordinated Note Claim

Election, the Series B & C Senior Note Claim Election and the Other Unsecured

Claim Election (collectively, the "Creditors' Plan Ballots") was proposed and

conducted in good faith and complied with Sections 1125 and 1126 of the

Bankruptcy Code, Bankruptcy Rules 3017 and 3018, the August 2 Order, all

other applicable provisions of the Bankruptcy Code and all other applicable

laws, rules and regulations.

h. The solicitation by the Consensual Plan Proponents of the

Resolicitation Ballots, Class U-7 Ballots and Class U-4 Exchange Elections

(collectively, the "Consensual Plan Ballots") was proposed and conducted in

good faith and complied with Sections 1125, 1126 and 1127 of the Bankruptcy

Code, Bankruptcy Rules 3017, 3018 and 3019, the December 15 Order, all other

applicable provisions of the Bankruptcy Code and all other applicable laws,

rules and regulations.

i. The procedures by which the Creditors' Plan Ballots and the

Consensual Plan Ballots were distributed and tabulated were fair, properly

conducted and in accordance with the Bankruptcy Code, the Bankruptcy Rules,

the local rules of this Court, the August 2 Order, the December 15 Order,

prior orders of this Court and all other applicable laws, rules and

regulations.

j. As evidenced by the Creditors' Plan Voting Certification and the

Resolicitation

<PAGE>

and U-7 Ballot Certification:

(1) More than two-thirds in amount and more than one-half in
number of Holders of Allowed Claims in Classes S-1, S-2, S-6,
U-3 (other than Class U-3K and Class U-3DD), U-4, U-5 and U-6
(comprising all Holders of Claims who voted or were deemed to
have voted on the Consensual Plan, other than Class U-7)
accepted the Consensual Plan.

(2) More than two-thirds in amount and more than one-half in
number of Holders of Allowed Claims in Class U-7 who voted on
the Consensual Plan accepted the Consensual Plan.

(3) More than two-thirds in amount of Holders of Allowed Interests
in Class E-1 who voted on the Consensual Plan accepted the
Consensual Plan.

(4) Less than two-thirds in amount but more than one-half in
number of Holders of Allowed Claims in Class U-3K who voted or
were deemed to have voted on the Consensual Plan accepted the
Consensual Plan.

(5) Less than two-thirds in amount and less than one-half in
number of Holders of Allowed Claims in Class U-3DD who voted
or were deemed to have voted on the Consensual Plan accepted
the Consensual Plan.

k. Classes S-3, S-4, S-5, S-7, S-8, S-9, S-10, U-1, U-2, U-3K, U-3DD,

I-1, I-2 and I-3 are not impaired under the Modified Consensual Plan and

therefore such Classes are deemed to have accepted the Modified Consensual

Plan pursuant to Section 1126(f) of the Bankruptcy Code.

l. Class SE-1 is not impaired under the Modified Consensual Plan and

therefore such Class is deemed to have accepted the Modified Consensual Plan

pursuant to Section 1126(f) of the Bankruptcy Code.

m. Class E-2 is deemed to have rejected the Modified Consensual Plan

pursuant to Section 1126(g) of the Bankruptcy Code since Holders of Interests

in such Class shall receive or retain no property under the Modified

Consensual Plan on account of their Allowed Interests.

<PAGE>

n. As required by Section 1129(a)(1) of the Bankruptcy Code, the

Modified Consensual Plan complies with all applicable provisions of the

Bankruptcy Code.

o. As required by Section 1129(a)(2) of the Bankruptcy Code, the

Consensual Plan Proponents have complied with all applicable provisions of

the Bankruptcy Code.

p. As required by Section 1129(a)(3) of the Bankruptcy Code, the

Modified Consensual Plan has been proposed in good faith, for the valid

business purpose of resolving substantial obligations of the Debtors and has

not been proposed by any means forbidden by law.

q. As required by and in compliance with Sections 1123(a)(1), (2) and

(3) of the Bankruptcy Code, the Modified Consensual Plan identifies the

Classes of Claims against and Interests in the Debtors that are not impaired

under the Modified Consensual Plan, the Classes of Claims against and

Interests in the Debtors that are impaired under the Modified Consensual Plan

and specifies the treatment of Allowed Claims and Interests in such Classes.

r. Consistent with Section 1123(a)(4) of the Bankruptcy Code, the

Modified Consensual Plan provides the same treatment for each Allowed Claim

or Interest in a particular Class, except in instances where the Holder of a

particular Allowed Claim or Interest has agreed to less favorable treatment

of its Allowed Claim or Interest.

s. The classification of Claims against and Interests in the Debtors

under the Modified Consensual Plan is reasonable, not unfairly discriminatory

and consistent with Section 1122(a) of the Bankruptcy Code in that each Claim

against or Interest in the Debtors has been placed in a particular Class only

if such Claim against or Interest in the Debtors is substantially similar to

the other Claims or Interests in such Class.

t. As required by Section 1123(a)(5) of the Bankruptcy Code, the

Modified

<PAGE>

Consensual Plan provides adequate means for the execution and implementation

of the Modified Consensual Plan.

u. No governmental regulatory commission has jurisdiction over rates

charged by any of the Debtors.

v. The treatment under the Modified Consensual Plan of Allowed Claims

of the type specified in Sections 507(a)(1), 507(a)(3), 507(a)(4), 507(a)(5),

507(a)(6), 507(a)(7) and 507(a)(8) of the Bankruptcy Code, if any, complies

with the provisions of Section 1129(a)(9) of the Bankruptcy Code.

w. The rate of interest to be paid on account of the Allowed

Administrative Claim (the "IRS Administrative Claim"), if any, of the

Internal Revenue Service (the "IRS") as provided in Article III, Section 3.2

of the Modified Consensual Plan, is proper under Section 1129(a)(9)(A) of the

Bankruptcy Code and applicable law, rules and regulations.

x. The rate of interest to be paid on account of Allowed Federal

Income Tax Claims, if any, as provided in Article III, Section 3.3 of the

Modified Consensual Plan, constitutes a commercially reasonable market rate

of interest and is proper under Section 1129(a)(9)(C) of the Bankruptcy Code.

y. The primary purpose of the Modified Consensual Plan is not the

avoidance of taxes or the avoidance of the application of Section 5 of the

Securities Act of 1933, as amended (15 U.S.C. Sec. 77e).

z. As required by Section 1129(a)(4) of the Bankruptcy Code, any

payments made or to be made by the Debtors for professional services or for

costs and expenses in connection with the Modified Consensual Plan or

incident to the Chapter 11 Cases, have been disclosed to

<PAGE>

and approved by this Court, and any such payments made before confirmation

were reasonable, and any payments for professional services rendered or for

costs and expenses incurred prior to the date of this Order but which are to

be fixed after confirmation of the Modified Consensual Plan will be subject

to the approval of this Court as reasonable.

aa. As required by Section 1129(a)(5) of the Bankruptcy Code, the

Consensual Plan Proponents have disclosed the identity and affiliations of

the individuals who are proposed to serve, after confirmation of the

Modified Consensual Plan, as directors and officers of the reorganized

Debtors and their affiliates; the continuance in or appointment of such

individuals to such offices is consistent with the interests of the Holders

of Claims against and Interests in the Debtors and with public policy; and

each of the Consensual Plan Proponents has disclosed the identity of any

insider respecting it and presently known to it who will be employed or

retained by the reorganized Debtors and the nature of any compensation to be

paid to such insider.

bb. The reconstitution of the board of directors of Walter Industries,

including the initial three-year term of such directors set forth in Article

V, Section 5.2 of the Modified Consensual Plan is necessary to provide

adequate means for the implementation of the Modified Consensual Plan and is

consistent with the interests of the Holders of Claims against and Interests

in the Debtors and with public policy.

cc. The procedure for the selection of the two (2) Independent

Directors of the board of directors of Walter Industries set forth in Article

V, Section 5.2 of the Modified Consensual Plan is consistent with the

interests of the Holders of Claims against and Interests in the Debtors and

with public policy.

<PAGE>

dd. Based on the record of the October 17 Hearing, which is

incorporated into the record of the Confirmation Hearing, on a consolidated

basis the Debtors would be insolvent on a hypothetical chapter 7 liquidation

basis and therefore Holders of Unsecured Claims and Subordinated Note Claims

would receive less than the Allowed Amount of their Claims if the Chapter 11

Cases were to be converted to cases under chapter 7 of the Bankruptcy Code.

ee. As required by Section 1129(a)(7) of the Bankruptcy Code, each

Holder of a Claim or Interest in an impaired Class has accepted the Modified

Consensual Plan or will receive or retain under the Modified Consensual Plan

on account of such Claim or Interest property of a value, as of the Effective

Date, that is not less than the amount that such Holder would receive or

retain if the Debtors were liquidated under chapter 7 of the Bankruptcy Code

on the Effective Date.

ff. With respect to Class E-2, the Modified Consensual Plan does not

discriminate unfairly against and is fair and equitable with respect to Class

E-2 Interests and satisfies the requirements of Section 1129(b) of the

Bankruptcy Code in that Holders of Interests, if any, junior or equal to

Class E-2 Interests will not receive or retain any property under the

Modified Consensual Plan on account of such Interests.

gg. As required by the Bankruptcy Code, Holders of Class U-7 Claims

received full and adequate disclosure in connection with voting on the

Modified Consensual Plan and consideration of the Class Settlement Motion,

Class Motion, Settlement Motion and the VPSA.

hh. No putative member of the Settlement Class has "opted out" of the

Settlement Class.

ii. As required by Section 1129(a)(10) of the Bankruptcy Code, with

respect to each

<PAGE>

of the Debtors for which there is at least one Class of impaired Claims, at

least one Class of Claims that is impaired under the Modified Consensual Plan

has accepted the Modified Consensual Plan, determined without including any

acceptance of the Modified Consensual Plan by any insider.

jj. Each Class of Claims against Home Improvement is unimpaired under

the Modified Consensual Plan and therefore is deemed to have accepted the

Modified Consensual Plan.

kk. To the extent required by the provisions of Section 1123(a)(6) of

the Bankruptcy Code, Article IV, Section 4.3 of the Modified Consensual Plan

provides for the certificates of incorporation of each of the Debtors to be

amended on or prior to the Effective Date to prohibit the issuance by each

Debtor of nonvoting capital stock.

ll. Section 1123(a) of the Bankruptcy Code requires a plan,

"notwithstanding any otherwise applicable nonbankruptcy law", to "provide

adequate means for the plan's implementation," including, but not limited to,

"amendment of the debtor's charter." Section 1123(b) of the Bankruptcy Code

permits a plan to "include any other appropriate provision not inconsistent

with the applicable provisions of this title."

mm. The provisions of the Charter, the By-Laws and the Modified

Consensual Plan with respect to the manner of selection of any director of

the Debtors and of any successor to such director after the Effective Date

(the "Corporate Governance Arrangements") were the product of good faith

intense negotiations among the KKR Parties, the Bondholders Committee, the

Creditors Committee, Lehman, Apollo, and the current officers and directors

of the Debtors. The Corporate Governance Arrangements were essential

components of the agreement in

<PAGE>

principle which ended the litigation among those parties and formed a basis

of the Modified Consensual Plan. Absent agreement on these Corporate

Governance Arrangements, there would not have been the Modified Consensual

Plan. Consistent with the foregoing, the revised Charter and By-Laws of

Walter Industries are necessary to provide adequate means for the

implementation of the Modified Consensual Plan, including the implementation

of Article III, Section 3.22 of the Modified Consensual Plan and the VPSA.

nn. The Corporate Governance Arrangements are essential components of

the Modified Consensual Plan and are "consistent with the interests of

creditors and equity security holders and with public policy with respect to

the manner of the selection of any officer, director or trustee under the

plan and any successor to such officer, director or trustee" within the

meaning of Section 1123(a)(7) of the Bankruptcy Code.

oo. The Modified Consensual Plan is feasible. Based on the record

established at the Confirmation Hearing, the Debtors have demonstrated their

ability to meet their financial obligations under the Modified Consensual

Plan and continue their businesses in the ordinary course. As required by

Section 1129(a)(11) of the Bankruptcy Code, confirmation of the Modified

Consensual Plan is not likely to be followed by the liquidation, or the need

for further financial reorganization, of the Debtors.

pp. Predicated upon, inter alia, the Court's finding that the Debtors
----- ----
have demonstrated their ability to meet their financial obligations under the

Modified Consensual Plan, the Court finds no basis in the record to require

the Debtors to establish pursuant to Article IV, Section 4.11 of the Modified

Consensual Plan any Cash reserves on account of any Disputed Claims.

qq. As required by Section 1129(a)(12) of the Bankruptcy Code, all fees

payable under

<PAGE>

28 U.S.C. Sec. 1930, as determined by the Court at the Confirmation Hearing,

have been paid or the Modified Consensual Plan provides for all such fees to

be paid on the Effective Date.

rr. Neither the filing of the Modified Consensual Plan by the

Consensual Plan Proponents nor any other action by any of the Consensual Plan

Proponents constituted or constitutes a breach of the Pre-LBO Bondholders

Settlement Agreement, which has expired by its terms.

ss. The Pre-LBO condition has not occurred.

tt. All conditions precedent to confirmation of the Modified Consensual

Plan, including those set forth in Article X, Section 10.1 of the Modified

Consensual Plan, have been satisfied, are satisfied by entry of this Order or

have been duly waived.

uu. As required by Section 1129(a)(13) of the Bankruptcy Code, the

Modified Consensual Plan provides for the assumption of all retirement and

supplemental retirement benefit contracts and therefore provides for the

continuation after the Effective Date of payment of all Retiree Benefits (as

defined in Section 1114(a) of the Bankruptcy Code) at the level established

pursuant to such retirement and supplemental retirement benefit contracts for

the duration of the period any of the Debtors has obligated itself to provide

such benefits.

vv. The record established at the Confirmation Hearing demonstrates

that the Debtors will be able to satisfy each and every condition precedent

to the Effective Date of the Modified Consensual Plan set forth in Article X,

Section 10.2 of the Modified Consensual Plan.

ww. The Modification of the Consensual Plan dated March 1, 1995 does

not adversely change the treatment of the Claim of any creditor or the

Interest of any equity security Holder who has not accepted or who is deemed

not to have accepted such Modification, and meets the

<PAGE>

requirements of, inter alia, Sections 1122, 1123, 1125, and 1127 of the
----- ----
Bankruptcy Code.

xx. The offer and sale under the Modified Consensual Plan of the New

Senior Notes and the New Common Stock are exempt from the Securities Laws by

virtue of Section 1145(a)(1) of the Bankruptcy Code because each New Senior

Note and each share of New Common Stock is "a security of the debtor" and is

issued wholly "in exchange for a claim against [or] an interest in . . . the

debtor."

y. In view of the fact that Section 1145(c) of the Bankruptcy Code

provides that an offer or sale of securities pursuant to Section 1145 of the

Bankruptcy Code is deemed to be a public offering, the New Senior Notes and

New Common Stock will not be deemed to be "restricted securities," and all

resales of these securities will be exempt from the registration requirements

of the Securities Act, except for certain transactions by "underwriters"

under Section 1145(b) of the Bankruptcy Cod.

zz. The Debtors initiated Adversary Proceeding No. 90-0003 and Adversary

Proceeding No. 90-0004 (collectively, the "Adversary Proceedings") seeking (i)

a final declaration and adjudication that the corporate veil between JWC and

Celotex may not be pierced; (ii) a final declaration and adjudication that

the leveraged buy-out of JWC (the "LBO") was not a fraudulent conveyance, nor

were any subsequent transactions entered into as a part of the LBO fraudulent

transfers; (iii) a final declaration and adjudication that neither the

Debtors nor any of their subsidiaries or Affiliates is the successor-in-

interest to the asbestos-related liabilities of either JWC or Celotex; (iv) a

final declaration and adjudication that neither the Debtors nor any of their

subsidiaries or Affiliates is liable for the asbestos-related liabilities of

either JWC or Celotex; and (v) such injunctive relief as may be necessary and

appropriate to effectuate the

<PAGE>

declaratory relief sought by the Debtors.

aaa. In the Adversary Proceedings, the AVDs opposed the relief

sought by the Debtors, and certain of the Veil Piercing Claimants asserted

Settlement Claims against the Debtors, JWC and various other Released Parties

in various forums.

bbb. The Debtors and Celotex assert that Celotex has the exclusive

right and standing to assert the Settlement Claims against the Debtors and

JWC for the benefit of Celotex' estate and its creditors because such

Settlement Claims are asserted by Celotex to be property of its bankruptcy

estate and bankruptcy policy is furthered by ensuring that all similarly

situated creditors are treated fairly. The Veil Piercing Claimants'

Representatives assert that each of the Veil Piercing Claimants has the right

and standing to assert his/her/its Veil Piercing Claim and/or claims based

upon LBO-Related Issues against the Debtors and JWC for his/her/its own

benefit.

ccc. A trial on certain of the issues raised in the Adversary

Proceedings took place before the Court from December 13, 1993 through

December 17, 1993 (the "Adversary Proceedings Trial"). On April 18, 1994,

this Court issued its order which ruled in favor of the Debtors on certain of

the issues that were the subject of the Adversary Proceedings Trial (the

"April 18 Order"). On October 13, 1994, the District Court issued an order

affirming this Court's April 18 Order. The Veil Piercing Claimants'

Representatives have timely filed an appeal from the District Court's order,

which has been stayed by agreement between them and the Debtors.

ddd. In determining whether to approve the VPSA under Bankruptcy

Rule 9019, the Court is required to consider the following factors: the

probability of success or failure on the merits; the difficulties, if any, to

be encountered in the matter of collection; the complexity of

<PAGE>

the litigation involved, and the expense, inconvenience and delay necessarily

attendant thereto; and the paramount interest of the creditors and a proper

deference to their reasonable views. In re Justice Oaks II, Ltd., 898 F.2d
--------------------------
1544 (11th Cir.), cert. denied, 489 U.S. 959 (1990). The Court should also
----- ------
consider whether the VPSA is in the best interests of, and is fair and

equitable to, the creditors and shareholders of the Debtors.

eee. In determining that the VPSA is fair, equitable and

reasonable, the Court, with the support of each of the Parties to the VPSA,

considered, inter alia, the record of the Adversary Proceedings, the
----- ----
Adversary Proceedings Trial, the October 17 Hearing and the Chapter 11 Cases.

fff. The Debtor's probability of success with respect to the

Settlement Claims is substantial. In its April 18 Order, this Court

basically held that the Settlement Claims were untenable. On appeal, the

District Court affirmed the April 18 Order. The exhaustive evidence which

was presented in the Adversary Proceedings and during the Adversary

Proceedings Trial demonstrates that the Settlement Claims were not likely to

be successful.

ggg. The difficulty in collecting my judgment against the Debtors

would depend on the size of the judgment. While a modest judgment may be

collectible in full, a large judgment (e.g., $1 billion) probably would not.
----

hhh. The complexity and expense of further litigation is not likely

to be significant, unless the AVDs were to convince the United States Court of

Appeals for the Eleventh Circuit or the United States Supreme Court to vacate

this Court's April 18 Order or prior orders relating to jury trial issues, in

which case the complexity and expense would be substantial. However, in any

event, the delay of the Chapter 11 Cases that could occur if further

litigation ensued

<PAGE>

would be substantial. It would be very likely that the Debtors would not

emerge from bankruptcy for several years. In addition, if Veil Piercing

Claimants who were not named in the Adversary Proceedings were to contend

that they are not bound by its results, and were to initiate new litigations,

it would necessarily be several years before final resolutions could be

obtained. The legal fees and expenses incurred in preparing for such

litigations would be extremely high. As importantly, any further litigation

would significantly consume the time of the Debtors' officers which

otherwise would be devoted to the normal business operations of the Debtors.

No one can guarantee the Debtors' success in every one of such litigations.

iii. Notwithstanding the Debtors' probability of success on the merits,

the Debtors have sound business reasons for eliminating the threat of future

litigations. The Court believes it prudent to approve the VPSA, the Class

Motion, the Class Settlement Motion and the Settlement Motion so as to avoid

the crippling effect that continuance of the litigations of Settlement Claims

would likely have on the Debtors' businesses.

jjj. The paramount interest of Holders of Claims against the

Debtors in approving the VPSA is reflected in their overwhelming acceptance

of the Consensual Plan. The Official Committees and the Bondholder

Proponents have stated that it is not likely that the Veil Piercing Claimants

have any valid Settlement Claims against any or all of the Debtors, any or

all of the Signing Management (in their respective capacities as present or

former officers, directors, employees or shareholders of any or all of the

Debtors) or any or all of the Holders of Old Common Stock Interests. The

Official Committees, the Bondholder Proponents and the Ad Hoc Committee have

contended that Holders of unsecured Claims are entitled to receive post-

petition

<PAGE>

interest on their pre-Filing Date Allowed Claims (and that it is permissible

for a chapter 11 plan of reorganization for the Debtors to provide for the

payment of such post-petition interest), in the amount of approximate $160

million per year, for over five (5) years to date, aggregating in excess of

$800 million, prior to any distribution to Holders of Old Common Stock

Interests. As a result of the Modified Consensual Plan and the VPSA, the

Holders of Unsecured Claims will receive substantially less in value than

they contend they would be entitled to receive if all Settlement Claims were

finally disallowed. The Creditor Proponents have further contended that

Holders of Claims would be materially prejudiced by potentially years of

delay resulting from an attempt to achieve Finality respecting all Settlement

Claims through litigations and would bear much of the risk of an adverse

result in such litigations. That the Holders of Claims against the Debtors

have nearly unanimously accepted the Consensual Plan, including the VPSA

contained therein, evidences their informed decision that their best

interests lie in approval of the VPSA and the Settlement Motion.

kkk. The Debtors, the KKR Entities and the Signing Management have

contended that the Veil Piercing Claimants have no valid Settlement Claims

against any or all of the Debtors, any or all of the Signing Management (in

their respective capacities as present or former officers, directors,

employees or shareholders of any or all of the Debtors), or any or all of the

Holders of Old Common Stock Interests. They also have contended the Holders

of unsecured Claims are not legally entitled to post-petition interest in the

Chapter 11 Cases. As a result of the payment of the Settlement Fund and if

the contentions of the Debtors, the KKR Entities and the Signing Management

are valid, all of the Holders of Old Common Stock Interests, including,

without limitation, the KKR Entities and the Signing Management, will receive

substantially less

<PAGE>

in value than they have contended they would be entitled to receive if all

Settlement Claims were finally disallowed. That the Holders of Old Common

Stock Interests have unanimously accepted the Consensual Plan and the vast

majority of Holders of Old Common Stock Interests have executed the VPSA

demonstrates their informed decision that the best interests of Holders of

Old Common Stock Interests also lie in approval of the VPSA and the

Settlement Motion.

lll. The allocation of value under the Modified Consensual Plan and

the VPSA among the Celotex Settlement Fund Recipient, the Holders of Old

Common Stock Interests and the Debtors' unsecured creditors is thus a result

of the arms-length, arduous negotiations and the good faith compromise of,

inter alia, the foregoing competing claims by the parties to the VPSA. The
----- ----
resolution of the Settlement Claims is the critical issue in the Chapter 11

Cases and no plan of reorganization for the Debtors could be confirmed

without a final and effective resolution of the Settlement Claims.

mmm. All of the Parties to the VPSA have sought to achieve

Finality, that is, to ensure that there is no lawful basis on which any

person or entity could, in the future, assert any or all of the Settlement

Claims against any or all of the Debtors or any or all of the other Released

Parties. This expectation of Finality is critical to their willingness to

enter into the VPSA and the nearly unanimous support of the Consensual Plan

and the VPSA by the parties in interest. Further, the expectation of

Finality as to the Debtors and the Released Parties is also critical to the

willingness of the various banks and other institutions that are providing

new extensions of credit to the Debtors on the Effective Date to provide such

credit. Achievement and preservation of Finality, including by this Court's

continuing jurisdiction to enforce the Modified Consensual Plan and this

Order, is therefore, of central importance to the Chapter 11

<PAGE>

Cases.

nnn. For, inter alia, all of the foregoing reasons, each of the
----- ----
Released Parties has provided valid and sufficient consideration for the

receipt of the release contained in, and the dismissals contemplated by,

Article VI, Sections 6.1, 6.2 and 6.3 of the Modified Consensual Plan, the

separate releases provided for under the VPSA, the releases provided by this

Order, the injunction contained in Article XII, Section 12.3 of the Modified

Consensual Plan, the injunction provided in this Order and, in the case of

those Persons for whom indemnification will be provided by the Debtors after

the Effective Date as contemplated by Article VI. Section 6.4 of the

Modified Consensual Plan, for the benefit of such indemnified parties by the

Debtors, and each such provision is critical to the Modified Consensual Plan.

ooo. The VPSA is inextricably intertwined with the Modified

Censensual Plan, of which it is an integral and essential component.

ppp. The Veil Piercing Settlement is in the best interests of the

Debtors' estates and is fair and equitable to all parties in interest.

qqq. On December 15, 1994, as part of its initial consideration of

the Class Motion, this Court conditionally certified, for settlement purposes

only, the Settlement Class comprising all Holders (present and future) of

Settlement Claims (i.e. all Veil Piercing Claims and all claims and causes of

action held or assertable by the Veil Piercing Claimants based on LBO-Related

Issues) for the purpose of implementing the VPSA. The Settlement Class

includes, among others:

(i) all present asbestos-related personal injury claimants of

Celotex;

<PAGE>

(ii) all future asbestos-related personal injury claimants of

Celotex;

(iii) all asbestos-related property damage claimants of Celotex; and

(iv) all trade creditors of Celotex.

rrr. Certification of the Settlement Class is appropriate here for

each of the reasons set forth in Rule 23(b) of the Federal Rules of Civil

Procedure, made applicable hereto pursuant to Bankruptcy Rules 9014 and 7023.

The Settlement Class members share common questions of both law and fact --

i.e. whether the Debtors may be held liable for their Settlement Claims.
----
These questions predominate over questions affecting only individual members.

Fed. R. Civ. P. 23(b). Moveover, a class action for settlement purposes in

the instant case is superior to any other available method of adjudication.

It ensures that every Veil Piercing Claimant that does not properly opt out

of the Settlement Class will obtain the benefits of the VPSA. It protects

the Debtors from having to litigate duplicative Settlement Claims in the

future. It helps to ensure Finality on the issues litigated before this

Court in the Adversary Proceedings and in the Debtors' objection to the Veil

Piercing Proof of Claim. Finally, the VPSA is a linchpin of the Modified

Consensual Plan.

sss. The Court finds that each of the prerequisites for class

certification is met:

(i) The Settlement Class is so numerous that joinder is

impracticable. Indeed, the Settlement Class comprises tens of

thousands of members. It also includes countless future

claimants who cannot presently be identified, much less

joined. Fed. R. Civ. P. 23(a)(1).

(ii) As noted, supra, the members of the Settlement Class share
-----
common questions of law and fact. Fed. R. Civ. P. 23(a)(2).

<PAGE>

(iii) The Settlement Class representative, Amos Franklin Gunnel,

possesses Settlement Claims that are typical of those shared

by other Settlement Class members. Fed. R. Civ. P. 23(a)(3).

Mr. Gunnel is a Celotex creditor who alleges that he was

diagnosed with asbestos-related lung cancer in 1993. All

other Settlement Class members are Celotex creditors.

(iv) The Settlement Class representative will fairly and adequately

protect the interests of the Settlement Class. Under the

VPSA, all members of the Settlement Class are equally and

uniformly treated. Specifically, the VPSA provides for the

creation of a single Settlement Fund to be distributed by the

Debtors to the Celotex Settlement Fund Recipient under the

jurisdiction of the Celotex Bankruptcy Court in return for the

resolution of all Settlement Claims against the Debtors being

resolved by the VPSA. Because the VPSA does not determine how

the Settlement Fund will be allocated, but instead only

provides a common fund for later allocation, the Settlement

Class representative adequately represents the interests of

all Veil Piercing Claimants in seeking the approval of the

Class Motion, the Class Settlement Motion and the VPSA,

Further, the Settlement Class counsel, Caplin & Drysdale,

Chartered, is competent and experienced and will more than

adequately protect the Settlement Class. Caplin & Drysdale,

Chartered, served as liaison counsel for Veil Piercing

Claimants over the course of these proceedings, acted as

counsel

<PAGE>

to the AVDs in the Adversary Proceedings and has acted as

counsel to numerous other asbestos claimants in other actions.

ttt. Pursuant to Fed. R. Civ. P. 23(c) and the Second

December 15 Order, the Court has directed that the best notice of

the VPSA, the Class Motion and the Class Settlement Motion

practicable under the circumstances be given to all members of

the Settlement Class. This included publication notice to all

unknown Veil Piercing Claimants and individual notice to all

members of the Settlement Class who can be identified through

reasonable effort. The Legal Representative had actual notice of

the VPSA and the Class Motion and reported to the Celotex

Bankruptcy Court on February 17, 1995 that he supports the VPSA.

The notices given fully satisfy due process requirements.

uuu. The specific notices sent to known members of the

Settlement Class (defined in the Modified Consensual Plan as Holders

of Class U-7 Claims) and the means thereof are set forth, infra.
-----
Pursuant to Fed. R. Civ. P. 23(c), the notices state that (i)

members of the Settlement Class may be excluded therefrom upon

request; (ii) the Court's implementation of the VPSA by approval

of the Modified Consensual Plan will include all members who do

not opt-out of the Settlement Class; and (iii) any Settlement

Class member who does not request exclusion may enter an

appearance through counsel.

vvv. Notice, in forms approved by this Court, was

timely and properly provided to members of Class U-7 of:

(i) the time, date and place of the Confirmation Hearing

and the hearing to approve the VPSA;

(ii) the right, and the last date by which, to object

to confirmation of the Consensual

<PAGE>

Plan, approval of the VPSA, approval of the Class

Motion, the appointment of the representative of the

Settlement Class, the appointment of counsel for the

Settlement Class and the granting of releases to the

Released Parties;

(iii) the filing of the Veil Piercing Proof of Claim and

the Celotex Proof of Claim;

(iv) the certification of the Settlement Class, the

appointment of a representative of, and counsel

for, the Settlement Class;

(v) the right to "opt out" of the Settlement Class and the

consequences thereof; and

(vi) the Class U-7 Bar Date and the consequences

thereof; by means of:

(a) where possible, the mailing of appropriate notices

to (x) each Holder of a Class U-7 Claim at the

address listed in the proofs of claim or schedules

of liabilities on file in the Celotex Chapter 11

Case and/or the Chapter 11 Cases or (y) in the

case of each person or entity who commenced a

legal action against Celotex or the Debtors, or

threatened in writing to do so, such person's or

entity's counsel of record in such action (or,

where such action was threatened but not

commenced, to the counsel which made such threat);

(b) timely and extensive publication in hundreds of

newspapers and other publications during December

1994 and January 1995; and

in accordance with the Bankruptcy Rules and the

December 15 Order.

www. Each known Veil Piercing Claimant received full

and adequate disclosure of (i) the terms and the consequences of

the Veil Piercing Settlement, the VPSA, the Consensual Plan

<PAGE>

and the Confirmation Hearing, and (ii) the effects of the Class

U-7 Bar Date, the certification of the Settlement Class, the

appointment of the representative of and counsel for the

Settlement Class, and the decision to "opt out" or not "opt out"

of the Settlement Class.

xxx. Each Veil Piercing Claimant, whether presently

manifesting symptoms of asbestos-related disease or yet to

manifest such symptoms, was given notice, sufficient under the

Bankruptcy Rules, the Bankruptcy Code and the standards of due

process required by the United States Constitution, of:

(i) the time, date and place of the Confirmation Hearing

and the hearing to approve the VPSA;

(ii) the right, and the last date by which, to object

to: confirmation of the Consensual Plan, approval

of the VPSA, the Class Motion and the Class

Settlement Motion, certification of the Settlement

Class, appointment of the representative of the

Settlement Class, appointment of counsel for the

Settlement Class and the granting of releases to

the Released Parties;

(iii) the filing of the Veil Piercing Proof of Claim and

the Celotex Proof of Claim, and the Debtors'

objections thereto;

(iv) the certification of the Settlement Class, the

appointment of the representative of, and counsel

for, the Settlement Class;

(v) the right to "opt out" of the Settlement Class and the

consequences thereof; and

(vi) the Class U-7 Bar Date and the consequences

thereof.

yyy. As evidenced by the overwhelming vote of Class U-7

to accept the Consensual Plan and the Veil Piercing Settlement,

the absence of any "opt outs" from the Settlement Class,

<PAGE>

and the strong recommendations of experienced class counsel and

of the Legal Representative in the Celotex Chapter 11 Case in

favor of the Veil Piercing Settlement, the Veil Piercing

Settlement is in the best interests of the Settlement Class.

zzz. For the reasons set forth above, at the

Confirmation Hearing and in the Class Settlement Motion, the

settlement of the Veil Piercing Proof of Claim pursuant to the

VPSA should be approved under Bankruptcy Rule 7023(e) as fair and

reasonable to the Settlement Class. As the Court has approved

the Veil Piercing Settlement, certification of the Settlement

Class as requested by the Class Motion is now final and meets all

criteria for approval of a class settlement under the Federal

Rules of Civil Procedure, the Bankruptcy Rules and other

applicable law.

aaaa. The Court, as a court of equity whose

jurisdiction is governed by equitable principles, has the

constitutional and statutory power and authority to issue and

enter the injunction contained in Article XII, Section 12.3 of

the Modified Consensual Plan and the injunction provided in the

Order.

bbbb. The Court may exercise its equitable power and

authority to issue injunctive relief where there is a basis for

concluding that reorganization or rehabilitation of the Debtors

might be undermined and frustrated by the actions sought to be

enjoined.

cccc. The Court has the power and duty to sift

through the surrounding circumstances to prevent injustice or

unfairness and has the power to fashion equitable remedies where

those at law are inadequate.

dddd. The Court has the equitable and inherent power

and authority to channel the Settlement Claims to a specific res
---

(the Settlement Fund) and may limit the direct or indirect

<PAGE>

prosecution of such Settlement Claims against any or all of the

Debtors and/or any or all of the Released Parties, and prohibit

parties in interest from attempting to circumvent the Modified

Consensual Plan, including Finality, and the orders of this

Court.

eeee. In exercising its inherent equitable powers, the

Court may grant injunctive relief to prevent direct or indirect

interference with the administration of the Debtors' estates and

facilitate the Debtors' reorganization effort to enable the

Debtors to achieve the ultimate objectives of chapter 11,

reorganization and rehabilitation. The Court may enjoin or

otherwise limit future litigation associated with the Chapter 11

Cases which could undermine and frustrate the Modified Consensual

Plan, the Debtors' reorganization or Finality.

ffff. The terms and provisions of the Joint Stipulation

dated March 1, 1995, between Debtors and the United States

(Internal Revenue Service) regarding the Objection of the United

States (Internal Revenue Service) to Confirmation of the

Consensual Plan are hereby incorporated by reference and shall be

part of this Order as if fully set forth herein.

IT IS THEREFORE,

NOW, on joint motion of KAYE, SCHOLER, FIERMAN, HAYS &

HANDLER and STICHTER, RIEDEL, BLAIN & PROSSER, P.A., counsel to

the Debtors, CARLTON, FIELDS, WARD, EMMANUEL, SMITH & CUTLER,

counsel to the KKR Proponents, AKIN, GUMP, STRAUSS, HAUER & FELD,

L.L.P., and STUTMAN, TREISTER & GLATT, P.C., co-counsel for

Apollo, PAUL, WEISS, RIFKIND, WHARTON & GARRISON, counsel for

Lehman, STROOCK & STROOCK & LAVAN, counsel to the Bondholders

Committee, JONES, DAY, REAVIS & POGUE, counsel to the Creditors

Committee and MARCUS MONTGOMERY WOLFSON, P.C., counsel to the Ad

Hoc Committee,

<PAGE>

ORDERED, ADJUDGED and DECREED that, based upon the foregoing

which constitute the Court's findings of fact and conclusions of

law:

1. The Modified Consensual Plan and each of its provisions

are hereby confirmed in accordance with Section 1129 of the

Bankruptcy Code.

2. The Settlement Motion is granted in its entirety and

the Debtors are authorized and directed to perform their

obligations under the VPSA according to its terms.

3. The Class Motion and the Class Settlement Motion are

granted in their entirety, and the Settlement Class

representative and class counsel are authorized and directed to

perform according to the terms of the VPSA.

4. For the reasons set forth on the record of the

Confirmation Hearing, each and every Confirmation Objection, to

the extent not withdrawn, is overruled.

5. Pursuant to Section 1141(a) of the Bankruptcy Code, the

Modified Consensual Plan and its provisions are binding upon the

Debtors, any entity issuing securities under the Modified

Consensual Plan, any entity acquiring property under the Modified

Consensual Plan, any Holder of a Claim against or Interest in the

Debtors, regardless of whether the Claim or Interest of such

Holder or obligation of any party in interest is in a Class that

is impaired under the Modified Consensual Plan or whether such

Holder or party in interest has accepted the Modified Consensual

Plan.

6. Consistent with the Modified Consensual Plan, the

following agreements and documents, substantially in the form of

the agreements and documents which are attached as exhibits to

the Modified Consensual Plan or which were introduced into

evidence at the Confirmation Hearing in substantially final form,

including all the annexes and exhibits thereto,

<PAGE>

and all terms and provisions thereof (collectively, the

"Reorganization Documents"), are hereby approved in all respects:

a. New Senior Note Indenture,

b. Qualified Securities Registration Rights
Agreement,

c. New Common Stock Registration Rights Agreement,

d. Registration Rights Notice (defined herein),

e. Instruments evidencing the Qualified Securities,

f. New Management Stock Incentive Compensation Plan,

g. Director and Officer Indemnification Agreement,

h. Amendment No. 2 to Post-Petition Replacement Letter of
Credit Agreement (defined herein),

i. Amendment No. 6 to Post-Petition New Letter of
Credit Agreement (defined herein),

j. VPSA,

k. Tag-Along and Voting Agreement,

l. Form of releases referred to in Article VI,
Section 6.3 of the Consensual Plan,

m. Charter,

n. Restated By-Laws of Walter Industries and

o. Stockholders' Agreement between Walter Industries
and the Celotex Settlement Fund Recipient.

7. Walter Industries and Computer Services are

authorized and directed to fund retiree health benefits in a

manner consistent with, and subject to the limitations set forth

in, Article V, Section 5.4 of the Modified Consensual Plan.

<PAGE>

8. Pursuant to Article V, Section 5.5 of the Modified

Consensual Plan, Walter Industries is authorized and directed to

pay on or as soon as practicable after the Effective Date, Cash

bonuses in the amount of and to the persons set forth in the

Schedule of Effective Date Bonus Awards dated February 6, 1995

and filed with this Court on February 6, 1995, and submitted to

the Bondholders Committee, the amounts of which are hereby

approved.

9. Pursuant to Article V, Section 5.2 of the Modified

Consensual Plan, on the Effective Date, the following persons

shall be appointed to the board of directors of Walter

Industries:

(a) James W. Walter,

(b) G. Robert Durham,

(d) Michael T. Tokarz,

(e) Elliot M. Fried,

(f) Howard L. Clark, Jr. and

(g) Kenneth A. Buckfire.

The appointment of the foregoing persons to the board of

directors of Walter Industries is consistent both with the

interests of Holders of Claims against and Interests in the

Debtors, and with public policy.

10. The Debtors are hereby authorized and directed to

execute, enter into, deliver and/or implement the Reorganization

Documents, and all other documents and instruments substantially

consistent therewith or incidental thereto, and any amendments,

supplements or modifications to such Reorganization Documents as

therein provided, and to

<PAGE>

take such other actions and to perform such other acts as may be

necessary and appropriate to implement and effectuate the

Modified Consensual Plan and the Reorganization Documents

approved herein.

11. The Modified Consensual Plan and all other

agreements provided for under the Modified Consensual Plan,

including the Reorganization Documents, and all transactions,

documents, instruments and agreements referred to therein,

contemplated thereunder or executed and delivered in connection

therewith, and any amendments or modifications thereto in

substantial conformity therewith, are approved, and the Debtors

are authorized and directed to enter into and to perform such

agreements according to their terms.

12. Distributions required to be made to the Holders

of Claims against and Interests in the Debtors shall be made to

the entities entitled thereto as provided in the Modified

Consensual Plan. The record date for determining which Holders

of Allowed Claims and Allowed Interests are entitled to

participate in the distributions pursuant to the Modified

Consensual Plan shall be 5:00 p.m. Eastern Standard Time on the

Effective Date (the "Distribution Record Date"). Pursuant to

Article IV, Section 4.4(a) of the Modified Consensual Plan, the

Debtors, the Bank Agents or the Disbursing Agent (as defined in

this Order), as the case may be, shall have no obligation to

recognize any transfer of Revolving Credit Bank Claims, Working

Capital Bank Claims, Series B & C Senior Notes, Grace Street

Notes, Sloss IRB Claims, Subordinated Notes or Interests

occurring after the Distribution Record Date.

13. As provided in Article III, Section 3.6(a) of the

Modified Consensual Plan, the Cash payment required to be made to

each Holder of a Class S-1 Allowed Claim pursuant to said

subsection shall be made on the Effective Date.

<PAGE>

14. As provided in Article III, Section 3.7(a) of the

Modified Consensual Plan, the Cash payment required to be made to

each Holder of a Class S-2 Allowed Claim pursuant to said

subsection shall be made on the Effective Date.

15. This Order shall constitute all approvals and

consents required, if any, by the laws, rules or regulations of

any State or any other governmental authority with respect to the

implementation or consummation of the Modified Consensual Plan

and any other documents, instruments or agreements, and any

amendments or modifications thereto and any other acts referred

to in or contemplated by the Modified Consensual Plan, the

Disclosure Statement Supplement, the Reorganization Documents,

and any other documents, instruments or agreements, any

amendments or modifications thereto and any other acts that may

be necessary or appropriate for the implementation or

consummation of the Modified Consensual Plan.

16. Except as otherwise provided in the Modified

Consensual Plan or this Order, and except for any security

interests provided under the Modified Consensual Plan or

contemplated by the New Senior Note Indenture, the New Working

Capital Facility or the Mid-State Homes Warehouse Credit

Facility, on the Effective Date, all Assets shall vest in and be

retained by the Debtors free and clear of all Claims (other than

Claims arising under the Post-Petition Replacement Letter of

Credit Agreement (as defined herein) and the Post-Petition New

Letter of Credit Agreement (as defined herein)) and Interests of

the Holders of Claims and the Holders of Interests in accordance

with Sections 1141(b) and (c) of the Bankruptcy Code. Subsequent

to the Confirmation Date and until the occurrence of the

Effective Date, all such Assets shall remain property of each of

the respective Debtors' estates and shall remain subject

<PAGE>

to the Liens granted under the Working Capital Agreement, the

Revolving Credit Agreement, the Series B & C Senior Note

Indenture, the Post-Petition Replacement Letter of Credit

Agreement dated as of May 18, 1990, as amended (the "Post-

Petition Replacement Letter of Credit Agreement"), and the Post-

Petition New Letter of Credit Agreement dated as of May 2, 1990,

as amended (the "Post-Petition New Letter of Credit Agreement"),

and such Liens shall continue until the Effective Date (but shall

not continue thereafter except as provided in the Post-Petition

Replacement Letter of Credit Agreement and the Post-Petition New

Letter of Credit Agreement).

17. On the Effective Date, the transfers of property

by the Debtors contemplated by the Modified Consensual Plan

including, but not limited to, the transfer of Cash, Qualified

Securities and shares of New Common Stock to the Celotex

Settlement Fund Recipient pursuant to Article III, Section 3.22

of the Modified Consensual Plan, will be legal, valid, binding

and effective transfers of property and will vest, to the fullest

extent permitted by the Bankruptcy Code, good title to such

property in the respective transferee, free and clear of all

Liens, Claims and encumbrances, except as otherwise provided by

the Modified Consensual Plan or as required in order to implement

the New Senior Note Indenture, the Mid-State Homes Warehouse

Credit Facility and the New Working Capital Facility. The

creation and perfection on or after the Effective Date of the

Liens securing the New Senior Note Indenture, the Mid-State Homes

Warehouse Credit Facility and the New Working Capital Facility

and the execution and delivery of guaranties by any of the

Debtors thereunder will not be made with actual intent to hinder,

delay or defraud any person, will be made for reasonably

equivalent value and fair consideration, will not result in the

insolvency of any of the Debtors,

<PAGE>

will not leave any of the Debtors with unreasonably small capital

with which to conduct their businesses, will not be made with the

intent to, or belief that they will, incur debts that the

respective Debtors would be unable to pay as they become due, nor

will such transfers or the incurring of such obligations in any

other manner constitute fraudulent conveyances or transfers. The

Cash, New Senior Notes, shares of New Common Stock and other

property held for distribution to Holders of Allowed Claims and

Interests pursuant to the Modified Consensual Plan will be held

in trust for such Holders of Allowed Claims and Interests and

vest in such Holders of Allowed Claims and Interests when

distributed thereto pursuant to the Modified Consensual Plan,

free and clear of all Claims and Interests of all other

creditors, equity security holders and Persons.

18. Except as otherwise expressly provided in the

Modified Consensual Plan or this Order, pursuant to Article XII,

Section 12.3 of the Modified Consensual Plan and Section 1141(d) of

the Bankruptcy Code, the issuance of this Order shall operate as

a discharge effective as of the Effective Date, of any and all

Debts (as such term is defined in Section 101(12) of the

Bankruptcy Code) or Claims against one or more of the Debtors

that arose at any time before the Effective Date and from any

Debt or Claim of a kind specified in Sections 502(g), 502(h) and

502(i) of the Bankruptcy Code, including, without limitation, all

principal of, and interest on, all indebtedness, whether accrued

before, on or after the Filing Date. The discharge of the Debtors

will be effective as to each Claim, regardless of whether a proof

of Claim was filed or deemed filed, whether the Claim is an

Allowed Claim or whether the Holder thereof voted to accept or

reject the Consensual Plan. On the Effective Date, the Holder of

every discharged Debt and Claim will be permanently enjoined from

asserting against any and all of the Debtors

<PAGE>

or any of their respective assets, any other or further Claim

based upon any law, rule or regulation or any document,

instrument, act, omission, transaction or other activity of any

kind or nature that occurred prior to the Effective Date, other

than as provided in the Modified Consensual Plan.

19. Pursuant to Section 1146(c) of the Bankruptcy

Code, neither the issuance, transfer or exchange of a security

under the Modified Consensual Plan, including, but not limited

to, the issuance, transfer or exchange of the New Senior Notes

and the shares of New Common Stock, nor the making or delivery of

an instrument of transfer, nor the revesting and transfer of any

real property or personal property of the Debtors in accordance

with the Modified Consensual Plan (including, without limitation,

the New Senior Note Indenture, the New Working Capital Facility,

the Mid-State Trust IV transaction approved by the Court at the

hearing held on February 22, 1995 and the Mid-State Homes Warehouse

Credit Facility and the creation and perfection of any Lien or security

interest in connection therewith, whether on, before or after the

Effective Date, as contemplated by the Modified Consensual Plan),

shall be taxed under any law imposing a stamp tax or similar tax,

including any state or local sales, use, transfer, documentary,

recording or gains tax.

20. Pursuant to Article XII, Section 12.2 of the

Modified Consensual Plan and Sections 105, 1123 and 1129 of the

Bankruptcy Code, in order to preserve and implement the

settlements contemplated by and provided for in the Modified

Consensual Plan, effective on the Effective Date, all Persons who

have held, hold or may hold a Demand, Debt or Claim, or who have

held, hold or may hold Interests, shall be permanently enjoined,

to the fullest extent permitted by law, from taking any of the

following actions against or affecting any or all of the

<PAGE>

Released Parties or any or all of the Assets (or assets or other

property) of any or all of the Released Parties with respect to

such Claims, Debts, Demands or Interests (other than actions

brought to enforce any rights or obligations under the Modified

Consensual Plan or any of the Reorganization Documents or

appeals, if any, from this Order): (a) commencing, conducting or

continuing in any manner, directly or indirectly, any suit,

action or other proceeding of any kind against any and all of the

Released Parties or any and all of the Assets (or assets or other

property) of any and all of the Released Parties or any direct or

indirect successor in interest to any of the Released Parties, or

any or all of the Assets (or assets or other property) of any

such successor; (b) enforcing, levying, attaching, collecting or

otherwise recovering by any manner or means, whether directly or

indirectly, any judgment, award, decree or order against any or

all of the Released Parties or any and all of the Assets (or

assets or other property) of any and all of the Released Parties

or any direct or indirect successor in interest to any of the

Released Parties or any or all of the Assets (or assets or other

property) of such transferee or successor; (c) creating,

perfecting or otherwise enforcing in any manner, directly or

indirectly, any encumbrance of any kind against any and all of

the Released Parties or any and all of the Assets (or assets or

other property) of any and all of the Released Parties or any

direct or indirect successor in interest to any of the Released

Parties, or any or all of the Assets (or assets or other

property) of any such transferee or successor other than as

contemplated by the Modified Consensual Plan or any of the

Reorganization Documents; (d) asserting any set-off, right of

subrogation or recoupment of any kind, directly or indirectly,

against any obligation due any or all of the Released Parties or

any or all of the Assets (or assets or other property) of any and

all of the Released Parties, or successors in interest to any of

the Released Parties; and (e)

<PAGE>

proceeding in any manner that does not conform to or comply with

the provisions of the Modified Consensual Plan or any of the

Reorganization Documents.

21. Notwithstanding paragraphs 18, 19 and 20 of this

Order, nothing in the Modified Consensual Plan, this Order or the

injunction and discharge provisions contained therein shall (a)

affect or discharge any liability of the Debtors to the "Pension

Plans" (as defined in the Creditors' Disclosure Statement) or the

Pension Benefit Guaranty Corporation (the "PBGC") arising from

the termination of any of the Pension Plans subsequent to the

Effective Date or (b) affect the right of the PBGC to commence

any action to collect or recover from the Debtors, their Assets

or properties on account of any liability which may arise from

the termination of any of the Pension Plans subsequent to the

Effective Date.

22. In accordance with Article IV, Section 4.4(b) of

the Modified Consensual Plan, and subject to the provisions of

paragraph 25 and any other provisions of this Order, no Holder of

Revolving Credit Bank Claims, Working Capital Bank Claims, Series

B & C Senior Notes, the Sloss IRB Claims, Grace Street Notes,

Subordinated Notes or Interests shall be entitled to any rights

or distributions under the Modified Consensual Plan unless and

until such Holder has first surrendered or caused to be

surrendered the relevant instrument or certificate, if any, held

by such Holder to: (a) with respect to Revolving Credit Bank

Claims and Working Capital Bank Claims, the applicable Bank

Agent, (b) with respect to the Series B & C Senior Notes, Walter

Industries, (c) with respect to Subordinated Notes, United States

Trust Company of New York, as the disbursing agent (the

"Disbursing Agent"), (d) with respect to Grace Street Notes,

Walter Industries, (e) with respect to the Sloss IRB Claims,

Sloss and (f) with respect to Interests in the Old Common Stock,

Walter Industries. Further, no Holder of a Subordinated

<PAGE>

Note shall be entitled to any rights or distributions under the

Modified Consensual Plan unless and until such Holder shall also

have returned a properly executed letter of transmittal in

customary form, and with respect to each Holder of a Subordinated

Note Claim who acquires such Subordinated Note Claim after the

Effective Date, such other documentation as is reasonably

required by the Disbursing Agent. Upon surrender of such

instruments evidencing the Revolving Credit Bank Claims, the

Working Capital Bank Claims, the Series B & C Senior Notes, the

Sloss IRB Claims, the Grace Street Notes, the Subordinated Notes

or Interests, the applicable Bank Agent, the Disbursing Agent,

Sloss or Walter Industries, as the case may be, is hereby

directed to cancel such instruments or certificates or otherwise

dispose of the same as Walter Industries may request.

23. Each Holder of a Subordinated Note Claim who

asserts an entitlement to Qualified Securities and/or New Common

Stock based upon the making of or the failure to make the

Subordinated Note Claim Election shall make such representations

and provide such documentary proof as the Disbursing Agent may

reasonably request demonstrating that such Holder (or the

predecessor Holder, as the case may be) timely made or did not

make the Subordinated Note Claim Election. In the event such

Holder of a Subordinated Note Claim fails to comply with such

requests or the Disbursing Agent is unable to obtain such

evidence after using or causing to be used commercially

reasonable efforts, then the Disbursing Agent and Walter

Industries shall treat such Holder as though such Holder did not

make the Subordinated Note Claim Election with respect to such

Subordinated Note Claim, as provided in Section 4.5(c) of the

Modified Consensual Plan.

24. Each Holder of a Senior Subordinated Note Claim

who asserts an

<PAGE>

entitlement to Qualified Securities and/or New Common Stock based

upon the making of or the failure to make the Class U-4 Exchange

Election shall make such representations and provide such

documentary proof as the Disbursing Agent and Walter Industries

may reasonably request demonstrating that such Holder (or the

predecessor Holder, as the case may be) timely made or did not

make the Class U-4 Exchange Election. In the event such Holder

of a Senior Subordinated Note Claim fails to comply with such

requests or the Disbursing Agent is unable to obtain such

evidence after using or causing to be used commercially

reasonable efforts, then the Disbursing Agent shall treat such

Holder as though such Holder did not make the Class U-4 Exchange

Election with respect to such Senior Subordinated Note Claim, as

provided in Section 4.5(c) of the Modified Consensual Plan.

25. In the event that a certificate or instrument

evidencing a Revolving Credit Bank Claim, Working Capital Bank

Claim, Series B & C Senior Note, Sloss IRB Claim, Grace Street

Note, Subordinated Note or Interest has been lost, destroyed,

stolen or mutilated, the Holder of the Claim or Interest thereon

may instead execute and deliver an affidavit of loss and

indemnity with respect thereto, accompanied by a properly

completed and executed letter of transmittal, together with, if

Walter Industries so requests, a bond in form and substance

(including, without limitation, amount) reasonably satisfactory

to Walter Industries. Walter Industries may require that a bond

be posted by any such Holder at any time prior to making

distribution to such Holder under the Modified Consensual Plan.

Promptly upon surrender of the instrument evidencing such Claim

or Interest, but not earlier than the Effective Date, such

instrument will be canceled or retired, as the case may be.

26. In accordance with Article IV, Section 4.14 of the

Modified Consensual

<PAGE>

Plan, any Holder of a Revolving Credit Bank Claim, Working

Capital Bank Claim, Series B & C Senior Note Claim, Grace Street

Note Claim, Sloss IRB Claim, Subordinated Note Claim or Interest

that fails to comply with Article IV of the Modified Consensual

Plan and to the extent applicable, paragraphs 22 or 25 of this

Order, within two years after the Effective Date will be deemed

to have forfeited all rights and Claims and Interests and will

not participate in any distribution under the Modified Consensual

Plan. Promptly after the second anniversary of the Effective

Date, the Bank Agent or the Disbursing Agent, as the case may be,

will deliver to Walter Industries as Walter Industries' sole and

absolute property, the amount of Cash, if any (including any

interest accrued thereon), which the Holder of any Revolving

Credit Bank Claim, Working Capital Bank Claim, Subordinated Note

Claim or Interest, as the case may be, who failed to comply with

Article IV of the Modified Consensual Plan and to the extent

applicable, paragraphs 22 or 25 of this Order, during such two

(2) year period would have received had such Holder complied with

Article IV of the Modified Consensual Plan and to the extent

applicable, paragraphs 22 or 25 of this Order. Upon such payment

to Walter Industries, the Bank Agent or the Disbursing Agent, as

the case may be, will have no further responsibility with respect

thereto.

27. As of the Effective Date and except as otherwise

provided in the Modified Consensual Plan, the following will be

deemed canceled, satisfied, discharged, terminated, released and

of no further force and effect, without further action: (a) the

Revolving Credit Agreement (and all notes, guaranties and other

documents executed, granted or delivered thereunder by the

Debtors and any of their subsidiaries or other Affiliates), other

than the right of the Revolving Credit Agents under the Revolving

Credit Agreement to assert rights for

<PAGE>

contribution, indemnification or reimbursement from distributions

to Holders of Revolving Credit Bank Claims, (b) the Working

Capital Agreement (and all notes, guarantees and other documents

executed, granted or delivered thereunder by the Debtors and any

of their subsidiaries or other Affiliates), other than the right

of the Working Capital Agents under the Working Capital Agreement

to assert rights for contribution, indemnification or

reimbursement from distributions to Holders of Working Capital

Bank Claims, (c) the Series B & C Senior Note Indenture (and all

Series B & C Senior Notes, guarantees and other documents

executed, granted or delivered thereunder by the Debtors and any

of their subsidiaries or other Affiliates), other than the Series

B & C Senior Note Trustee's right to assert a lien upon

distributions to the Holders of Series B & C Senior Note Claims

under the Series B & C Senior Note Indenture, (d) the Sloss IRB

Indenture and (e) the Senior Subordinated Note Indenture, 10 7/8%

Subordinated Debenture Indenture, 13 1/8% Subordinated Note

Indenture, 13 3/4% Subordinated Debenture Indenture and the 17%

Subordinated Note Indenture (and all Subordinated Notes issued

thereunder, guarantees and other documents executed, granted or

delivered thereunder by the Debtors and any of their subsidiaries

or other Affiliates), other than the Subordinated Note Trustees'

right to assert a Lien upon distributions to the Holders of

Subordinated Note Claims to the extent that the Allowed Indenture

Trustee Claims of the Subordinated Note Trustees are not paid by

the Reorganized Debtors.

28. The aggregate Allowed Amount of the Revolving

Credit Agents Class S-8 Claims and Working Capital Agents Class

S-9 Claims shall be $5,519,791; provided however that counsel to
-------- -------

the Revolving Credit Agents and Working Capital Agents may send

to the Debtors, and the Debtors shall pay to such counsel to the

extent the amounts set forth therein

<PAGE>

are reasonable, statements for services rendered and

disbursements incurred during the period after January 31, 1995.

Walter Industries has requested authorization to act as Series B

& C Senior Note Disbursing Agent under Section 4.5(b) of the

Modified Consensual Plan. It is appropriate and in the best

interests of the Debtors estates that Walter Industries perform

the duties of Series B & C Senior Note Disbursing Agent under

Section 4.5(b) of the Modified Consensual Plan, and Walter

Industries is hereby authorized to perform such duties. The

Series B & C Senior Note Trustee shall have no obligations,

responsibilities or liabilities in connection with Section 4.5(b)

of the Modified Consensual Plan.

29. The Allowed Amount of the Series B & C Senior Note

Trustee Administrative Claim for reasonable fees and expenses

under the Series B & C Senior Note Indenture shall be

$707,233.75, provided, however, that counsel to the Series B & C
-------- -------
Senior Note Trustee may send to the Debtors, and the Debtors

shall pay to such counsel to the extent the amounts set forth

therein are reasonable, statements for services rendered and

disbursements incurred during the period after January 31, 1995.

Walter Industries has requested authorization to act as Series B

& C Senior Note Disbursing Agent under Section 4.5(b) of the

Modified Consensual Plan. It is appropriate and in the best

interests of the Debtors' estates that Walter Industries perform

the duties of Series B & C Senior Note Disbursing Agent under

Section 4.5(b) of the Modified Consensual Plan, and Walter

Industries is hereby authorized to perform such duties. The

Series B & C Senior Note Trustee shall have no obligations,

responsibilities or liabilities in connection with Section 1.5(b)

of the Modified Consensual Plan.

30. The Allowed Amount of the Senior Subordinated

Indenture Trustee Administrative Claim for reasonable fees and

expenses under the Senior Subordinated Note

<PAGE>

Indenture shall be $263,446.31.

31. The Allowed Amount of the 17% Indenture Trustee

Administrative Claim for reasonable fees and expenses under the

17% Subordinated Note Indenture shall be $353,127.11.

32. The Allowed Amount of the 10 7/8% Indenture

Trustee Administrative Claim for reasonable fees and expenses

under the 10 7/8% Subordinated Debenture Indenture shall be

$399,053.48.

33. The Allowed Amount of the 13 1/8% Indenture

Trustee Administrative Claim and the 13 3/4% Indenture Trustee

Administrative Claim for reasonable fees and expenses under the

13 1/8% Subordinated Note Indenture and the 13 3/4% Subordinated

Debenture Indenture shall be $311,081.06.

34. The Allowed Amount of the Ad Hoc Committee's

Administrative Claim for reasonable fees and expenses payable

pursuant to the terms of the Consensual Plan as Proponents

Expenses shall be $640,112.41.

35. As of the Effective Date, all shares of Old Common

Stock and Stock Acquisition Rights will be deemed canceled,

annulled and of no further force or effect.

36. (a) As of the Effective Date, each Holder of a

Claim against and/or an Interest in any of the Debtors (and all

trustees and/or agents on behalf of such Holder): (a) that

receives (or on whose behalf the Celotex Settlement Fund

Recipient receives) any property and/or New Common Stock to be

distributed to or for the benefit of a Holder of any Claim, Debt,

Demand or Interest pursuant to Article III of the Modified

Consensual Plan and in consideration therefor; (b) in a Class

that accepted or is deemed to have accepted the Modified

<PAGE>

Consensual Plan; or (c) that marked a box on the ballot sent to

such Holder for purposes of voting whether to accept or reject

the Creditors' Plan, indicating such Holder's express agreement

to grant the release provided in Section 6.1 of the Creditors'

Plan shall be deemed to have, and will have, released each and

all of the Debtors, the Existing Equityholders, the Consensual

Plan Proponents, the KKR Parties, the Apollo Parties, the Lehman

Parties, the other Parties to the VPSA, the Holders of Revolving

Credit Bank Claims, the Holders of Working Capital Bank Claims,

the Revolving Credit Agents, the Working Capital Agents, the

Holders of Series B & C Senior Note Claims, the Holders of

Subordinated Note Claims, the Series B & C Senior Note Trustee,

the Subordinated Note Trustees, the members of the Official

Committees, the members of the Ad Hoc Committee and the

respective present and former parents, subsidiaries, Affiliates,

directors, officers, partners (general and limited), shareholders

(record and beneficial), employees, agents, advisors,

predecessors in interest and representatives of all of the

foregoing, in each case in any and all of such released Person's

aforementioned capacities (including, without limitation, with

respect to each of the Bondholder Proponents and the Series B & C

Senior Note Trustee, any action or inaction related to or set

forth in the definition of Qualified Securities or New Senior

Notes in the Modified Consensual Plan or in the description of

"Financing Matters" in Section 4.19 of the Modified Consensual

Plan); provided, however, that the foregoing release shall not
-------- -------
include Celotex and its subsidiaries (in any capacity), but shall

include the respective present and former shareholders (record

and beneficial), directors, officers, partners (general and

limited), employees, agents, advisors and representatives of

Celotex and its subsidiaries (collectively, the Persons released

in Section 6.1 of the Modified Consensual Plan are referred to

herein as the "Released Parties"), of and from

<PAGE>

any and all Claims, obligations, rights, causes of action,

Demands and liabilities (other than the right to enforce the

Debtors' obligations under the Modified Consensual Plan or the

Reorganization Documents) which such Holder may be entitled to

assert, whether known or unknown, foreseen or unforeseen, then

existing or thereafter arising, based in whole or in part upon

any act, omission or other occurrence taking place from the

beginning of time to and including the Effective Date in any way

relating to the Debtors, the Chapter 11 Cases or the Modified

Consensual Plan (including, without limitation, any of the Veil

Piercing-Related Issues or LBO-Related Issues).

(b) The Court hereby approves and authorizes the

releases provided in Article VI, Sections 6.1, 6.2 and 6.3 of the

Modified Consensual Plan.

shall increase or decrease the scope of the releases provided for

in the VPSA respecting Settlement Claims and/or any claims and

causes of action arising from the assertion of any or all of the

Settlement Claims.

37. On the Effective Date, except as otherwise

provided in the Modified Consensual Plan and the Reorganization

Documents, all Claims based on any contractual, statutory,

judicial or other Lien on any property or Asset of any of the

Debtors, or based on the possession by any Person or that

Person's agent, of any property of any Debtor (including, without

limitation, any Indenture Trustee holding collateral) shall be

deemed discharged and satisfied.

38. Pursuant to Article VIII, Section 8.1 of the

Modified Consensual Plan, and in accordance with Section

1123(b)(2) of the Bankruptcy Code, the Debtors will be deemed to

have assumed each Executory Contract, other than the Executory

Contracts listed on Exhibit 6

<PAGE>

to the Modified Consensual Plan, that has not been rejected

before ninety (90) days after the Effective Date. In accordance

with Section 365(b) of the Bankruptcy Code, the Debtors are

directed to cure any pre-Filing Date defaults respecting each

assumed Executory Contract, other than those set forth in Section

365(b)(2) of the Bankruptcy Code.

39. The Executory Contracts listed in Exhibit 6 to the

Modified Consensual Plan shall be deemed rejected as of the

Effective Date.

40. Pursuant to Article VIII, Section 8.3 of the

Modified Consensual Plan, any Claim for damages arising by reason

of the rejection of any Executory Contract, other than the

Executory Contracts listed in Exhibit 6 to the Modified

Consensual Plan, may constitute an Allowed Claim or Interest, as

the case may be, if, but only if, a proof of claim therefor is

timely filed. The Debtors reserve their rights to object to any

such proof of claim. Pursuant to Article VIII, Section 8.3 of

the Modified Consensual Plan, the last day for filing proofs of

claim arising by reason of the rejection of any Executory

Contract shall be thirty (30) days after issuance of a Final

Order authorizing the rejection of such Executory Contract. As

set forth in Article VIII, Section 8.4 of the Modified Consensual

Plan, any unsecured Claim arising from the rejection of an

Executory Contract will constitute a Claim in Class U-3.

41. The Debtors may file within sixty (60) days from

the date of receipt of notice that any proof of claim is filed in

accordance with paragraph 40 herein, any and all objections to

the allowance of any such Claim.

42. The Debtors may file within sixty (60) days from

the Effective Date any and all objections to the allowance of any

Claim not heretofore objected to, including any and all

applications to amend the Debtor's Schedules, unless such period

of time is extended by order

<PAGE>

of this Court for cause shown, and in the event of a failure to

do so, any objections to the allowance of the Claims affected

thereby will be deemed waived. The foregoing provision shall not

apply to any Claims covered by paragraph 44 of this Order.

43. Pursuant to Article IV, Section 4.11(a)(ii) of the

Modified Consensual Plan, the Debtors shall not be required to

reserve any Cash for Disputed Claims.

44. Fee Applications for services rendered from the

Filing Date to the Confirmation Date and any requests for the

allowance of Administrative Claims shall be filed within forty-

five (45) days after issuance of this Order. Objections to any

such Fee Applications or such requests for the allowance of

Administrative Claims filed by the Debtors, the Bondholders

Committee and/or any party in interest pursuant to this paragraph

shall be filed within seventy-five (75) days after issuance of

this Order. Reasonable compensation and expenses incurred

subsequent to the Confirmation Date shall promptly be paid by the

Debtors upon the submission of bills providing reasonable detail

describing the services provided and the disbursements incurred

(the "Post-Confirmation Date Fee Claims"). The Court retains

jurisdiction to determine any disputes concerning the

reasonableness of any Post-Confirmation Date Fee Claims.

45. Pursuant to Article VI, Section 6.4 of the

Modified Consensual Plan, each of the Debtors is authorized in

its respective articles of incorporation and/or by-laws to

jointly and severally indemnify, hold harmless and reimburse its

present and former officers and directors and such other natural

Persons as are described therein from and against any and all

losses, Claims, damages, fees, expenses, liabilities and actions

pursuant to the terms of such indemnity. All rights of Persons

indemnified pursuant to contract, corporate charter, by-laws

<PAGE>

or applicable law by any one or more of the Debtors as of the

Filing Date, or at any time during these Chapter 11 Cases, shall

survive Confirmation of the Modified Consensual Plan, shall not

be discharged pursuant to Section 1141 of the Bankruptcy Code,

and shall not be subject to disallowance due to the contingent or

unliquidated nature of such right under Section 502(e)(1) of the

Bankruptcy Code. However, any such right of indemnification

shall be enforceable only to the extent that it is valid and

enforceable under applicable nonbankruptcy law and shall be

subject to any and all defenses available under applicable non-

bankruptcy law. The failure to object to the allowance of any

such right (or claim) for indemnity shall in no way preclude, bar

or otherwise affect any defense or other challenge to any such

indemnity under applicable nonbankruptcy law.

46. Pursuant to Article IV, Section 4.1 of the

Modified Consensual Plan, Walter Industries is authorized to

execute and file the Charter with the Secretary of State of

Delaware (with the terms being hereby approved). The Charter

shall be filed with the Secretary of State of Delaware and

recorded in accordance with Section 103 of the Delaware Corporation

Law and shall thereupon become effective in accordance with its

terms and the provisions of the Delaware Corporation Law.

47. Without limiting the New Common Stock Registration

Rights Agreement in any respect, pursuant to Section 2(a) of the

New Common Stock Registration Rights Agreement, Walter Industries

is authorized and directed to file, not later than forty-five

(45) days after the Effective Date, a shelf registration pursuant

to Rule 415 promulgated under the Securities Act which provides

for the sale by the Holders of all Registrable Common Stock and

Walter Industries is directed to use its reasonable best efforts

to have such shelf registration

<PAGE>

thereafter declared effective by the SEC not later than ninety

(90) days after the Effective Date.

48. Without limiting the Qualified Securities

Registration Right Agreement in any respect, pursuant to Section

2(a) of the Qualified Securities Registration Rights Agreement,

Walter Industries be, and it hereby is, authorized to file, not

later than forty-five (45) days after the Effective Date, a shelf

registration pursuant to Rule 415 promulgated under the

Securities Act which provides for the sale by the Holders of all

Registrable Notes and Walter Industries is directed to use its

reasonable best efforts to have such shelf registration

thereafter declared effective by the SEC not later than ninety

(90) days after the Effective Date.

49. Within five (5) Business Dates after the

occurrence of the Effective Date, the Debtors (with respect to

the Holders of Series B & C Senior Note Claims and Holders of Old

Common Stock Interests), the Bank Agents (with respect to the

Holders of Revolving Credit Bank Claims and Working Capital Bank

Claims) and the Debtors (with respect to Holders of Subordinated

Note Claims) shall send the "Notice to the Holders of New Common

Stock and to the Holders of New Senior Notes: Registration

Rights" (the "Registration Rights Notice"), substantially in the

form annexed to the respective Registration Rights Agreement to

which such Notice relates, to each Holder of a Claim or Interest

entitled to receive shares of New Common Stock under Article III

of the Modified Consensual Plan. Any such Holder of a Claim or

Interest shall comply with the procedures and deadlines, if any,

set forth in the Registration Rights Notice if such Holder wishes

to avail itself of the benefits of the New Common Stock

Registration Rights Agreement or be forever barred from availing

itself of such benefits.

50. Within five (5) Business Days after the occurrence

of the Effective Date, the Debtors shall send the Registration

Rights Notice to each Holder of a Subordinated Note

<PAGE>

Claim entitled to receive New Senior Notes under the Modified

Consensual Plan. Any Holder of a Subordinated Note Claim shall

comply with the procedures and deadlines set forth in the

Registration Rights Notice if such Holder wishes to avail itself

of the benefits of the Qualified Securities Registration Rights

Agreement or be forever barred from availing itself of such

benefits.

51. Except to the extent provided for in paragraph 44

of this Order, the Official Committees will be deemed dissolved

and the duties of the Official Committees and their legal,

financial and other advisors will thereupon terminate in

accordance with and to the extent provided in Article XIII,

Section 13.8 of the Modified Consensual Plan. The Debtors shall

remain liable to pay the expenses of the members of the Official

Committees to the extent set forth in Article XIII, Section 13.8

of the Modified Consensual Plan.

52. Notwithstanding the entry of this Confirmation

Order or the occurrence of the Effective Date, the Court will

retain jurisdiction of the Chapter 11 Cases for the following

purposes:

(a) To hear and determine any and all pending motions

and applications for the rejection or disaffirmance, assumption

or assignment of Executory Contracts, any objections to Claims

resulting therefrom, and the allowance of any Claims resulting

therefrom;

(b) To hear and determine any and all applications,

adversary proceedings, contested matters and other litigated

matters pending on the Confirmation Date;

Allowed Claims and Interests are accomplished as provided herein

and in the Reorganization Documents;

(d) To hear and determine any objections to Claims

filed, before or after

<PAGE>

Confirmation, to allow or disallow, in whole or in part, any

Disputed Claim, and to hear and determine other issues presented

by or arising under the Modified Consensual Plan;

(e) To enter and implement such orders as may be

appropriate in the event implementation of this Order or the

Modified Consensual Plan is for any reason stayed, or this Order

is reversed, revoked, modified or vacated;

(f) To hear and determine all applications for

compensation of professionals and reimbursement of expenses under

Sections 330, 331, 503(b) or 1129(a)(4) of the Bankruptcy Code;

(g) To hear any application by the Consensual Plan

Proponents to modify the Modified Consensual Plan in accordance

with Section 1127 of the Bankruptcy Code (after Confirmation, any

Consensual Plan Proponent may also, so long as it does not

adversely affect the interest of Holders of Claims against and

Interests in the Debtors, institute proceedings in the Court to

remedy any defect or omission or reconcile any inconsistencies in

the Modified Consensual Plan, the Disclosure Statement Supplement

or this Order, in such manner as may be necessary to carry out

the purposes and effects of the Modified Consensual Plan);

(h) To enforce and to hear and determine disputes

arising in connection with the Modified Consensual Plan or its

implementation, including disputes among Holders (or alleged

Holders) of Claims against and Interests in the Debtors and

disputes arising under the Reorganization Documents, the VPSA,

the Pre-LBO Bondholders Settlement Agreement, or any other

agreements, documents or instruments executed in connection with

the Modified Consensual Plan;

(i) To construe and to take any action to enforce the

Modified Consensual

<PAGE>

Plan, Reorganization Documents and this Order, and issue such

orders as may be necessary for the implementation, execution and

consummation of the Modified Consensual Plan and the execution,

delivery and performance of the Reorganization Documents;

(j) To construe and to take any action to enforce the

VPSA, including, without limitation, the enforcement of the

settlements, injunctions and releases contained or provided for

therein and herein, and issue such orders as may be necessary for

the implementation of the VPSA;

(k) To determine such other matters and for such other

purposes as may be provided in this Order and the VPSA;

(l) Except as provided in Article III, Section 3.26(c)

of the Modified Consensual Plan with respect to the Arbitrator,

to hear and determine any motions, contested matters or adversary

proceedings involving taxes, tax refunds, tax attributes and tax

benefits and similar or related matters, with respect to the

Debtors or their estates arising prior to the Effective Date or

relating to the period of administration of the Chapter 11 Cases;

(m) To hear and determine any other matters related

hereto and not inconsistent with chapter 11 of the Bankruptcy

Code; and

(n) To enter a final decree closing the Chapter 11

Cases; subject, however, in all respects to the Court's
------- -------
discretion to decline to exercise jurisdiction over matters as to

which the Court deems its continued jurisdiction to be

inappropriate.

53. On the Effective Date, the following adversary

proceedings and contested matters shall be deemed dismissed with

prejudice, and with each party to bear its own costs, to the

extent set forth in this paragraph 53 without the need for any

further action to be taken by

<PAGE>

any party to such adversary proceeding or contested matter:

(a) as to all Released Parties, Mellon Bank, N.A. and
---------------------
The Bank of New York v. Kohlberg Kravis Roberts & Co., et al.,
-------------------------------------------------------------
Adversary Proceeding No. 94-17;

(b) Hillsborough Holdings Corporation, et al. v. Leon
-------------------------------------------------
Black, et al., Adversary Proceeding No. 94-562;
-------------
(c) the contested proceeding commenced by the Debtors

on May 5, 1994 seeking a determination that unsecured creditors

are not entitled to post-petition interest on account of their

Claims in the Chapter 11 Cases;

(d) the motion dated September 9, 1994 filed by the

Creditor Proponents seeking a determination that unsecured

creditors are entitled to post-petition interest before Holders

of Interests may receive any distribution under a chapter 11 plan

of reorganization for the Debtors, and that it is permissible for

a chapter 11 plan of reorganization for the Debtors to provide

post-petition interest to unsecured creditors before any

distribution to Holders of Interests;

(e) the motion dated August 5, 1994 filed by the

Debtors seeking to void the Amended and Restated Veil Piercing

Settlement Agreement;

(f) the motion dated September 8, 1994 filed by the

Creditor Proponents seeking to approve the Amended and Restated

Veil Piercing Settlement Agreement;

(g) all motions filed by the Debtors requesting that

the ballots cast by, inter alia, each member of the Creditors
----- ----
Committee, Bondholders Committee and Ad Hoc Committee of Pre-LBO

Bondholders on the Creditors' Plan be designated pursuant to

Section 1126(e) of the Bankruptcy Code, and the motion to void

the voting process as a whole, and requiring that votes

<PAGE>

on the Creditors' Plan be resolicited;

(h) remand from the District Court with respect to the

application of the Apache Note Proceeds against Class S-1 Claims

and Class S-2 Claims; and

(i) the Adversary Proceedings.

54. Pursuant to Sections 2(a), 3(c)(i) and 3(c)(ii) of

the VPSA, the distribution of Qualified Securities, New Common

Stock and, if applicable, additional Cash on account of the

Attorneys' Fee Differential, pursuant to Section 3.22 of the

Modified Consensual Plan, shall be in full and complete

settlement, satisfaction, release and discharge of (a) any Claim,

obligation, right, cause of action, Demand and liability (other

than the right to enforce obligations under the Modified

Consensual Plan and the VPSA) based upon a Veil Piercing Related

Issue which any Person or entity may be entitled to assert,

whether known or unknown, foreseen or unforeseen, then existing

or thereafter arising, directly or indirectly, against any and

all of the Released Parties based in whole or in part upon any

act, omission or other occurrence taking place on or prior to the

Effective Date in any way relating to the Debtors, the Chapter 11

Cases, the Modified Consensual Plan or Celotex and its

subsidiaries (including, without limitation, any of the

Settlement Claims) and (b) any Claim, indemnity and cause of

action based upon a LBO-Related Issue assertable against any and

all of the Released Parties that any or all of the Debtors, or

any person(s) or entity(ies) claiming through any or all of them,

have in connection with the LBO, any action taken in

contemplation of the LBO, or any contemporaneous or subsequent

transaction(s) entered into as a part of, arising out of or

relating to the LBO or any or all of the LBO transaction(s) or

transfer(s), including, without limitation, any and all

obligations of any nature contemplated by, arising out of or

related to the Stock

<PAGE>

Purchase Agreement between Hillsborough and Jasper Corp. dated as

of April 21, 1988, as amended pursuant to amendments dated May

26, 1988 and January 25, 1989, and the related Undertaking of

Jasper Corp. (including, without limitation, any of the

Settlement Claims), including the Claims asserted in the Veil

Piercing Proof of Claim and the Celotex Proof of Claim.

55. Pursuant to Section 502 of the Bankruptcy Code and

Section 3(a)vii) of the VPSA, the Veil Piercing Proof of Claim

filed on behalf of the Settlement Class and the Celotex Proof of

Claim shall together constitute an Allowed Claim in an aggregate

amount equal to the sum of $375 million plus the Attorneys' Fees

Differential to be paid and satisfied as provided in the VPSA and

Article III, Section 3.22 of the Modified Consensual Plan.

56. All Settlement Claims represented by the Veil

Piercing Proof of Claim and Celotex Proof of Claim shall be fully

and completely settled, satisfied, released and discharged by the

Debtors' distribution of the Settlement Fund to the Celotex

Settlement Fund Recipient, and the Holders of Settlement Claims

shall have no other Claim or Demand to or against any or all of

the Debtors or their chapter 11 estates or any or all of Released

Parties or any or all of their assets or property and are fully

and completely enjoined, prohibited and stayed from asserting any

such Claim or Demand against any or all of the Debtors, their

chapter 11 estates or any or all of the Released Parties, or

their assets or property.

57. The validity and amount of Claims to or Demands

against the Settlement Fund shall be determined by the Celotex

Bankruptcy Court, and the Settlement Fund shall be administered

by, and be subject to the jurisdiction of, the Celotex Bankruptcy

Court.

58. The provisions in the Modified Consensual Plan and

the exhibits thereto,

<PAGE>

including, but not limited to, Article VI, Section 6.4 of the

Modified Consensual Plan are approved in all respects.

59. As provided in Sections 3(a)(ii), 3(c)(i) and

3(c)(ii) of the VPSA, all Persons who have held, hold or may hold

any Claim, cause of action or Demand based upon a Veil Piercing

Related Issue, a LBO-Related Issue raised or assertable by a Veil

Piercing Claimant, or a Settlement Claim, shall be permanently

stayed, restrained and enjoined (the "Veil Piercing Settlement

Injunction") from taking one or more of the following actions

against or affecting any or all of the Released Parties or any

and all of the Assets (or assets or other property) of any or all

of the Released Parties for the purpose of, directly or

indirectly, collecting, recovering or receiving payment of, on or

with respect to any Settlement Claim, including, but not limited

to, (a) all Claims, obligations, rights, causes of action,

Demands and liabilities (other than the right to enforce

obligations under the Modified Consensual Plan and the VPSA)

which any Person may be entitled to assert, whether known or

unknown, foreseen or unforeseen, then existing or thereafter

arising, directly or indirectly, based in whole or in part upon

any act, omission or other occurrence taking place on or prior to

the Effective Date in any way relating to the Debtors, the

Chapter 11 Cases, the Modified Consensual Plan or Celotex and its

subsidiaries, and (b) all Claims, indemnities and causes of

action that any or all of the Debtors or their estates, or any

Person(s) claiming through any or all of them, have in connection

with the LBO, any action taken in contemplation of the LBO, or

any contemporaneous or subsequent transaction(s) entered into as

part of, arising out of or relating to the LBO or any or all of

the LBO transaction(s) or transfer(s), including, without

limitation, any and all obligations of any nature contemplated

by, arising out of or related to the Stock

<PAGE>

Purchase Agreement between Hillsborough and Jasper Corp. dated

as of April 21, 1988, as amended pursuant to amendments dated May

26, 1988 and January 25, 1989 and the related Undertaking of

Jasper Corp.: (i) commencing, conducting or continuing in any

manner, directly or indirectly, any suit, action or other

proceeding of any kind against any or all of the Released Parties

or any or all of the Assets (or assets or other property) of any

and all of the Released Parties or any direct or indirect

successor in interest to any or all of the Released Parties, or

any or all of the Assets (or assets or other property) of any

such successor; (ii) enforcing, levying, attaching, collecting or

otherwise recovering by any manner or means whether directly or

indirectly any judgment, award, decree or order against any or

all of the Released Parties or any or all of the Assets (or

assets or other property) of any and all of the Released Parties

or any direct or indirect successor in interest to any or all of

the Released Parties or any or all of the Assets (or assets or

other property) of any such transferee or successor; (iii)

creating, perfecting or otherwise enforcing in any manner,

directly or indirectly, any encumbrance of any kind against any

and all of the Released Parties or any or all of the Assets (or

assets or other property) of any and all of the Released Parties

or any direct or indirect successor in interest to any or all of

the Released Parties or any or all of the Assets (or assets or

other property) of any such transferee or successor; (iv)

asserting any set-off, right of subrogation or recoupment of any

kind, directly or indirectly, against any obligation due any or

all of the Released Parties or any and all of the Assets (or

assets or other property) of any and all of the Released Parties,

or any direct or indirect transferee of any or all of the Assets

(or assets or other property), of, or successor in interest to,

any and all of the Released Parties; (v) proceeding in any manner

in any place whatsoever that does not conform to or comply with

the provisions of the Modified

<PAGE>

Consensual Plan, the VPSA or this Order; and (vi) using the

record of the Adversary Proceeding Trial, including the

transcript of the trial and all depositions taken in connection

therewith, against any or all of the Released Parties provided,

however, that such record may be used by this Court, the Celotex

Bankruptcy Court and any appellate court of competent

jurisdiction for the sole purpose of such court's review and/or

enforcement of this Order and the VPSA, with all such Claims,

causes of action or Demands to transfer to and attach to the

Settlement Fund.

60. Without any further act or action of any kind,

each and every member of the Settlement Class shall be deemed to

have provided the Mutual Releases set forth in Section 4(b) of

the VPSA.

61. The failure to reference or discuss any particular

provision of the Modified Consensual Plan in this Order shall

have no effect on the validity, binding effect and enforceability

of such provision and such provision shall have the same

validity, binding effect and enforceability as every other

provision of the Modified Consensual Plan.

62. Subject to the provisions of paragraph 63 of this

Order, to the extent of any inconsistency between the terms of

the Modified Consensual Plan and this Order, those of the

Modified Consensual Plan shall govern.

63. To the extent of any inconsistency between the

terms of this Order, the Modified Consensual Plan and the VPSA,

the terms of the VPSA shall govern.

Dated: Tampa, Florida

March 2, 1995

<PAGE>

/s/ Alexander L. Paskay
__________________________________________

ALEXANDER L. PASKAY

CHIEF UNITED STATES BANKRUPTCY JUDGE

Exhibit 3(a)

RESTATED

CERTIFICATE OF INCORPORATION

WALTER INDUSTRIES, INC.

WALTER INDUSTRIES, INC., a corporation organized and existing

under and by virtue of the General Corporation Law of the State of Delaware

(hereinafter called the "Corporation"), DOES HEREBY CERTIFY THAT:

FIRST: The name of the Corporation is WALTER INDUSTRIES, INC.

The Corporation was originally incorporated under the name "HILLSBOROUGH

HOLDINGS CORPORATION", and the date of filing of the Corporation's original

Certificate of Incorporation with the Secretary of State of Delaware was

August 6, 1987.

SECOND: A petition for reorganization under Chapter 11 of the

Bankruptcy Code, 11 U.S.C. Sec.Sec. 101 et seq., having been filed on December
-- ---

27, 1989 in United States Bankruptcy Court, Middle District of Florida,

Tampa Division, and under the Amended Joint Plan of Reorganization dated

December 9, 1994, as modified on March 1, 1995, and inter alia, Sections
----- ----

1123 and 1129 of the Bankruptcy Code, 11 U.S.C. Sec.Sec. 1123 and 1129, in

accordance with Section 303 of the General Corporation Law of the State of

Delaware and pursuant to the order of said court dated March 2, 1995, this

Restated Certificate of Incorporation restates and

<PAGE>

further amends the provisions of the Certificate of Incorporation of the

Corporation.

THIRD: The text of the Restated Certificate of Incorporation as

heretofore amended or supplemented is hereby restated and further amended

to read in its entirety as follows:

1. The name of the Corporation is WALTER INDUSTRIES, INC.

2. The registered office and registered agent of the
Corporation is The Corporation Trust Company, 1209 Orange Street,
Wilmington, New Castle County, Delaware 19801.

3. The purpose of the Corporation is to engage in any lawful
act or activity for which corporations may be organized under the General
Corporation Law of Delaware.

4. The total number of shares of stock that the Corporation is
authorized to issue is Two Hundred Million (200,000,000) shares of Common
Stock, par value $.01 each.

Voting and transfer of the shares of Common Stock held by The
Celotex Corporation (in its capacity as the Celotex Settlement Fund
Recipient under the Second Amended and Restated Veil Piercing Settlement
Agreement ("Celotex")) and its successors are restricted by Section 3.22(c)
of the Amended Joint Plan of Reorganization dated as of December 9, 1994,
as modified on March 1, 1995, as the same may be further amended or
supplemented from time to time (the "Consensual Plan"), and the
Stockholder's Agreement, dated as of March __, 1995, by and between Celotex
and the Corporation.

5. The following provisions are inserted for the management of
the business and for the conduct of the affairs of the Corporation and for
the purpose of creating, defining, limiting and regulating powers of the
Corporation and its directors and stockholders.

(a) During the Initial Three Year Term (as defined in
Article 8 hereof), Article I, Section 2 and Article II of the bylaws of the
Corporation may be altered amended or repealed by the Board of Directors of
the Corporation acting by the vote of 67% of the whole Board of Directors;
otherwise, the bylaws of the Corporation may be altered, amended or
repealed by the Board of Directors of

<PAGE>

the Corporation acting by the vote of the majority of the whole Board of
Directors.

(b) Elections of directors need not be by written ballot
unless the bylaws of the Corporation shall so provide.

6. Except as otherwise provided by the Delaware General
Corporation Law as the same exists or may hereafter be amended, no director
of the Corporation shall be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a
director. Any repeal or modification of this Article 6 by the stockholders
of the Corporation shall not adversely affect any right or protection of a
director of the Corporation in respect of any act or omission occurring
prior to the time of such repeal or modification.

7. To the fullest extent permitted by applicable law, the
Corporation shall indemnify any current or former director, officer,
employee or agent of the Corporation, and such director's, officer's,
employee's or agent's heirs, executors and administrators, against all
expenses, judgments, fines and amounts paid in settlement actually and
reasonably incurred by such indemnified party in connection with any
threatened, pending or completed action, suit or proceeding brought by or
in the right of the Corporation, or otherwise, to which such indemnified
party was or is a party or is threatened to be made a party by reason of
such indemnified party's current or former position with the Corporation or
by reason of the fact that such indemnified party is or was serving, at the
request of the Corporation, as a director, officer, partner, trustee,
employee or agent of another corporation, partnership, joint venture, trust
or other enterprise. The Corporation shall, from time to time, reimburse
or advance to any current or former director or officer or other person
entitled to indemnification hereunder the funds necessary for payment of
defense expenses as incurred. Any repeal or modification of this Article 7
by the stockholders of the Corporation shall not adversely affect any right
or protection of a director of the Corporation in respect of any act or
omission occurring prior to the time of such repeal or modification.

8. The number of directors which shall constitute the whole
Board of Directors shall be nine (9); provided, that, until the two
--------
Independent Directors are selected as provided below, the initial Board of
Directors (the "Initial Board of Directors") designated pursuant to
Section 5.2 of the Consensual Plan shall be composed of seven (7)
directors. The initial term of the nine (9) directors designated pursuant
to the Consensual Plan shall be three years (the "Initial Three Year
Term"), and the term

<PAGE>

of successors to the initial nine (9) directors shall expire simultaneously
with the expiration of the Initial Three Year Term; thereafter, the term of
each director shall be one (1) year. Two of the members of the whole Board
of Directors shall be Independent Directors, who shall be promptly selected
pursuant to Section 5.2 of the Consensual Plan. Three of the members of
the Initial Board of Directors shall be senior officers of the Corporation,
who shall be initially designated pursuant to Section 5.2 of the Consensual
Plan. One of the members of the Initial Board of Directors shall be a
person designated by Kohlberg Kravis Roberts & Co. ("KKR"). Three of the
members of the Initial Board of Directors shall be persons designated by
Lehman Brothers Inc. ("Lehman"). Any vacancy created in the Board of
Directors in the Initial Three Year Term shall be filled for the remainder
of the term by the entity (or, in the case of Independent Directors, by the
procedure) that initially designated the director who created such vacancy,
except that in the case of vacancy in the directorships held by one of the
three senior officers of the Corporation, such vacancy shall be filled by
senior officer(s) of the Corporation designated by the remaining directors
of the Corporation then in office.

Notwithstanding the foregoing provisions of this Article 8,
during the Initial Three Year Term of the Board of Directors, (i) if, at
any time after six months after the Effective Date of the Consensual Plan,
Lehman notifies KKR that it has determined to transfer to KKR the right to
appoint one of the three directors initially appointed under the Consensual
Plan by Lehman, KKR shall have the right to (a) compel the director
identified by Lehman (from among those designated by Lehman) to resign his
or her position as a member of the Board of Directors and (b) appoint the
successor to such directorship pursuant to this Article 8; (ii) in the
event that at any time after the Effective Date, Lehman and its Affiliates
fail to have "beneficial" ownership, as that term is used in Rule 13d-3
under the Securities Exchange Act of 1934, as amended ("Beneficial
Ownership" and its correlative meaning "Beneficially Owned"), of 8% or more
of the outstanding common stock of the Corporation (or its successor by
merger, consolidation or otherwise) (without including any shares held in
escrow pursuant to Section 3.26(c) of the Consensual Plan) (the
"Outstanding Common Stock"), then if KKR and its Affiliates have, at such
time, Beneficial Ownership of 8% or more of the Outstanding Common Stock,
KKR shall have the right to (a) compel one director identified by Lehman
(from among those designated by Lehman) to resign his or her position as a
member of the Board of Directors and (b) appoint the successor to such
directorship pursuant to this Article 8; (iii) in the event that at any
time after the Effective Date, two members of the Board of Directors are
KKR

<PAGE>

designees and KKR and its Affiliates fail to have Beneficial Ownership of
8% or more of the Outstanding Common Stock, and Lehman and its Affiliates
have, at such time, Beneficial Ownership of 8% or more of the Outstanding
Common Stock, then Lehman shall have the right to (a) compel one director
identified by KKR (from among those designated by KKR) to resign his or her
position as a member of the Board of Directors and (b) appoint the
successor to such directorship pursuant to this Article 8; and (iv) in the
event that at any time after the Effective Date 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 directors appointed
under this Article 8 by Lehman, if Lehman and its Affiliates shall fail to
have Beneficial Ownership of 5% or more of the Outstanding Common Stock, or
by KKR, if KKR and its Affiliates shall fail to have Beneficial Ownership
of 5% or more of the Outstanding Common Stock, shall resign and the
remaining directors of the Corporation shall appoint their successor(s) for
the remainder of the Initial Three Year Term; provided, however, that
-------- -------
notwithstanding the preceding clauses (i) - (iv), a KKR designee shall at
all times be on the Board of Directors (until the third anniversary of the
Effective Date) if, and so long as, the shares of New Common Stock
Beneficially Owned by KKR and its Affiliates, together with shares held in
escrow pursuant to Section 3.26(c) of the Consensual Plan that would be
distributed to KKR or its Affiliates upon release from escrow, shall
together equal 5% or more of the then outstanding common stock of the
Corporation (or its successor by merger, consolidation or otherwise)
(including as part of the then outstanding common stock of the Corporation,
for purposes of this calculation only, any shares held in escrow pursuant
to Section 3.26(c) of the Consensual Plan). For purposes of this Article
8, "Affiliate", "Effective Date", "Independent Director" and "New Common
Stock" shall have the meanings set forth in the Consensual Plan.

9. At all times during the Initial Three Year Term, each
committee of the Board of Directors shall include such number of Directors
designated by KKR and by Lehman so that each of KKR and Lehman has
representation on each such committee proportionate to the representation
it has on the Board of Directors, but in any event not less than one
Director designated by KKR and one Director designated by Lehman; provided,
--------
however, that, notwithstanding the foregoing, the Tax Oversight Committee
- -------
shall consist of such members as provided in Section 1.229 of the
Consensual Plan.

<PAGE>

10. Notwithstanding anything contained in this Certificate of
Incorporation to the contrary, the Corporation shall not issue nonvoting
equity securities to the extent prohibited by Section 1123 of the United
States Bankruptcy Code, 11 U.S.C. Sec. 1123; provided, however, that this
-------- -------
provision (i) will have no further force and effect beyond that required by
such Section, (ii) will have such force and effect, if any, only for so
long as such Section is in effect and applicable to the Corporation and
(iii) in all events may be amended or eliminated in accordance with
applicable law as from time to time in effect.

IN WITNESS WHEREOF, WALTER INDUSTRIES, INC. has caused this

Restated Certificate of Incorporation to be signed by G. Robert Durham, its

President, and attested by John F. Turbiville, its Secretary, this 16th day

of March, 1995.

ATTEST: WALTER INDUSTRIES, INC.

/s/ John F. Turbiville By: /s/ G. Robert Durham
----------------------------- --------------------------
Name: John F. Turbiville Name: G. Robert Durham
Title: Secretary Title: President

Exhibit 3(b)

WALTER INDUSTRIES, INC.

AMENDED AND RESTATED

BY-LAWS

ARTICLE I.

MEETING OF STOCKHOLDERS
-----------------------

Section 1. Place of Meeting and Notice. Meetings of the
---------------------------
stockholders of the Corporation shall be held at such place either within
or without the State of Delaware as the Board of Directors may determine.

Section 2. Annual and Special Meetings. Annual meetings of
---------------------------
stockholders shall be held, at a date, time and place fixed by the Board of
Directors and stated in the notice of meeting, to elect a Board of
Directors (except during the initial three year term (the "Initial Three
Year Term") of the Board of Directors elected pursuant to Section 5.2 of
the Amended Joint Plan of Reorganization dated as of December 9, 1994 (the
"Consensual Plan")) and to transact such other business as may properly
come before the meeting. Special meetings of the stockholders may be
called by the President for any purpose and shall be called by the
President or Secretary if directed by a majority of the whole Board of
Directors or requested in writing by the holders of not less than 25% of
the outstanding shares of the capital stock of the Corporation. Each such
stockholder request shall state the purpose of the proposed meeting.

Section 3. Notice. Except as otherwise provided by law, at
------
least 10 and not more than 60 days before each meeting of stockholders,
written notice of the time, date and place of the meeting, and, in the case
of a special meeting, the purpose or purposes for which the meeting is
called, shall be given to each stockholder.

Section 4. Quorum. At any meeting of stockholders, the holders
------
of record, present in person or by proxy, of a majority of the
Corporation's issued and outstanding shares of capital stock shall
constitute a quorum for the transaction of business, except as otherwise
provided by law. In the absence of a quorum, any officer entitled to
preside at or to act as secretary of the meeting shall have power to
adjourn the meeting from time to time until a quorum is present.

Effective March 20, 1995

<PAGE>

Section 5. Voting. Except as otherwise provided by law, all
------
matters submitted to a meeting of stockholders shall be decided by vote of
the holders of record, present in person or by proxy, of a majority of the
Corporation's issued and outstanding shares of capital stock present at
such meeting, in person or by proxy.

ARTICLE II.

DIRECTORS
---------

Section 1. Number, Election and Removal of Directors. The
-----------------------------------------
number of Directors that shall constitute the Board of Directors shall be
fixed by the Certificate of Incorporation. The Directors shall be elected
pursuant to the Certificate of Incorporation for the Initial Three Year
Term and thereafter by the stockholders at the annual meeting of the
stockholders. Vacancies may be filled pursuant to the Certificate of
Incorporation during the Initial Three Year Term and thereafter vacancies
and newly created directorships resulting from any increase in the number
of Directors may be filled by a majority of the Directors then in office,
although less than a quorum, or by the sole remaining Director or by the
stockholders. A Director may be removed by the stockholders during the
Initial Three Year Term in accordance with applicable law or as expressly
provided for in the Certificate of Incorporation and thereafter may be
removed in accordance with applicable law.

Section 2. Meetings. Regular meetings of the Board of Directors
--------
shall be held at such times and places as may from time to time be fixed by
a majority of the whole Board of Directors or as may be specified in a
notice of meeting. Special meetings of the Board of Directors may be held
at any time upon the call of the President and shall be called by the
President or Secretary if directed by a majority of the whole Board of
Directors. Telegraphic or written notice of each special meeting of the
Board of Directors shall be sent to each Director not less than twenty-four
hours before such meeting. A meeting of the Board of Directors may be held
without notice immediately after the annual meeting of the stockholders.
Notice need not be given of regular meetings of the Board of Directors.

Section 3. Quorum. A majority of the whole Board of Directors
------
shall constitute a quorum for the transaction of business. If a quorum is
not present at any meeting of the Board of Directors, the Directors present
may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until such a quorum is present. Except as
otherwise provided by law, the Certificate of Incorporation of the
Corporation or these By-Laws, the act of a majority of the Directors
present at any meeting at which there is a quorum shall be the act of the
Board of Directors.

Section 4. Committees of Directors. The Board of Directors may,
-----------------------
by resolution adopted by the affirmative vote of a majority of the whole
Board of Directors designate one or more committees, including without
limitation an Executive Committee, to have and exercise such power and

- 2 -

<PAGE>

authority as the Board of Directors shall specify. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not
such member or members constitute a quorum, may unanimously appoint another
Director to act at the meeting in place of any such absent or disqualified
member. At all times during the Initial Three Year Term, each committee of
the Board of Directors shall include such number of Directors designated by
Kohlberg Kravis Roberts & Co. ("KKR") and by Lehman Brothers Inc.
("Lehman") so that each of KKR and Lehman has representation on each such
committee proportionate to the representation it has on the Board of
Directors, but in any event not less than one Director designated by KKR
and one Director designated by Lehman; provided, however, that,
-------- -------
notwithstanding the foregoing, the Tax Oversight Committee shall consist of
such members as provided in Section 1.229 of the Consensual Plan.

Section 5. Compensation. Each Director who is not an employee
------------
of the Corporation or any of its subsidiaries, in consideration of his or
her service as such, shall be entitled to receive from the Corporation such
amount per annum or such fees for attendance at Directors' meetings, or
both, as the Board may from time to time determine, together with
reimbursement for the reasonable out-of-pocket expenses, if any, incurred
by such Director in connection with the performance of his or her duties.
Each Director who is not an employee of the Corporation or any of its
subsidiaries who shall serve as a member of any committee of Directors in
consideration of serving as such shall be entitled to such additional
amount per annum or such fees for attendance at committee meetings, or
both, as the Board may from time to time determine, together with
reimbursement for the reasonable out-of-pocket expenses, if any, incurred
by such Director in the performance of his or her duties. Nothing
contained in this Section 5 shall preclude any Director from serving the
Corporation or its subsidiaries in any other capacity and receiving proper
compensation therefor.

ARTICLE III.

OFFICERS
--------

The officers of the Corporation shall consist of a President, a
Secretary, a Treasurer and such other additional officers with such titles
as the Board of Directors shall determine, all of whom shall be chosen by
and shall serve at the pleasure of the Board of Directors. Such officers
shall have the usual powers and shall perform all the usual duties incident
to their respective offices. All officers shall be subject to the
supervision and direction of the Board of Directors. The authority, duties
or responsibilities of any officer of the Corporation may be suspended by
the President with or without cause. Any officer elected or appointed by
the Board of Directors may be removed by the Board of Directors with or
without cause.

- 3 -

<PAGE>

ARTICLE IV.

INDEMNIFICATION
---------------

To the fullest extent permitted by applicable law, the
Corporation shall indemnify any current or former Director, officer,
employee or agent of the Corporation and such director's, officer's,
employee's or agent's heirs, executors and administrators against all
expenses, judgments, fines and amounts paid in settlement actually and
reasonably incurred by such indemnified party in connection with any
threatened, pending or completed action, suit or proceeding brought by or
in the right of the Corporation, or otherwise, to which such indemnified
party was or is a party or is threatened to be made a party by reason of
such indemnified party's current or former position with the Corporation or
by reason of the fact that such indemnified party is or was serving, at the
request of the Corporation, as a director, officer, partner, trustee,
employee or agent of another corporation, partnership, joint venture, trust
or other enterprise. The Corporation shall, from time to time, reimburse
or advance to any current or former director or officer or other person
entitled to indemnification hereunder the funds necessary for payment of
defense expenses as incurred. Any repeal or modification of this
Article IV by the stockholders of the Corporation shall not adversely
affect any right or protection of a director of the Corporation in respect
of any act or omission occurring prior to the time of such repeal or
modification.

ARTICLE V.

GENERAL PROVISIONS
------------------

Section 1. Notices. Whenever any statute, the Certificate of
-------
Incorporation or these By-Laws require notice to be given to any Director,
such notice shall be deemed to have been given when it is sent by telegram,
telex or telecopy or hand delivered or deposited in the United States mail,
as the case may be. A waiver of such notice in writing signed by the
person or persons entitled thereto, whether before or after the time stated
in such notice, shall be equivalent to the giving of such notice.
Attendance of a Director at a meeting shall constitute a waiver of notice
of such meeting except where a Director attends a meeting for the express
purpose of objecting to the transaction of any business because the meeting
is not lawfully called or convened.

Section 2. Fiscal Year. The fiscal year of the Corporation
-----------
shall be fixed by the Board of Directors.

- 4 -

Exhibit 4(b)

COMMON
STOCK

COMMON
STOCK
PAR VALUE $.01

NUMBER
WII

THIS CERTIFICATE IS TRANSFERABLE
IN CHICAGO, ILLINOIS
OR NEW YORK, NEW YORK

CUSIP 93317Q 10 5
SEE REVERSE FOR CERTAIN DEFINITIONS

Walter Industries, Inc.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE

This Certifies That

is the owner of

FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK OF
Walter Industries, Inc. transferable on the books of said
Corporation in person or by duly authorized attorney, upon
surrender of this certificate properly endorsed. This certificate
and the shares represented hereby are issued and shall be held
subject to all the provisions of the Restated Certificate of
Incorporation and Amended and Restated By-Laws of the Corporation
and the amendments from time to time made thereto, copies of
which are or will be on file at the principal office of the
Corporation, to all of which the holder by acceptance hereof
assents. This certificate is not valid until countersigned and
registered by the Transfer Agent and Registrar.
Witness the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated

COUNTERSIGNED AND REGISTERED:
HARRIS TRUST AND SAVINGS BANK
TRANSFER AGENT
AND REGISTRAR
BY

AUTHORIZED SIGNATURE

WALTER INDUSTRIES, INC.
CORPORATE SEAL
1987
DELAWARE

PRESIDENT

SECRETARY

<PAGE>

The following abbreviations, when used in the inscription on
the face of this Certificate, shall be construed as though they
were written out in full according to applicable laws or
regulations:

TEN COM --as tenants in common
TEN ENT --as tenants by the entireties
JT TEN --as joint tenants with right
of survivorship and not as
tenants in common
UNIF GIFT MIN ACT--_________________ Custodian _________
(Cust) (Minor)
under Uniform Gift to Minors

Act_________________________________________
(State)

Additional abbreviations may also be used though not in the above
list.

For Value received hereby sell, assign and transfer unto

PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE

_________________________________________________________________

_________________________________________________________________
(NAME AND ADDRESS OF TRANSFEREE SHOULD BE PRINTED OR TYPEWRITTEN)

________________________________________________________________

___________________________________________________________Shares
of the Common Stock represented by the within Certificate and do
hereby irrevocably constitute and appoint
_________________________________________________________Attorney
to transfer the said stock on the books of the within-named
Corporation with full power of substitution in the premises.

Dated__________________________________

________________________________________
(Signature)

NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH
THE NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE
WHATEVER.

SIGNATURE(S) GUARANTEED

By_____________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR
INSTITUTION, (Banks, Stockbrokers, Savings and Loan Associations
and Credit Unions) WITH MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM PURSUANT TO S.E.C. RULE 17 Ad-15.

Exhibit 10(a)

==============================================================================

STOCKHOLDER'S AGREEMENT

between

WALTER INDUSTRIES, INC.

AND

THE CELOTEX CORPORATION, IN
ITS CAPACITY AS THE CELOTEX
SETTLEMENT FUND RECIPIENT

______________________

March 17, 1995

______________________

==============================================================================

<PAGE>

TABLE OF CONTENTS

Page
----

1. Restrictions on Transfer of Shares Owned by Celotex . . . . . . . 1

2. Voting of Common Stock Owned by Celotex . . . . . . . . . . . . . 1

3. After-Acquired Securities . . . . . . . . . . . . . . . . . . . . 2

4. Stock Certificate Legend . . . . . . . . . . . . . . . . . . . . . 2

5. Representations and Warranties of the Parties . . . . . . . . . . 2

5.1 Authority . . . . . . . . . . . . . . . . . . . . . . . . . 2
5.2 Binding Obligation . . . . . . . . . . . . . . . . . . . . . 3
5.3 No Conflicts/Approvals . . . . . . . . . . . . . . . . . . . 3

6. Specific Performance . . . . . . . . . . . . . . . . . . . . . . . 3

7. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . 3

7.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . 3
7.2 Severability . . . . . . . . . . . . . . . . . . . . . . . . 4
7.3 Third-Party Beneficiary . . . . . . . . . . . . . . . . . . . 4
7.4 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . 4
7.5 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
7.6 Variations in Pronouns . . . . . . . . . . . . . . . . . . . 5
7.7 Governing Law . . . . . . . . . . . . . . . . . . . . . . . 5
7.8 Further Assurances . . . . . . . . . . . . . . . . . . . . . 5
7.9 Successors and Assigns . . . . . . . . . . . . . . . . . . . 5
7.10 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . 5

-i-

<PAGE>

STOCKHOLDER'S AGREEMENT
-----------------------

STOCKHOLDER'S AGREEMENT, dated as of March 17, 1995, by and
between Walter Industries, Inc., a Delaware corporation (the "Company"),
and The Celotex Corporation, solely in its capacity as the Celotex
Settlement Fund Recipient under the Second Amended and Restated Veil
Piercing Settlement Agreement dated as of November 22, 1994 ("Celotex"), as
the same may be amended or modified (the "VPSA").

WHEREAS, each of Celotex, solely as the Celotex Settlement Fund
Recipient, and holders of Allowed Claims in Classes S-1, S-2, S-6, U-4,
U-5, U-6 and holders of Class E-1 Interests will acquire shares of New
Common Stock, par value $.01 per share, of the Company pursuant to the
Amended Joint Plan of Reorganization dated as of December 9, 1994, as the
same may be amended or modified (the "Consensual Plan").

All capitalized terms used herein and not otherwise defined
herein have the meaning ascribed to them in the Consensual Plan.

NOW, THEREFORE, in consideration of the mutual promises and
agreements set forth herein, the adequacy of which are hereby acknowledged,
the parties hereto agree as follows:

1. Restrictions on Transfer of Shares Owned by Celotex.
---------------------------------------------------
Celotex shall not, nor shall Celotex permit any of its Affiliates to,
offer, sell, transfer, give, assign, hypothecate, pledge, encumber, grant a
security interest in or otherwise dispose of (whether by operation of law
or otherwise) (collectively, "transfer") any shares of New Common Stock or
any right, title or interest therein or thereto to any Person that is (a) a
successor to Celotex as a Celotex Settlement Fund Recipient, (b) a
beneficiary of the Celotex Settlement Fund Recipient or (c) a creditor of
The Celotex Corporation, in its capacity as such, unless in each case such
Person delivers to the Company an instrument, in form and substance
reasonably satisfactory to the Company, pursuant to which it agrees to be
bound by the terms and conditions of this Agreement to the same extent as
Celotex is bound hereby.

2. Voting of Common Stock Owned by Celotex. In any vote or
---------------------------------------
action by written consent by holders of New Common Stock voting or taking
action by written consent on any matter submitted to a vote of stockholders
of the

<PAGE>

Company, Celotex will vote or execute written consents with respect to its
shares of New Common Stock for and/or against such matter in proportion to
the votes cast or consents executed and delivered by the other holders of
New Common Stock who voted or executed and delivered written consents, as
the case may be. The Company will advise Celotex of the proportion of such
votes, and Celotex shall have no responsibility for the determination
thereof. Celotex shall be present, in person or by proxy, at all meetings
of holders of New Common Stock so that all shares of New Common Stock
beneficially owned by Celotex may be counted for the purpose of determining
the presence of a quorum at such meeting.

3. After-Acquired Securities. All of the provisions of this
-------------------------
Agreement shall apply to all of the shares of New Common Stock or other
voting securities of the Company now owned or which may be issued or
transferred hereafter to Celotex as a result of its ownership of New Common
Stock, whether such issuance or transfer is in respect of, in exchange for,
in substitution of or in reclassification of, any shares of New Common
Stock, or is in consequence of any purchase as a result of its exercise of
option or other rights granted in connection with its ownership of New
Common Stock, corporate reorganization or any other form of
recapitalization, consolidation, merger, share split or share dividend or
otherwise.

4. Stock Certificate Legend. A copy of this Agreement shall be
------------------------
filed with the Secretary of the Company and kept with the records of the
Company. Each certificate representing shares of New Common Stock or other
voting securities of the Company referred to in Section 3 above now held or
hereafter acquired by or issued or transferred to Celotex shall, for as
long as this Agreement is effective, bear a legend as follows:

The securities represented by this Certificate are restricted by the
terms of the Stockholder's Agreement, dated as of March 17, 1995
between the Company and The Celotex Corporation, in its capacity as
the Celotex Settlement Fund Recipient, a copy of which may be
inspected at the Company's principal office.

5. Representations and Warranties of the Parties. Celotex
---------------------------------------------
represents and warrants to the Company that:

5.1 Authority. The execution, delivery and performance of
---------
this Agreement by it has been duly authorized by all necessary action.

<PAGE>

5.2 Binding Obligation. It has duly and validly executed
------------------
and delivered this Agreement, and this Agreement constitutes its legal,
valid and binding obligation, enforceable against it in accordance with its
terms.

5.3 No Conflicts/Approvals. The execution, delivery and
----------------------
performance of this Agreement will not conflict with or result in the
breach or violation of any of the terms or conditions of, or constitute (or
with notice or lapse of time or both, would constitute) a default under (i)
its constituting or governing documents; (ii) any instrument, contract or
other agreement by or to which it is a party or its assets are bound or
subject; (iii) any statute, regulation, order, judgment or decree of any
court or governmental or regulatory body; or (iv) any license, permit,
order or approval of any governmental or regulatory body respecting it or
its business. No approval or consent of any foreign, Federal, state,
county, local or other governmental or regulatory body or court or other
Person is required in connection with the execution, delivery or
performance of this Agreement by it.

6. Specific Performance. The parties hereto intend that the
--------------------
Company has the right to seek specific performance in the event that
Celotex fails to perform its obligations hereunder. Therefore, if the
Company shall institute any action or proceeding to enforce the provisions
hereof, Celotex hereby waives any claim or defense therein that the Company
has an adequate remedy at law.

7. Miscellaneous.
-------------

7.1 Notices. All notices or other communication required or
-------
permitted hereunder shall be in writing and shall be delivered personally,
telegraphed or telexed, or sent by facsimile transmission, certified,
registered or express mail, postage prepaid. Any such notice shall be
deemed given when so delivered personally, telegraphed,
telexed or by facsimile transmission or sent by certified, registered or
express mail or, if mailed, five days after the date of deposit in the
United States mail, as follows:

(i) If to the Company, to it at:

Walter Industries, Inc.
1500 North Dale Mabry Highway
Tampa, Florida 33607

Facsimile: (813) 871-4430
Attention: Kenneth J. Matlock
William H. Weldon

<PAGE>

with a copy to:

Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017

Facsimile: (212) 455-2502
Attention: Peter J. Gordon

(ii) if to Celotex, to it at:

The Celotex Corporation
4010 Bay Scout Boulevard
Tampa, Florida 33607

Facsimile: (813) 873-4294
Attention: John Borreca

with a copy to:

Bush Ross Gardens Warren & Rudy, P.A.
220 South Franklin Street
Tampa, Florida 33602
Facsimile: 803-223-9620
Attention: Jeffrey Warren, Esq.

Any party may by notice given in accordance with this Section 7.1 designate
another address or person for receipt of notices hereunder.

7.2 Severability. In the event any provision hereof is
------------
held void or unenforceable by any court, then such provisions shall be
severable and shall not affect the remaining provisions hereof.

7.3 Third-Party Beneficiary. Each stockholder of the
-----------------------
Company is a third-party beneficiary to this Agreement and is entitled to
the rights and benefits hereunder, and each Person who beneficially owns,
as such term is defined in Rule 13d-3 of the Securities Exchange Act of
1934, as amended, 5% or more of the outstanding New
Common Stock (each, a "5% Third Party Beneficiary") may enforce the
provisions hereof as if it were a party hereto.

7.4 Amendment. This Agreement may be amended from time to
---------
time by a written amendment duly executed and delivered by the parties
hereto, with the consent of each 5% Third Party Beneficiary.

7.5 Waiver. Any failure by a party hereto to comply with
------
any obligation, agreement or condition herein may be expressly waived in
writing by each of the other

<PAGE>

parties hereto and with the consent of each 5% Third Party Beneficiary, but
such waiver or failure to insist upon strict compliance with such
obligation, agreement or condition shall not operate as a waiver of, or
estoppel with respect to, any such subsequent or other failure.

7.6 Variations in Pronouns. All pronouns and any
----------------------
variations thereof refer to the masculine, feminine or neuter, singular or
plural, as the context may require.

7.7 Governing Law. This Agreement shall be governed and
-------------
construed in accordance with the laws of the State of Delaware applicable
to agreements made and to be performed entirely within such State.

7.8 Further Assurances. Each of the parties shall, and
------------------
shall cause their respective Affiliates to, execute such instruments and
take such action as may be reasonably required or desirable to carry out
the provisions hereof and the transactions contemplated hereby. This
Agreement shall be binding upon and inure to the benefit of the parties and
their respective successors and legal representatives.

7.9 Successors and Assigns. This Agreement shall inure to
----------------------
the benefit of the parties hereto and their respective successors and
assigns and shall be binding on successors and assigns of Celotex to the
extent provided in Section 3.22(c) of the Consensual Plan and Appendix A,
paragraph P to the VPSA.

7.10 Counterparts. This Agreement may be executed in one
------------
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.

<PAGE>

IN WITNESS WHEREOF, the undersigned have executed, or have cause
to be executed, this Agreement as of the date first written above.

WALTER INDUSTRIES, INC.

By: /s/ Kenneth J. Matlock
----------------------------------------------------
Name: Kenneth J. Matlock
Title: Executive Vice President

THE CELOTEX CORPORATION
in its capacity as the Celotex Settlement Fund
Recipient

By: /s/ Kenneth E. Hyatt
----------------------------------------------------
Name: Kenneth E. Hyatt
Title: President and Chief Executive Officer

Exhibit 10(b)(i)

==============================================================================

REGISTRATION RIGHTS AGREEMENT

by and among

WALTER INDUSTRIES, INC.

and

THE HOLDERS NAMED HEREIN

_______________________________

Dated as of March 17, 1995
_______________________________

==============================================================================

<PAGE>

Table of Contents
-----------------

Page
----

1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

2. Initial Registration Under the Securities Act . . . . . . . . . . 4
(a) Shelf Registration . . . . . . . . . . . . . . . . . . . . . 4
(b) Effective Registration Statement . . . . . . . . . . . . . . 4

3. Securities Act Registration on Request . . . . . . . . . . . . . . 5
(a) Request . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(b) Registration of Other Securities . . . . . . . . . . . . . . 6
(c) Registration Statement Form . . . . . . . . . . . . . . . . . 6
(d) Effective Registration Statement . . . . . . . . . . . . . . 7
(e) Selection of Underwriters . . . . . . . . . . . . . . . . . . 7
(f) Priority in Requested Registration . . . . . . . . . . . . . 8
(g) Shelf Registrations . . . . . . . . . . . . . . . . . . . . . 8

4. Piggyback Registration . . . . . . . . . . . . . . . . . . . . . . 8

5. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

6. Registration Procedures . . . . . . . . . . . . . . . . . . . . . 10

7. Underwritten Offerings . . . . . . . . . . . . . . . . . . . . . . 15
(a) Requested Underwritten Offerings . . . . . . . . . . . . . . 15
(b) Piggyback Underwritten Offerings; Priority . . . . . . . . . 15
(c) Holders of Registrable Common Stock to be Parties to
Underwriting Agreement . . . . . . . . . . . . . . . . . . 16
(d) Selection of Underwriters for Piggyback Underwritten
Offering . . . . . . . . . . . . . . . . . . . . . . . . . 16
(e) Holdback Agreements . . . . . . . . . . . . . . . . . . . . . 16

8. Preparation; Reasonable Investigation . . . . . . . . . . . . . . 17
(a) Registration Statements . . . . . . . . . . . . . . . . . . . 17
(b) Confidentiality . . . . . . . . . . . . . . . . . . . . . . . 18

9. Postponements . . . . . . . . . . . . . . . . . . . . . . . . . . 18

10. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . 19
(a) Indemnification by the Company . . . . . . . . . . . . . . . 19
(b) Indemnification by the Offerors and Sellers . . . . . . . . . 20
(c) Notices of Losses, etc. . . . . . . . . . . . . . . . . . . . 21
(d) Contribution . . . . . . . . . . . . . . . . . . . . . . . . 22
(e) Other Indemnification . . . . . . . . . . . . . . . . . . . . 22
(f) Indemnification Payments . . . . . . . . . . . . . . . . . . 23

11. Registration Rights to Others . . . . . . . . . . . . . . . . . . 23

12. Adjustments Affecting Registrable Common Stock . . . . . . . . . . 23

13. Rule 144 and Rule 144A . . . . . . . . . . . . . . . . . . . . . . 23

-i-

<PAGE>

Page
----

14. Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . 24

15. Nominees for Beneficial Owners . . . . . . . . . . . . . . . . . . 24

16. Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

17. Calculation of Percentage or Number of Shares of Registrable
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . 25

18. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(a) Further Assurances . . . . . . . . . . . . . . . . . . . . . 25
(b) Headings . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(c) No Inconsistent Agreements . . . . . . . . . . . . . . . . . 25
(d) Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(e) Entire Agreement . . . . . . . . . . . . . . . . . . . . . . 25
(f) Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(g) Governing Law . . . . . . . . . . . . . . . . . . . . . . . . 26
(h) Severability . . . . . . . . . . . . . . . . . . . . . . . . 26
(i) Counterparts . . . . . . . . . . . . . . . . . . . . . . . . 26

SCHEDULES:

SCHEDULE A -- HOLDERS OF REGISTRABLE COMMON STOCK
SCHEDULE B -- NOTICES

-ii-
<PAGE>

REGISTRATION RIGHTS AGREEMENT

REGISTRATION RIGHTS AGREEMENT, dated as of March 17, 1995 (this
"Agreement"), by and among Walter Industries, Inc., a Delaware corporation
(the "Company"), and the holders of Registrable Common Stock (as
hereinafter defined) who are signatories to this Agreement (the "Holders").

This Agreement is being entered into in connection with the
acquisition of Common Stock (as hereinafter defined) on the date hereof by
certain holders (the "Original Holders") pursuant to the Plan (as
hereinafter defined). Upon the issuance of the Common Stock, each Original
Holder will own the number of shares of Common Stock specified with respect
to such Original Holder in Schedule A hereto.

To induce the holders of Registrable Common Stock (as hereinafter
defined) to vote in favor of the Plan and to accept the issuance of the
Common Stock by the Company under the Plan, the Company has undertaken to
register Registrable Common Stock under the Securities Act (as hereinafter
defined) and to take certain other actions with respect to the Registrable
Common Stock. This Agreement sets forth the terms and conditions of such
undertaking.

In consideration of the premises and the mutual agreements set
forth herein, the parties hereto hereby agree as follows:

1. Definitions. Unless otherwise defined herein, capitalized
-----------
terms used herein and in the recitals above shall have the following
meanings:

"Affiliate" of a Person means any Person that controls, is under
---------
common control with, or is controlled by, such other Person. For purposes
of this definition, "control" means the ability of one Person to direct the
management and policies of another Person.

"Business Day" means any day except a Saturday, Sunday or other
------------
day on which commercial banks in New York City are authorized or required
by law to be closed.

"Commission" means the U.S. Securities and Exchange Commission.
----------

"Common Stock" means the shares of common stock, $.01 par value
------------
per share, of the Company, as adjusted to reflect any merger, consoli-
dation, recapitalization, reclassification, split-up, stock dividend,
rights offering

<PAGE>

or reverse stock split made, declared or effected with respect to the
Common Stock.

"Effective Date" means the effective date of the Plan pursuant to
--------------
the terms thereof.

"Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended, and the rules and regulations thereunder, or any similar or
successor statute.

"Expenses" means, except as set forth in Section 5 hereof, all
--------
expenses incident to the Company's performance of or compliance with its
obligations under this Agreement, including, without limitation, all
registration, filing, listing, stock exchange and NASD fees, all fees and
expenses of complying with state securities or blue sky laws (including
fees, disbursements and other charges of counsel for the underwriters in
connection with blue sky filings), all word processing, duplicating and
printing expenses, messenger and delivery expenses, all rating agency fees,
the fees, disbursements and other charges of counsel for the Company and of
its independent public accountants, including the expenses incurred in
connection with "cold comfort" letters required by or incident to such
performance and compliance, any fees and disbursements of underwriters
customarily paid by issuers or sellers of securities and the reasonable
fees, disbursements and other charges of one firm of counsel (per
registration prepared) to the holders of Registrable Common Stock making a
request pursuant to Section 3(a) hereof (selected by the Holders holding a
majority of the shares of Registrable Common Stock covered by such
registration), but excluding underwriting discounts and commissions and
applicable transfer taxes, if any, which discounts, commissions and
transfer taxes shall be borne by the seller or sellers of Registrable
Common Stock in all cases; provided, that, in the event the Company shall,
-------- ----
in accordance with Section 4 or Section 9 hereof, not register any securi-
ties with respect to which it had given written notice of its intention to
register to holders of Registrable Common Stock, notwithstanding anything
to the contrary in the foregoing, all of the reasonable out-of-pocket costs
incurred by Requesting Holders in connection with such registration (other
than counsel fees, disbursements and other charges not referred to above)
shall be deemed to be Expenses.

"Initiating Holders" has the meaning set forth in Section 3(a)
------------------
hereof.

"NASD" means the National Association of Securities Dealers, Inc.
----

<PAGE>

"NASDAQ" means the National Association of Securities Dealers,
------
Inc. Automated Quotation System.

"Note Registration Rights Agreement" means the Registration
----------------------------------
Rights Agreement, dated as of the date hereof, among the Company and the
holders of Registrable Notes (as defined therein) who are signatories or
are deemed to be signatories thereto.

"Notes" means $890,000,000 in aggregate principal amount of
-----
Series B Senior Notes Due 2000 issued on the date hereof, and includes any
Series B-1 Senior Notes Due 2000 or other securities of the Company issued
or issuable with respect to such securities by way of a recapitalization,
merger, consolidation or other reorganization, exchange or otherwise.

"Person" means any individual, corporation, partnership, firm,
------
joint venture, association, joint stock company, trust, unincorporated
organization, governmental or regulatory body or subdivision thereof or
other entity.

"Plan" means the Amended Joint Plan of Reorganization under
----
Chapter 11 of the United States Bankruptcy Code for Walter Industries,
Inc., as the same may be amended, modified or supplemented from time to
time in accordance with the terms thereof.

"Public Offering" means a public offering and sale of Common
---------------
Stock pursuant to an effective registration statement under the Securities
Act.

"Registrable Common Stock" means any of the Common Stock held by
------------------------
the Holders from time to time as to which registration pursuant to the
Securities Act is required for public sale.

"Requesting Holders" has the meaning set forth in Section 4
------------------
hereof.

"Securities Act" means the Securities Act of 1933, as amended,
--------------
and the rules and regulations thereunder, or any similar or successor
statute.

"Selling Holders" means the holders of Registrable Common Stock
---------------
requested to be registered pursuant to Section 3(a) hereof.

"Transfer" means any transfer, sale, assignment, pledge,
--------
hypothecation or other disposition of any interest. "Transferor" and
----------
"Transferee" have correlative meanings.
----------

<PAGE>

2. Initial Registration Under the Securities Act.
---------------------------------------------

(a) Shelf Registration. The Company shall (i) cause to be
------------------
filed not later than 45 days after the Effective Date a shelf registration
statement pursuant to Rule 415 promulgated under the Securities Act (a
"Shelf Registration") providing for the sale by the Holders of all of the
Registrable Common Stock and (ii) use its reasonable best efforts to have
such Shelf Registration thereafter declared effective by the Commission not
later than 90 days after the Effective Date. Subject to Section 9(b), the
Company agrees to use its reasonable best efforts to keep the Shelf
Registration continuously effective until the first anniversary of the date
such Shelf Registration is declared effective by the Commission or such
shorter period which will terminate when all of the Registrable Common
Stock covered by the Shelf Registration have been sold pursuant to the
Shelf Registration. The Company further agrees, if necessary, to
supplement or amend the Shelf Registration, if required by the rules,
regulations or instructions applicable to the registration form used by the
Company for such Shelf Registration or by the Securities Act or by any
other rules and regulations thereunder for shelf registration, and the
Company agrees to furnish to the Holders copies of any such supplement or
amendment promptly after its being issued or filed with the Commission.

(b) Effective Registration Statement. A Shelf Registration
--------------------------------
pursuant to Section 2(a) hereof shall not be deemed to have been effected

(ii) if, after it has become effective, such
registration is interfered with by any stop order, injunction or other
order or requirement of the Commission or other governmental or
regulatory agency or court for any reason other than a violation of
applicable law solely by the Holders and has not thereafter become
effective.

<PAGE>

3. Securities Act Registration on Request.
--------------------------------------

(a) Request. At any time and from time to time after the
-------
expiration of the Shelf Registration filed by the Company pursuant to
Section 2(a) hereof (the "Initial Shelf"), one or more Holders (the
"Initiating Holders") may make a written request (the "Initiating Request")
to the Company for the registration with the Commission under the
Securities Act of all or part of such Initiating Holders' Registrable
Common Stock; provided, however, that such request shall be made by one or
-------- -------
more Holders of at least 5% of the outstanding shares of Registrable Common
Stock, which request shall specify the number of shares to be disposed of
and the proposed plan of distribution therefor. Upon the receipt of any
Initiating Request for registration pursuant to this paragraph, the Company
promptly shall notify in writing all other Holders of the receipt of such
request and will use its best efforts to effect, at the earliest possible
date (taking into account any delay that may result from any special audit
required by applicable law), such registration under the Securities Act,
including a Shelf Registration, of

(i) the Registrable Common Stock which the Company has
been so requested to register by such Initiating Holder, and

(ii) all other Registrable Common Stock which the
Company has been requested to register by any other Holders by written
request given to the Company within 30 days after the giving of
written notice by the Company to such other Holders of the Initiating
Request,

all to the extent necessary to permit the disposition (in accordance with
Section 3(c) hereof) of the Registrable Common Stock so to be registered;
provided, that,
- -------- ----

(A) the Company shall not be required to effect
-
more than a total of two registrations pursuant to this
Section 3(a),

(B) if the intended method of distribution is an
-
underwritten public offering, the Company shall not be required
to effect such registration pursuant to this Section 3(a) unless
such underwriting shall be conducted on a "firm commitment"
basis,

(C) if the Company shall have previously effected
-
a registration pursuant to this Section 3(a) or shall have
previously effected a registration of which notice has been

<PAGE>

given to the Holders pursuant to Section 4 hereof, a Holder shall
not request and the Company shall not be required to effect any
registration pursuant to this Section 3(a) or Section 4 hereof
until a period of 180 days shall have elapsed from the date on
which such registration ceased to be effective,

(D) subject to the last sentence of Section 5(a)
-
hereof, any Holder whose Registrable Common Stock was to be
included in any such registration, by written notice to the Com-
pany, may withdraw such request and, on receipt of such notice of
the withdrawal of such request from Holders holding a percentage
of Common Stock, such that the Holders that have not elected to
withdraw do not hold, in the aggregate, the requisite percentage
of the Common Stock to initiate a request under this Sec-
tion 3(a), the Company shall not effect such registration, and

(E) the Company shall not be required to effect
-
any registration to be effected pursuant to this Section 3(a)
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.

(b) Registration of Other Securities. Whenever the Company
--------------------------------
shall effect a registration pursuant to Section 3(a) hereof, no securities
other than (i) Registrable Common Stock and (ii) subject to Section 3(f),
Common Stock to be sold by the Company for its own account shall be
included among the securities covered by such registration unless the
Selling Holders holding not less than a majority of the shares of
Registrable Common Stock to be covered by such registration shall have con-
sented in writing to the inclusion of such other securities.

(c) Registration Statement Form. Registrations under
---------------------------
Section 3(a) hereof shall be on such appropriate registration form
prescribed by the Commission under the Securities Act as shall be selected
by the Company and as shall permit the disposition of the Registrable
Common Stock pursuant to an underwritten offering unless the Selling
Holders holding at least a majority of the shares of Registrable Common
Stock requested to be included in such registration statement determine
otherwise, in which case pursuant to the method of disposition determined
by such Selling Holders. The Company agrees to include in any such
registration statement filed pursuant to Section 3(a) hereof all informa-
tion which any Selling Holder, upon advice of counsel, shall reasonably
request. The Company may, if

<PAGE>

permitted by law, effect any registration requested under this Section 3 by
the filing of a registration statement on Form S-3 (or any successor or
similar short form registration statement).

(d) Effective Registration Statement. A registration
--------------------------------
requested pursuant to Section 3(a) hereof shall not be deemed to have been
effected

(i) unless a registration statement with respect
thereto has been declared effective by the Commission and remains
effective in compliance with the provisions of the Securities Act and
the laws of any state or other jurisdiction applicable to the disposi-
tion of all Registrable Common Stock covered by such registration
statement until such time as all of such Registrable Common Stock have
been disposed of in accordance with such registration statement,
provided, that, except with respect to any Shelf Registration, such
-------- ----
period need not exceed 90 days, and, provided, further, that with
-------- -------
respect to any Shelf Registration, such period need not extend beyond
the period provided for in Section 3(g) hereof,

(iii) if, in the case of an underwritten offering, the
conditions to closing specified in an underwriting agreement to which
the Company is a party are not satisfied other than by reason of any
breach or failure by the Selling Holders, or are not otherwise waived.

The holders of Registrable Common Stock to be included in a
registration statement may at any time terminate a request for registration
made pursuant to Section 3(a) in accordance with Section 3(a)(ii)(D).
-
Expenses incurred in connection with a request for registration terminated
pursuant to this paragraph shall be paid in accordance with the last
sentence of Section 5(a) hereof.

(e) Selection of Underwriters. The underwriter or
-------------------------
underwriters of each underwritten offering, if any, of the Registrable
Common Stock to be registered pursuant to Section 3(a) hereof (i) shall be
a nationally recognized underwriter (or underwriters), (ii) shall be
selected by the Selling Holders owning at least a majority

<PAGE>

of the shares of Registrable Common Stock to be registered and (iii) shall
be reasonably acceptable to the Company.

(f) Priority in Requested Registration. If a registration
----------------------------------
under Section 3 hereof involves an underwritten public offering, and the
managing underwriter of such underwritten offering shall advise the Company
in writing (with a copy to each Holder requesting that Registrable Common
Stock be included in such registration statement) that, in its opinion, the
number of shares of Registrable Common Stock requested to be included in
such registration exceeds the number of such securities that can be sold in
such offering within a price range stated to such managing underwriter by
Selling Holders owning at least a majority of the shares of Registrable
Common Stock requested to be included in such registration to be acceptable
to such Selling Holders, the Company shall include in such registration, to
the extent of the number and type of securities which the Company is
advised can be sold in such offering, all Registrable Common Stock
requested to be registered pursuant to Section 3(a) hereof, pro rata among
--- ----
the Selling Holders on the basis of the number of shares of Registrable
Common Stock requested to be registered by all such holders, and no other
shares of Common Stock, whether to be sold by the Company or any other
Person.

(g) Shelf Registrations. If the first demand made pursuant
-------------------
to Section 3(a) hereof is for a Shelf Registration, the period for which
such Shelf Registration must remain effective need not extend beyond one
year from the date on which such Shelf Registration is declared effective
by the Commission and the period for which any subsequent Shelf
Registration must remain effective need not extend beyond nine months from
the date on which such Shelf Registration is declared effective by the
Commission.

4. Piggyback Registration. If the Company at any time after
----------------------
the termination of the Initial Shelf, proposes to register any of its
securities (other than any registration of Registrable Notes pursuant to
the Note Registration Rights Agreement) under the Securities Act by
registration on any forms other than Form S-4 or S-8 (or any successor or
similar form(s)), whether or not pursuant to registration rights granted to
other holders of its securities and whether or not for sale for its own
account, it shall give prompt written notice to all of the Holders of its
intention to do so and of such Holders' rights (if any) under this Sec-
tion 4, which notice, in any event, shall be given at least 30 days prior
to such proposed registration. Upon the written request of any Holder
receiving notice of such proposed registration that is a holder of
Registrable Common Stock (a "Requesting Holder") made within 20 days after
the receipt of any such notice (10 days if the Company

<PAGE>

states in such written notice or gives telephonic notice to the relevant
securityholders, with written confirmation to follow promptly thereafter,
stating that (i) such registration will be on Form S-3 and (ii) such
shorter period of time is required because of a planned filing date), which
request shall specify the Registrable Common Stock intended to be disposed
of by such Requesting Holder and the minimum offering price per share at
which the Holder is willing to sell its Registrable Common Stock, the
Company shall, subject to Section 7(b) hereof, effect the registration
under the Securities Act of all Registrable Common Stock which the Company
has been so requested to register by the Requesting Holders thereof;
provided, that,
- -------- ----

(A)
_ prior to the effective date of the registra-
tion statement filed in connection with such registration,
promptly following receipt of notification by the Company from
the managing underwriter of the price at which such securities
are to be sold, the Company shall so advise each Requesting
Holder of such price, and if such price is below the minimum
price which any Requesting Holder shall have indicated to be
acceptable to such Requesting Holder, such Requesting Holder
shall then have the right irrevocably to withdraw its request to
have its Registrable Common Stock included in such registration
statement, by delivery of written notice of such withdrawal to
the Company within five business days of its being advised of
such price, without prejudice to the rights of any holder or
holders of Registrable Common Stock to include Registrable Common
Stock in any future registration (or registrations) pursuant to
this Section 4 or to cause such registration to be effected as a
registration under Section 3(a) hereof, as the case may be;

(B)
_ if at any time after giving written notice of
its intention to register any securities and prior to the
effective date of the registration statement filed in connection
with such registration, the Company shall determine for any
reason not to register or to delay registration of such
securities, the Company may, at its election, give written notice
of such determination to each Requesting Holder and (i) in the
case of a determination not to register, shall be relieved of its
obligation to register any Registrable Common Stock in connection
with such registration (but not from any obligation of the
Company to pay the Expenses in connection therewith), without
prejudice, however, to the rights of any Holder to include
Registrable Common

<PAGE>

Stock in any future registration (or registrations) pursuant to
this Section 4 or to cause such registration to be effected as a
registration under Section 3(a) hereof, as the case may be, and
(ii) in the case of a determination to delay registering, shall
be permitted to delay registering any Registrable Common Stock,
for the same period as the delay in registering such other
securities; and

(C)
_ if such registration involves an underwritten
offering, each Requesting Holder shall sell its Registrable
Securities on the same terms and conditions as those that apply
to the Company.

No registration effected under this Section 4 shall relieve the
Company of its obligation to effect any registration upon request under
Section 3(a) hereof and no registration effected pursuant to this Section 4
shall be deemed to have been effected pursuant to Section 3(a) hereof.

5. Expenses. The Company shall pay all Expenses in connection
--------
with any registration initiated pursuant to Section 2(a), 3(a) or 4 hereof,
whether or not such registration shall become effective and whether or not
all or any portion of the Registrable Common Stock originally requested to
be included in such registration are ultimately included in such
registration. Notwithstanding the foregoing, if any request for regis-
tration made pursuant to Section 3(a) hereof is withdrawn or terminated by
the Selling Holders prior to the registration becoming effective, the
Expenses incurred in connection with such request shall be borne by the
Selling Holders pro rata on the basis of the number of shares of
--- ----
Registrable Common Stock requested to be registered pursuant to such demand
by each Selling Holder; provided, however, that, in the case of an
-------- -------
underwritten Public Offering, if such request for registration is withdrawn
or terminated by the Selling Holders prior to the registration becoming
effective because the offering price of the Registrable Common Stock
requested to be registered would, in the opinion of the managing
underwriter of such offering, be less than 90% of the estimated offering
price of the Common Stock as indicated in writing by the managing
underwriter prior to the initial filing of such registration statement with
the Commission, the Company shall pay 50% of the Expenses in connection
with such registration and the Selling Holders shall pay the remaining 50%
on a pro rata basis.

6. Registration Procedures. If and whenever the Company is
-----------------------
required to effect any registration under the

<PAGE>

Securities Act as provided in Sections 2(a), 3(a) and 4 hereof, the Company
shall, as expeditiously as possible:

(a) prepare and file with the Commission (promptly and, in
the case of any registration pursuant to Section 3(a), in any event on or
before the date that is (i) 90 days after the end of the period within
which requests for registration may be given to the Company or (ii) if, as
of such ninetieth day, the Company does not have the audited financial
statements required to be included in the registration statement, 30 days
after the receipt by the Company from its independent public accountants of
such audited financial statements, which the Company shall use its
reasonable best efforts to obtain as promptly as practicable) the requisite
registration statement to effect such registration and thereafter use its
reasonable best efforts to cause such registration statement to become
effective; provided, however, that the Company may discontinue any
-------- -------
registration of its securities that are not shares of Registrable Common
Stock (and, under the circumstances specified in Sections 4 and 9(b)
hereof, its securities that are shares of Registrable Common Stock) at any
time prior to the effective date of the registration statement relating
thereto;

(b) prepare and file with the Commission such amendments
and supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective and to comply with the provisions of the Securities Act
and the Exchange Act with respect to the disposition of all Registrable
Common Stock covered by such registration statement until such time as all
of such Registrable Common Stock has been disposed of in accordance with
the method of disposition set forth in such registration statement;
provided, that, except with respect to any Shelf Registration, such period
- -------- ----
need not extend beyond 90 days after the effective date of the registration
statement; and provided, further, that with respect to the Initial Shelf,
-------- -------
such period need not extend beyond one year after the effective date of
such registration statement and, with respect to any Shelf Registration
other than the Initial Shelf, such period need not exceed the applicable
period provided for in Section 3(g) hereof;

(c) furnish to each seller of Registrable Common Stock
covered by such registration statement such number of copies of such drafts
and final conformed versions of such registration statement and of each
such amendment and supplement thereto (in each case including all exhibits
and any documents incorporated by reference), such number of copies of such
drafts and final versions of the prospectus contained in such registration
statement (including each

<PAGE>

preliminary prospectus and any summary prospectus) and any other prospectus
filed under Rule 424 under the Securities Act, in conformity with the
requirements of the Securities Act, and such other documents, as such
seller may reasonably request in writing;

(d) use its reasonable best efforts (i) to register or
qualify all Registrable Common Stock and other securities covered by such
registration statement under such other securities or blue sky laws of such
states or other jurisdictions of the United States of America as the
sellers of Registrable Common Stock covered by such registration statement
shall reasonably request in writing, (ii) to keep such registration or
qualification in effect for so long as such registration statement remains
in effect and (iii) to take any other action that may be reasonably
necessary or advisable to enable such sellers to consummate the disposition
in such jurisdictions of the securities to be sold by such sellers, except
that the Company shall not for any such purpose be required to qualify
generally to do business as a foreign corporation in any jurisdiction
wherein it would not but for the requirements of this subsection (d) be
obligated to be so qualified, to subject itself to taxation in such
jurisdiction or to consent to general service of process in any such
jurisdiction;

(e) use its best efforts to cause all Registrable Common
Stock and other securities covered by such registration statement to be
registered with or approved by such other federal or state governmental
agencies or authorities as may be necessary in the opinion of counsel to
the Company and counsel to the seller or sellers of Registrable Common
Stock to enable the seller or sellers thereof to consummate the disposition
of such Registrable Common Stock;

(f) use its best efforts to obtain and, if obtained,
furnish to each seller of Registrable Common Stock, and each such seller's
underwriters, if any, a signed

(i) opinion of counsel for the Company, dated the
effective date of such registration statement (and, if such
registration involves an underwritten offering, dated the date of the
closing under the underwriting agreement), reasonably satisfactory in
form and substance to such seller, and

(ii) "comfort" letter, dated the effective date of such
registration statement (and, if such registration involves an under-
written offering, dated the date of the closing under the underwriting
agreement) and signed by the independent public accountants who have
certified the Company's financial

<PAGE>

statements included or incorporated by reference in such registration
statement, reasonably satisfactory in form and substance to such
seller,

in each case, covering substantially the same matters with respect to
such registration statement (and the prospectus included therein) and,
in the case of the accountants' comfort letter, with respect to events
subsequent to the date of such financial statements, as are customa-
rily covered in opinions of issuer's counsel and in accountants'
comfort letters delivered to underwriters in underwritten Public
Offerings of securities and, in the case of the accountants' comfort
letter, such other financial matters, and, in the case of the legal
opinion, such other legal matters, as the sellers of the Registrable
Common Stock covered by such registration statement or the
underwriters, if any, may reasonably request;

(g) notify each seller of Registrable Common Stock and
other securities covered by such registration statement at any time when a
prospectus relating thereto is required to be delivered under the
Securities Act, upon discovery that, or upon the happening of any event as
a result of which, the prospectus included in such registration statement,
as then in effect, includes an untrue statement of a material fact or omits
to state any material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the
circumstances under which they were made, and, at the request of any such
seller of Registrable Common Stock, promptly prepare and furnish to it a
reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such securities, such prospectus, as supplemented or amended,
shall not include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances under
which they were made;

(h) otherwise comply with all applicable rules and
regulations of the Commission and any other governmental agency or
authority having jurisdiction over the offering, and make available to its
security holders, as soon as reasonably practicable, an earnings statement
covering the period of at least twelve months, but not more than eighteen
months, beginning with the first full calendar month after the effective
date of such registration statement, which earnings statement shall satisfy
the provisions of Section 11(a) of the Securities Act and Rule 158 promul-
gated thereunder, and furnish to each seller of Registrable Common Stock at
least ten days prior to the filing thereof a

<PAGE>

copy of any amendment or supplement to such registration statement or
prospectus;

(i) upon a request of the Holders of a majority of the
shares of Registrable Common Stock requested to be included in a
registration pursuant to Section 3(a) or 4 hereof, made at any time on and
after the first anniversary of the date hereof, use its best efforts to
cause all such Registrable Common Stock covered by such registration
statement (i) to be listed on a national securities exchange on which
similar securities issued by the Company are then listed, if the listing of
such Registrable Common Stock is then permitted under the rules of such
exchange or (ii) if the Company is not required pursuant to clause (i)
above to list such securities covered by such registration statement on a
national securities exchange, use its best efforts to secure designation of
all Registrable Common Stock covered by such registration statement as a
NASDAQ "national market system security" within the meaning of Rule 11Aa2-1
of the Commission or, failing that, to secure NASDAQ authorization for such
Registrable Common Stock and, without limiting the generality of the
foregoing, to arrange for at least two market makers to register with the
NASD as such with respect to such Registrable Common Stock;

(j) provide a transfer agent and registrar for such
Registrable Common Stock covered by such Registration Statement no later
than the effective date thereof; and

(k) enter into such agreements and take such other actions
as any Holder or Holders of Registrable Common Stock covered by such
registration statement shall reasonably request in order to expedite or
facilitate the disposition of such Registrable Common Stock.

The Company may require each seller of Registrable Common Stock
as to which any registration is being effected to furnish the Company such
information regarding such seller and the distribution of the securities
covered by such registration statement as the Company may from time to time
reasonably request in writing and as is required by applicable laws and
regulations.

Each Holder agrees that as of the date that a final prospectus is
made available to it for distribution to prospective purchasers of
Registrable Common Stock it shall cease to distribute copies of any preli-
minary prospectus prepared in connection with the offer and sale of such
Registrable Common Stock. Each Holder further agrees that, upon receipt of
any notice from the Company of the happening of any event of the kind
described in subsection (g) of this

<PAGE>

Section 6, such Holder shall forthwith discontinue such Holder's
disposition of Registrable Common Stock pursuant to the registration
statement relating to such Registrable Common Stock until such Holder's
receipt of the copies of the supplemented or amended prospectus
contemplated by subsection (g) of this Section 6 and, if so directed by the
Company, shall deliver to the Company (at the Company's expense) all
copies, other than permanent file copies, then in such Holder's possession
of the prospectus relating to such Registrable Common Stock current at the
time of receipt of such notice. If any event of the kind described in
subsection (g) of this Section 6 occurs and such event is the fault solely
of a Holder (or Holders), such Holder (or Holders) shall pay all Expenses
attributable to the preparation, filing and delivery of any supplemented or
amended prospectus contemplated by subsection (g) of this Section 6.

7. Underwritten Offerings.
----------------------

(a) Requested Underwritten Offerings. If requested by the
--------------------------------
underwriters in connection with a request for a registration under
Section 3 hereof, the Company shall enter into a firm commitment
underwriting agreement with such underwriters for such offering, such
agreement to be reasonably satisfactory in substance and form to the
Company and a majority of the Selling Holders whose Registered Common Stock
is included in such registration, and the underwriters and to contain such
representations and warranties by the Company and such other terms as are
generally prevailing in agreements of that type, including, without
limitation, indemnification and contribution to the effect and to the
extent provided in Section 10 hereof.

(b) Piggyback Underwritten Offerings; Priority. If the
------------------------------------------
Company proposes to register any of its securities under the Securities Act
as contemplated by Section 4 hereof and such securities are to be
distributed by or through one or more underwriters, the Company shall, if
requested by any Requesting Holders, use its best efforts to arrange for
such underwriters to include all of the Registrable Common Stock to be
offered and sold by such Requesting Holders among the securities of the
Company to be distributed by such underwriters; provided, that, if the
-------- ----
managing underwriter of such underwritten offering shall advise the Company
in writing (with a copy to the Requesting Holders) that if all the
Registrable Common Stock requested to be included in such registration were
so included, in its opinion, the number and type of securities proposed to
be included in such registration would exceed the number and type of
securities which could be sold in such offering within a price range
acceptable to the Company (such writing to state the basis of such opinion
and the approximate

<PAGE>

number and type of securities which may be included in such offering
without such effect), then the Company shall include in such registration,
to the extent of the number and type of securities which the Company is so
advised can be sold in such offering, (i) first, securities that the
Company proposes to issue and sell for its own account and (ii) second,
Registrable Common Stock requested to be registered by Requesting Holders
pursuant to Section 4 hereof, pro rata among the Requesting Holders on the
--- ----
basis of the number of shares of Registrable Common Stock requested to be
registered by all such Requesting Holders.

Any Requesting Holder may withdraw its request to have all or any
portion of its Registrable Common Stock included in any such offering by
notice to the Company within 10 Business Days after receipt of a copy of a
notice from the managing underwriter pursuant to this Section 7(b).

(c) Holders of Registrable Common Stock to be Parties to
----------------------------------------------------
Underwriting Agreement. The holders of Registrable Common Stock to be
- ----------------------
distributed by underwriters in an underwritten offering contemplated by
subsections (a) or (b) of this Section 7 shall be parties to the
underwriting agreement between the Company and such underwriters and any
such Holder, at its option, may require that any or all of the
representations and warranties by, and the other agreements on the part of,
the Company to and for the benefit of such underwriters shall also be made
to and for the benefit of such Holders and that any or all of the
conditions precedent to the obligations of such underwriters under such
underwriting agreement be conditions precedent to the obligations of such
Holders. No such Holder shall be required to make any representations or
warranties to or agreements with the Company or the underwriters other than
representations, warranties or agreements regarding such holder, such
Holder's Registrable Common Stock and such Holder's intended method of
distribution.

(d) Selection of Underwriters for Piggyback Underwritten
----------------------------------------------------
Offering. The underwriter or underwriters of each piggyback underwritten
- --------
offering pursuant to this Section 7 shall be a nationally recognized
underwriter (or underwriters) selected by the Company.

(e) Holdback Agreements. Each Holder agrees, if so
-------------------
required by the managing underwriter for any underwritten offering pursuant
to this Agreement, not to effect any sale or distribution of any equity
securities of the Company or securities convertible into or exchangeable or
exercisable for equity securities of the Company issued after the date
hereof, including any sale under Rule 144 under the Securities Act, during
the 10 days prior to the date on which an underwritten registration of
Registrable

<PAGE>

Common Stock pursuant to Section 2(a), 3 or 4 hereof has become effective
and until 120 days after the effective date of such underwritten
registration, except as part of such underwritten registration or to the
extent that such Holder is prohibited by applicable law from agreeing to
withhold securities from sale or is acting in its capacity as a fiduciary
or an investment adviser. Without limiting the scope of the term "fiduci-
ary," a holder shall be deemed to be acting as a fiduciary or an investment
adviser if its actions or the securities proposed to be sold are subject to
the Employee Retirement Income Security Act of 1974, as amended, the
Investment Company Act of 1940, as amended, or the Investment Advisers Act
of 1940, as amended, or if such securities are held in a separate account
under applicable insurance law or regulation.

The Company agrees (i) not to effect any Public Offering or
distribution of any equity securities of the Company or securities
convertible into or exchangeable or exercisable for equity securities of
the Company, during the 10 days prior to the date on which any underwritten
registration pursuant to Section 2(a), 3 or 4 hereof has become effective
and until 120 days after the effective date of such underwritten
registration, except as part of such underwritten registration, and (ii) to
cause each holder of any equity securities, or securities convertible into
or exchangeable or exercisable for equity securities, in each case,
acquired from the Company at any time on or after the date of this
Agreement (other than in a Public Offering), to agree not to effect any
Public Offering or distribution of such securities, during such period.

8. Preparation; Reasonable Investigation.
-------------------------------------

(a) Registration Statements. In connection with the
-----------------------
preparation and filing of each registration statement under the Securities
Act pursuant to this Agreement, the Company shall give each holder of
Registrable Common Stock registered under such registration statement, the
underwriters, if any, and its respective counsel and accountants the
reasonable opportunity to participate in the preparation of such
registration statement, each prospectus included therein or filed with the
Commission, and each amendment thereof or supplement thereto, and shall
give each of them such reasonable access to its books and records and such
reasonable opportunities to discuss the business of the Company with its
officers and the independent public accountants who have certified its
financial statements as shall be necessary, in the reasonable opinion of
any such Holders' and such underwriters' respective counsel, to conduct a
reasonable investigation within the meaning of the Securities Act.

<PAGE>

(b) Confidentiality. Each Holder of Registrable Common
---------------
Stock shall maintain the confidentiality of any confidential information
received from or otherwise made available by the Company to such Holder of
Registrable Common Stock and identified in writing by the Company as
confidential. Information that (i) is or becomes available to a Holder of
Registrable Common Stock from a public source, (ii) is disclosed to a
Holder of Registrable Common Stock by a third-party source who the Holder
of Registrable Common Stock reasonably believes has the right to disclose
such information or (iii) is or becomes required to be disclosed by a
holder of Registrable Common Stock by law, including by court order, shall
not be deemed to be confidential information for purposes of this
Agreement. The Holders of Registrable Common Stock shall not grant access,
and the Company shall not be required to grant access, to information under
this Section 8 to any Person who will not agree to maintain the
confidentiality (to the same extent a Holder is required to maintain
confidentiality) of any confidential information received from or otherwise
made available to it by the Company or the holders of Registrable Common
Stock under this Agreement and identified in writing by the Company as
confidential.

9. Postponements.
-------------

(a) If the Company shall fail to file any registration
statement to be filed pursuant to a request for registration under
Section 3(a) hereof, the Holders requesting such registration shall have
the right to withdraw the request for registration if such withdrawal shall
be made by holders of Common Stock holding an amount of Common Stock such
that the Holders that have not elected to withdraw do not hold the
requisite percentage of shares of Common Stock to initiate a request under
Section 3. Any such withdrawal shall be made by giving written notice to
the Company within 20 days after, in the case of a request pursuant to Sec-
tion 3(a) hereof, the date on which a registration statement would
otherwise have been required to have been filed with the Commission under
clause (i) of Section 6(a) hereof (i.e., 20 days after the date that is 90
----
days after the conclusion of the period within which requests for regis-
tration may be given to the Company, or, if, as of such ninetieth day, the
Company does not have the audited financial statements required to be
included in the registration statement, 30 days after the receipt by the
Company from its independent public accountants of such audited financial
statements). In the event of such withdrawal, the request for registration
shall not be counted for purposes of determining the number of registra-
tions to which Holders are entitled pursuant to Section 3 hereof. The
Company shall pay all Expenses incurred in connection

<PAGE>

with a request for registration withdrawn pursuant to this paragraph.

(b) The Company shall not be obligated to file any
registration statement other than the Initial Shelf, or file any amendment
or supplement to any registration statement other than the Initial Shelf,
and may suspend any seller's rights to make sales pursuant to any effective
registration statement (provided that it may not suspend any Holder's
rights to make sales pursuant to the Initial Shelf prior to the nineteenth
day following the date on which the Initial Shelf is initially declared
effective), 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 pursuant 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. The filing of a
registration statement, or any amendment or supplement thereto, by the
Company cannot be deferred, and the sellers' rights to make sales pursuant
to an effective registration statement cannot be suspended, pursuant to the
provisions of the preceding sentence for more than ten days after the
abandonment or consummation of any of the foregoing proposals or
transactions or for more than 60 days after the date of the Board's
determination referenced in the preceding sentence. If the Company
suspends the sellers' rights to make sales pursuant hereto, the applicable
registration period shall be extended by the number of days of such
suspension.

10. Indemnification.
---------------

(a) Indemnification by the Company. In connection with any
------------------------------
registration statement filed by the Company pursuant to Section 2(a), 3(a)
or 4 hereof, the Company shall, and hereby agrees to, indemnify and hold
harmless, each Holder and seller of any Registrable Common Stock covered by
such registration statement and each other Person who participates as an
underwriter in the offering or sale of such securities and each other
Person, if any, who controls such Holder or seller or any such underwriter,
and their respective directors, officers, partners, agents and Affiliates
(each, a "Company Indemnitee" for purposes of this Section 10(a)), against
any losses, claims, damages, liabilities (or actions or proceedings,
whether commenced or threatened, in respect thereof and whether or not such
Indemnified Party is a party thereto), joint or several, and expenses,
including, without limitation, the reasonable fees, disbursements and other
charges of legal counsel and

<PAGE>

reasonable costs of investigation, to which such Company Indemnitee may
become subject under the Securities Act or otherwise (collectively, a
"Loss" or "Losses"), insofar as such Losses arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact con-
tained in any registration statement under which such securities were
registered or otherwise offered or sold under the Securities Act or
otherwise, any preliminary prospectus, final prospectus or summary pros-
pectus contained therein, or any amendment or supplement thereto (collec-
tively, "Offering Documents"), or any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein in the light of the circumstances in which they were
made not misleading; provided, that, the Company shall not be liable in any
-------- ----
such case to the extent that any such Loss arises out of or is based upon
an untrue statement or alleged untrue statement or omission or alleged
omission made in such Offering Documents in reliance upon and in conformity
with written information furnished to the Company through an instrument
duly executed by or on behalf of such Company Indemnitee specifically
stating that it is expressly for use therein; and provided, further, that
-------- -------
the Company shall not be liable to any Person who participates as an
underwriter in the offering or sale of Registrable Common Stock or any
other Person, if any, who controls such underwriter, in any such case to
the extent that any such Loss arises out of such Person's failure to send
or give a copy of the final prospectus (including any documents
incorporated by reference therein), as the same may be then supplemented or
amended, to the Person asserting an untrue statement or alleged untrue
statement or omission or alleged omission at or prior to the written
confirmation of the sale of Registrable Common Stock to such Person if such
statement or omission was corrected in such final prospectus. Such
indemnity shall remain in full force and effect regardless of any investi-
gation made by or on behalf of such Company Indemnitee and shall survive
the transfer of such securities by such Company Indemnitee.

(b) Indemnification by the Offerors and Sellers. In con-
-------------------------------------------
nection with any registration statement filed by the Company pursuant to
Section 2(a), 3(a) or 4 hereof in which a Holder has registered for sale
Registrable Common Stock, each such Holder or seller of Registrable Common
Stock shall, and hereby agrees to, indemnify and hold harmless the Company
and each of its directors, officers, employees and agents, each other
Person, if any, who controls the Company and each other seller and such
seller's directors, officers, stockholders, partners, employees, agents and
affiliates (each, a "Holder Indemnitee" for purposes of this
Section 10(b)), against all Losses insofar as such Losses arise out of or
are based upon any untrue

<PAGE>

statement or alleged untrue statement of a material fact contained in any
Offering Documents (or any document incorporated by reference therein) or
any omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein in the
light of circumstances in which they were made not misleading, if such
untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with written infor-
mation furnished to the Company through an instrument duly executed by such
Holder or seller of Registrable Common Stock specifically stating that it
is expressly for use therein; provided, however, that the liability of such
-------- -------
indemnifying party under this Section 10(b) shall be limited to the amount
of the net proceeds received by such indemnifying party in the offering
giving rise to such liability. Such indemnity shall remain in full force
and effect, regardless of any investigation made by or on behalf of the
Holder Indemnitee and shall survive the transfer of such securities by such
Holder.

(c) Notices of Losses, etc. Promptly after receipt by an
-----------------------
indemnified party of notice of the commencement of any action or proceeding
involving a Loss referred to in the preceding subsections of this
Section 10, such indemnified party will, if a claim in respect thereof is
to be made against an indemnifying party, give written notice to the latter
of the commencement of such action; provided, however, that the failure of
-------- -------
any indemnified party to give notice as provided herein shall not relieve
the indemnifying party of its obligations under the preceding subsections
of this Section 10, except to the extent that the indemnifying party is
actually prejudiced by such failure to give notice. In case any such action
is brought against an indemnified party, the indemnifying party shall be
entitled to participate in and, unless in such indemnified party's
reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist in respect of such Loss, to assume and
control the defense thereof, in each case at its own expense, jointly with
any other indemnifying party similarly notified, to the extent that it may
wish, with counsel reasonably satisfactory to such indemnified party, and
after its assumption of the defense thereof, the indemnifying party shall
not be liable to such indemnified party for any legal or other expenses
subsequently incurred by the latter in connection with the defense thereof
other than reasonable costs of investigation. No indemnifying party shall
be liable for any settlement of any such action or proceeding effected
without its written consent, which shall not be unreasonably withheld. No
indemnifying party shall, without the consent of the indemnified party,
consent to entry of any judgment or enter into any settlement which does
not include as an unconditional term thereof the giving

<PAGE>

by the claimant or plaintiff to such indemnified party of a release from
all liability in respect of such Loss or which requires action on the part
of such indemnified party or otherwise subjects the indemnified party to
any obligation or restriction to which it would not otherwise be subject.

(d) Contribution. If the indemnification provided for in
------------
this Section 10 shall for any reason be unavailable to an indemnified party
under subsection (a) or (b) of this Section 10 in respect of any Loss,
then, in lieu of the amount paid or payable under subsection (a) or (b) of
this Section 10, the indemnified party and the indemnifying party under
subsection (a) or (b) of this Section 10 shall contribute to the aggregate
Losses (including legal or other expenses reasonably incurred in connection
with investigating the same) (i) in such proportion as is appropriate to
reflect the relative fault of the Company and the prospective sellers of
Registrable Common Stock covered by the registration statement which
resulted in such Loss or action in respect thereof, with respect to the
statements, omissions or action which resulted in such Loss or action in
respect thereof, as well as any other relevant equitable considerations, or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as shall be appropriate to reflect the
relative benefits received by the Company, on the one hand, and such pro-
spective sellers, on the other hand, from their sale of Registrable Common
Stock; provided, that, for purposes of this clause (ii), the relative
-------- ----
benefits received by the prospective sellers shall be deemed not to exceed
the amount received by such sellers. No Person guilty of fraudulent mis-
representation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of
such fraudulent misrepresentation. The obligations, if any, of the selling
holders of Registrable Common Stock to contribute as provided in this
subsection (d) are several in proportion to the relative value of their
respective Registrable Common Stock covered by such registration statement
and not joint. In addition, no Person shall be obligated to contribute
hereunder any amounts in payment for any settlement of any action or Loss
effected without such Person's consent.

(e) Other Indemnification. The Company and, in connection
---------------------
with any registration statement filed by the Company pursuant to
Section 2(a) each Holder shall, and, in connection with any registration
statement filed by the Company pursuant to Section 3(a) or 4, each Holder
who has registered for sale Registrable Common Stock, shall, with respect
to any required registration or other qualification of securities under any
Federal or state law or regulation of any governmental authority other than
the Securities Act, indemnify Holder Indemnitees and Company Indemnitees,

<PAGE>

respectively, against Losses, or, to the extent that indemnification shall
be unavailable to a Holder Indemnitee or Company Indemnitee, contribute to
the aggregate Losses of such Holder Indemnitee or Company Indemnitee in a
manner similar to that specified in the preceding subsections of this
Section 10 (with appropriate modifications).

(f) Indemnification Payments. The indemnification and
------------------------
contribution required by this Section 10 shall be made by periodic payments
of the amount thereof during the course of any investigation or defense, as
and when bills are received or any Loss is incurred.

11. Registration Rights to Others.
-----------------------------

If the Company shall at any time hereafter, other than pursuant
to the Note Registration Rights Agreement, provide to any holder of any
securities of the Company rights with respect to the registration of such
securities under the Securities Act or the Exchange Act, such rights shall
not be in conflict with or adversely affect any of the rights provided in
this Agreement to the holders of Registrable Common Stock.

12. Adjustments Affecting Registrable Common Stock.
----------------------------------------------

The Company shall not effect or permit to occur any combination,
subdivision or reclassification of Registrable Common Stock that would
materially adversely affect the ability of the Holders to include such
Registrable Common Stock in any registration of its securities under the
Securities Act contemplated by this Agreement or the marketability of such
Registrable Common Stock under any such registration or other offering.

13. Rule 144 and Rule 144A.
----------------------

The Company shall take all actions reasonably necessary to enable
Holders to sell Registrable Common Stock without registration under the
Securities Act within the limitation of the exemptions provided by
(a) Rule 144 under the Securities Act, as such Rule may be amended from
time to time, (b) Rule 144A under the Securities Act, as such Rule may be
amended from time to time, or (c) any similar rules or regulations
hereafter adopted by the Commission, including, without limiting the
generality of the foregoing, filing on a timely basis all reports required
to be filed under the Exchange Act. Upon the request of any Holder, the
Company shall deliver to such Holder a written statement as to whether it
has complied with such requirements.

<PAGE>

14. Amendments and Waivers.
----------------------

Any provision of this Agreement may be amended, modified or
waived if, but only if, the written consent to such amendment, modification
or waiver has been obtained from (i) except as provided in clause (ii)
below, the Holder or Holders of at least 66-2/3% of the shares of
Registrable Common Stock affected by such amendment, modification or waiver
and (ii) in the case of any amendment, modification or waiver of any provi-
sion of Section 5 or 9 hereof or this Section 14 or any provisions as to
the number of requests for registration to which holders of Registrable
Common Stock are entitled under Section 3 or 4 hereof, or as to the
percentages of Holders required for any amendment, modification or waiver,
or any amendment, modification or waiver which adversely affects any right
and/or obligation under this Agreement of any Holder, the written consent
of each Holder so affected.

15. Nominees for Beneficial Owners.
------------------------------

In the event that any Registrable Common Stock is held by a
nominee for the beneficial owner thereof, the beneficial owner thereof may,
at its election in writing delivered to the Company, be treated as the
Holder of such Registrable Common Stock for purposes of any request or
other action by any Holder or Holders pursuant to this Agreement or any
determination of the number or percentage of shares of Registrable Common
Stock held by any Holder or Holders contemplated by this Agreement. If the
beneficial owner of any Registrable Common Stock so elects, the Company may
require assurances reasonably satisfactory to it of such owner's beneficial
ownership of such Registrable Common Stock.

16. Assignment.
----------

The provisions of this Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective heirs, successors
and permitted assigns. Any Holder may assign to any permitted Transferee
(as permitted under applicable law) of its Registrable Common Stock its
rights and obligations under this Agreement, provided that such Transferee
shall agree in writing with the parties hereto prior to the assignment to
be bound by this Agreement as if it were an original party hereto,
whereupon such assignee shall for all purposes be deemed to be a Holder
under this Agreement. Except as provided above or otherwise permitted by
this Agreement, neither this Agreement nor any right, remedy, obligation or
liability arising hereunder or by reason hereof shall be assignable by any
Holder without the prior written consent of the other parties hereto. The
Company may not assign this Agreement

<PAGE>

or any right, remedy, obligation or liability arising hereunder or by
reason hereof.

17. Calculation of Percentage or Number of Shares of Registrable
------------------------------------------------------------
Common Stock.
- ------------

For purposes of this Agreement, all references to a percentage or
number of shares of Registrable Common Stock or Common Stock shall be
calculated based upon the number of shares of Registrable Common Stock or
Common Stock, as the case may be, outstanding at the time such calculation
is made and shall exclude any Registrable Common Stock or Common Stock, as
the case may be, owned by the Company or any subsidiary of the Company.

18. Miscellaneous.
-------------

(a) Further Assurances. Each of the parties hereto shall
------------------
execute such documents and other papers and perform such further acts as
may be reasonably required or desirable to carry out the provisions of this
Agreement and the transactions contemplated hereby.

(b) Headings. The headings in this Agreement are for
--------
convenience of reference only and shall not control or affect the meaning
or construction of any provisions hereof.

(c) No Inconsistent Agreements. The Company will not
--------------------------
hereafter enter into any agreement which is inconsistent with the rights
granted to the Holders in this Agreement.

(d) Remedies. Each Holder, in addition to being entitled
--------
to exercise all rights granted by law, including recovery of damages, will
be entitled to specific performance of its rights under this Agreement.
The Company agrees that monetary damages would not be adequate compensation
for any loss incurred by reason of a breach by it of the provisions of this
Agreement and the Company hereby agrees to waive the defense in any action
for specific performance that a remedy at law would be adequate.

(e) Entire Agreement. This Agreement constitutes the
----------------
entire agreement and understanding of the parties hereto in respect of the
subject matter contained herein, and there are no restrictions, promises,
representations, warranties, covenants, or undertakings with respect to the
subject matter hereof, other than those expressly set forth or referred to
herein. This Agreement supersedes all prior agreements and understandings
between the parties hereto with respect to the subject matter hereof.

<PAGE>

(f) Notices. Any notices or other communications to be
-------
given hereunder by any party to another party shall be in writing, shall be
delivered personally, by telecopy, by certified or registered mail, postage
prepaid, return receipt requested, or by Federal Express or other
comparable delivery service, to the address of the party set forth on
Schedule B hereto or to such other address as the party to whom notice is
to be given may provide in a written notice to the other parties hereto, a
copy of which shall be on file with the Secretary of the Company. Notice
shall be effective when delivered if given personally, when receipt is
acknowledged if telecopied, three days after mailing if given by registered
or certified mail as described above, and one business day after deposit if
given by Federal Express or comparable delivery service.

(g) Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of New York applicable
to agreements made to be performed entirely in such State.

(h) Severability. Notwithstanding any provision of this
------------
Agreement, neither the Company nor any other party hereto shall be required
to take any action which would be in violation of any applicable Federal or
state securities law. The invalidity or unenforceability of any provision
of this Agreement in any jurisdiction shall not affect the validity,
legality or enforceability of any other provision of this Agreement in such
jurisdiction or the validity, legality or enforceability of this Agreement,
including any such provision, in any other jurisdiction, it being intended
that all rights and obligations of the parties hereunder shall be
enforceable to the fullest extent permitted by law.

(i) Counterparts. This Agreement may be executed in two or
------------
more counterparts, each of which shall be deemed an original but all of
which shall constitute one and the same Agreement.

IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.

WALTER INDUSTRIES, INC.

By /s/ Kenneth J. Matlock
-------------------------------
Name: Kenneth J. Matlock
Title: Executive Vice President

<PAGE>

HOLDERS:
-------

<PAGE>

SCHEDULE A
----------

HOLDERS OF REGISTRABLE COMMON STOCK
-----------------------------------

Number of
Holder Shares Owned
- ------ -------------

<PAGE>

SCHEDULE B
----------

NOTICES
-------

If to the Company, to:

Walter Industries, Inc.
1500 North Dale Mabry Highway
P.O. Box 31601
Tampa, Florida 33607

Attention: Secretary
Tel: (813) 871-4451
Fax: (813) 871-4430

with a copy to:

Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017

Attention: Peter J. Gordon, Esq.
Tel: (212) 455--2605
Fax: (212) 455-2502

If to the Holders, to:

such Holder, at such Holder's address or to such Holder's telephone or
telecopy number reflected in the Company's books and records

with a copy to:

Exhibit 10(c)
EMPLOYMENT AGREEMENT

AGREEMENT made as of the 19th day of June, 1993 between
Walter Industries, Inc. (the "Company") and G. Robert Durham (the
"Employee").

Company and Employee agree as follows:

1. EMPLOYMENT TERM.

The initial term of employment of the Employee pursuant to
this Agreement (the "Initial Employment Term") shall begin on the
date hereof (the "Effective Date") and shall continue until May
31, 1995, or the death or Permanent Disability of the Employee,
whichever is earlier.

The renewal employment term of the Employee pursuant to this
Agreement (the "Renewal Employment Term") shall automatically
begin on June 1, 1995 and shall continue from year to year
thereafter until the death or Permanent Disability of the
Employee, or until terminated by either the Employee or the
Company on 60 days written notice to the other party, as the case
may be.

The terms "Initial Employment Term" and "Renewal Employment
Term" are collectively referred to herein as the "Employment
Term."

For purposes hereof, the Employee shall be deemed to have a
"Permanent Disability" at such time as the Employee becomes
entitled to receive benefits under the Company's Long-Term
Disability Plan.

2. EMPLOYEE'S POSITION AND RESPONSIBILITIES.

During the Employment Term the Employee will serve the
Company as the President and Chief Executive Officer and shall be
a member of the Board of Directors of the Company.

During the Employment Term the Employee shall devote his
entire business time and attention exclusively to the business
and affairs of the Company and shall use his best efforts to
promote the interests of the Company. The participation of the
Employee in outside directorships and civic activities not
otherwise inconsistent with this Agreement or Company policy
shall not be deemed a violation of this paragraph 2.

3. COMPENSATION AND OTHER BENEFITS.

The Employee shall be entitled to an annual base salary of
$450,000.00 ("Base Salary"), payable in accordance with the
Company's general payroll policies, plus incentive compensation

<PAGE>

payments, payable no later than four months after the end of the
Company's fiscal year, the amounts of which shall be determined
by the Board of Directors of the Company in accordance with the
Company's past practices, provided, however, that increases in
the base Salary and the payment of incentive compensation
payments shall be subject to the restrictions contained in the
Court Order of May 17, 1990 (the "Court Order") from the United
States Bankruptcy Court, Middle District of Florida, Tampa
Division (the "Bankruptcy Court"), for which purposes Employee's
name shall be considered substituted for that of Mr. Cordell in
such Court Order, a copy of which is attached hereto and made a
part hereof. In addition, during the Employment Term the
Employee shall be entitled to participate, to the extent so
provided by the terms thereof, in any employee benefit plans and
programs that may, from time to time, be made generally available
to other executive employees of the Company and such other
employee benefit plans and programs as the Board of Directors of
.the Company may direct, including, without limitation, use of a
Company-owned automobile in accordance with the Company's general
policies.

4. TERMINATION OF EMPLOYMENT BY THE COMPANY.

The Company may terminate the employment of the Employee at
any time with or without cause; provided, however, that if,
during the Initial Employment Term, the Company terminates the
employment of the Employee for any reason other than for Cause,
the Employee shall be entitled to receive the then current annual
base salary, as determined in paragraph 3 above, for the balance
of the Initial Employment Term, and a pro rata incentive
compensation payment for the year in which the employment is
terminated, as determined by the Board of Directors in accordance
with the Company's past practices, subject to the restrictions
contained in the Court Order. If such termination, other than
for cause, occurs during the Renewal Employment Term, the
Employee shall be entitled to receive the annual base salary
determined in paragraph 3 for the balance of the Company's fiscal
year ending May 31 in which the employment is terminated, and a
pro rata incentive compensation payment for that year, as
determined by the Board of Directors in accordance with the
Company's past practices, subject to the restrictions contained
in the Court Order. If Employee is terminated for cause during
either the Initial Employment Term or the Renewal Employment
Term, the Employee shall be entitled to receive the annual Base
Salary as determined in paragraph 3 through the date of
termination and no incentive compensation payments for the year
in which the employment was terminated. For purposes of this
Agreement, "Cause" means gross negligence or willful misconduct
on the part of the Employee that is materially detrimental to the
Company, as determined in good faith by the Company's Board of
Directors at a meeting duly called and held after reasonable
notice to the Employee and opportunity for the Employee to be

<PAGE>

heard. If the employment of the Employee terminates because of
the death of the Employee, the executor, administrator,
testamentary trustee, legatees or beneficiaries, as the case may
be, of the Employee shall be entitled to receive the then current
Base Salary of the Employee as determined in paragraph 3 above,
during the nine-month period following the date of death.

5. CONFIDENTIALITY.

The Employee agrees to hold in confidence any and all
confidential information known to him concerning the Company and
its businesses so long as such information is not otherwise
publicly disclosed.

6. NONCOMPETITION.

During the Employment Term the Employee will not, without
the prior written consent of the Company, invest in or accept
employment as an officer, director, employee, agent or consultant
of a business that directly competes with any business of the
Company; provided, that the foregoing shall not prohibit the
Employee from purchasing not in excess of 0.5% of the outstanding
shares (or other units) of any class of securities that is
registered under Section 12 of the Securities Exchange Act of
1934, as amended.

7. INDEMNIFICATION.

The Company agrees to indemnify the Employee as follows:

(a) Indemnity in Third Party Proceedings. The Company
shall indemnify the Employee in accordance with the provisions of
this section if the Employee is a party to or threatened to be
made a party to or otherwise involved in any Proceedings (other
than a Proceeding by or in the name of the Company to procure a
judgment in its favor), by reason of the fact that the Employee
is or was a director and/or officer of the Company or is or was
serving at the request of the Company was a director, officer,
employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against all Expenses,
judgments, fines and penalties, actually and reasonably incurred
by the Employee in connection with the defense or settlement of
such Proceeding, but only if he acted in good faith and in a
manner which he reasonably believed to be in good faith and in a
manner which he reasonably believed to be in or not opposed to
the best interests of the Company and, in the case of a criminal
proceeding, in addition, had no reasonable cause to believe that
his conduct was unlawful. The termination of any such Proceeding
by judgment, order of court, settlement, conviction, or upon a
plea of nolo contendere, or its equivalent, shall not, of itself,

<PAGE>

create a presumption that the Employee did not act in the best
interests of the Company, and with respect to any criminal
proceeding, that such person had reasonable cause to believe that
his conduct was unlawful.

(b) Indemnity in Proceedings By or In the Name of the
Company. The Company shall indemnify the Employee in accordance
with the provisions of this section if the Employee is a party to
or threatened to be made a party to or otherwise involved in any
Proceeding by or in the name of the Company to procure a judgment
in its favor by reason of the fact that the Employee was or is a
director and/or officer of the Company or is or was serving at
the request of the Company as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust
or other enterprise against all Expenses actually and reasonably
incurred by the Employee in connection with the defense or
settlement of such Proceeding, but only if he acted in good faith
- -and in a manner which he reasonably believed to be in or not
opposed to the best interests of the Company, except that no
indemnification for Expenses shall be made under this paragraph
7(b) in respect of any claim, issue or matter as to which the
Employee shall have been adjudged to be liable to the Company,
unless and only to the extent that any court in which such
Proceeding is brought shall determine upon application that,
despite the adjudication of liability but in view of all the
circumstances of the case, the Employee is fairly and reasonably
entitled to indemnity for such expenses as such court shall deem
proper.

(c) Indemnification of Expenses of Successful Party.
Notwithstanding any other provisions of this paragraph 7, to the
extent that the Employee has been successful on the merits or
otherwise, in defense of any Proceeding or in defense of any
claim, issue or matter therein, including the dismissal of all
action without prejudice, the Employee shall be indemnified
against all Expenses incurred in connection therewith.

(d) Advance of Expenses. The Expenses incurred by the
Employee pursuant to paragraphs 7(a) and (b) in any Proceeding
shall be paid by the Company in advance at the written request of
the Employee, if the Employee shall undertake to repay such
amount to the extent that it is ultimately determined that the
Employee is not entitled to indemnification.

(e) Right of Indemnitee to Indemnification Upon
Application; Procedure Upon Application. Any indemnification or
advance under paragraphs 7(a), (b) or (d) hereof shall be made no
later than 15 days after receipt of the written request of the
Emp1oyee, unless a determination is made within said 15 day
period by (a) the Board of Directors of the Company by a majority

<PAGE>

vote of a quorum thereof consisting of directors who were not
parties to such Proceedings, or (b) independent legal counsel in
a written opinion (which counsel shall be appointed if such a
quorum is not obtainable), that the Employee has not met the
relevant standards for indemnification set forth in paragraph
7(a) and (b).

(f) Procedural Matters. The right to indemnification or
advances as provided by this paragraph 7 shall be enforceable by
the Employee in any court of competent jurisdiction. The burden
of proving that indemnification or advances are not appropriate
shall be on the Company. Neither the failure of the Company
(including its Board of Directors or independent legal counsel)
to have made a determination prior to the commencement of such
action that indemnification or advances are proper in the
circumstances because the Employee has met the applicable
standard of conduct, nor an actual determination by the Company
- -(including its Board of Directors or independent legal counsel)
that the Employee has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption
that the Employee has not met the applicable standard of conduct.
The Employee's Expenses incurred in connection with successfully
establishing his right to indemnification or advances, in whole
or in part, in any such Proceeding shall also be indemnified by
the Company.

(g) Non-exclusivity, Etc. The rights of the Employee
hereunder shall be in addition to any other rights Employee may
have under the Company's Certificate of Incorporation or By-Laws
or the Delaware General Corporation laws or otherwise, and
nothing herein shall be deemed to diminish or otherwise restrict
Employee's right to indemnification under any such other
provision. It is the intent of this paragraph 7 to provide the
maximum indemnification possible under the applicable law. In
the event of any conflict or inconsistency between the provisions
of this paragraph 7 and the By-Laws of the Company, the
provisions of this paragraph 7 shall control to the extent that
the provisions hereof afford broader indemnification, and any
restrictions or limitations upon indemnification in the By-Laws
shall not be deemed to be applicable hereto. To the extent
applicable law or the Certificate of Incorporation or the By-Laws
of the Company, as in effect on the date hereof or at any time in
the future, permit greater indemnification than as provided for
in this paragraph 7, the parties hereto agree that Employee shall
enjoy by this paragraph 7 the greater benefits so afforded by
such law or provision of the Certificate of Incorporation or By-
Laws. Employee may elect to have Employee's rights hereunder
interpreted on the basis of applicable law in effect at the time
of execution of this Agreement, at the time of the occurrence of
conduct giving rise to the claim against the Employee, or at the

<PAGE>

time indemnification is sought. In the event any one or more of
the provisions of this paragraph 7 should be held invalid,
illegal or unenforceable in any respect, the validity, legality
and enforceability of the remaining provisions contained herein
shall not in any way be affected or impaired thereby.

(h) Partial Indemnification. If the Employee is entitled
under any provision of this paragraph 7 to indemnification by the
Company for some or a portion of the Expenses, judgments, fines
or penalties actually and reasonably incurred by him in the
investigation, defense, appeal or settlement of any Proceeding
but not however, for the total amount thereof, the Company shall
nevertheless indemnify the Employee for the portion of such
Expenses, judgments, fines or penalties to which the Employee is
entitled.

(i) Liability Insurance. To the extent the Company
maintains at any time an insurance policy or policies providing
directors' any officers' liability insurance, Employee shall be
covered by such policy or policies, in accordance with its or
their terms, to the maximum extent of the coverage available for
any other Company director or officers under such insurance
policy. The purchase and maintenance of such insurance shall not
in any way limit or affect the rights and obligations of the
parties hereto, and the execution and delivery of this Agreement
shall not in any way be construed to limit or affect the rights
and obligations of the Company and/or of the other parties under
any such insurance policy.

(j) Definitions. As used in paragraph 7:

(i) The term "Proceeding" shall include any threatened,
pending or completed action, suit or proceeding, whether
brought in the name of the Company or otherwise and whether
of civil, criminal or administrative or investigative
nature, including, but not limited to, an action by or in
the right of any corporation of any type or kind, domestic
or foreign, or any partnership, joint venture, trust,
employee benefit plan or other enterprise, whether
predicated on foreign, federal, state or local law and
whether formal or informal, and any actions, suits or
proceedings brought under and/or predicated upon the
Securities Act of 1933, as amended, and/or the Securities
Exchange Act of 1934, as amended, and/or their respective
state counterparts and/or any rule or regulation promulgated
thereunder, in which the Employee may be or may have been
involved as a party or otherwise, by reason of any action
taken by him or any inaction on his part while acting as
such director and/or officer or by reason of the fact that
he is or was serving at the request of the Company as a

<PAGE>

director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise,
whether or not he is serving in such capacity at the time
any liability or Expense is incurred for which
indemnification or reimbursement can be provided under this
paragraph 7.

(ii) The term "Expenses" includes, without limitation
thereto, expenses of investigations, judicial or administrative
proceedings or appeals, including preparation to defend or be a
witness in any of the foregoing, amounts paid in settlement by
or on behalf of the Employee, attorneys' fees and disbursements
and any expenses of establishing a right to indemnification under
this paragraph 7, but shall not include the amount of judgments,
fines or penalties actually levied against the Employee.

(iii) References to "other enterprise" shall include
Employee benefit plans; references to "fines" shall include
an excise tax assessed with respect to any employee benefit
plan; references to "serving at the request of the Company"
shall include any service as a director, officer, employee
or agent of the Company which imposes duties on, or involves
services by, such director, officer, employee, or agent with
respect to an employee benefit plan, its participants, or
beneficiaries; and a person who acts in good faith and in a
manner he reasonably believes to be in the interest of the
participants and beneficiaries of an employee benefit plan
shall be deemed to have acted in a manner "not opposed to
the best interests of the Company" as referred to in this
paragraph 7.

8. MISCELLANEOUS.

(a) Notices. Any notice or other communication provided
for in this Agreement or contemplated hereby shall be
sufficiently given if given in writing and delivered by certified
mail, return receipt requested, and addressed in the case of the
Company, to the Company at 1500 North Dale Mabry Highway, Tampa,
Florida 33607, Attention: Chairman of the Board of Directors;
and, in the case of the Employee, to the Employee at his address
as it appears below his name on the signature page hereof.
Either party may designate a different address by giving notice
of change of address in the manner provided above.

(b) Waiver. No waiver or modification in whole or in part
of this Agreement, or any term or condition hereof, shall be
effective against any party unless in writing and duly signed by
the party sought to be bound. Any waiver of any breach of any
provision hereof or any right or power by any party on one

7
<PAGE>

occasion shall not be construed as a waiver of, or a bar to, the
exercise of such right or power on any other occasion or as a
waiver of any subsequent breach.

(c) Binding Effect; Successors. This Agreement shall be
binding upon and shall inure to the benefit of the Company and
the Employee and their respective heirs, legal representatives,
successors and assigns. If the Company shall be merged into or
consolidated with another entity, the provisions of this
Agreement shall be binding upon and inure to the benefit of the
entity surviving such merger or resulting from such
consolidation. The Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business or assets
of the Company, by agreement in form and substance satisfactory
to the Employee, to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had
taken place. The provisions of this paragraph shall continue to
apply to each subsequent employer of the Employee hereunder in
the event of any subsequent merger, consolidation or transfer of
assets of such subsequent employer.

(d) Cancellation of Prior Agreement. This Agreement
cancels and replaces in its entirety the employment agreement
dated June 19, 1991 between the Company and Employee.

(e) Governing Law. This Agreement shall be construed and
interpreted in accordance with the laws of the State of Florida,
except that paragraph 7 hereof shall be governed by the laws of
the State of Delaware.

(f) Court Approval. This Agreement will not become
effective until approval thereof is received from the Bankruptcy
Court, at which time it will become effective retroactive to the
Effective Date of this Agreement.

(g) Entire Agreement. This Agreement sets forth the entire
agreement between the parties hereto with respect to the subject
matter hereof.

8
<PAGE>

IN WITNESS WHEREOF, the Company and the Employee have
executed this Agreement this 16th day of July, 1993, effective
as of the day and year first above written.

WALTER INDUSTRIES, INC.

By: /s/ J. W. Walter
---------------------
J. W. Walter
Chairman of the Board

/s/ G. R. Durham
---------------------
G. R. Durham
Employee

Address: 943 Seddon Cove Way
Tampa, Florida 33602

EXHIBIT 21

LIST OF THE SUBSIDIARIES OF THE COMPANY
(Jurisdiction of incorporation as noted in parenthesis)

The direct and indirect subsidiaries of Walter Industries, Inc. are:

1. JW Aluminum Company (Del.)

2. Homes Holdings Corporation (Del.)

a. Jim Walter Homes, Inc. (Fla.) (a subsidiary of Homes Holding
Corporation)

i. Jim Walter Homes of Louisiana, Inc. (La.) (a subsidiary of Jim
Walter Homes, Inc.)

ii. Walter Home Improvement, Inc. (Fla.) (a subsidiary of Jim
Walter Homes, Inc.)

3. JW Window Components, Inc. (Del.)

a. Jim Walter Window Components, Inc. (Wisc.) (a subsidiary of JW
Window Components, Inc.)

4. Vestal Manufacturing Company (Del.)

5. Sloss Industries Corporation (Del.)

6. Southern Precision Corporation (Del.)

7. Mid-State Holdings Corporation (Del.)

a. Mid-State Homes, Inc. (Fla.) (a subsidiary of Mid-State Holdings
Corporation)

i. Mid-State Trust III (a business trust owned by Mid-State
Homes, Inc.)

ii. Mid-State Trust IV (a business trust owned by Mid-State Homes,
Inc.)

A. Mid-State Trust II (a business trust owned by Mid-State
Trust IV)

iii. Mid-State Trust V (a business trust owned by Mid-State
Homes, Inc.)

8. United States Pipe and Foundry Company (Del.)

9. Railroad Holdings Corporation (Del.)

a. Jefferson Warrior Railroad Company, Inc. (Ala.) (a subsidiary of
Railroad Holdings Corporation)

10. Computer Holdings Corporation (Del.)

a. Jim Walter Computer Services, Inc. (Del.) (a subsidiary of
Computer Holdings Corporation)

11. Land Holdings Corporation (Del.)

a. Walter Land Company (Del.) (a subsidiary of Land Holdings
Corporation)

12. J.W.I. Holdings Corporation (Del.)

a. J.W. Walter, Inc. (Del.) (a subsidiary of J.W.I. Holdings
Corporation)

<PAGE>

13. Hamer Holdings Corporation (Del.)

a. Hamer Properties, Inc. (W. Va.) (a subsidiary of Hamer Holdings
Corporation)

14. Best Insurors, Inc. (Fla.)

a. Best Insurors of Mississippi, Inc. (Miss.) (a subsidiary of Best
Insurors, Inc.)

b. Jim Walter Insurance Services, Inc. (Fla.) (a subsidiary of Best
Insurors, Inc.)

15. Cardem Insurance Co., Ltd. (Bermuda)

16. Coast to Coast Advertising, Inc. (Fla.)

17. United Land Corporation (Del.)

18. Dixie Building Supplies, Inc. (Fla.)

19. Jim Walter Resources, Inc. (Ala.)

a. Black Warrior Transmission Corp. (50% owned by Jim Walter
Resources, Inc.)

b. Black Warrior Methane Corp. (50% owned by Jim Walter Resources,
Inc.)

The names of particular subsidiaries may have been omitted if the unnamed
subsidiaries, considered in the aggregate as a single subsidiary, would not
constitute a significant subsidiary as of May 31, 1994.

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 8, 1994, 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, 1994 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.

PRICE WATERHOUSE LLP
Tampa, Florida
May 1, 1995

Exhibit 24

POWER OF ATTORNEY
-----------------

The undersigned Directors of Walter Industries, Inc., a Delaware
corporation which proposes to file with the Securities and Exchange
Commission, Washington, D.C. pursuant to Rule 415 under the provisions of
the Securities Act of 1933, as amended, a shelf Registration Statement on
Form S-1 with respect to certain shares of its common stock to be sold by
certain holders thereof who received said shares of common stock pursuant
to the Company's amended joint Plan of Reorganization dated as of December
9, 1994, as modified on March 1, 1995, hereby constitutes and appoints K.J.
Matlock, Donald M. Kurucz and W.H. Weldon, and each of them as his
attorney, with full power of substitution and resubstitution, for and in
his name, place and stead, to sign and file the proposed Registration
Statement and any and all amendments and exhibits thereto, and any and all
applications and other documents to be filed with the Securities and
Exchange Commission pertaining to such securities or such registration,
with full power and authority to do and perform any and all acts and things
whatsoever requisite and necessary to be done in the premises, hereby
ratifying and approving the acts of such attorney or any such substitute.

IN WITNESS WHEREOF, the undersigned has hereunto set his hand at Tampa,
Florida this 11th day of April, 1995.

/s/ James L. Johnson /s/ Howard L. Clark, Jr.
- ---------------------------- -------------------------------

/s/ James B. Farley /s/ James W. Walter
- ---------------------------- -------------------------------

/s/ Eliot M. Fried /s/ G. Robert Durham
- ---------------------------- -------------------------------

/s/ Robert I. Shapiro /s/ Kenneth J. Matlock
- ---------------------------- -------------------------------

/s/ Michael T. Tokarz
- ---------------------------- -------------------------------

<PAGE>

POWER OF ATTORNEY
-----------------

The undersigned Principal Financial Officer of Walter Industries, Inc., a
Delaware corporation which proposes to file with the Securities and
Exchange Commission, Washington, D.C. pursuant to Rule 415 under the
provisions of the Securities Act of 1933, as amended, a shelf Registration
Statement on Form S-1 with respect to certain shares of its common stock to
be sold by certain holders thereof who received said shares of common stock
pursuant to the Company's amended joint Plan of Reorganization dated as of
December 9, 1994, as modified on March 1, 1995, hereby constitutes and
appoints F.A. Hult, Donald M. Kurucz and W.H. Weldon, and each of them as
his attorney, with full power of substitution and resubstitution, for and
in his name, place and stead, to sign and file the proposed Registration
Statement and any and all amendments and exhibits thereto, and any and all
applications and other documents to be filed with the Securities and
Exchange Commission pertaining to such securities or such registration,
with full power and authority to do and perform any and all acts and things
whatsoever requisite and necessary to be done in the premises, hereby
ratifying and approving the acts of such attorney or any such substitute.

IN WITNESS WHEREOF, the undersigned has hereunto set his hand at Tampa,
Florida this 24th day of April, 1995.

/s/ Kenneth J. Matlock
-----------------------------------------

<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> <C>
<PERIOD-TYPE> 12-MOS 9-MOS
<FISCAL-YEAR-END> MAY-31-1994 MAY-31-1995
<PERIOD-START> JUN-1-1993 JUN-1-1994
<PERIOD-END> MAY-31-1994 FEB-28-1995
<CASH> 203,303 204,959
<SECURITIES> 107,552 88,650
<RECEIVABLES> 1,531,685 1,540,724
<ALLOWANCES> (33,693) (34,699)
<INVENTORY> 172,579 183,812
<CURRENT-ASSETS> 0<F1> 0<F1>
<PP&E> 1,123,939 1,153,866
<DEPRECIATION> 466,076 506,609
<TOTAL-ASSETS> 3,140,892 3,098,947
<CURRENT-LIABILITIES> 0<F1> 0<F1>
<BONDS> 871,970 784,815
<COMMON> 311 311
0<F1> 0<F1>
0<F1> 0<F1>
<OTHER-SE> (282,664) (278,982)
<TOTAL-LIABILITY-AND-EQUITY> 3,140,892 3,098,947
<SALES> 1,068,387 848,717
<TOTAL-REVENUES> 1,328,524 1,042,661
<CGS> 845,061 682,930
<TOTAL-COSTS> 198,936 150,908
<OTHER-EXPENSES> 88,354 69,546
<LOSS-PROVISION> 4,611 3,422
<INTEREST-EXPENSE> 155,470 107,747
<INCOME-PRETAX> 36,092 28,108
<INCOME-TAX> 28,917 21,988
<INCOME-CONTINUING> 7,175 6,120
<DISCONTINUED> 0<F1> 0<F1>
<EXTRAORDINARY> 0<F1> 0<F1>
<CHANGES> 0<F1> 0<F1>
<NET-INCOME> 7,175 6,120
<EPS-PRIMARY> 0<F1> 0<F1>
<EPS-DILUTED> 0<F1> 0<F1>
<FN>
<F1>This line item is not presented on the Consolidated Financial Statements.
</FN>

</TABLE>