MEDITE CORP, S-1/A, 1995-04-10

MEDITE CORP
S-1/A, 1995-04-10

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 10, 1995

REGISTRATION NO. 33-57891
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

AMENDMENT NO. 2

FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

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

MEDITE CORPORATION
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C> <C>
DELAWARE 2493 93-0223870
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification Number)
organization)
</TABLE>

THREE LINCOLN CENTRE
5430 LBJ FREEWAY, SUITE 1700
DALLAS, TEXAS 75240
(214) 661-8028

(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)

MICHAEL A. SNETZER
CHIEF EXECUTIVE OFFICER
MEDITE CORPORATION
THREE LINCOLN CENTRE
5430 LBJ FREEWAY, SUITE 1700
DALLAS, TEXAS 75240
(214) 661-8028

(Name, address, including zip code, and telephone number,
including area code, of agent for service)

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

COPIES TO:

<TABLE>
<S> <C>
ALAN C. LEET, ESQ. KRIS F. HEINZELMAN, ESQ.
ROGERS & HARDIN CRAVATH, SWAINE & MOORE
2700 CAIN TOWER WORLDWIDE PLAZA
229 PEACHTREE STREET, N.E. 825 EIGHTH AVENUE
ATLANTA, GEORGIA 30303 NEW YORK, NEW YORK 10019
(404) 522-4700 (212) 474-1000
</TABLE>

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

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

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

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

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

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2

MEDITE CORPORATION

CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K

<TABLE>
<CAPTION>
FORM S-1 ITEM NUMBER AND HEADING PROSPECTUS CAPTION ON PAGE
- ----------------------------------------------------- ----------------------------------------
<S> <C>
1. Forepart of Registration Statement and Outside
Front Cover Page of Prospectus............... Outside Front Cover Page of Prospectus

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

3. Summary Information and Risk Factors........... Prospectus Summary; Risk Factors

4. Use of Proceeds................................ Use of Proceeds

5. Determination of Offering Price................ Risk Factors; Underwriters

6. Dilution....................................... Dilution

7. Selling Security Holders....................... *

8. Plan of Distribution........................... Underwriters

9. Description of Securities to be Registered..... Description of Capital Stock, Certain
United States Federal Tax Considerations
for Non-U.S. Holders of Common Stock

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

11. Information with Respect to Registrant......... Prospectus Summary; Risk Factors; Use of
Proceeds; Capitalization; Dividend
Policy; Selected Financial Data;
Management's Discussion and Analysis
of Financial Condition and Results of
Operations; Business; Management;
Security Ownership in the Company and
its Affiliates; Certain Relationships
and Transactions; Description of
Capital Stock; Shares Eligible for
Future Sale; Additional Information;
Financial Statements

12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.................................. *
</TABLE>

- ------------
* Inapplicable
<PAGE> 3

EXPLANATORY NOTE

This Registration Statement contains two forms of prospectus: one to be
used in connection with an underwritten offering in the United States and Canada
(the "U.S. Prospectus") and one to be used in a concurrent international
offering (the "International Prospectus"). The two prospectuses are identical
except for the cover pages. The cover page for the International Prospectus
appears in the Registration Statement following the last page of the U.S.
Prospectus.
<PAGE> 4

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.

PROSPECTUS (Subject to Completion)

Issued April 10, 1995

6,750,000 Shares
[MEDITE LOGO]
COMMON STOCK
------------------------

OF THE 6,750,000 SHARES OF COMMON STOCK OFFERED HEREBY, 5,400,000 SHARES ARE
BEING OFFERED INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S.
UNDERWRITERS AND 1,350,000 SHARES ARE BEING OFFERED INITIALLY OUTSIDE OF THE
UNITED STATES AND CANADA BY THE INTERNATIONAL UNDERWRITERS. ALL OF THE
SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY THE COMPANY. SEE
"UNDERWRITERS." PRIOR TO THIS OFFERING, THERE HAS BEEN NO PUBLIC
MARKET FOR THE COMMON STOCK OF THE COMPANY. IT IS CURRENTLY
ESTIMATED THAT THE INITIAL PUBLIC OFFERING PRICE PER SHARE WILL BE
BETWEEN $14.00 AND $16.00. SEE "UNDERWRITERS" FOR A DISCUSSION OF
THE FACTORS CONSIDERED IN DETERMINING THE INITIAL PUBLIC
OFFERING PRICE.

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

THE COMMON STOCK HAS BEEN APPROVED FOR TRADING ON THE NASDAQ NATIONAL MARKET
UNDER THE SYMBOL MDFX, SUBJECT TO OFFICIAL NOTICE OF ISSUANCE.

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

THIS OFFERING INVOLVES CERTAIN RISKS. SEE "RISK FACTORS."

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

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

PRICE $ A SHARE
------------------------

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

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

(2) Before deducting expenses payable by the Company estimated at $515,549.

(3) The Company has granted to the U.S. Underwriters an option, exercisable
within 30 days of the date hereof, to purchase up to an aggregate of
1,012,500 additional Shares at the price to public less underwriting
discounts and commissions, for the purpose of covering over-allotments,
if any. If the U.S. Underwriters exercise such option in full, the total
price to public, underwriting discounts and commissions and proceeds to
Company will be $ , $ and $ , respectively. See
"Underwriters."
------------------------

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

MORGAN STANLEY & CO.
Incorporated

SALOMON BROTHERS INC
SMITH BARNEY INC.
April , 1995
<PAGE> 5

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

UNTIL , 1995 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
------------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................................................................... 3
Recent Developments................................................................... 7
Risk Factors.......................................................................... 8
Use of Proceeds....................................................................... 12
Dividend Policy....................................................................... 13
Capitalization........................................................................ 14
Dilution.............................................................................. 15
Selected Financial Data............................................................... 16
Management's Discussion and Analysis of Financial Condition and Results of
Operations.......................................................................... 18
Business.............................................................................. 24
Management............................................................................ 34
Certain Relationships and Transactions................................................ 42
Security Ownership in the Company and its Affiliates.................................. 45
Description of Capital Stock.......................................................... 47
Shares Eligible for Future Sale....................................................... 49
Certain United States Federal Tax Considerations for Non-U.S. Holders of Common
Stock............................................................................... 50
Underwriters.......................................................................... 53
Legal Matters......................................................................... 55
Experts............................................................................... 55
Additional Information................................................................ 55
Index of Financial Statements......................................................... F-1
</TABLE>

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

The Company intends to furnish its stockholders with annual reports
containing audited consolidated
financial statements and an opinion thereon expressed by an independent public
accounting firm and with quarterly reports for the first three quarters of each
year containing unaudited consolidated financial information.
------------------------

Medite(R) and Medex(R) are registered trademarks of the Company.
------------------------

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

2
<PAGE> 6

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this Prospectus.
Except where otherwise indicated, all share and per-share data in this
Prospectus and all other information relating to the Offering (i) assume no
exercise of the Underwriters' over-allotment option and (ii) give effect to the
11,000 for 1 stock split with respect to the Common Stock effected on February
28, 1995 (the "Stock Split").

THE COMPANY

Medite Corporation (the "Company") is an international engineered wood
products company focused primarily on the production and sale of medium density
fiberboard ("MDF"). MDF, an environmentally efficient engineered building board,
is a fiber-based product manufactured primarily from pre-commercial forest
thinnings and forest product industry residuals (wood chips, shavings and
sawdust) which are bonded together with resins to form a machineable composite
panel. Compared to traditional timber products, MDF offers end users lower unit
costs and physical characteristics that provide for less production waste and
higher production efficiencies. These cost-in-use advantages have promoted the
use of MDF in an increasing variety of applications, including furniture,
cabinetry, shop fittings and joinery. Recent improvements in MDF's
machinability, consistency and surface, coupled with specialty product
introductions, have expanded MDF applications to include substitution for
products used in millwork and moulding for both residential and commercial
applications. In 1994, approximately 71% of the Company's sales and 75% of
operating income were derived from its MDF operations.

The Company sells MDF principally under the Medite(R) and Medex(R)
trademarks to customers in North America (48% of 1994 MDF sales), Europe (43%)
and the Far East (9%). The Company offers an unsurpassed range of specialty
products, such as moisture resistant, flame retardant and formaldehyde-free MDF
products, which in 1994 sold for substantially higher prices than, and resulted
in operating margins approximately twice those of, the Company's standard MDF
products. The Company believes that Medite(R) is the world's most recognized MDF
trademark. In Europe, where name brand recognition is expected to play an
increasingly important role in panel product marketing, Medite is well regarded
for quality, specialty grades and an active and successful marketing program.

The Company's MDF production facilities are located in the Republic of
Ireland, Oregon and New Mexico. The Company expects that a capacity addition
completed in late 1994 at its Ireland plant will increase the Company's annual
production capacity by 25% to approximately 635,000 cubic meters ("M3") (300,000
M3 in Ireland and 335,000 M3 in North America). With the recently completed
capacity addition in Ireland, the Company is the world's second largest MDF
producer in terms of rated capacity.

The Company believes MDF is among the most technologically complex wood
products to manufacture, with specialty products requiring even more advanced
technologies. The Company believes it has been a pioneer in both MDF product and
manufacturing process development and that its patented processes and
technological expertise developed over the last twenty years have enabled the
Company to become an MDF industry leader. Medite believes it is one of only a
relatively small number of MDF manufacturers in the world with the technology
and expertise to currently produce specialty MDF products, such as exterior
grade moisture resistant and fire retardant MDF.

The Company believes MDF is among the world's fastest growing building
board products. According to MDF industry studies, MDF consumption in the
Company's primary markets in Europe and North America has increased over the
past ten years at 25% and 7% average annual rates, respectively. Increasing
demand for MDF during recent years has been driven primarily by increasing
product substitution principally resulting from (i) recent improvements in MDF
product characteristics that have expanded the range of MDF applications, (ii)
cost advantages relative to traditional timber products, (iii) the development
of specialty MDF products satisfying special customer requirements and (iv)
increased environmental awareness. In addition, MDF consumption growth in North
America in the past two years has benefitted from improved economic activity.

3
<PAGE> 7

Recently, MDF prices have increased notably and average prices for the
Company's standard MDF products in 1994 were approximately 16% higher than they
were in 1993 and were 27% higher in December 1994 than they were in December
1993. Additionally, during the first quarter of 1995, the Company has
implemented price increases of approximately 5% for all its MDF products in
Europe and approximately 4% for standard MDF products in North America.

The Company's strategy is to: (i) continue to focus on MDF; (ii) strive to
remain at the forefront of developing higher margin specialty MDF products;
(iii) continue to develop new commercial uses for MDF, including applications in
cabinetry, joinery, millwork and mouldings; (iv) continue to seek to expand its
MDF operations through acquisitions, strategic joint ventures and capacity
additions; and (v) manage its fee timber resources on a longer-term sustainable
basis and seek to maximize the operating contribution of its harvested timber.

In addition to its MDF operations, the Company produces and sells limited
quantities of traditional timber products, including logs, lumber, veneer and
wood chips, and owns 168,000 acres of timberland in Southern Oregon which
contain approximately 660 million board feet ("MMBF") of generally second growth
merchantable timber. The Company actively manages its fee timberlands, which
have become an increasingly valuable resource as the volume of timber offered
for sale in the Pacific Northwest by U.S. government agencies has declined
substantially over the past several years. Based upon reported sales of
comparable timber, the Company believes that its timber and timberlands have a
market value substantially in excess of their financial statement carrying value
of $53 million at December 31, 1994.

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered.................................................. 6,750,000 shares
Common Stock to be outstanding after the Offering..................... 18,850,000 shares
Use of Proceeds....................................................... See "Use of Proceeds."
NASDAQ National Market symbol......................................... MDFX
</TABLE>

RISK FACTORS

Prospective investors should carefully consider the factors set forth under
"Risk Factors," together with the other information set forth in this
Prospectus, before investing in the Common Stock.

CORPORATE ORGANIZATION

The Company is a Delaware corporation incorporated in 1932; its principal
corporate offices are located at Three Lincoln Centre, 5430 LBJ Freeway, Suite
1700, Dallas, Texas 75240-2697; its telephone number is (214) 661-8028. The
Company is a wholly-owned subsidiary of Valcor, Inc. ("Valcor"), a wholly-owned
subsidiary of Valhi, Inc. ("Valhi"). In 1993, (i) the Company (then known as
Medford Corporation) and a subsidiary of Valhi (then known as Medite
Corporation) merged, with the Company surviving the merger and changing its name
to Medite Corporation, and (ii) Valhi contributed the stock of the Company to
Valcor. See "Security Ownership in the Company and its Affiliates." Each of
Valhi, whose common stock is listed on the New York and Pacific Stock Exchanges,
and Valcor, whose senior notes trade in the over-the-counter market, are subject
to the periodic reporting requirements of the Securities Exchange Act of 1934,
as amended (the "Exchange Act").

4
<PAGE> 8

SUMMARY FINANCIAL INFORMATION

The following summary financial and other information should be read in
conjunction with the Financial Statements and the Unaudited Pro Forma Condensed
Financial Statements of the Company included in this Prospectus and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------
PRO FORMA,
PRO FORMA AS ADJUSTED
1992 1993 1994 1994(1) 1994(1)
------ ------ ------ --------- -----------
($ IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Net sales:
Medium density fiberboard................... $111.6 $112.1 $134.9 $ 134.9 $ 134.9
Traditional timber products................. 85.4 63.7 56.2 56.2 56.2
Eliminations................................ (2.2) (1.5) (1.2) (1.2) (1.2)
------ ------ ------ ------- --------
$194.8 $174.3 $189.9 $ 189.9 $ 189.9
====== ====== ====== ======= ========
Operating income:
Medium density fiberboard................... $ 12.1 $ 13.9 $ 27.1 $ 27.1 $ 27.1
Traditional timber products................. 9.9 12.4 9.2 9.2 9.2
------ ------ ------ ------- --------
22.0 26.3 36.3 36.3 36.3
Business unit dispositions and other,
net(2)...................................... 3.9 .5 (.2) (.2) (.2)
Interest expense.............................. (3.1) (3.1) (6.6) (6.6) (3.8)
------ ------ ------ -------- --------
Income before income taxes.................. 22.8 23.7 29.5 29.5 32.3
Income taxes.................................. 8.2 8.8 11.2 11.2 12.3
------ ------ ------ ------- --------
Income before cumulative effect of changes
in accounting principles................. 14.6 14.9 18.3 18.3 20.0
======= ========
Cumulative effect of changes in accounting
principles(3)............................... 1.3 -- -- -- --
------ ------ ------ ------- --------
Net income.................................. $ 15.9 $ 14.9 $ 18.3 $ 18.3 $ 20.0
====== ====== ====== ======= ========
Income before cumulative effect of changes in
accounting principles per common share(4)... $ 1.02 $ 1.06
======= ========
OTHER DATA
Operating income margin:
Medium density fiberboard................... 10.8% 12.4% 20.1%
Traditional timber products................. 11.6 19.5 16.5
EBITDA(5)..................................... $ 32.9 $ 34.8 $ 46.0
Depreciation and depletion:
Medium density fiberboard................... 6.2 6.7 7.4
Traditional timber products................. 4.8 1.8 2.3
Capital expenditures:
Medium density fiberboard................... 6.1 9.2 27.5
Traditional timber products................. 3.6 11.6 4.5
Dividends on common shares.................... 12.0 67.0 2.8
Cash dividends per common share............... $ .99 $ 5.54 $ .23
MDF sales volumes (thousand M3):
Specialty MDF products...................... 28.0 55.4 94.7
Standard grade MDF.......................... 434.7 419.7 385.7
</TABLE>

5
<PAGE> 9

<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1994
AS OF DECEMBER 31, ----------------------------------------------
------------------- PRO FORMA,
1992 1993 ACTUAL PRO FORMA(1) AS ADJUSTED(1)
------ ------ ------ ------------ --------------
($ IN MILLIONS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Cash and other current
assets................... $ 51.7 $ 43.6 $ 57.5 $ 57.5 $ 60.7
Total assets................ 165.8 170.6 208.1 208.1 211.3
Current liabilities......... 33.2 24.7 31.5 31.5 23.5
Long-term debt, including
current maturities(6).... 31.5 94.0 107.6 107.6 66.6
Redeemable preferred
stock.................... -- -- -- 50.0 --
Common stockholder's
equity................... 91.5 39.4 54.9 4.9 99.1
</TABLE>

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

(1) Adjusted to give pro forma effect to (i) the payment of a dividend to
Valcor, Inc. on February 14, 1995 by distribution of 1,000 shares of Series
A Preferred Stock, $1 par value, having an aggregate redemption value of $50
million (the "Stock Dividend"), and (ii) as adjusted to also give pro forma
effect to the Offering at an assumed offering price of $15 per share and the
application of the estimated net proceeds therefrom. See "Use of Proceeds,"
"Capitalization" and the Unaudited Pro Forma Condensed Financial Statements
of the Company included in this Prospectus.

(2) Includes in 1992 an $8.5 million gain related to insurance proceeds received
in connection with the destruction by fire of the Company's Rogue River,
Oregon veneer facility and a $5.0 million loss related to the closure of the
Company's plywood facility. See Note 3 to the Financial Statements of the
Company included in this Prospectus.

(3) The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
109, Accounting for Income Taxes, and SFAS No. 106, Employers' Accounting
for Postretirement Benefits Other Than Pensions ("OPEB"), effective January
1, 1992. The cumulative effect of these changes in accounting principles
relates primarily to SFAS No. 109.

(4) Pro forma based upon (i) 12,100,000 shares outstanding and a pro forma
provision for preferred dividends of $6.0 million and (ii) as adjusted to
also give pro forma effect to 18,850,000 shares outstanding giving effect to
the Offering and the application of the estimated net proceeds therefrom.
See "Use of Proceeds," "Capitalization" and the Unaudited Pro Forma
Condensed Financial Statements of the Company included in this Prospectus.

(5) EBITDA as presented represents operating income plus depreciation and
depletion. EBITDA is presented because it is a widely accepted financial
indicator of a company's ability to incur and service debt. However, EBITDA
should not be considered by an investor as an alternative to (i) operating
income or net income as an indicator of a company's operating performance or
(ii) cash flows from operating activities as a measure of a company's
liquidity.

(6) Includes loans from parent company of $2.0 million at December 31, 1992,
$20.0 million at December 31, 1993 and $5.0 million at December 31, 1994.

6
<PAGE> 10

RECENT DEVELOPMENTS

Selected operating results for the two-month period ended February 28, 1995
is set forth below. The Company believes the following financial information,
prepared by the Company without audit, is a fair presentation of the operating
results for the periods indicated. However, it should be understood that
accounting measurements for interim months may be less precise than for quarter
or year-end periods. These results are not necessarily indicative of the results
that may be expected for a full quarter, full year or future operations.

<TABLE>
<CAPTION>
TWO MONTHS
ENDED
FEBRUARY 28,
---------------
1994 1995
----- -----
<S> <C> <C>
(IN MILLIONS)
(UNAUDITED)
Selected operating results:
Net sales:
Medium density fiberboard..................................... $19.8 $28.9
Traditional timber products................................... 5.6 10.0
Eliminations.................................................. (.3) (.3)
----- -----
$25.1 $38.6
===== =====
Operating income:
Medium density fiberboard..................................... $ 3.3 $ 6.0
Traditional timber products................................... (.6) .4
----- -----
$ 2.7 $ 6.4
===== =====
Interest expense................................................. $ 1.0 $ 1.5
===== =====
</TABLE>

MDF net sales in the 1995 period increased 46% over the corresponding
period in 1994, as average MDF selling prices increased 29% and MDF sales
volumes increased 13%. A new MDF production line at the Company's plant in
Ireland completed in October 1994 contributed to the increase in volume while
average MDF selling prices continue to be influenced by strong demand and recent
capacity constrained supply. Average standard MDF selling prices increased
throughout 1994, and in December 1994 were 27% higher than they were in December
1993. Accordingly, year-to-year comparisons for MDF for the balance of 1995 are
not currently expected to be as favorable as the two-month comparison above. The
Company implemented MDF price increases during the first quarter of 1995 of
approximately 4 1/2% overall. Operating results in the 1995 period for
traditional timber products improved over the comparable 1994 period due
primarily to higher sales volumes, offset somewhat by lower selling prices.
Operating results in the 1994 period were also adversely impacted by startup
costs associated with the Company's Rogue River facility.

Interest expense for the two-month period ended February 28, 1995 increased
from the comparable 1994 period due to combined effects of higher borrowing
levels attributable to borrowings associated with the construction of the second
production line in Ireland and higher interest rates on the Company's floating
rate debt.

7
<PAGE> 11

RISK FACTORS

Before making an investment decision, prospective purchasers of the Common
Stock offered hereby should consider carefully the following information,
together with the other information set forth in this Prospectus.

Possible Adverse Effect of Increased Costs and Availability of Raw
Materials. The primary raw materials used in the Company's MDF operations are
wood fiber and resins. Wood fiber is derived primarily from wood chips, shavings
and sawdust that are obtained from various sources. The availability and cost of
wood fiber is influenced by various factors including the general availability
of timber, competing demand for wood chips from the pulp and paper industry and
competing demand for wood fiber raw materials from other wood product
manufacturers. Both the Company's future operating performance and its ability
to expand its MDF production capacity are dependent upon the availability and
cost of wood fiber. Through its Oregon timberlands, its long-term wood supply
agreements with the Irish Forestry Service and other sources, the Company
believes it has access to adequate supplies of fiber to meet current and
expected operating needs for its existing facilities. However, the Company
anticipates increasing competition for wood fiber in future years and,
accordingly, there can be no assurance that long-term future fiber supply will
be adequate, with respect to quantity and price, to maintain the Company's
recent MDF margins or to enable the Company to achieve its future expansion
plans.

The price of the urea formaldehyde resin used in the Company's standard MDF
products increased significantly during 1994 due principally to recent worldwide
shortages of methanol, a primary element in the manufacture of urea formaldehyde
resin. Some industry sources predict that the cost of urea formaldehyde will
continue to increase in the near term. To date, the Company has been able to
recover this increased cost through increased prices. There can be no assurance,
however, that future increases in the cost of urea formaldehyde resin can
continue to be recovered through additional product price increases.

Competition and Announced MDF Capacity Additions. The MDF industry is
highly competitive. MDF producers compete, among other factors, on the basis of
quality, product breadth, customer service and delivered price. Recently, global
demand for MDF has exceeded availability and numerous producers, including the
Company, have placed customers on allocation. High MDF operating rates and
increasing prices, coupled with favorable forecasts for increasing MDF demand,
are expected to attract significant additional competition from companies which
may have greater financial strength and superior access to critical fiber
supplies than the Company. A survey by Wood Based Panels International ("WBPI"),
an MDF industry trade publication, projects average annual capacity increases of
5%, 12% and 23% for Europe, North America and the rest of the world,
respectively, through 1996 (a 15% worldwide increase). No assurance can be given
that demand for MDF will increase by comparable percentages in 1995 and 1996.
Accordingly, were all planned MDF capacity additions in fact brought on line at
the levels reported, there could be excess MDF production capacity in certain
regional markets which could increase competition and adversely affect the price
of MDF in those markets. See "Business -- Industry Overview."

The traditional U.S. timber product markets in which the Company competes
are also highly competitive, with delivered price being a principal factor. In
this sector, the Company competes primarily with other producers located in the
Pacific Northwest, Canada and, increasingly, the Southern United States. While
the Company's fee timber in Oregon is a valuable resource which aids the
Company's ability to control product costs, companies with greater supplies of
fee timber may have a competitive advantage in terms of product cost.

Governmental and Environmental Regulation. The Company's MDF and
traditional timber products manufacturing operations are subject to numerous
national, state and local laws and regulations relating to, among other things,
raw materials handling, production procedures, operating environment, emissions
and waste disposal, air and water quality, worker and product safety and
protection of the environment in general. As the Company engages in
manufacturing activities in the United States and Europe, it must at times
contend with differing regulatory standards and requirements. The Company
believes that it is in material compliance with all such existing regulations
and does not believe that future expenditures to comply with such regulations
will be material to the Company. There can be no assurance, however, that new or
more

8
<PAGE> 12

rigorous regulations affecting the Company's manufacturing operations will not
be adopted or that future expenditures to comply with existing or future
regulations will not be material.

The Company's traditional timber products operations are subject to a
variety of Oregon and, in some cases, U.S. federal laws and regulations dealing
with timber harvesting, reforestation and endangered species. These regulations
generally require the Company to obtain operating permits and, in some cases, to
file timber harvesting plans that must be approved by the Oregon Department of
Forestry prior to harvesting. The Company does not expect compliance with such
existing laws and regulations to have a material adverse effect on the Company's
timber harvesting practices. In addition, effective in 1990, the U.S. Fish and
Wildlife Service designated the Northern Spotted Owl as a threatened species
under the Endangered Species Act ("ESA"). Generally, habitat for Northern
Spotted Owls is found in old growth timber stands, and not in the Company's
predominantly second growth timber. Consequently, the designation of the
Northern Spotted Owl under the ESA has not to date had, and, the Company
believes, will not in the future have, a material adverse effect on its timber
harvesting practices. There can be no assurance, however, that future
legislation, governmental regulations or judicial or administrative decisions
will not adversely affect the Company or its ability to harvest timber and sell
logs.

Effective September 1, 1994, an amendment to the Oregon Forest Practices
Act imposed more restrictive regulations on the harvest of timber near rivers
and streams. The amendment specifically creates twenty-foot wide buffer zones
along rivers and streams, including intermittent stream beds, where timber
harvest is prohibited and further regulates timber harvest in additional buffer
zones. The Company believes that this amendment will not materially impact its
ability to harvest timber from its timberlands. There can be no assurance,
however, that future legislation or governmental regulations will not adversely
affect the Company or its ability to harvest timber.

Urea formaldehyde resin is used as a binding agent in the production of
standard MDF products. Formaldehyde, which also occurs naturally in wood and
other natural resources, is listed as a "suspected" carcinogen by the U.S.
federal government based upon results of laboratory studies performed using
maximum tolerated doses. The Environmental Protection Agency (the "EPA") and
various industry groups have tested and are continuing to test MDF and products
fabricated using MDF to determine the levels of emissions of formaldehyde and
the effects, if any, of these emissions on human health. While the Company's MDF
products that contain urea formaldehyde resins currently meet applicable
regulations for acceptable levels of formaldehyde emissions in the geographic
and end user markets in which the Company sells its MDF products and the Company
produces and markets MDF products with reduced formaldehyde content as the
result of improved resin technology and post production treatment processes,
there can be no assurances that the Company will not be compelled to reduce or
to eliminate its use of urea formaldehyde resins in all its products in the
future on the basis of the findings of these or any future studies or because of
actual or perceived health risks associated with the use of MDF containing urea
formaldehyde resins. Any such change in the product formulation of
standard-grade MDF products, whether as a result of governmental regulation or
consumer preferences, could have a material adverse affect upon the MDF industry
as a whole, as MDF prices would consequently need to be significantly increased
to recover the higher cost of substitute formaldehyde-free resins and costs
associated with modifying existing MDF manufacturing processes. As the Company
is currently manufacturing a "formaldehyde-free" MDF product, to which no
formaldehyde is added during the manufacturing process, the Company believes
that the adverse impact of such changes on the Company would be less than for
certain of the Company's competitors. However, there can be no assurances that
any liabilities arising from actual health effects associated with the
historical use of urea formaldehyde in the Company's MDF products would not have
a material adverse effect on the Company's financial condition and results of
operations.

The Company's MDF manufacturing operations also release formaldehyde into
the atmosphere as a waste by-product. These emissions have been targeted for
increasingly stringent regulation under the U.S. Clean Air Act Amendments of
1990. Although the EPA is not scheduled to promulgate final regulations for
emissions of formaldehyde and other airborne substances until 1997, and the
Company currently meets air emission permit requirements at all its MDF
operating facilities, stringent future regulation of formaldehyde emissions
could require the Company to spend substantial amounts for air pollution control
technology and

9
<PAGE> 13

reconfiguration of its MDF plants to capture and treat these emissions. Although
the Company cannot predict what, if any, pollution control technology will be
required, the Company currently believes that the cost of such technology could
be significant in the years in which it is required to be installed.

The Company manufactures a flame retardant MDF product, Medite FR, which
meets the specifications of certain European building regulations governing use
of Class 1 flame retardant products. Sales of Medite FR represented 4% of the
Company's 1994 total MDF sales dollars. There can be no assurance, however, that
future regulations or modifications of existing building regulations will not
change existing specifications or create new specifications, in either case
limiting the Company's ability to sell the Medite FR product without substantial
changes that the Company may or may not be able to achieve.

Foreign Operations and Currency Fluctuations. The Company, through its
wholly-owned subsidiary Medite of Europe Limited ("Medite/Europe"), has
substantial operations and assets located in the Republic of Ireland and is
subject to all the risks associated with foreign operations, including currency
fluctuations. Approximately 30% of the Company's total 1994 net sales were
denominated in currencies other than the U.S. dollar, principally the United
Kingdom Pound Sterling and European Currency Unit ("ECU"). The percentages of
non-U.S. dollar sales and costs are expected to increase as a result of the
additional production capacity recently added to the Company's Irish facility.
Fiber, labor and production costs of the Company's Irish operations are
denominated principally in Irish punts while resins are purchased primarily in
Sterling. The U.S. dollar value of the Company's foreign sales, operating costs
and net income are subject to currency exchange rate fluctuations which may
favorably or adversely impact reported earnings and, accordingly, affect the
comparability of period to period operating results. During the three year
period ending December 31, 1994, the month-end exchange rates for the Irish punt
in U.S. dollar terms ranged from a high of $.738 on August 31, 1993 to a low of
$.525 on September 30, 1992. As of December 31, 1994, the exchange rate was
$.645 per Irish punt.

Although the Company's foreign operating experience has to date been
satisfactory, foreign operations may in the future be subject to a number of
other special risks, including duties on imports and exports and other trade
barriers.

Cyclicality. Demand for the Company's MDF products is in part derived from
the general level of economic activity in the principal geographic markets
served by the Company (North America and Europe). Economic activity in these
markets is currently expanding but in 1991 was at one of its lower levels since
World War II. In contrast to demand for MDF, demand for the Company's
traditional timber products is largely influenced by new U.S. construction,
which is highly cyclical in nature. For example, in 1991, new U.S. housing
starts were at their lowest level in more than 30 years. The Company believes
that demand for its MDF products is significantly less cyclical than demand for
its traditional timber products due to more geographically dispersed production
and markets, the wide range and relative diversity of MDF applications, the
overall growth in MDF unit demand and the Company's broad range of specialty MDF
products. Nonetheless, the Company expects its future operating performance to
be affected in part by both general and industry specific economic conditions,
some of which are cyclical in nature.

Risk of Loss from Fire or Other Casualties. The Company assumes
substantially all risks of loss from fire and other casualties on its
timberlands, as do the owners of most other timber tracts in the United States.
Consistent with timber industry practices, the Company does not maintain fire
insurance on standing timber. The Company participates with state agencies and
other timberland owners in cooperative fire fighting and aerial fire
surveillance programs. The extensive roads on the Company's acreage serve as
fire breaks and facilitate the use of fire control techniques and fire fighting
equipment. The Company's various timber tracts are somewhat geographically
dispersed, which reduces the possibility of significant fire damage. The only
forest fire of any significance on the Company's timberlands during the past
three years occurred in July 1994 and resulted in damage to approximately 1,200
acres, which the Company expects to salvage with minimal loss.

The Company's production facilities are susceptible to fire because of the
nature of their operations. In 1992, the Company's Rogue River, Oregon veneer
mill was completely destroyed by fire. Although the Company was covered by
property and business interruption insurance, the Company believes insurance

10
<PAGE> 14

benefits did not fully compensate for the economic loss caused by the fire. To
reduce the risk of significant fire damage, the Company's present facilities
employ sophisticated fire monitoring and detection systems. The Company also
maintains property and business interruption insurance to cover potential risk
of loss arising from fires or other casualty losses.

Control by Principal Stockholder. After the Offering, Valcor will own
approximately 64% of the Common Stock. All of Valcor's common stock is owned by
Valhi. Approximately 90% of Valhi's common stock is beneficially owned, directly
or indirectly, by Contran Corporation. Substantially all of Contran's
outstanding voting stock is held by trusts established for the benefit of Harold
C. Simmons' children and grandchildren. As sole trustee of these trusts, Mr.
Simmons has the power to vote and direct the disposition of the shares of
Contran stock held by the trusts even though Mr. Simmons disclaims beneficial
ownership thereof. As trustee Mr. Simmons has the power to elect the majority of
the directors of Contran and effectively has the power to determine the policies
of the Company, the persons constituting the management and Board of the Company
and the outcome of corporate actions requiring stockholder approval. The
principal stockholder could also cause the Company to enter into agreements,
take actions, refrain from taking actions or implement policies in the interest
of the principal stockholder that the Company might not otherwise elect to take
were it not controlled by Valcor and, ultimately, by Mr. Simmons. See "Security
Ownership in the Company and its Affiliates" and "Certain Relationships and
Transactions."

Restrictions Imposed by Terms of the Valcor Indenture. In November 1993,
Valcor completed a public debt offering of Senior Notes (the "Valcor Notes")
that mature in 2003. Under the terms of the related indenture (the "Valcor
Indenture"), while the Valcor Notes are outstanding, Valcor and its subsidiaries
(including the Company) are subject to certain restrictions and covenants. These
restrictions affect, among other things, the Company's ability to incur
indebtedness, make acquisitions of or investments in related or unrelated
businesses, sell assets, place liens on its existing properties and consent to
further restrictions on its ability to pay dividends or make other distributions
in respect of its capital stock. Such restrictions may limit the ability of the
Company to expand its business or to take advantage of opportunities to invest
in new businesses, particularly through the use of debt financing. The Company's
ability to incur additional indebtedness may depend in part on the operating
results and levels of indebtedness of Valcor's other business segments. The
Company and Valcor do not believe, however, that the restrictions of the Valcor
Indenture will have a material affect on the Company's ability to conduct its
business as currently contemplated. See "Certain Relationships and
Transactions."

In the event of any default of any of the foregoing restrictions, holders
of the Valcor Notes could elect to declare all amounts outstanding in respect
thereof to be due and payable. If the Valcor Notes were to be accelerated, there
can be no assurance that Valcor would be able to repay in full all amounts due
and owing. In such case, there can be no assurance that there would be no
adverse effect on the Company, including the sale of the Common Stock held by
Valcor in order to pay the accelerated amounts. Such a sale could have an
adverse effect on the prevailing market price of the Common Stock.

Effect of No Prior Public Trading Market. Prior to the Offering, there has
been no public trading market for the Common Stock. The public offering price
for the Common Stock will be determined by negotiations between the Company and
the Underwriters based upon several factors and will not necessarily bear any
relationship to the Company's assets, book value, results of operations or net
worth or any other generally accepted criteria of value, and should not be
considered as indicative of the actual value of the Company. Therefore, the
market price of the Common Stock may fall below the public offering price of the
Common Stock at any time following the Offering. See "Underwriters."

In addition, although the Common Stock has been approved, subject to
official notice of issuance, for trading on the NASDAQ National Market System,
there can be no assurance that an active trading market will develop. Further,
if a market does develop, it may be limited, and there can be no assurance that
it will be sustained. To the extent that an active trading market does develop,
factors such as quarterly variations in the Company's financial results,
announcements by the Company or others, general market conditions or certain
regulatory pronouncements may cause the market price of the Common Stock to
fluctuate substantially.

11
<PAGE> 15

Effect of Sales of Substantial Amounts of Common Stock. No prediction can
be made as to the effect, if any, that future sales of outstanding Common Stock
or the availability of Common Stock for sale will have on the market price of
the Common Stock prevailing from time to time. Each of the Company and Valcor
has agreed that, for a period of 180 days following the date of this Prospectus,
it will not issue or sell any shares of Common Stock or securities convertible
into or exercisable for such stock, held by it now or in the future without the
prior written consent of the Underwriters. The sale of a substantial number of
additional shares of Common Stock by the Company or Valcor, or the perception
that such sales could occur, could adversely affect the market price of the
Common Stock. See "Shares Eligible for Future Sale" and "Security Ownership in
the Company and its Affiliates."

Dilution Incurred by Investors. The offering price is substantially higher
than the net tangible book value per share of Common Stock. Accordingly,
investors purchasing the Common Stock offered hereby will incur immediate,
substantial dilution in the amount of $9.74 per share, assuming a public
offering price of $15 per share. See "Dilution."

USE OF PROCEEDS

Net proceeds of the Offering of approximately $94.2 million (based on an
assumed offering price of $15 per share) will be used to redeem all of the
Company's Series A Preferred Stock and temporarily repay bank indebtedness. The
Offering will enhance the Company's financial flexibility to pursue potential
acquisitions, strategic joint ventures and internal growth opportunities.

The Company intends to use $51.5 million of the net proceeds of the
Offering to redeem all of the outstanding shares of the Series A Preferred
Stock. These shares will be redeemed at the stated redemption price of $50,000
per share plus accrued and unpaid dividends.

The Company intends to use $41 million of the net proceeds of the Offering
to temporarily repay a portion of amounts outstanding under the Company's Timber
Credit Agreement. Amounts to be repaid are due in 1997 through 2000 and, as of
December 31, 1994, bore interest at a weighted average interest rate of 7.8% per
annum. Amounts repaid under the Timber Credit Agreement may be reborrowed
subject to reducing availability.

The Company intends to add new MDF production facilities during the next
two to three years. Although the Company has no specific plan or arrangement in
place with respect to such MDF capacity additions, it is actively exploring
expansion opportunities through acquisitions, strategic joint ventures and new
construction. In early March 1995, the Company offered to enter into exclusive
negotiations for the purchase of certain assets from a third party consisting
principally of an MDF mill, a lumber mill and certain timber resources (the
"Assets"). Although the third party declined the Company's offer, the Company
may renew its efforts to purchase the Assets or seek to acquire similar MDF
assets following the completion of this Offering. No assurance may be given,
however, that the Company will be successful in any such acquisition efforts.

To the extent that the Company identifies appropriate opportunities to
expand its MDF production capacity, the Company could use additional borrowings
(including credit availability resulting from the repayment of the Timber Credit
Agreement described above) to fund such expansion opportunities. See
"Business -- Strategy."

12
<PAGE> 16

DIVIDEND POLICY

The Company intends to declare and pay regular quarterly cash dividends,
beginning with an initial such dividend of approximately $.05 per share with
respect to the fiscal quarter ending June 30, 1995. Determinations to pay cash
dividends, however, are at the discretion of the Board of Directors, and the
actual payment of any such dividends in the future will depend upon the
Company's results of operations, earnings, capital requirements and contractual
restrictions and upon other factors deemed relevant by the Company's Board of
Directors. Certain of the Company's and its subsidiaries' credit agreements
limit the payment of dividends. Additionally, commencing on February 1, 2001,
dividends may not be declared or paid on the Common Stock unless all cumulative
accrued and unpaid dividends on the Series A Preferred Stock are paid in full or
set aside for payment. However, the Company intends to use a portion of the net
proceeds of the Offering to redeem the Series A Preferred Stock, which will
eliminate this restriction on the payment of dividends. See "Use of Proceeds,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources," "Description of Capital Stock"
and the Financial Statements of the Company included in this Prospectus.

The Company paid cash dividends to its parent company aggregating $12
million in 1992, $67 million in 1993 and $2.8 million in 1994. Of such amounts,
$60 million in 1993 was from the proceeds of borrowed funds. The Company
declared and paid the Stock Dividend on February 14, 1995 by distributing 1,000
shares of Series A Preferred Stock. The Company intends to utilize a portion of
the net proceeds of the Offering to redeem all 1,000 shares of the Series A
Preferred Stock plus accrued and unpaid dividends. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."

13
<PAGE> 17

CAPITALIZATION

The following table sets forth the consolidated capitalization of the
Company as of December 31, 1994 on a pro forma basis to give effect to (i) the
payment of the Stock Dividend to Valcor and (ii) as adjusted to reflect the
Offering at an assumed public offering price of $15 per share and application of
the estimated net proceeds therefrom. See "Use of Proceeds."

<TABLE>
<CAPTION>
PRO FORMA,
ACTUAL PRO FORMA AS ADJUSTED
------ --------- ------------
($ IN MILLIONS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Current maturities of long-term debt........................ $ 10.9 $ 10.9 $ 2.9
====== ======= ======
Long-term debt:
Medite (US):
Timber credit agreement:
Fixed term loan...................................... $ 44.0 $ 44.0 $ 26.0
Reducing revolving term loan(1)...................... 23.0 23.0 --
Revolving working capital facility(1)................ 2.0 2.0 2.0
State of Oregon term loan.............................. 4.1 4.1 4.1
Other.................................................. .2 .2 .2
------ ------- ------
73.3 73.3 32.3
------ ------- ------
Medite/Europe (Ireland):
Bank term loans........................................ 22.4 22.4 22.4
Revolving credit agreement(1).......................... 6.8 6.8 6.8
Other.................................................. .1 .1 .1
------ ------- ------
29.3 29.3 29.3
------ ------- ------
Total long-term debt, including current maturities... 102.6 102.6 61.6
Less current maturities................................... 10.9 10.9 2.9
------ ------- ------
Total long-term debt.............................. 91.7 91.7 58.7
------ ------- ------
Loan from Valcor............................................ 5.0 5.0 5.0
------ ------- ------
Redeemable preferred stock, Series A Preferred Stock, $1 par
value; $6,000 per share annual cumulative dividend, 1,000
shares issued and outstanding, stated at $50,000 per share
redemption price.......................................... -- 50.0 --
Non-redeemable Preferred Stock, $1 par value; 999,000 shares
authorized, none issued................................... -- -- --
------ ------- ------
Common stockholder's equity:
Common stock, $.01 par value; 50,000,000 shares
authorized, 12,100,000 shares issued and outstanding
(18,850,000 pro forma, as adjusted).................... .1 .1 .2
Additional paid in capital................................ .8 .8 94.9
Retained earnings......................................... 54.0 4.0 4.0
------ ------- ------
Total common stockholder's equity.................... 54.9 4.9 99.1
------ ------- ------
Capitalization.................................... $151.6 $ 151.6 $162.8
====== ======= ======
</TABLE>

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

(1) These revolving credit facilities have, at December 31, 1994, available
formula-based borrowings of up to the following amounts: Medite (US) -- $8
million and Medite/Europe -- $4 million, and, pro forma as adjusted, an
additional $41 million on the Medite (US) reducing revolving term loan.

14
<PAGE> 18

DILUTION

The net tangible book value of the Company at December 31, 1994 was $54.9
million, or $4.54 per share. Net tangible book value per share represents the
amount of total assets less total liabilities and intangible assets, divided by
the number of shares of Common Stock outstanding. Net tangible book value
dilution per share represents the difference between the amount per share paid
by purchasers of shares of Common Stock in the Offering and the net tangible
book value per share of Common Stock immediately after completion of the
Offering. After giving effect to the sale of shares of Common Stock by the
Company in the Offering at an assumed offering price of $15 per share and the
application of the estimated net proceeds therefrom, the net tangible book value
of the Company as of December 31, 1994 would have been $99.1 million, or $5.26
per share. This represents an immediate increase in net tangible book value of
$.72 per share to existing stockholders and an immediate dilution in net
tangible book value of $9.74 per share to purchasers of Common Stock in the
Offering, as illustrated in the following table:

<TABLE>
<S> <C> <C>
Assumed public offering price per share............................ $15.00
------
Net tangible book value per share at December 31, 1994.... $4.54
Increase per share attributable to new investors.......... .72
-----
Pro forma net tangible book value per share after the
Offering....................................................... 5.26
------
Net tangible book value dilution per share to new investors........ $ 9.74
======
</TABLE>

15
<PAGE> 19

SELECTED FINANCIAL DATA

The following selected financial and other data should be read in
conjunction with the Financial Statements of the Company included in this
Prospectus and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------------
PRO FORMA,
PRO FORMA AS ADJUSTED
1990 1991 1992 1993 1994 1994(1) 1994(1)
------ ------ ------ ------ ------ --------- -----------
($ IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Net sales:
Medium density fiberboard..... $ 98.3 $ 98.0 $111.6 $112.1 $134.9 $ 134.9 $ 134.9
Traditional timber products... 104.7 85.5 85.4 63.7 56.2 56.2 56.2
Eliminations.................. (5.6) (3.8) (2.2) (1.5) (1.2) (1.2) (1.2)
------ ------ ------ ------ ------ ------- -------
$197.4 $179.7 $194.8 $174.3 $189.9 $ 189.9 $ 189.9
====== ====== ====== ====== ====== ======= =======
Operating income:
Medium density fiberboard..... $ 9.7 $ 1.6 $ 12.1 $ 13.9 $ 27.1 $ 27.1 $ 27.1
Traditional timber products... 13.1 6.4 9.9 12.4 9.2 9.2 9.2
------ ------ ------ ------ ------ ------- -------
22.8 8.0 22.0 26.3 36.3 36.3 36.3
Business unit dispositions and
other, net(2)................. .9 -- 3.9 .5 (.2) (.2) (.2)
Interest expense................ (8.5) (6.0) (3.1) (3.1) (6.6) (6.6) (3.8)
------ ------ ------ ------ ------ -------- -------
Income before income taxes.... 15.2 2.0 22.8 23.7 29.5 29.5 32.3
Income taxes.................... 5.8 .2 8.2 8.8 11.2 11.2 12.3
------ ------ ------ ------ ------ ------- -------
Income before cumulative effect
of changes in accounting
principles.................... 9.4 1.8 14.6 14.9 18.3 18.3 20.0
Cumulative effect of changes in
accounting principles(3)...... -- -- 1.3 -- -- -- --
------ ------ ------ ------ ------ ------- -------
Net income................. $ 9.4 $ 1.8 $ 15.9 $ 14.9 $ 18.3 $ 18.3 $ 20.0
====== ====== ====== ====== ====== ======= =======
Income before cumulative effect
of changes in accounting
principles per common
share(4)...................... $ 1.02 $ 1.06
======= =======
OTHER DATA
Operating income margin:
Medium density fiberboard..... 9.9% 1.6% 10.8% 12.4% 20.1%
Traditional timber products... 12.5 7.4 11.6 19.5 16.5
EBITDA(5)....................... $ 41.2 $ 22.4 $ 32.9 $ 34.8 $ 46.0
Depreciation and depletion:
Medium density fiberboard..... 5.4 6.1 6.2 6.7 7.4
Traditional timber products... 13.0 8.3 4.8 1.8 2.3
Capital expenditures:
Medium density fiberboard..... 5.9 1.5 6.1 9.2 27.5
Traditional timber products... 5.8 3.3 3.6 11.6 4.5
Dividends on common shares...... 5.3 -- 12.0 67.0 2.8
Cash dividends per common
share......................... $ .44 $ -- $ .99 $ 5.54 $ .23
MDF sales volumes (thousand M3):
Specialty MDF products........ 20.4 21.3 28.0 55.4 94.7
Standard grade MDF............ 400.3 408.7 434.7 419.7 385.7
</TABLE>

16
<PAGE> 20

<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1994
----------------------------------
AS OF DECEMBER 31, PRO FORMA,
------------------------------------ PRO AS
1990 1991 1992 1993 ACTUAL FORMA(1) ADJUSTED(1)
------ ------ ------ ------ ------ --------- -----------
($ IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Cash and other current
assets..................... $ 62.7 $ 48.0 $ 51.7 $ 43.6 $ 57.5 $ 57.5 $ 60.7
Total assets.................. 184.8 159.5 165.8 170.6 208.1 208.1 211.3
Current liabilities........... 51.4 28.0 33.2 24.7 31.5 31.5 23.5
Long-term debt, including
current maturities(6)...... 68.9 46.3 31.5 94.0 107.6 107.6 66.6
Redeemable preferred stock.... -- -- -- -- -- 50.0 --
Common stockholder's equity... 85.8 87.6 91.5 39.4 54.9 4.9 99.1
</TABLE>

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

(3) The Company adopted SFAS No. 109, Accounting for Income Taxes, and SFAS No.
106, Employers' Accounting for OPEB's, effective January 1, 1992. The
cumulative effect of these changes in accounting principles relates
primarily to SFAS No. 109.

(6) Includes loans from parent company of $7.5 million at December 31, 1990,
$2.0 million at December 31, 1992, $20.0 million at December 31, 1993 and
$5.0 million at December 31, 1994.

17
<PAGE> 21

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

OVERVIEW

Results of operations in each period have been affected by the Company's
ongoing strategy to expand its emphasis on medium density fiberboard operations,
increase the relative proportion of higher margin specialty MDF products and to
downsize its commodity-type traditional timber products operations.

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1992 1993 1994
----- ----- -----
<S> <C> <C> <C>
Net sales:
Medium density fiberboard......................................... 57.3% 64.3% 71.1%
Traditional timber products....................................... 43.9 36.6 29.6
Eliminations...................................................... (1.2) (.9) (.7)
----- ----- -----
Total net sales................................................ 100.0% 100.0% 100.0%
===== ===== =====
Operating income margin:
Medium density fiberboard segment................................. 10.8% 12.4% 20.1%
Traditional timber products segment............................... 11.6 19.5 16.5
Aggregate operating income margin.............................. 11.3 15.1 19.1
</TABLE>

MEDIUM DENSITY FIBERBOARD

During the past decade the MDF industry has experienced significant growth
in product demand worldwide. MDF consumption in the Company's primary markets of
Europe and North America has over the 10 year period ending 1993 increased at
25% and 7% average annual rates, respectively. This growth has been driven
primarily by increasing substitution of MDF products for traditional timber
products in manufacturing applications due to recent improvements in MDF product
characteristics, cost advantages relative to traditional timber products and
development of specialty MDF products that satisfy special customer
requirements. The price of many traditional timber products has risen to record
levels due to environmentally related pressures on available global timber
supplies and cyclical demand recovery.

MDF prices remained relatively flat prior to 1993, with modest year-to-year
changes. Over the past two years, the increased cost of traditional timber
products has led to higher demand for substitute products such as MDF and
resulted in MDF operating rates approaching effective capacity. In this
environment, MDF prices have increased notably, and average prices for the
Company's standard MDF products in 1994 were approximately 16% higher than those
in 1993 and were 27% higher in December 1994 than they were in December 1993.
The Company's increased emphasis on higher margin specialty products has also
favorably impacted the Company's aggregate MDF average selling prices, which
were approximately 19% higher in 1994 than those in 1993. In the first quarter
of 1995, the Company implemented price increases of approximately 5% on all MDF
products produced in Europe and approximately 4% on standard MDF products
produced in North America. Further improvement in aggregate MDF prices for the
remainder of 1995 is currently expected to be influenced primarily by specialty
product mix and changes, if any, in raw material costs.

In addition to increased selling prices over the past two years, operating
margins during 1992 through 1994 have been favorably influenced by (i) continued
improvement in operating efficiencies achieved at the Company's Las Vegas, New
Mexico MDF facility (acquired in 1989) and (ii) favorable effects of capital
expenditure programs focused on improving production efficiency and increasing
yield from existing productive capacity. As a result, the Company's MDF
operating income margin increased from approximately 11% in 1992 to
approximately 20% in 1994. Operating income margins for the Company's Irish
operations are higher

18
<PAGE> 22

than margins for the United States MDF operations as sales of higher
priced/higher margin specialty MDF products represent a greater portion of sales
of the Irish operations compared to the United States operations. The Company
expects the percentage of sales of specialty products for the U.S. operations
will increase due to the introduction of specialty MDF at its New Mexico
facility late in 1994.

The Company's MDF plants have been operating at a high rate of capacity.
Consequently, the Company's emphasis on production of higher margin specialty
MDF products has displaced production of lower margin standard grade MDF. The
new production line at the Company's Irish plant completed commissioning and
became operational during the fourth quarter of 1994. The new facility is
expected to increase the Company's effective MDF production capacity by about
15% to 580,000 M3 in 1995 and eventually by 25% to 635,000 M3 by 1998, when full
production capacity will be reached. This new production line will enable the
Company to increase both standard and specialty product volumes and to more
efficiently produce thin board MDF.

The U.S. dollar value of Medite's foreign sales and operating costs are
influenced by currency exchange rate fluctuations which may favorably or
adversely impact reported results and, accordingly, affect the comparability of
period to period operating results. Approximately 30% of Medite's 1994 MDF sales
were denominated in currencies other than the U.S. dollar, principally the U.K.
Pound Sterling and the European Currency Unit. Fiber, labor and production costs
of Medite's Irish operations are denominated principally in Irish punts, while
Irish resins are purchased primarily in Sterling. The percentage of non-dollar
sales and costs are expected to increase as a result of the additional
production capacity recently added to the Irish MDF plant.

TRADITIONAL TIMBER PRODUCTS

Traditional timber products operations for 1992, 1993 and 1994 are not, in
certain respects, directly comparable due to the closure of the Company's
plywood operations in January 1993 and the fire at its Rogue River, Oregon
chipping and veneer plant in June 1992, as discussed below. Rogue River chipping
operations resumed in July 1993 and veneer operations resumed in January 1994.
The Company's traditional timber products operations are located solely in the
United States; accordingly, operating income margins for the Company's United
States operations are influenced by operating margins of traditional timber
products.

In response to declining availability of timber from government owned
timberlands in recent years, the Company has adjusted its manufacturing
operations by closing marginal production facilities and, consequently, the
Company's sales of traditional timber products have decreased from 45% of total
Company sales in 1991 to 29% in 1994. The Company's strategy has been to
maximize the operating contribution of its fee timberlands by allocating its
harvested timber between log sales and its traditional timber products
conversion facilities depending upon prevailing market conditions.

The Company owns 168,000 acres of timberland that contain approximately 660
MMBF of generally second growth merchantable timber. The Company's fee
timberlands have become an increasingly valuable resource as the shortage of
Pacific Northwest public timber available for harvest is expected to continue in
the foreseeable future. The Company believes its fee timberlands have a market
value substantially in excess of their financial statement carrying value of $53
million at December 31, 1994.

19
<PAGE> 23

YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, % CHANGE
---------------------------- -------------------
1992 1993 1994 1992-93 1993-94
------ ------ ------ ------- -------
($ IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Net sales:
Medium density fiberboard................... $111.6 $112.1 $134.9 + 0% +20%
Traditional timber products................. 85.4 63.7 56.2 -25% -12%
Eliminations................................ (2.2) (1.5) (1.2)
------ ------ ------
$194.8 $174.3 $189.9 -11% + 9%
====== ====== ======

Operating income:
Medium density fiberboard................... $ 12.1 $ 13.9 $ 27.1 +15% +95%
Traditional timber products................. 9.9 12.4 9.2 +26% -25%
------ ------ ------
$ 22.0 $ 26.3 $ 36.3 +20% +38%
====== ====== ======

MDF sales volume (thousands of M3):
Specialty products.......................... 28.0 55.4 94.7 +98% +71%
Standard grade.............................. 434.7 419.7 385.7 - 3% - 8%
------ ------ ------
462.7 475.1 480.4 + 3% + 1%
====== ====== ======
</TABLE>

YEAR ENDED DECEMBER 31, 1994 COMPARED TO 1993

Net income for the year ended December 31, 1994 was $18.3 million, up 23%
from $14.9 million for 1993 as a 38% increase in operating income (on a 9%
increase in net sales) was partially offset by higher interest expense.

Medium density fiberboard. The significant improvements in MDF sales,
operating income and operating income margins were driven by both higher overall
selling prices and higher volumes of specialty MDF products. Average MDF selling
prices were 19% higher, due to the combined effects of a 16% increase in average
selling prices of standard MDF products and the increased sales of
higher-priced/higher margin specialty products which in 1994 accounted for 28%
of total MDF sales dollars compared to 19% in 1993. Fluctuations in the value of
the U.S. dollar relative to other currencies contributed approximately 1% to the
increase in 1994 average selling prices compared to 1993.

Per-unit MDF costs increased approximately 6% in 1994 primarily as a result
of both a 23% increase in per-unit resin costs, due to increased prices for
resins used in standard MDF products and increased use of higher cost resins
associated with increased volumes of specialty products, and a 5% increase in
per-unit wood fiber costs. Fluctuations in the value of the U.S. dollar relative
to other currencies accounted for slightly less than 1% of the increase in per
unit MDF costs.

Operating income increased 95% in 1994 due to overall effects of higher
average MDF selling prices, offset by effects of higher per unit production
costs described above.

Traditional timber products. Primarily as a result of market-based volume
decisions made by the Company, including a relative reduction in the volume of
logs offered for sale and the curtailment of veneer and lumber production during
a portion of the second and third quarters of 1994, sales and operating income
declined in 1994 relative to 1993. Traditional timber products earnings in 1993
were aided by higher volumes early in the year related to reductions in log and
other inventories following the closure of the Company's plywood operations in
January 1993. Traditional timber products operating income in 1994 was favorably
impacted by lower log costs, which on a per-unit basis decreased approximately
18% compared to 1993. This decrease in average log costs resulted from the
combined effects of log mix (31% of logs obtained from lower cost fee timber in
1994 compared to 22% in 1993) and a $3.2 million favorable impact of reductions
in LIFO log inventories. The favorable effects of lower log costs on operating
income and operating income margins

20
<PAGE> 24

were substantially offset by lower volumes and start-up costs of the Company's
Rogue River veneer operations in the first half of 1994.

Interest expense. Interest expense increased to $6.6 million in 1994 from
$3.1 million in 1993 due to both higher borrowing levels (resulting from $61
million of net additional borrowings in connection with the Company's Timber
Credit Agreement established in August 1993) and higher variable interest rates.
Capitalization of interest of $.6 million in 1994 related to financing of the
Irish plant expansion ceased in October 1994. Interest on related borrowings
will be expensed in future periods.

On a pro forma basis, assuming a portion of the proceeds from this Offering
were used to prepay $41 million of variable-rate debt (see "Use of Proceeds"),
interest expense for 1994 would have been reduced by $2.8 million from the
historical amount.

Provision for income taxes. The principal reasons for the difference
between the U.S. federal statutory income tax rate and the Company's effective
income tax rates are explained in Note 8 to the Company's Financial Statements
included in this Prospectus.

YEAR ENDED DECEMBER 31, 1993 COMPARED TO 1992

While operating income in 1993 increased 20% from 1992, net income before
changes in accounting principles only increased slightly from $14.6 million for
1992 to $14.9 million for 1993 as the results for 1992 include a pre-tax gain of
$3.5 million related to business unit dispositions.

Medium density fiberboard. MDF sales in 1993, in U.S. dollar terms, were
only nominally higher than 1992. The positive effects on sales of higher total
volume, higher specialty products volume and price increases, in billing
currency terms, were substantially offset by the effects of fluctuations in
currency exchange rates. Average selling prices of standard MDF, in billing
currency terms, increased 7% in the U.S. and decreased approximately 3% at the
Ireland facility. The decline in average prices in Ireland is primarily the
result of declines in the volume of cut-to-size product sales.

Per-unit MDF costs declined approximately 4% in 1993 primarily due to the
combined effects of currency fluctuations and moderate improvement in operating
efficiency in the U.S. which more than offset a 2% increase in per-unit wood
costs and a 5% increase in per-unit resin costs resulting primarily from higher
percentage production of specialty products.

Operating income increased 15% in 1993 primarily due to lower per-unit MDF
costs as the effects of higher volumes of specialty MDF products and higher
total sales volumes were substantially offset by the effects of fluctuations in
currency exchange rates.

Traditional timber products. Average selling prices of traditional timber
products increased significantly in 1993 over 1992 levels (lumber up 29%; logs
up 46%) due primarily to the combined effects of the continuing Pacific
Northwest timber shortage, closure of certain competitor operations and
increased demand for building products. These factors also significantly
increased the Company's timber costs, as discussed below. Lower volumes more
than offset the effects of increased selling prices on 1993 sales of traditional
timber products.

The average unit cost of logs used in the Company's traditional timber
product operations increased about 24% in 1993 following a 28% increase in 1992.
These cost increases were due primarily to increases in the cost of timber from
government and other sources, offset in part by the favorable impact of the
Company's planned reductions in LIFO log and other inventory levels, which were
being reduced as a result of the closure of the plywood operations. The
favorable impact on operating income from the reduction of LIFO inventories was
$1.9 million in 1992 and $.5 million in 1993.

Business interruption insurance from the Rogue River fire recognized as a
component of operating income ($3.7 million in 1992 and $1.9 million in 1993)
had a significant favorable, non-recurring effect on the aggregate traditional
timber product operating income margins in 1992 and 1993 as this income had no
associated cost.

21
<PAGE> 25

Business unit dispositions. The $3.5 million net gain on business
dispositions in 1992 consisted of an insurance gain related to the Rogue River
fire and an accrued loss related to the closure of the Company's plywood
operations. The $.5 million gain in 1993 relates to a change in the estimated
accrued plywood loss. See Note 3 to the Company's Annual Financial Statements
included in this Prospectus.

Interest expense. Interest expense of $3.1 million in 1993 approximated
that of 1992 as the combined effects of lower borrowing levels for the first
seven months of the year and lower interest rates effectively offset the effect
of higher borrowing levels during the last five months of the year, which
resulted from borrowings under the Company's Timber Credit Agreement in August
1993.

Cumulative effect of changes in accounting principles. The credit to
income in 1992 resulted from the adoption of SFAS No. 109 (income taxes) and
SFAS No. 106 (OPEB). See Note 7 to the Company's Financial Statements included
in this Prospectus.

LIQUIDITY AND CAPITAL RESOURCES

CONSOLIDATED CASH FLOWS

Operating activities. Trends in cash flows from operating activities,
before changes in assets and liabilities, for 1992, 1993 and 1994 are generally
similar to the trends in the Company's earnings. Depreciation and depletion
during 1993 and 1994 were impacted by lower depletion resulting from reductions
in the volume of fee timber harvested. Start up of the new MDF production line
in Ireland during the fourth quarter of 1994 will increase future depreciation,
which increase should be mitigated in part by certain production facilities
becoming substantially fully depreciated in 1996.

Changes in assets and liabilities result primarily from the timing of
production, sales and purchases. Such changes in assets and liabilities, which
provided cash in 1992, used cash in 1993 and provided cash in 1994, generally
tend to even out over time and result in trends in cash flows from operating
activities generally reflecting earnings trends. Changes in assets and
liabilities are expected to use cash in 1995 as net working capital assets are
increased to support production from the new MDF line in Ireland.

Investing activities. Capital expenditures in 1994 totalled $32 million,
of which $25 million is related to the Irish MDF plant expansion. Capital
expenditures totalling $11 million during 1992 and 1993 related to the
replacement of the Rogue River facilities and $6 million in 1993 related to the
Irish plant expansion. Other capital expenditures in the past three years
emphasized equipment which utilizes new technologies in the manufacture of MDF
to provide for increased productivity and related to environmental compliance,
primarily reforestation programs.

Capital expenditures for 1995 are estimated at approximately $14 million,
approximately one-third of which relate to projects that emphasize new
technology and focus on eliminating capacity constraints to improve production
efficiency and increase production capacity. Approximately 10% of estimated 1995
capital expenditures relate to environmental protection and improvement
programs, principally reforestation activities. These estimates do not include,
however, any additional expenditures that may be required to comply with the
U.S. Clean Air Amendment of 1990 because the EPA is not scheduled to promulgate
final regulations on emissions of formaldehyde and other airborne substances
under this Act until 1997.

Net cash from business unit dispositions in 1992 included $11 million of
insurance proceeds received related to the fire at the Company's Rogue River
plant.

Financing activities. Net borrowings in 1994 included $21 million of new
bank term loans related to the Irish MDF plant expansion, a $7 million increase
in U.S. revolving term loan borrowings and $15 million of net loan repayments to
Valcor. The Valcor loans were made for overall cash management purposes at
interest rates more favorable than the interest rates on the Company's revolving
bank credit facility. Net borrowings in calendar 1993 include $75 million of
proceeds from the Timber Credit Agreement which were utilized to

22
<PAGE> 26

prepay approximately $14 million of existing bank term loans and to pay a $60
million dividend to the Company's parent.

The aggregate maturities of long-term debt are approximately $11 million
for the year ending December 31, 1995, $22 million in 1996, $13 million in both
1997 and 1998, $12 million in 1999 and aggregate $31 million thereafter. On a
pro forma basis, assuming a portion of the proceeds from this Offering were used
to prepay $41 million of variable-rate debt (see "Use of Proceeds"), the
aggregate maturities of long-term debt would be approximately $7 million for the
year ending December 31, 1995, $14 million in 1996, $5 million in 1997, $11
million in 1998, $9 million in 1999 and aggregate $18 million thereafter.

OTHER

The Company's expansion of its Irish MDF plant, which is expected to
eventually increase the Company's worldwide MDF capacity by approximately 25%,
was completed in October 1994. This $31 million project was financed in part by
a $22 million bank term loan. In connection with the expansion, the Company
obtained a $4 million grant from the Irish government. The Company received $1
million of the grant funds in 1994 and expects to receive the remainder during
1995. Approximately $2 million of the total grant funds will be used to reduce
bank borrowings.

At December 31, 1994, the estimated cost to complete capital projects in
process approximated $2 million, substantially all of which relates to the Irish
plant expansion. Firm purchase commitments for capital projects not commenced at
December 31, 1994 were not material.

In March 1995, the Company amended its Timber Credit Agreement to, among
other things, provide that upon the prepayment of the fixed term portion of the
facility, the revolving term portion of the facility would increase by an equal
amount. Accordingly, the entire $41 million of indebtedness expected to be
repaid from the proceeds of the Offering can be reborrowed, subject to reducing
availability through 2000.

At December 31, 1994, amounts available for borrowing under U.S. and
non-U.S. working capital credit agreements were $8 million and $4 million,
respectively. On a pro forma basis giving effect to the Offering and use of
proceeds therefrom, U.S. borrowing availability at such date would have
increased by $41 million. See "Use of Proceeds."

As a result of the closure of its plywood operations, the Company has a 105
acre site in Medford, Oregon which is believed to have alternative development
possibilities and is being held for sale.

At December 31, 1994, approximately 92% of the Company's consolidated cash
and equivalents were held by Medite/Europe. Medite/Europe's bank credit
agreements require it, among other things, to maintain specified levels of net
worth, as defined, which, at December 31, 1994, would have permitted $3 million
to be distributed to the Company.

The Company's Timber Credit Agreement requires the Company to maintain
specified levels of net worth and generally limits the payment of dividends by
the Company to 50% of net income, subject to maintenance of minimum net worth,
loan-to-value and cash flow ratios. At December 31, 1994, the Company had $7
million eligible for the payment of dividends.

On February 14, 1995, the Company declared and paid a $50 million dividend
to Valcor by distribution of 1,000 shares of Series A Preferred Stock,
redeemable at the Company's option, at a redemption price of $50,000 per share
plus cumulative accrued and unpaid dividends. A portion of the proceeds from
this Offering will be used to redeem all 1,000 shares plus accrued and unpaid
dividends. See "Use of Proceeds."

Management believes that the net proceeds to the Company from the Offering,
together with cash generated from operations and borrowings available under the
Company's revolving credit agreements, will be sufficient to meet the Company's
liquidity needs for working capital, capital expenditures and debt service and
for anticipated annual dividend payments of approximately $4 million. See also
"Dividend Policy."

23
<PAGE> 27

BUSINESS

The Company is an international engineered wood products company focused
primarily on the production and sale of medium density fiberboard ("MDF"). In
1994, approximately 71% of the Company's sales and approximately 75% of the
Company's operating income were derived from MDF operations.

The Company sells MDF principally under the Medite(R) and Medex(R)
trademarks to customers primarily in North America (48% of 1994 MDF sales),
Europe (43%), and the Far East (9%). The Company offers an unsurpassed range of
specialty products, which in 1994 sold for substantially higher prices than, and
resulted in operating margins approximately twice those of, the Company's
standard MDF products. The Company believes that Medite(R) is the world's most
recognized MDF trademark. In Europe, where name brand recognition is expected to
play an increasingly important role in panel product marketing, Medite is well
regarded for quality, specialty grades and an active and successful marketing
program.

The Company's MDF production facilities are located in the Republic of
Ireland, Oregon and New Mexico. The Company expects a capacity addition
completed in late 1994 at its Ireland plant will increase the Company's annual
production capacity by 25% to approximately 635,000 M3 (300,000 M3 in Ireland
and 335,000 M3 in North America). The expansion in Ireland has significantly
improved the Company's production efficiency of thin board MDF, a product
marketed as a substitute for thin particleboard, hardwood plywood and hardboard
in various applications. With the recently completed capacity addition in
Ireland, the Company is the world's second largest MDF producer in terms of
rated capacity.

The Company also owns 168,000 acres of timberland in Southern Oregon which
contain approximately 660 million board feet of merchantable timber and produces
traditional timber products, including logs, lumber, veneer and wood chips, at
two conversion facilities in the Medford, Oregon area.

INDUSTRY OVERVIEW

MDF

The Product. MDF, an environmentally efficient engineered building board,
is a fiber-based product manufactured primarily from pre-commercial forest
thinnings and forest product industry residuals (wood chips, shavings and
sawdust) which are bonded together with resins to form a machineable composite
panel. MDF's physical characteristics contribute to cost-in-use advantages over
traditional timber products in an increasing variety of applications, including
furniture, cabinetry and joinery. Recent improvements in MDF's machinability,
consistency and surface, coupled with specialty product introductions, have
expanded MDF applications to include substitution for products used in millwork
and moulding for both residential and commercial applications. According to
industry sources, MDF consumption in 1994 in Europe and the United States by end
use is estimated as follows:

<TABLE>
<CAPTION>
EUROPE(1) UNITED STATES(2)
- ------------------------------------------ ------------------------------------------
<S> <C> <C> <C>
Furniture............................ 85% Household furniture.................. 55%
Joinery.............................. 7 Residential construction............. 11
Building............................. 3 Repairs & remodeling................. 10
Other................................ 5 Office furniture & fixtures.......... 8
Other manufacturing.................. 6
Exports.............................. 10
</TABLE>

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

1 Jaakko Poyry Consulting (UK) Ltd ("Jaakko Poyry Consulting"), an economic
analysis firm headquartered in Surrey, England.

2 Resource Information Systems, Inc. ("RISI"), an economic analysis firm
headquartered in Bedford, Massachusetts.

24
<PAGE> 28

MDF Consumption. MDF is among the fastest growing building board products
in the world. Consumption in Europe and North America has increased over the 10
year period ended in 1993 at an average annual rate of 25% (according to data
published by European Association of Medium Density Fiberboard Manufacturers, an
industry trade association located in Giessen, Germany ("EMB")) and 7%
(according to RISI), respectively. This growth in consumption has occurred
despite a worldwide recession which adversely influenced furniture and
construction activity, particularly in Europe. According to industry sources,
MDF consumption in Europe is projected to increase over the next decade at
annual average rates of 8%, while MDF consumption in North America is projected
to increase at annual average rates of 9%. The historical and projected
increases in consumption can be attributed in part to the following key factors:

- Recent Improvements in MDF Characteristics. MDF's desirable physical
characteristics include its machinability, consistency and smooth
surface, especially when compared to competing products such as plywood,
particleboard and lumber. Continuing improvements in such
characteristics, together with increasing cost advantages compared to
traditional timber products, have stimulated substitution in an
increasing variety of applications. For example, the Company has recently
commenced the manufacture and sale of homogeneous MDF board (consistent
structural integrity, composition and texture throughout the board) which
can be cut, routed, milled, shaved and shaped for a variety of
applications, including mouldings and millwork for residential and
industrial uses.

- Relative Cost Advantages. In the past few years, the price of many
traditional timber products has risen to record levels due to
environmentally related pressures on available global timber supplies and
cyclical demand recovery. Restrictions on available timber supply and
resulting increases in traditional timber product prices have forced
manufacturers of furniture, cabinetry, joinery, millwork and moulding to
seek more cost-effective alternatives which retain the appearance and
desirable processing characteristics afforded by traditional timber
products. Compared to traditional timber products, MDF offers end users
lower unit costs and physical characteristics that provide for less
production waste and higher production efficiencies. These cost-in-use
advantages have contributed to the use of MDF in an increasing variety of
applications.

- Development of Specialty Products. The development of specialty MDF
products to meet specific customer needs has also contributed to the
growth in MDF demand by expanding the potential end-uses of MDF. The
Company has been at the forefront of the MDF industry's successful
development of new MDF products and applications satisfying specialized
customer requirements, such as weather-resistant board for exterior use,
flame-resistant board to meet advanced safety standards and moisture-
resistant board for use in humid interior environments.

- Environmentally Efficient Product. MDF can be produced from a number of
residual fiber sources, such as shavings and sawdust, which have
historically been disposed of as a waste product. Forest residue, such as
pre-commercial thinnings, are also chipped to provide raw material for
MDF. Recent technological advances in recycling and raw material handling
techniques have permitted the utilization in MDF production of
post-consumer fiber sources such as urban wood waste.

In addition, the Company expects that future consumption of MDF in Europe
will be favorably influenced by a growing commitment among certain European
countries, particularly Germany, the United Kingdom and the Netherlands, to
favor the importation of wood products that are derived from sustainable managed
resources. Moreover, future MDF consumption should also benefit from the ongoing
development in certain European markets of performance-based technical and
quality standards for many wood products, including MDF. As end users become
aware of such standards, MDF should become more readily accepted as a substitute
building board product in an increasing variety of applications.

MDF Capacity. As reported in annual surveys conducted by WBPI, an MDF
industry trade publication, worldwide MDF capacity has increased over the past
five years at an average annual rate of 10%. Forecasts of increasing MDF
consumption are expected to attract significant capacity additions and many new
MDF projects have been commenced or announced. WBPI survey projections through
1996 reflect average annual capacity increases of 5%, 12% and 23% for Europe,
North America and the rest of the world, respectively (a 15% worldwide
increase). Although significant additional capacity increases have been
announced for 1997

25
<PAGE> 29

and beyond, the Company believes that announced additions to capacity are not
always reliable. Historically, due to the technological difficulties
traditionally encountered with new MDF manufacturing facilities that generally
adversely impact their effective operating rates, announced new projects are not
always started or are delayed or deferred, and effective productive capacity can
be significantly below forecasted "name plate" capacity levels. Industry
experience indicates that the period from commencement of construction of a new
MDF facility to start-up is typically a minimum of two years. In addition, the
Company believes that its specialty MDF products provide it with a certain
degree of insulation from the competitive effects of future MDF capacity
additions.

Actual production as a percentage of reported production capacity varies
widely between regions and producers and is further influenced by start-up rates
at new facilities. In North America, where MDF plants are considered highly
efficient and producers are relatively conservative in reporting production
capacity, capacity utilization (consumption as a percentage of reported
capacity) has in recent years been reported at more than 90%. European plants in
recent years have reported average utilization rates below 75%.

European MDF Pricing and Capacity Utilization. Recently, overall capacity
utilization in Europe (exclusive of Russia) has been low and pricing within
Europe has varied among countries. Based upon WBPI capacity data and EMB
consumption data, capacity utilization in Europe was approximately 73% in 1993.
Medite/Europe operated at approximately 97% and 100% of capacity in 1993 and
1994, respectively. During the past two years, increases in prices of
Medite/Europe's standard MDF, in billing currency terms, have been substantially
offset by effects of currency fluctuations. Consequently, the average price of
the Company's standard MDF in Europe, in U.S. dollar terms, is relatively flat
for 1994 compared to 1992. During the first quarter of 1995, Medite/Europe
implemented price increases of approximately 5% for all MDF products.

North American MDF Pricing and Capacity Utilization. Until 1993, MDF
prices had remained relatively flat for much of the previous ten years. Over the
past two years, however, as government regulations have reduced the availability
of timber and, as a result, timber supplies for traditional timber products have
become increasingly restricted, prices for these products have increased and MDF
operating rates have approached effective capacity levels. During 1993 and 1994,
the Company implemented several U.S. price increases, resulting in a 25%
realized U.S. price increase for standard MDF in 1994 compared to 1992.
Additionally, in the first quarter of 1995, the Company implemented price
increases of approximately 4% for standard MDF products produced in North
America.

The Company has achieved in the U.S. higher average standard MDF prices,
FOB mill, than those reported by RISI for the industry for the Western U.S. In
1994, the average price realized for the Company's standard U.S.-produced MDF
exceeded the Western U.S. average price reported by RISI by approximately 5%.
Additionally, the Company's overall average prices, FOB mill, have benefitted in
recent years from increases in the percentage of higher priced specialty
products sold by its U.S. mills. In 1994, the average price realized for all MDF
(standard and specialty) produced by the Company in the U.S. exceeded the
Western U.S. average price for the industry, as reported by RISI, by
approximately 10%.

According to RISI's analysis of the North American MDF industry, (i) 1995
capacity expansion will barely keep pace with anticipated increases in
consumption, (ii) the cost advantages of MDF compared to traditional timber
products in 1995 will reinforce current tight market conditions, (iii) 1995
average prices will be 15% higher than 1994 average levels and (iv) for the next
several years, while standard MDF prices may tend to decline as new capacity
comes on-line, MDF's penetration into relatively high value end-use markets
(millwork and moulding) should help stabilize MDF profitability. The Company can
offer no assurance, however, that any of RISI's analysis will prove accurate.

TRADITIONAL TIMBER PRODUCTS

Demand for traditional timber products such as lumber and plywood is
primarily affected by residential construction activity, which is cyclical due
to changes in economic conditions and demographic factors.

In recent years, the conflict between expanding demand for lumber and
plywood and a greatly reduced North American timber base, resulting primarily
from reductions in federal timber sales in the U.S. and

26
<PAGE> 30

reductions in the allowable timber harvest in British Columbia, has forced the
forest products industry to make significant adjustments. From 1989 to 1993,
plywood and lumber capacity in the Western United States declined by 31% and
25%, respectively. Lumber and plywood usage rates have dropped in key end-use
markets as rising demand responded to higher prices and increased volatility
with product substitution to achieve increased efficiencies in use. Market
shares have shifted away from higher cost timber products produced from the
Pacific Northwest's increasingly costly timber to lower cost-in-use products
(e.g., MDF, oriented strand board, industrial particleboard and engineered
lumber) and to regions with lower cost timber (e.g., British Columbia and the
Southern United States).

The Company expects the Pacific Northwest timber products industry to
continue to shift away from timber conversion activities to more profitable
timber harvesting activities. As the industry completes its adjustment to the
new realities of reduced timber supplies, the Company expects timber prices
across North America to stabilize at relatively high inflation adjusted levels
and the trend of substituting reconstituted fiber based products such as MDF for
lumber and plywood to continue.

STRATEGY

The Company's strategy is comprised of the following:

Strategic Focus on MDF. The Company has successfully implemented a
long-term strategy of directing its primary business to the international
production of MDF building board products and away from the regionalized
production of traditional timber products. In 1984, MDF represented 20% of the
Company's sales and made no contribution to operating income. For the year ended
December 31, 1994, MDF represented 71% of the Company's sales and 75% of its
operating income. Based on 1994 MDF industry information, the Company had
approximate market shares of 13% and 5% in North America and Europe,
respectively. The Company will continue to focus on expanding its MDF business.

Development of Higher-Margin Specialty Products. The Company believes
that, with 28% of its 1994 MDF sales in specialty MDF products, it is the
world's leading producer of specialty MDF products. The Company offers an
unsurpassed range of higher-margin specialty MDF products. Sold under the widely
recognized trademarks of Medite(R) and Medex(R), these specialty products
include:

<TABLE>
<CAPTION>
SAMPLE
SPECIALTY PRODUCT DESCRIPTION APPLICATIONS
------------------------------------ ---------------------- -------------------
<S> <C> <C>
Medex(R)............................ Moisture-resistant Shopfronts/signage
exterior grade
Medite 313.......................... Moisture-resistant Bathroom and
interior grade kitchen cabinets
Medite FR........................... Class 1 Public building
flame-resistant grade interiors
Medite II........................... Formaldehyde-free Hospital and museum
interior grade fixtures
</TABLE>

In 1994, the average per unit sales price of the Company's specialty
products was approximately 60% higher than its standard MDF and resulted in
operating margins approximately twice those for its standard MDF products. Over
the past several years, the Company has differentiated itself in the MDF
industry by developing, testing and introducing a series of new MDF products.
The Company believes that the knowledge acquired during its many years of
producing a variety of MDF products at diverse locations and the experience it
has gained in selling these products in major world markets provide it with
competitive advantages.

Development of New Uses for MDF. Based upon expressed and perceived
customer needs, the Company actively seeks to develop new commercial
applications for MDF. For many years the Company has worked closely with
furniture manufacturers in developing applications for MDF. In addition to
furniture, MDF is used in industrial and residential fixtures, cabinets,
joinery, millwork, mouldings and architectural features. The Company has devoted
significant resources to the development of new applications and the education
of customers and prospective customers on the benefits of substituting MDF for
traditional timber products.

27
<PAGE> 31

The Company has recently commenced the manufacture and sale of homogeneous
MDF board (consistent structural integrity, composition and texture throughout
the board) which can be cut, routed, milled, shaved and shaped for a variety of
applications, including mouldings and millwork for residential and industrial
uses. These uses include door frames, decorative panel trim, door panels,
picture frames, trim moulding for walls and decorative furniture components. The
Company expects significant growth in the use of MDF in the moulding market
because mouldings produced from MDF (i) offer cost-in-use advantages due to
lower unit cost and less production waste compared to traditional timber
mouldings and (ii) have, in many applications, a finished appearance that is
generally indistinguishable from traditional timber mouldings. Additionally, the
recently completed expansion at the Irish facility improves the Company's
ability to efficiently produce thin board MDF, which should enable the Company
to further penetrate the European thin hardwood plywood, particleboard and
hardboard markets.

Similarly, RISI forecasts that, through the end of this decade, the
percentage of MDF used in repair and remodeling and in residential construction
will increase as MDF quality improvements and specialty products enable MDF to
further penetrate these applications. The Company believes that other growth
opportunities for MDF include products sold in the retail "do-it-yourself"
market and "knock-down" or "ready-to-assemble" computer furniture market.

Growth Through MDF Capacity Additions and Acquisitions. The Company has
for the past two years been operating at high levels of MDF capacity
utilization. In 1994, the Company's capacity utilization was approximately 100%
in Europe and 93% in North America. The Company presently serves its MDF
customer requirements on an allocated basis. The recently completed addition of
a second production line at the Company's facility in Ireland is expected to
increase the Company's overall MDF production capacity by approximately 130,000
M3 or 25% and significantly improve the Company's production efficiency for thin
board MDF sold in the European market.

The Company intends to add additional MDF production capacity during the
next two to three years through capital additions to its existing production
facilities and the addition of new MDF production facilities. The Company
expects identified capital projects to further increase its existing MDF
productive capacity by approximately 20% at a cost of approximately $31 million
over the next five years. Additionally, the Company expects to expend an
equivalent amount of capital to maintain and replace components of its existing
facilities. The Company is actively exploring expansion opportunities through
acquisitions, strategic joint ventures and/or new construction. The Company
believes that expansion of its MDF operations is dependent upon its ability to
identify and secure adequate, long-term supplies of fiber. Accordingly, the
Company is presently considering joint ventures with prospective partners who
can provide, on a long-term committed basis, the supply of fiber required for
the sustained production of MDF. Potential joint venture partners include forest
product companies with substantial waste residuals (shavings and sawdust), as
these companies are under increasing pressure to address environmental concerns
over the disposal of these by-products.

Management is considering opportunities to expand in a variety of
geographic regions, including Canada, the Southeastern United States, Mexico,
Eastern Europe and New Zealand, among others. Management also may consider
entering new and different engineered wood markets in the U.S. and abroad, if
appropriate opportunities are identified.

Management of Fee Timber Resources. The Company has in recent years
downsized its traditional timber conversion facilities and acquired additional
timberlands to position its Oregon-based traditional timber products activities
to operate on a long-term, sustained-yield basis. Depending on prevailing market

28
<PAGE> 32

conditions, the Company seeks to maximize the operating contribution of its
traditional timber products operations by adjusting its annual timber harvest
and by allocating its harvested timber between direct log sales and its
traditional timber products conversion facilities. The Company's fee timberlands
have become a valuable resource as the shortage of Pacific Northwest public
timber available for harvest is expected to continue in the foreseeable future.
Based upon recent reported sales of comparable timber, the Company believes the
market value of its fee timberlands is well in excess of the $53 million book
value. The Company believes that its presence in the traditional timber products
market, and particularly its sale of logs to other conversion facilities, has
aided the Company in gaining access to certain sources of wood residuals for its
Oregon-based MDF operations.

OPERATIONS

MDF

The Company sells MDF principally under the Medite(R) and Medex(R)
trademarks. The Company's MDF products and their specific applications are
described below:

Medite(R), the Company's standard MDF product, was first introduced in 1975
and is produced exclusively for interior applications such as furniture. The
Company believes the Medite(R) trademark is the world's most recognized MDF
trademark. In 1994, standard Medite(R) accounted for approximately 72% of the
Company's total MDF sales. Applications which utilize standard MDF include
cabinet drawer sides and backs, substrate material components for "knock-down"
furniture and veneered furniture such as desks and tables, shelving, door
frames, cabinet doors and interior paneling.

Medex(R) is the Company's MDF panel product designed for exterior
applications. The Company believes that it is currently the leading exterior
grade MDF producer in the world. Medex(R) is used in facade application on
storefronts, decorative shop fronts in many areas in Europe, counter tops, doors
and window sills. The moisture resistance of Medex(R) products produced at the
Irish MDF facility carries a 10-year warranty provided it has been properly
sealed by the end user. The Company first produced Medex(R) in 1987 and it
accounted for approximately 8% of the Company's 1994 total MDF sales.

Medite 313 is a specialty MDF product designed for interior applications
that involve high-humidity environments, such as bathroom and kitchen cabinetry
and mouldings. Medite 313 was first introduced by the Company in 1987 and
accounted for approximately 13% of the Company's total MDF sales in 1994. The
principal markets for Medite 313 to date have been in the United Kingdom and the
Republic of Ireland.

Medite FR was developed by the Company primarily to address strict building
code requirements in Europe for flame/fire resistance. Medite FR meets Class 1
flame-retardant guidelines in France and Germany. Medite FR was first produced
by the Company in 1989 and accounted for 4% of the Company's 1994 total MDF
sales. Although substantially all 1994 sales of Medite FR were made into the
European market, the Company currently plans to introduce U.S. produced Medite
FR for sale in North America and other markets outside of Europe in 1995.

Medite II was developed by the Company in 1991 in order to meet the market
need for a low formaldehyde-content MDF product for use in sensitive interior
applications such as schools, museums and hospitals. Applications include
exhibition cases, cabinetry, desks and other fixtures. Medite II is produced
without the introduction of formaldehyde based resins (bonding agents) and
additives. Accordingly, the only formaldehyde present in the product is
attributable to the levels naturally occurring in wood fiber. The Company
believes it is a leader in production of interior MDF produced without
formaldehyde based resins. Medite II accounted for approximately 3% of the
Company's total MDF sales in 1994. Substantially all sales of the Medite II have
to date been made into the North American market.

The MDF Manufacturing Process. The manufacturing process begins as wood
fiber raw materials, primarily wood chips, shavings and sawdust, are steamed
under pressure and then extruded through a refiner. The refined fibers are then
dried and deposited on a moving screen passing through a forming machine. Resins
are introduced to the fibers either as they enter the dryer or before the fibers
are deposited on the forming machine. The fibers used in standard MDF are bonded
with urea formaldehyde (UF) resin. Other types of

29
<PAGE> 33

resins are used by the Company as binders where improved properties, such as
moisture resistance, are desirable. Additives are introduced by the Company at
the same time as the resin binder to impart special properties, such as flame
retardancy.

The resulting fiber mat is then pressed. Generally, boards are pressed in
two stages. The first stage reduces the thickness of the fiber mat. The second
stage produces the finished board product and, at the Company's MDF facilities,
is completed either on a static multiopening press or a continuous press. In a
static multiopening press, the fiber mat is trimmed, cut to length and passed
into a preloading cage which, when filled, transfers the mats into the openings
of a multiopening press. The multiopening press, which is used at all of the
Company's MDF facilities, is more efficient in producing thicker width MDF (16
to 30 millimeters). In a continuous press, the fiber mat is trimmed and then
passed continuously through a double steel band press operating at high
temperature and pressure. The resulting board is then cut into lengths which can
be varied to suit particular customer requirements. The continuous press is
highly efficient in producing thin board MDF (three to 15 millimeters). The
Company operates a continuous press at its Clonmel facility.

Production Facilities. The Company's MDF manufacturing facilities are as
follows:

<TABLE>
<CAPTION>
ANNUAL
CAPACITY(1) PRODUCTS KEY MARKETS
----------- ----------- ----------------
(M(3))
<S> <C> <C> <C>
Medford, Oregon.......................... 175,000 Medite(R) Western U.S.
Medex(R) Asia/Pacific
Medite II
Medite FR
Las Vegas, New Mexico.................... 160,000 Medite(R) Southwest U.S.
Medex(R) Mexico
Medite II
Clonmel, Republic of Ireland............. 300,000 Medite(R) U.K.
Medex(R) Northern Europe
Medite II Ireland
Medite 313
Medite FR
</TABLE>

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

(1) Capacity data is total name plate capacity for 1995. The Company does not
expect to achieve full capacity for its new Irish production lines in 1995.
As the Company gains further operating experience with its newly installed
continuous press production line in Ireland, it expects combined annual
capacity of 300,000 M(3).

The Company's Medford, Oregon MDF facility was constructed in 1974.
Production at this facility during 1994 amounted to approximately 165,000 M3
(94% of total capacity, approximately the same as in 1993), of which
approximately 84% consisted of the Company's standard Medite(R) product. The
Medford MDF facility employs the multiopening press manufacturing technology.
The primary fiber sources for the Medford facility are wood chips, shavings and
sawdust, almost all of which are purchased from sawmills located in close
proximity to the facility at spot market prices.

The Las Vegas, New Mexico MDF facility was originally constructed by a
third party in 1984 at a cost in excess of $55 million and was acquired by the
Company in 1989 for $29 million. At the time of the acquisition, the production
facilities were in poor operating condition, product quality did not meet Medite
standards and the plant had not achieved a sustained level of operating income.
In the 43 months ending December 31, 1992, the New Mexico facility incurred $16
million in aggregate operating losses and the Company spent $2.6 million on
capital expenditures before the facility achieved its first full profitable year
of operating income in 1993. Production at the Las Vegas facility during 1994
amounted to approximately 148,000 M3 (93% of total capacity), substantially all
of which consisted of the Company's standard Medite(R) product. The Las Vegas
facility utilizes a multiopening press. The primary fiber sources of the Las
Vegas facility are wood chips,

30
<PAGE> 34

shavings and sawdust produced within a 150-mile radius of the facility, most of
which are purchased pursuant to short-term purchase contracts. Increasingly,
however, the Las Vegas facility has acquired its fiber from the "urban forest"
(sawdust and shavings which are produced from shipping crates, pallets and
recycled lumber). In 1994, these "post-consumer" fiber sources comprised
approximately 14% of the total fiber supply of the Las Vegas facility.

The Company's Clonmel, Ireland MDF facility produces standard and specialty
MDF products under the ISO 9000 quality management certification. It was
initially constructed in 1983, and a major expansion of that facility was
completed in the fourth quarter of 1994 at a cost of $31 million, raising
production capacity to 300,000 M3. Production at the Clonmel facility during
1994 (excluding the new production line) amounted to approximately 160,000
M3(approximately 100% of the total capacity of the original production line, up
from 97% in 1993), of which approximately 40% consisted of the Company's
specialty MDF products. The 1994 expansion included the addition of a continuous
press, which is more efficient in the production of thin board MDF than the
multiopening press. The Company believes the Clonmel facility is the only
facility in the world that operates both a multiopening and continuous press in
one location, making it unique in its ability to offer to its customers high
quality products in the full range of MDF thicknesses (from three to 30
millimeters). The Company has what it considers to be an attractive long-term
supply contract with the Irish Forestry Service, pursuant to which the Company
has a reliable, fixed price supply of pre-commercial thinnings from Irish
forests. These and other private sources of pre-commercial thinnings accounted
for approximately 50% of the fiber raw materials used at Clonmel in 1994. The
balance of the fiber requirements of the Clonmel facility are provided by wood
chips acquired from local sawmill operators which the Company believes will be
available in adequate supply due to the continuing development of the Irish
forest products industry. Of total MDF production in 1994 at Clonmel,
approximately 50% was sold in the United Kingdom, 18% was sold within the
Republic of Ireland and the balance was sold primarily in other Northern
European countries.

The Company's U.S. facilities purchase urea formaldehyde resins for
standard MDF products from suppliers located in close proximity to the
facilities, while resins for specialty MDF products are purchased from suppliers
primarily in Texas and Louisiana. Resins for MDF products for the Company's
Irish facility are purchased from suppliers located in the United Kingdom.

TRADITIONAL TIMBER PRODUCTS

Products. The Company produces and sells lumber used in residential and
commercial construction, veneer which is used in the production of plywood and
laminated veneer lumber ("LVL") and wood chips, which are a basic raw material
for the MDF and paper industries. Logs harvested from the Company's fee
timberlands are utilized in the production of lumber, veneer and wood chips.
Certain sizes and species of logs harvested by the Company that are not used in
its manufacturing operations are sold to other mills in the Northwest.

Timber Resources. The Company conducts substantial logging operations and
owns approximately 168,000 acres of timberland, including 77,000 acres added
since the Company was acquired by Valhi in 1984. The Company's timberlands
contain approximately 660 MMBF of generally second growth merchantable timber.
The dominant species is Douglas Fir. The Company's timber holdings are within
close proximity to its Oregon production facilities and are in relatively
accessible terrain. At December 31, 1994, the Company also had contracts to
purchase approximately 9 MMBF of timber under contracts with the U.S. Forest
Service and Bureau of Land Management expiring at various dates through 1996.
Government timber contracts, which are subject to competitive bidding, typically
require the purchaser to harvest and remove timber within a three-year period.

31
<PAGE> 35

Production Facilities. The Company's traditional timber products
conversion facilities are as follows:

<TABLE>
<CAPTION>
ANNUAL CAPACITY PRODUCTS KEY MARKETS
--------------------------------- ------------- -------------
<S> <C> <C> <C>
Rogue River, Oregon.... 80,000 square feet 3/8" Veneer Western U.S.
40,000 bone dry units ("BDU") Wood chips
White City, Oregon..... 70,000 board feet Lumber studs Western U.S.
30,000 BDU Wood chips
</TABLE>

The Company completed the construction of its veneer and chipping facility
in Rogue River, Oregon in late 1993, replacing a similar facility destroyed by
fire in June 1992. The new veneer facility is designed to process cull
(defective) logs from throughout the surrounding southern Oregon area and the
smaller second-growth timber expected to be available from Company-owned
timberlands on a longer-term basis. Veneer from this plant is sold to the LVL
industry as well as to traditional soft-wood and hardwood plywood products
manufacturers.

The White City, Oregon stud mill facility produces primarily 2x4 studs used
principally in residential construction in California. The facility produces
lumber from small logs and "peeler cores", a by-product of veneer conversion
facilities.

DISTRIBUTION AND SALE OF PRODUCTS

The Company's manufactured products are sold primarily to wholesalers of
building materials. The Company's major MDF markets include the United Kingdom,
Northern Europe and the Republic of Ireland; Western and Central United States;
the Pacific Rim and Mexico. In 1994, approximately 48% of the Company's MDF
production was sold in North America, 22% in the United Kingdom, 8% in Ireland,
13% in Northern Europe, and 9% in the Pacific Rim. The Company's U.S. operations
employ a sales force of 12 employees, while the Company's Irish operations have
sales offices in the United Kingdom and Holland with 7 and 5 employees,
respectively. Sales personnel are responsible for product sales as well as
customer training and education in proper use of and applications for MDF
products. Distribution is accomplished primarily by rail and common carrier
trucking in the U.S. and by containerized ocean cargo shipment in Europe.
Transportation costs are borne by the customer.

Logs are sold primarily to other Oregon mills. Sales of traditional timber
products in the United States are largely dependent upon the strength of the
housing industry, which has historically been cyclical in nature. Although
logging operations are seasonal due to inclement weather conditions during
winter and spring months, the production and sale of forest products is not
particularly seasonal in nature.

The Company's operations are not dependent upon one or a few customers, the
loss of which would have a material adverse effect on its operations. The
Company's ten largest customers accounted for about one-fourth of sales in each
of the past three years and included six MDF customers in 1994, five in 1993 and
two in 1992. In 1992, two of the ten largest customers were primarily plywood
customers and, accordingly, the mix of large customers changed beginning in
1993.

COMPETITION

The Company operates in highly competitive industries. Within the MDF
segment, the Company competes on the basis of quality, product breadth, customer
service and price. In the traditional timber products segment, the Company
competes primarily on the basis of price. Transportation costs are also
significant and generally limit the geographic markets in which the Company's
and its competitors' products are sold.

The Company's MDF operations compete in North America principally with a
number of MDF and composite board producers. In the Pacific Rim, the Company's
MDF operations compete with Australian, New Zealand and other U.S. MDF
producers. In Europe, the Company competes principally with other European
producers of MDF and composite board products. Due to the significant cost of
shipping products, which is borne by the customer, the Company may operate at a
competitive disadvantage to certain other

32
<PAGE> 36

producers who are located closer to key European markets. In addition, some of
the Company's competitors may possess greater financial resources, including in
some cases the financial support of the governments of the countries in which
such competitors are located. Due to periodic declines in the value of the U.S.
dollar relative to other currencies, the Company's operations in Ireland have
also experienced periodic competition from North American producers.

The Company's traditional timber products operations compete primarily with
numerous other producers in the Pacific Northwest. The Pacific Northwest
traditional timber products industry experiences competition from Canadian
imports and, to an increasing extent, from producers in southern states.

ENVIRONMENTAL MATTERS AND GOVERNMENTAL REGULATION

The Company's operations are subject to a number of national, state and
local laws and regulations with respect to raw materials handling, production
procedures, operating environment, emissions and waste disposal, worker and
product safety and environmental protection, among other things. In addition,
the Company conducts extensive forest management programs on Company-owned
timberlands, including selective harvest, reforestation and fertilization
activities. While federal and state regulations governing the scope and timing
of timber harvest may result in some restrictions on the Company's harvesting
activities on Company-owned timberlands, the Company does not believe that such
restrictions will be material. The Company believes that it is in compliance in
all material respects with all laws and regulations affecting its operations and
that future compliance with any such laws and regulations, which may involve
significant capital expenditures, will not have a material adverse effect on its
results of operations or financial condition. See "Risk Factors -- Governmental
and Environmental Regulation."

TRADEMARKS AND PATENTS

The Company believes that the patents it holds for MDF products and
production processes are important to the Company's MDF business activities. The
Company's major MDF trademarks, Medite(R) and Medex(R), are protected by
registration in the United States and certain other countries. The Company also
has a non-exclusive worldwide license relating to the application of resins in
the manufacture of Medex(R) and a patent on the apparatus and method of
manufacture of Medex(R).

EMPLOYEES

As of December 31, 1994, the Company employed approximately 710 persons,
including 510 in the U.S. and 200 in Europe. Approximately 30% of U.S. employees
and 70% of non-U.S. employees were represented by various labor unions. The
collective bargaining agreement covering the employees of the Company's Oregon
MDF plant expires in September 1997. The collective bargaining agreement
covering the hourly employees at the Company's Irish plant expires in March
1997. The collective bargaining agreement covering the hourly employees at the
Company's Rogue River veneer facility expires in June 1996. The Company believes
that its labor relations are satisfactory.

PROPERTIES

The principal properties used in the Company's operations are described
above in the "Business -- Operations" section. The Company believes that its
facilities are adequate and suitable for their respective uses.

LEGAL PROCEEDINGS

The Company is involved in various environmental, contractual, product
liability and other claims and disputes incidental to its business. The Company
currently believes that the disposition of all claims and disputes, individually
or in the aggregate, should not have a material adverse effect on the Company's
consolidated financial condition, results of operations or liquidity.

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<PAGE> 37

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

Set forth below is certain information relating to the current directors
and executive officers of the Company. The Company intends to add an additional
non-employee director prior to completion of the Offering.

<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ------------------------- --- -----------------------------------------------------
<S> <C> <C>
Michael A. Snetzer....... 54 Chairman of the Board, Chief Executive Officer and
Director
Jerry L. Bramwell........ 56 President, Chief Operating Officer and Director
Rory G. Kirwan........... 45 Managing Director -- Medite/Europe
Henry Snow............... 48 Vice President
Bobby D. O'Brien......... 37 Vice President -- Finance and Treasurer
Theodore J. Bauer........ 64 Director
Arnold F. Brookstone..... 65 Director
John J. Costonis......... 57 Director
Edward J. Hardin......... 51 Director
Harold C. Simmons........ 63 Director
</TABLE>

MICHAEL A. SNETZER has served as Chairman of the Board, President and/or
Chief Executive Officer of the Company since 1985. Mr. Snetzer served as an
executive officer and/or director of Contran and related companies from 1977
until July 1994, when he resigned such positions to assume full-time duties as
Chairman of the Board and Chief Executive Officer of the Company. Prior to
joining Contran, Mr. Snetzer, who holds an MBA degree from Southern Methodist
University, was employed in various financial capacities within the computer
service industry and as an industrial engineer in the defense communications and
electronics industry. Mr. Snetzer is also currently a director of Valhi, NL
Industries, Inc. (chemicals) and Tremont Corporation (titanium metals); however,
he has notified each of these three companies that he does not intend to stand
for re-election at their upcoming 1995 annual stockholders meeting.

JERRY L. BRAMWELL has served as President and Chief Operating Officer of
the Company from the time he joined the Company in 1991. Prior to joining the
Company, Mr. Bramwell served as Executive Vice President of Stone Forest
Industries from 1988 to 1990. Mr. Bramwell has over 29 years of experience in
the forest products industry and holds an MBA degree from The University of
California at Berkeley.

RORY KIRWAN joined Medite/Europe in 1983 as Purchasing Agent and served in
technical market support and as technical director and operations director prior
to becoming Managing Director in 1992. Before joining the Company, he held
various supervisory and management positions with an Irish unit of Pfizer
Chemical Corporation. Mr. Kirwan is a board member of Wood Panel Producers
Federation, a U.K. organization that acts as an authoritative source of
technical information for wood-based panel products in the United Kingdom and
Ireland.

HENRY SNOW has served as Vice President of the Company since 1986. In
addition to a variety of general management responsibilities, he is presently
responsible for information systems, personnel and administration. Mr. Snow
began his career with the Company in 1967 in its plywood plant while completing
his degree in Mathematics at Southern Oregon State College. He is a graduate of
the 1989 Stanford Executive Management Program.

BOBBY D. O'BRIEN has served as Vice President -- Finance of the Company
since December 1994 and as Treasurer of the Company since July 1993. He served
as Assistant Controller of Valhi, with forest products responsibilities, from
1988 to December 1994. Prior to joining Valhi, Mr. O'Brien, a certified public
accountant with a degree in Accounting from The University of Texas at
Arlington, was with a public accounting firm for 10 years.

THEODORE J. BAUER has served as a director of the Company since July 1993.
Prior to retiring in December 1994, Mr. Bauer served as Vice President of the
Company since 1985 and as an employee of the Company

34
<PAGE> 38

since 1967. Beginning in 1975, Mr. Bauer was assigned responsibility for the
introduction and marketing of MDF to the furniture and building products
industries. Prior to his retirement, Mr. Bauer was largely responsible for
directing the development of the Company's MDF business under the Medite(R)
brand name.

ARNOLD F. BROOKSTONE has served as Executive Vice President, Chief
Financial and Planning Officer of Stone Container Corporation, a multinational
paper and packaging manufacturer, since 1991. Prior thereto Mr. Brookstone
served as Senior Vice President, Chief Financial and Planning Officer of Stone
Container Corporation. Mr. Brookstone also serves as a director of Donnelly
Corporation, MFRI, Inc., Rembrandt Funds and Stone-Consolidated Corporation

JOHN J. COSTONIS has served as a director of the Company since February
1995. Mr. Costonis has served as Dean of the Vanderbilt University School of Law
since 1985, where he also serves as the Milton R. Underwood Professor of Free
Enterprise.

EDWARD J. HARDIN has served as a director of the Company since February
1995. Mr. Hardin has been a partner of the law firm of Rogers & Hardin since its
formation in 1976. Mr. Hardin also serves as a director of Trend Laboratories,
Inc. and Westrup, Inc.

HAROLD C. SIMMONS has served as a director of the Company since 1984. Mr.
Simmons has been an executive officer and/or director of Contran and related
companies since 1968 and has served as Chairman of the Board and Chief Executive
Officer of Valhi since prior to 1989, as Chairman of the Board and Chief
Executive Officer of Valcor since its formation in 1993, and as President of
each of Valhi and Valcor since 1994. Mr. Simmons is also Chairman of the Board
of NL and a director of Tremont.

Each of the above-named directors and executive officers will serve until
the next annual meeting of the stockholders of the Company or until his earlier
removal or resignation.

Committees of the Board of Directors. The Board of Directors has
established an audit committee (the "Audit Committee") and a management
development and compensation committee (the "MD&C Committee"). The Company does
not have a nominating committee.

The Audit Committee is comprised of Mr. Bauer, Mr. Brookstone, Mr. Costonis
and Mr. Hardin, with Mr. Brookstone serving as its Chairman. The Audit Committee
will convene when deemed appropriate or necessary by its members. The primary
functions of the Audit Committee are to: (i) recommend an accounting firm to be
employed by the Company as its independent auditors; (ii) consult with the
Company's independent auditors regarding the audit plan; and (iii) determine
that management places no restrictions on the scope or implementation of the
independent auditors' examination.

The MD&C Committee is comprised of Mr. Bauer, Mr. Costonis, Mr. Hardin and
Mr. Simmons, with Mr. Simmons serving as its Chairman. The MD&C Committee will:
(i) set and approve the compensation (including salary, bonuses, incentive
compensation and certain other types of compensation or remuneration) of
executive officers and certain other highly compensated employees of the Company
and (ii) have authority to appoint a subcommittee to administer the Company's
1995 Stock Option -- Stock Appreciation Rights Plan.

Certain Litigation. Certain directors of the Company are parties to a
purported derivative complaint filed in November 1991, in the Court of Chancery
of the State of Delaware, New Castle County (Alan Russell Kahn v. Tremont
Corporation, et al., No. 12339), in connection with Tremont's agreement to
purchase 7.8 million shares of NL common stock from Valhi on October 30, 1991
(the "NL Stock Purchase"). Immediately prior to the NL Stock Purchase, Valhi
owned approximately 63% and 44% of the outstanding shares of common stock of NL
and Tremont, respectively. In addition to Valhi, the complaint names as
defendants Tremont and the members of the Board of Directors of Tremont,
including Harold C. Simmons and Michael A. Snetzer. The complaint alleges, among
other things, that the NL Stock Purchase constituted a waste of Tremont's assets
and that the Tremont Board of Directors breached its fiduciary duties to
Tremont's public stockholders and seeks, among other things, to rescind
Tremont's consummation of the NL Stock Purchase and award damages to Tremont for
injuries allegedly suffered as a result of the defendants' conduct. The Company
understands that Valhi and the other defendants believe that the action is
without

35
<PAGE> 39

merit, have denied all allegations of wrongdoing and liability and intend to
vigorously defend this action. The action is currently in discovery and a May
31, 1995 trial date has been set by the Delaware Chancery Court.

EXECUTIVE COMPENSATION

Compensation of Directors. Directors of the Company who are not also
officers or employees of the Company or its affiliates will receive an annual
retainer of $15,000, payable in quarterly installments, plus $1,000 per day for
attendance at Board of Directors meetings and $500 per day for attendance at
Board committee meetings not held in conjunction with a full Board meeting or
another Board committee meeting and as a daily rate for services rendered on
behalf of the Board of Directors and any committee thereof. In the event of
death while serving as a director, the designated beneficiary or estate of such
directors shall be entitled to receive a one-time life insurance benefit equal
to $15,000. Any such director serving as a chairperson of a Board committee
shall also be entitled to an annual fee of $5,000 for such service. Mr. Bauer,
Mr. Brookstone, Mr. Costonis and Mr. Hardin are the only current directors
eligible to receive the foregoing amounts.

Summary of Cash and Certain Other Compensation of Executive Officers. The
Summary Compensation Table below provides certain summary information concerning
annual and long-term compensation paid or accrued by the Company to or on behalf
of the Company's Chief Executive Officer, the Company's other three executive
officers and the Managing Director of Medite/Europe for services rendered to the
Company during 1992, 1993 and 1994. Michael A. Snetzer and Bobby D. O'Brien were
not employees of the Company prior to January 1, 1995, and during the 1992-1994
periods each was paid by parent corporations of the Company. The remainder of
the individuals who serve as executive officers of the Company are employees of
the Company and were paid by the Company during the periods presented. Beginning
in 1995, Mr. Snetzer and Mr. O'Brien have become employees of the Company and
are compensated directly by the Company.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION(7)
------------------------------------- -------------------------
AWARDS
-------------------------
VALHI VALHI
RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING ALL OTHER
NAME AND SALARY BONUS COMPENSATION AWARDS OPTIONS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) ($)(2) ($)(3) (#)(4) ($)
- ------------------------- ----- -------- ------- ------------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Michael A. Snetzer....... 1994 $ 76,923(1) $ -- $ -- $ -- -- $ --
Chairman of the Board 1993 76,923(1) -- -- -- -- --
and Chief Executive 1992 76,923(1) -- -- -- -- --
Officer
Jerry L. Bramwell........ 1994 163,812 59,160 -- -- 20,000 11,280(5)
President and Chief 1993 163,812 54,914 -- 15,113 -- 9,473(5)
Operating Officer 1992 160,000 46,806 -- -- -- 11,296(5)
Rory G. Kirwan........... 1994 92,496 34,364 20,566 -- 10,000 --
Managing Director -- 1993 84,433 16,308 15,810 -- -- --
Medite/Europe 1992 88,618 13,789 16,788 -- -- --
Henry Snow............... 1994 93,654 34,757 -- -- 10,000 9,068(6)
Vice President 1993 90,948 30,695 -- 7,800 -- 7,151(6)
1992 86,184 25,212 -- -- -- 7,856(6)
Bobby D. O'Brien......... 1994 66,462(1) -- -- -- -- --
Vice President -- 1993 52,572(1) -- -- -- -- --
Finance and Treasurer 1992 46,244(1) -- -- -- -- --
</TABLE>

- ------------
(1) The Company and Valhi are parties to an Intercorporate Services Agreement
(the "Valhi ISA"), which provides that Valhi will render certain services to
the Company. Such services included services provided to the Company by Mr.
Snetzer and Mr. O'Brien prior to 1995. The fees paid pursuant to the Valhi
ISA were based upon the estimated percentage of time individual Valhi
employees devoted to matters on behalf of the Company. See "Certain
Relationships and Transactions." The amounts shown as

36
<PAGE> 40

compensation in the table for Michael A. Snetzer and Bobby D. O'Brien
represent the portion of the fees paid by the Company pursuant to the Valhi
ISA with respect to services rendered by Mr. Snetzer and Mr. O'Brien to the
Company. Mr. Snetzer and Mr. O'Brien became employees of the Company
effective January 1, 1995 and will be compensated directly by the Company
beginning in 1995. Mr. Snetzer's and Mr. O'Brien's base salary for 1995 will
be $275,000 and $92,500, respectively.

(2) Other Annual Compensation for Mr. Kirwan represents estimated value
attributed to use of a Company automobile of $13,966 for 1992, $13,127 for
1993 and $17,511 for 1994 and the cost of supplemental health insurance
coverage of $2,822 for 1992, $2,683 for 1993 and $3,055 for 1994. The only
type of Other Annual Compensation for each of the other named individuals
was in the form of perquisites, which did not exceed the lesser of $50,000
or 10% of the total annual salary and bonus reported for each named
individual and has therefore been omitted.

(3) Represents the dollar value on the day of grant of 3,100 and 1,600
restricted shares of Valhi common stock granted to Mr. Bramwell and Mr.
Snow, respectively, under the Valhi Stock Option/Stock Appreciation Rights
Plan. The Company will reimburse Valhi for the cost of shares of restricted
Valhi common stock awarded to executive officers who are also employees of
the Company. Such reimbursement is made at such time as the restriction on
such shares lapse, and is based on the market value of Valhi common stock on
such date. Such shares vest at a rate of 40% after six months from the date
of award, 30% after 18 months from the date of award and 30% after 30 months
from the date of award. Dividends are paid to grantees on unvested shares.
As of December 31, 1994, an aggregate of 2,700 shares of restricted Valhi
common stock, for which the Company will reimburse Valhi, were held by
executive officers named in the Summary Compensation Table. The aggregate
number of shares and value of restricted Valhi common stock held by each
named employee executive officer as of December 31, 1994 (at which time the
market value was $7.625 per share) were as follows: Mr. Bramwell, 1,800
shares and $13,725; Mr. Snow, 900 shares and $6,863. Shares of restricted
Valhi common stock held by Mr. Snetzer and Mr. O'Brien are not included in
the table as such executive officers were not employees of the Company prior
to 1995 and, accordingly, the Company will not be obligated to reimburse
Valhi for restricted Valhi common stock awarded to such persons prior to
1995. See "Security Ownership in the Company and its Affiliates."

(4) Represents shares of Valhi common stock available for issuance upon the
exercise of options granted under the Valhi Stock Option/Stock Appreciation
Rights Plan. With respect to options to acquire Valhi common stock granted
to executive officers who were also employees of the Company at the time of
such award, the Company will reimburse Valhi for the difference between the
option exercise price and the market price of Valhi common stock at the time
of exercise. Options granted under the Valhi Stock Option/Stock Appreciation
Rights Plan generally vest at the rate of 20% on each anniversary of the
date of grant. The table does not include options held by Mr. Snetzer and
Mr. O'Brien, executive officers of the Company who were not employees of the
Company prior to 1995. The Company will not be obligated to reimburse Valhi
in connection with Valhi stock options granted to Mr. Snetzer and Mr.
O'Brien prior to 1995. On March 10, 1994, stock options were granted to the
named executive officers for the number of shares shown in the table above.
Such options were originally granted with escalating exercise prices based
on the yield for five-year U.S. Treasury Notes on the date of grant, less
the amount of cash dividends paid per share. Such options were considered
variable-priced options under generally accepted accounting principles,
which would require the Company to expense annually the excess of the market
value of the underlying shares over the adjusted exercise price of the stock
options. On October 26, 1994, a grant of fixed-priced stock options was made
in exchange for the variable-priced options previously granted, which would
eliminate any future annual expenses related thereto. The exercise prices
for the fixed-priced stock options were set at prices equal to what the
exercise prices would have been at the vesting dates of each portion of the
original variable-priced stock options, based on original escalation rates
of such stock options and the cash dividend rate at the time. The stock
options reported in the Summary Compensation Table reflect the net stock
options attributable to each year indicated with respect to the named
executive officers. See also "-- Grants of Stock Options and Stock
Appreciation Rights."

37
<PAGE> 41

(5) All other compensation for Mr. Bramwell consists of a Valhi Employee Stock
Ownership Plan (the "ESOP") allocation of Valhi common stock valued at
$3,052 for 1992, $2,099 for 1993 and $2,280 for 1994 and a matching
contribution pursuant to the Company's Employees' Thrift Plan (the "Thrift
Plan") of $8,244, for 1992, $7,374 for 1993 and $9,000 for 1994.

(6) All other compensation for Mr. Snow consists of an ESOP allocation of Valhi
common stock valued at $1,496 for 1992, $1,167 for 1993 and $1,833 for 1994
and a matching contribution pursuant to the Thrift Plan of $6,360 for 1992,
$5,984 for 1993 and $7,235 for 1994.

(7) No payouts were made pursuant to long-term incentive plans during 1992, 1993
or 1994 and therefore the column for such compensation has been omitted.

Bonuses. Bonus recommendations for senior U.S. employees, including
executive officers who are U.S. employees of the Company, are based upon
guidelines related to annual return on stockholders' equity compared to the
annual budgeted return. Bonus recommendations for senior Irish employees are
based upon the Irish operations' pretax income margins compared to budgeted
pretax income margins. Additional bonus recommendations for senior Irish
employees are related to the plant expansion project in Ireland. In 1994 these
recommendations were based upon project completion within specified capital
expansion guidelines. Further bonus recommendations in 1995 related to the
project will be based upon achievement of specified operating performance goals.
Final determination of annual bonus payments has, in the past, been made by
non-employee directors.

Grants of Stock Options and Stock Appreciation Rights. The following table
provides information, with respect to the executive officers of the Company
listed in the Summary Compensation Table above, concerning the grant of options
to acquire Valhi common stock in 1994. No SARs were granted in 1994. Options
granted to executive officers who were not employees of the Company prior to
1995 and for which the Company incurs no cost are not included in the table.

OPTION/SAR GRANTS IN 1994

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL POTENTIAL REALIZABLE VALUE
UNDERLYING OPTIONS/ AT ASSUMED ANNUAL RATES OF
OPTIONS/ SARS EXERCISE STOCK PRICE APPRECIATION FOR
SARS GRANTED TO OR BASE MARKET PRICE OPTION TERM($)(1)
GRANTED EMPLOYEES PRICE PER SHARE ON EXPIRATION ----------------------------
NAME (#) IN 1994(2) ($/SHARE)(3) DATE OF GRANT(4) DATE 0% 5% 10%
- -------------------------- ---------- ---------- ------------ ---------------- ---------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Jerry L. Bramwell......... 20,000(5) 12%(5) (5) $ 6.00 03/10/2004 $ 1,000 $63,520 $167,120
20,000(6) 12%(6) (6) 5.50 03/10/2004 (7) (7) (7)

Rory G. Kirwan............ 10,000(5) 6%(5) (5) 6.00 03/10/2004 500 31,760 83,560
10,000(6) 6%(6) (6) 5.50 03/10/2004 (7) (7) (7)

Henry Snow................ 10,000(5) 6%(5) (5) 6.00 03/10/2004 500 31,760 83,560
10,000(6) 6%(6) (6) 5.50 03/10/2004 (7) (7) (7)
</TABLE>

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

(1) Pursuant to the rules of the Securities and Exchange Commission (the
"Commission"), the amounts under these columns reflect calculations at
assumed 0%, 5% and 10% appreciation rates and, therefore, are not intended
to forecast future appreciation, if any, of Valhi common stock. The
potential realizable value to the optionees was computed as the difference
between the appreciated value, at the expiration dates of the stock options,
of the Valhi common stock into which such stock options are exercisable and
the aggregate exercise price of such stock options on such respective dates.

(2) Based on total shares pursuant to the grant of options to employees of the
Company.

(3) The exercise price for all the described stock options could have been or
can be paid in already owned shares of Valhi common stock, provided such
tendered shares were held by the optionee for six months.

(4) The market price per share on a stock option's date of grant is equal to the
last sales price for Valhi common stock as reported on the New York Stock
Exchange Composite Tape on such date.

(5) This fixed-price stock option was granted on October 26, 1994 in exchange
for the cancellation of the variable-priced stock option granted to such
person on March 10, 1994 (see footnote (6) below). This

38
<PAGE> 42

option became exercisable on the following dates and, when it was granted,
was exercisable at the prices indicated:

<TABLE>
<CAPTION>
PERCENT VESTING EXERCISE
VESTED DATE PRICE*
- ------- -------- --------
<S> <C> <C>
20% 06/30/95 $ 5.75
20 03/10/96 6.01
20 03/10/97 6.29
20 03/10/98 6.58
20 03/10/99 6.89
</TABLE>

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

* These exercise prices have subsequently been adjusted by Valhi as a
result of Valhi's 1995 dividend of all of its common stock of Tremont
Corporation. Accordingly, these exercise prices are $5.48, $5.72, $5.99,
$6.27 and $6.56, respectively, as of the date of this Prospectus.

(6) This variable-priced stock option, which was granted on March 10, 1994, has
been canceled in exchange for the grant of the fixed-priced stock option
granted to such person on October 26, 1994 (see footnote (5) above). The
initial exercise price of this variable-priced stock option was equal to
the $5.50 closing price per share of Valhi common stock as reported on the
New York Stock Exchange Composite Tape on such stock option's date of
grant. The exercise price of this canceled stock option was to be adjusted
on each annual anniversary date of its grant by an amount equal to 5.91%
(the yield on five-year U.S. Treasury Notes on the date of grant) times the
initial, or last previously adjusted, exercise price, less the amount of
cash dividends paid per share on Valhi common stock since the previous
adjustment. This stock option was to become exercisable at a rate of 20% on
each of the first five anniversary dates of its date of grant. On the date
of cancellation, the exercise price per share for this variable-priced
option was $5.50.

(7) These variable-priced stock options were canceled on October 26, 1994 and,
therefore, have no potentially realizable value. Assuming such
variable-priced stock options had not been canceled and that future
dividends would be paid at a rate equal to Valhi's dividend policy at the
date of calculation of $0.02 per share per calendar quarter, such
variable-priced stock options would have had the following potentially
realizable values based on the assumed annual rates of stock price
appreciation of 0%, 5% and 10% for the term of such stock options
(calculated in accordance with footnote (1) above):

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
RATES OF STOCK PRICE
APPRECIATION FOR
NUMBER OF SECURITIES OPTION TERM
UNDERLYING OPTIONS/SARS -------------------------
NAME GRANTED(#) 0% 5% 10%
----------------------------------------- ----------------------- --- ------ --------
<S> <C> <C> <C> <C>
Jerry L. Bramwell........................ 20,000 $ 0 $4,400 $110,600
Rory G. Kirwan........................... 10,000 0 2,200 55,300
Henry Snow............................... 10,000 0 2,200 55,300
</TABLE>

Stock Option Exercises and Holdings. The following table provides
information with respect to the executive officers of the Company listed in the
Summary Compensation Table above concerning the value of unexercised options to
acquire Valhi common stock held as of December 31, 1994. Options held by
executive officers who were not employees of the Company prior to 1995 and for
which the Company incurs no cost are not included in the table. During 1994, no
executive officer exercised any options. No SARs have been granted under any
incentive plan.

39
<PAGE> 43

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
AT 12/31/94 (#) AT 12/31/94 ($)
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(1)
- ----------------------------------------------- ------------------------- ----------------------------
<S> <C> <C>
Jerry L. Bramwell.............................. 16,000/24,000 42,000/36,920
Rory G. Kirwan................................. -- /10,000 -- /13,210
Henry Snow..................................... 38,000/12,000 21,000/18,460
</TABLE>

- ------------
(1) Based on Valhi's $7.625 per share closing price as of December 31, 1994 as
reported on the NYSE composite tape.

Stock Option-Stock Appreciation Rights Plan. On February 14, 1995, the
Board of Directors and Valcor, as the sole stockholder of the Company, adopted
the Medite Corporation 1995 Stock Option-Stock Appreciation Rights Plan (the
"Option Plan"). The Option Plan provides key employees (who may also be
directors) of the Company and its affiliates performance incentives and also
provides a means of encouraging stock ownership in the Company by such persons.
Under the Option Plan, key employees of the Company or its affiliates are
eligible to receive stock options to purchase shares of Common Stock,
appreciation rights ("SARs") or awards of restricted stock. The Option Plan
allows a maximum of 1,000,000 shares of Common Stock to be awarded in the form
of stock options, SARs and restricted stock awards. Options, SARs and restricted
stock awards may be granted under the Option Plan and no option may exceed a
term of ten years from the date of grant. Options granted under the Option Plan
may be either incentive stock options or non-qualified stock options. A
subcommittee of the Company's MD&C Committee will be authorized to designate the
recipients of options, SARs and restricted stock awards, the dates of grants,
the number of shares subject to options or restricted stock awards, the option
price, the terms of payment on exercise of the options, the time during which
the options and SARs may be exercised and the vesting of restricted stock
awards. The price of incentive stock options granted under the Option Plan
cannot be less than the fair market value of the shares at the time the options
are granted.

On March 17, 1995, the Company granted to employees of the Company, subject
to completion of the Offering, incentive stock options under the Option Plan to
purchase an aggregate of 475,000 shares of Common Stock at an exercise price
equal to the initial public offering price and may grant during the next six
months options to purchase an additional 65,000 shares at the market price on
date of grant. Of the options granted, Messrs. Snetzer, Bramwell, Kirwan, Snow
and O'Brien were granted options to purchase 90,000, 60,000, 45,000, 30,000 and
30,000 shares of Common Stock, respectively. Each of these options will vest
over a period of five years, with 60% of the shares subject to the options
becoming first exercisable on the third anniversary of the date of grant, 20%
becoming first exercisable on the fourth anniversary of the date of grant and
the remaining 20% becoming first exercisable on the fifth anniversary of the
date of grant.

Non-Employee Director Stock Option Plan. On March 17, 1995, the Board of
Directors of the Company and Valcor, as the sole stockholder of the Company,
adopted the Medite Corporation 1995 Non-Employee Director Stock Option Plan (the
"Director Plan"). Options will be granted under the Director Plan only to
directors of the Company who are neither employees of the Company nor any of its
subsidiaries or affiliates. The aggregate number of shares of Common Stock
authorized to be issued pursuant to the Director Plan is 65,000. The Director
Plan provides that each eligible non-employee director will be granted (a) an
option to purchase 5,000 shares of Common Stock on the closing date of this
Offering and (b) annually, beginning in 1996, an option to purchase 1,000 shares
of Common Stock automatically on the third business day after the Company issues
its press release summarizing the Company's annual financial results for the
prior fiscal year. The exercise price of the options shall be equal to the last
reported sale price of the Common Stock on the NASDAQ National Market System on
the date of grant; provided, however, that with respect to the initial grant,
the exercise price shall be equal to the initial public offering price. Options
granted under the Director Plan are not intended to constitute "incentive stock
options" within the meaning of Section 422 of the Code. Each option granted
under the Director Plan becomes exercisable one year after the date of the grant
and expires on the fifth anniversary following the date of grant. The Director
Plan will terminate upon the earlier of (a) March 31, 2000, or (b) the effective
date of a non-employee director stock option plan adopted by the

40
<PAGE> 44

Board of Directors expressly replacing the Director Plan. No options may be
granted under the Director Plan after the date on which the Director Plan
terminates. Directors of the Company who are eligible to participate in the
Director Plan are Theodore J. Bauer, Arnold F. Brookstone, John J. Costonis,
Edward J. Hardin and Harold C. Simmons.

Pension Plan. The Medite Corporation Retirement Plan (the "Retirement
Plan") is a plan intended to be qualified under the Internal Revenue Code of
1986, as amended (the "Code"), that provides for a defined benefit upon
retirement to the Company's eligible and participating U.S. employees. Under the
terms of the Retirement Plan, the defined benefit for a participant is
formulated on the basis of a life annuity with 60 months certain determined by
the amount of a participant's earnings for each year and the number of years of
credited service under the Retirement Plan. The compensation utilized for
purposes of the Retirement Plan formula includes the annual salary and does not
include overtime, commissions, bonuses or deferred compensation. For years
beginning after December 31, 1992, the maximum compensation taken into account
for any such year for a participant is $150,000 plus adjustments authorized for
the year under applicable law. The Retirement Plan incorporates and succeeds to
the Medite Employees' Pension Plan (the "Old Plan"). Certain transition rules
are included in the Retirement Plan under which provisions of the Old Plan
relating to the computation of benefits may continue to be applied until January
1, 1998.

The following table lists annual benefits under the Retirement Plan for the
average annual earnings and years of credited service shown for a participant
retiring at the normal retirement age of 65. The table does not reflect the
computation of benefits under the Old Plan pursuant to transition rules in the
Retirement Plan. In addition, although the table lists benefits for average
annual earnings up to $200,000, the amount of compensation that will be taken in
account in a given year under the Retirement Plan may be limited to an amount
($150,000 plus allowable adjustments) that is less than the average annual
earnings listed in the table. There is no provision under the Retirement Plan
providing for benefit reductions for Social Security payments received by a
participant after retirement. The rate at which a participant's accrued benefits
increase may be reduced after 35 years of credited service.

<TABLE>
<CAPTION>
YEARS OF CREDITED SERVICE
AVERAGE ANNUAL ---------------------------------------------
EARNINGS 5 10 20 35
------------------------------------------- -------- -------- -------- ---------
<S> <C> <C> <C> <C>
$ 80,000................................. $ 5,940 $ 11,880 $ 23,760 $ 41,580
100,000................................. 7,440 14,880 29,760 52,080
120,000................................. 8,940 17,880 35,760 62,580
140,000................................. 10,440 20,880 41,760 73,080
160,000................................. 11,940 23,880 47,760 83,580
180,000................................. 13,440 26,880 53,760 94,080
200,000................................. 14,940 29,880 59,760 104,580
</TABLE>

Jerry L. Bramwell and Henry Snow were the only current executive officers
of the Company eligible to participate in the Retirement Plan; Mr. Snetzer and
Mr. O'Brien became eligible to participate in the Retirement Plan in 1995. Mr.
Bramwell and Mr. Snow are credited with four years and 27 years, respectively,
of service under the Retirement Plan. Additionally, pursuant to an agreement
entered into between the Company and Mr. Bramwell at the time of his employment,
in addition to his benefits under the retirement plan, the Company will pay Mr.
Bramwell an additional monthly amount after retirement equal to the amount Mr.
Bramwell is entitled to receive pursuant to the Retirement Plan. The Company's
obligation under such agreement ceases upon Mr. Bramwell's death.

The Medite of Europe Limited Retirement and Death Benefit Plan (the
"Medite/Europe Plan") provides for a defined benefit upon retirement to the
Company's eligible and participating Irish employees. Under the Medite/Europe
Plan, the defined benefit for a participant is based upon the annual average
salary for the highest three consecutive year period in the ten year period
preceding retirement. The following table

41
<PAGE> 45

lists annual benefits under the Medite/Europe Plan for average annual salary and
years of credited service shown for an executive employee retiring at the normal
retirement age of 65.

<TABLE>
<CAPTION>
YEARS OF CREDITED SERVICE
AVERAGE ANNUAL ----------------------------------------------
EARNINGS 5 10 15 20
------------------------------------------ -------- -------- --------- ---------
<S> <C> <C> <C> <C>
$ 80,000................................ $ 13,333 $ 26,667 $ 40,000 $ 53,333
100,000................................ 16,667 33,333 50,000 66,667
120,000................................ 20,000 40,000 60,000 80,000
140,000................................ 23,333 46,667 70,000 93,333
160,000................................ 26,667 53,333 80,000 106,667
180,000................................ 30,000 60,000 90,000 120,000
200,000................................ 33,333 66,667 100,000 133,333
</TABLE>

Rory G. Kirwan, Managing Director of Medite/Europe, is eligible to participate
in the Medite/Europe Plan and has twelve years of credited service.

The standard benefit payable to a non-executive employee covered by the
Medite/Europe Plan is an annual benefit equal to 1/60th of such employee's
annual average salary times such employee's years of credited service, up to a
maximum benefit of two-thirds of such employee's average annual salary.

Compensation Committee Interlocks and Insider Participation. During 1994,
the Company did not have a compensation committee. Accordingly, in 1994,
decisions concerning the compensation of the Company's executive officers were
made by the Board of Directors with the exception of the compensation decisions
relating to Michael A. Snetzer and Bobby D. O'Brien, who were not employees of
the Company until January 1, 1995. Although Mr. Snetzer, Theodore J. Bauer and
Jerry L. Bramwell were members of the Board of Directors and executive officers
of the Company during 1994, Mr. Snetzer was not compensated directly by the
Company during such time and neither Mr. Bauer nor Mr. Bramwell participated in
any decisions regarding their own compensation as executive officers of the
Company.

In addition, Mr. Snetzer served as a director of Valhi and Valcor during
1994 and Harold C. Simmons, the Chairman of the Board and Chief Executive
Officer of Valhi and Valcor, served as a director of the Company.

CERTAIN RELATIONSHIPS AND TRANSACTIONS

Relationships with Related Parties. As set forth under the caption
"Security Ownership in the Company and its Affiliates," Harold C. Simmons,
through Valcor, Valhi and Contran, may be deemed to control the Company. Mr.
Simmons is also a director of the Company's parent company, Valcor, and of
certain affiliates of the Company and Valcor. Mr. Snetzer is currently a
director of the Valhi, NL and Tremont, each of which may be deemed to be
controlled by Mr. Simmons. Mr. Snetzer has advised these three companies that he
does not intend to stand for re-election at their upcoming 1995 annual
stockholder meetings. See "Management -- Executive Officers and Directors." It
is the policy of the Company to engage in transactions with related parties on
terms, in the opinion of the Company, no less favorable to the Company than
could be obtained from unrelated parties.

Edward J. Hardin, a director the Company, is a partner in the law firm of
Rogers & Hardin, which serves as legal counsel to the Company. Rogers & Hardin
has also provided and may in the future provide legal services to other entities
which may be deemed to be controlled by Harold C. Simmons.

Loans and Advances. From time to time the Company makes advances to and
borrows from Valcor, Valhi and other related parties pursuant to term and demand
loans. Such loans and advances are made principally for cash management purposes
and at times when, although the Company had credit availability from third party
sources, the Company was able to borrow such funds from an affiliate on terms
comparable or more favorable to those available under such existing third party
credit facilities. During 1992, 1993 and 1994, the maximum aggregate outstanding
principal amount of loans payable to Valhi and Valcor were $2 million,

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<PAGE> 46

$20 million and $20 million, respectively. Of such amounts, $20 million received
from Valcor in the fourth quarter of 1993 (repaid in the first quarter of 1994)
in the form of a sale of stock and subsequent return of capital dividend was
reflected in substance as a loan from an affiliate. The weighted average
interest rates related to such loans during such years were 7.8%, 4.3% and
5.25%, respectively. As of December 31, 1994, outstanding loans payable to
Valcor were $5 million at an interest rate of 5.25%.

Contractual Arrangements. The Valhi ISA provides that Valhi will render or
provide certain management, financial, and administrative services to the
Company on a fee basis. Prior to 1995, these services included services provided
to the Company by Mr. Snetzer and Mr. O'Brien. The Company paid Valhi fees for
services rendered under the Valhi ISA of $321,000, $320,000 and $316,000 in
1992, 1993 and 1994, respectively. In addition, the Company reimbursed Valhi for
out-of-pocket costs incurred in rendering such services. The Valhi ISA is an
annual agreement and may be extended on a quarter-to-quarter basis, subject to
termination by advance notice by either party and amendment by mutual agreement.

Net charges from related parties for services provided in the ordinary
course of business, principally "pass-through" insurance charges for insuring
and other risks and for foreign sales corporations commissions aggregated
$2,041,000 in 1992, $1,605,000 in 1993 and $1,200,000 in 1994. Such charges, in
the Company's opinion, are not materially different from those that would have
been incurred on a stand-alone basis were such services provided by
non-affiliates.

The Company, Valcor, and Valhi have been members of Contran's consolidated
United States federal income tax group (the "Contran Tax Group"). Contran's
policy for intercompany allocation of federal income taxes provides that
subsidiaries included in the Contran Tax Group compute the provision for federal
income taxes on a separate company basis. Subsidiaries of Valcor make payments
to, or receive payments from, Valcor in the same amount they would have paid to
or received from the Internal Revenue Service had they not been members of the
Contran Tax Group. The separate company tax provisions and payments are computed
using tax elections made by Contran. Upon consummation of the Offering, the
Company will become a separate United States taxpayer and will no longer be a
member of the Contran Tax Group.

Certain employees of the Company have been awarded shares of restricted
Valhi common stock and/or granted options to purchase Valhi common stock under
the terms of Valhi's stock option plans. The Company will reimburse Valhi for
the cost of shares of restricted Valhi common stock awarded to employees of the
Company as of the time the restrictions on such shares lapse, based on the
market value of Valhi common stock on such date. With respect to options to
acquire Valhi common stock granted to employees of the Company, the Company will
reimburse Valhi for the difference between the option exercise price and the
market price of Valhi common stock at the time of exercise. As of December 31,
1994, employees of the Company (prior to January 1, 1995, Mr. Snetzer and Mr.
O'Brien were not employees of the Company) had been awarded 4,100 shares of
restricted Valhi common stock and options to acquire 359,000 shares of Valhi
common stock. The Company has recorded an expense (credit) of ($23,000) in 1992,
nil in 1993 and $221,000 in 1994 in connection with the grant of Valhi
restricted stock and stock options.

Valcor Indenture. The Valcor Indenture contains provisions which limit,
among other things, the ability of Valcor and its subsidiaries (including the
Company) to incur indebtedness, make acquisitions of or investments in new
businesses, sell assets, place liens on its existing properties or consent to
further restrictions on its ability to pay dividends so long as Valcor's Senior
Notes remain outstanding. These restrictions generally prohibit the Company from
incurring any new indebtedness secured by assets already owned, including any
assets which had previously secured indebtedness before such indebtedness was
repaid in full, except for the incurrence of permitted revolving working capital
indebtedness or the refinancing of any permitted indebtedness in accordance with
the Indenture. The Company is generally permitted to incur additional
indebtedness to finance the acquisition of businesses and capital expenditures
if, at the time such indebtedness is incurred, Valcor and its subsidiaries meet
a specified debt service coverage ratio, on a consolidated basis. Accordingly,
the ability of the Company to incur additional indebtedness may depend in part
on the operating results and levels of indebtedness of Valcor's other business
segments.

The Valcor Indenture also restricts the Company from (i) incurring any new
indebtedness which, among other things, restricts or limits its ability to pay
dividends or pay any indebtedness owed to Valcor; (ii) entering

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<PAGE> 47

into a sales/leaseback transaction unless the net proceeds from the sale are at
least equal to the fair value (as determined by Valcor's Board of Directors) of
the property sold and the Company applies an amount in cash equal to the net
proceeds of such sale to the retirement of any of its indebtedness; and (iii)
making an investment (such as a loan, advance or acquisition of an equity
interest) in any person in which any affiliate of Valcor (other than the
Company, its subsidiaries or any other Valcor subsidiary) has, or is making, an
investment.

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<PAGE> 48

SECURITY OWNERSHIP IN THE COMPANY AND ITS AFFILIATES

Prior to the Offering, all of the Company's outstanding capital stock was
held by Valcor, which is in turn a wholly-owned subsidiary of Valhi. Each of
Valcor and Valhi are subject to the informational requirements of the Exchange
Act. As set forth below, Contran holds, directly or through subsidiaries,
approximately 90% of the outstanding Valhi common stock. Harold C. Simmons,
Chairman of the Board, President and Chief Executive Officer of Valcor, Valhi
and Contran, may be deemed to control each of such companies.

The following table and notes set forth as of December 31, 1994 the
beneficial ownership, as defined by the regulations of the Commission, of Valhi
common stock by (i) each person or group of persons known to the Company to
beneficially own more than 5% of the outstanding shares of Valhi common stock,
(ii) each director of the Company, (iii) each executive officer of the Company
listed in the Summary Compensation Table above, and (iv) all executive officers
and directors of the Company as a group. See footnote (3) below for information
concerning individuals and entities which may be deemed to indirectly
beneficially own those shares of Valhi common stock directly held by Valhi
Group, Inc. ("VGI"), National City Lines, Inc. ("National") and Contran, as
reported in the table below. Except as set forth below, no securities of the
Company's parent companies are beneficially owned by any director or executive
officer of the Company. All information is taken from or based upon ownership
filings made by such persons with the Commission or upon information provided by
such persons to the Company.

<TABLE>
<CAPTION>
VALHI COMMON STOCK
--------------------------------------
AMOUNT AND NATURE
OF BENEFICIAL PERCENT OF
NAME OF BENEFICIAL OWNER OWNERSHIP (1) CLASS (2)
--------------------------------------------------- ----------------- ----------
<S> <C> <C>
Contran Corporation:
Valhi Group, Inc................................. 85,644,496(3) 75.2%
National City Lines, Inc......................... 11,491,009(3) 10.1%
Contran Corporation.............................. 6,212,058(3) 5.5%
Theodore J. Bauer.................................. 16,373 --
Jerry L. Bramwell.................................. 20,161(4) --
Arnold F. Brookstone............................... -- --
John J. Costonis................................... -- --
Edward J. Hardin................................... 2,000 --
Harold C. Simmons.................................. 700,363(3)(4)(5) .6%
Michael A. Snetzer................................. 655,016(3)(4)(6) .6%
Rory G. Kirwan..................................... -- --
Henry Snow......................................... 40,605(4) --
Bobby D. O'Brien................................... 28,682(3)(4) --
All directors and executive officers as a group (9
persons)......................................... 1,463,200(3)(4)(5)(6) 1.3%
</TABLE>

- ------------
(1) All beneficial ownership is sole and direct unless otherwise noted. The
business address of VGI, National and Contran is Three Lincoln Centre, 5430
LBJ Freeway, Suite 1700, Dallas, Texas 75240.

(2) No percent of class is shown for holdings of less than 1%.

(3) National, NOA, Inc. ("NOA") and Dixie Holding Company ("Dixie") are the
holders of approximately 73.3%, 11.4% and 15.3%, respectively, of the
outstanding common stock of VGI. Contran and NOA are the holders of
approximately 85.7% and 14.3%, respectively, of the outstanding common stock
of National. Contran and Southwest Louisiana Land Company, Inc.
("Southwest") are the holders of approximately 49.9% and 50.1%,
respectively, of the outstanding common stock of NOA. Dixie Rice
Agricultural Corporation, Inc. ("Dixie Rice") is the holder of 100% of the
outstanding common stock of Dixie. Contran is the holder of approximately
88.7% and 54.3% of the outstanding common stock of Southwest and Dixie Rice,
respectively. Substantially all of Contran's outstanding voting stock is
held by trusts established for the benefit of Harold C. Simmons' children
and grandchildren (the "Trusts"), of which Mr. Simmons is the sole trustee.
As sole trustee of the Trusts, Mr. Simmons has the power to vote and direct
the disposition of the shares of Contran stock held by the Trusts; however,
Mr. Simmons disclaims beneficial ownership thereof. The Combined Master
Retirement Trust (the "Master Trust")

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<PAGE> 49

holds approximately .1% of the outstanding shares of Valhi common stock. The
Master Trust is a trust formed by Valhi to permit the collective investment
by trusts which maintain the assets of certain employee benefit plans
adopted by Valhi and related companies. Harold C. Simmons is sole trustee of
the Master Trust and sole member of the Trust Investment Committee for the
Master Trust. The trustee and members of the Trust Investment Committee for
the Master Trust are selected by Valhi's Board of Directors. Harold C.
Simmons and Michael A. Snetzer are members of Valhi's Board of Directors and
are participants in one or more of the employee benefit plans which invest
through the Master Trust; however, each such person disclaims beneficial
ownership of the shares of Valhi Common Stock held by the Master Trust,
except to the extent of his individual vested beneficial interest in the
assets held by the Master Trust. In addition, Bobby D. O'Brien is a
participant in one or more of the employee benefit plans which invest
through the Master Trust; however, Mr. O'Brien disclaims beneficial
ownership of the shares of Valhi Common Stock held by the Master Trust,
except to the extent of his individual vested beneficial interest in the
assets held by the Master Trust.

Harold C. Simmons is Chairman of the Board, President and Chief Executive
Officer of Valcor, Valhi, VGI, National, NOA, Dixie and Contran. Mr.
Simmons is also the Chairman of the Board and Chief Executive Officer of
Dixie Rice and Southwest. By virtue of the stock ownership described above
and the holding of such offices, Mr. Simmons may be deemed to control the
Company, Valcor, Valhi, VGI, National, NOA, Dixie Rice, Dixie, Southwest
and Contran, and may be deemed to possess indirect beneficial ownership of
certain shares of Valhi Common Stock held by such entities. However, Mr.
Simmons disclaims beneficial ownership of the shares of Valhi Common Stock
beneficially owned, directly or indirectly, by such entities.

(4) The shares of Valhi common stock shown as beneficially owned include shares
of Valhi common stock that such person or group could acquire upon the
exercise of options within 60 days of December 31, 1994. During such period,
options for 620,000, 510,000, 16,000, none, 38,000 and 26,000 shares are
exercisable by Messrs. Simmons, Snetzer, Bramwell, Kirwan, Snow and O'Brien,
respectively, under Valhi's stock option plans. Also included are shares of
restricted Valhi common stock which include none, none, 1,800, none, 900 and
1,600 shares held by Messrs. Simmons, Snetzer, Bramwell, Kirwan, Snow and
O'Brien, respectively, which such person has the power to vote and the right
to receive dividends. In addition, included are the vested beneficial
interests in shares of Valhi common stock held as of December 31, 1994 by
the ESOP which include 3,363, 3,356, 1,061, none, 1,005 and 1,082 shares
held by Messrs. Simmons, Snetzer, Bramwell, Kirwan, Snow and O'Brien,
respectively. All of the shares which could be acquired upon the exercise of
options, shares of restricted Valhi common stock and the vested beneficial
interest in the shares of Valhi common stock held by the ESOP are included
in the amount of shares outstanding for purposes of calculating the percent
of class owned by such person or group.

(5) The shares of Valhi common stock shown as beneficially owned by Harold C.
Simmons include 77,000 shares held by Mr. Simmons' wife, with respect to all
of which beneficial ownership is disclaimed by Mr. Simmons.

(6) The shares of Valhi common stock shown as beneficially owned by Michael A.
Snetzer do not include 2,000 shares held in an account for which Mr. Snetzer
has investment authority and 11,500 shares held in an account for his minor
son of which Mr. Snetzer is custodian, with respect to all of which
beneficial ownership is disclaimed by Mr. Snetzer.

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<PAGE> 50

DESCRIPTION OF CAPITAL STOCK

GENERAL

The authorized capital stock of the Company consists of 50 million shares
of Common Stock, par value $.01 per share, of which 12,100,000 shares are issued
and outstanding, and 1 million shares of preferred stock, par value $1.00 per
share (the "Preferred Stock"), of which 1,000 shares of a Series A Preferred
Stock are issued and outstanding. The following summary does not purport to be
complete and is subject to the detailed provisions of, and qualified in its
entirety by reference to, the Company's Restated Certificate of Incorporation
and Bylaws, copies of which have been filed as exhibits to the Registration
Statement of which this Prospectus is a part, and to the applicable provisions
of the Delaware General Corporation Law.

COMMON STOCK

Upon completion of the Offering, the Company will have 18,850,000 shares of
Common Stock outstanding.

Voting Rights. Each share of Common Stock entitles the holder thereof to
one vote in elections of directors and all other matters submitted to a vote of
stockholders. The Common Stock does not have cumulative voting rights, which
means that holders of a majority of the outstanding shares of Common Stock
voting for the election of directors can elect all directors then being elected.
Since the purchasers of shares offered hereby will own less than a majority of
the outstanding shares after the Offering, such stockholders will be unable to
elect a director without the affirmative vote of Valcor.

Dividends. Each share of Common Stock has an equal and ratable right to
receive dividends to be paid from the Company's assets legally available
therefor when, as and if declared by the Board of Directors. Delaware law
generally requires that dividends are payable only out of the Company's surplus
or current net profits in accordance with the Delaware General Corporation Law.
On and after February 1, 2001, no dividend (other than dividends payable in
certain capital stock of the Company or certain rights to purchase capital stock
of the Company) may be paid or declared on the shares of Common Stock unless and
until the cumulative accrued and unpaid dividends on the Series A Preferred
Stock are paid in full or set aside for payment. See "Dividend Policy."

Liquidation. In the event of the dissolution, liquidation or winding up of
the Company, the holders of Common Stock are entitled to share equally and
ratably in the assets available for distribution after payments are made to the
Company's creditors and to the holder of any Preferred Stock of the Company that
may be outstanding at the time.

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

Prior to the date of this Prospectus, there has been no established public
trading market for the Common Stock. The Common Stock has been approved for
trading, subject to official notice of issuance, on the NASDAQ National Market
System under the symbol "MDFX".

PREFERRED STOCK

The Board of Directors of the Company is authorized, without further
stockholder action, to divide any or all shares of authorized Preferred Stock
into series and to fix and determine the designations, preferences and relative,
participating, optional or other special rights, and qualifications, limitations
or restrictions thereon, of any series so established, including voting powers,
dividend rights, liquidation preferences, redemption rights and conversion or
exchange privileges. As of February 14, 1995, the Board of Directors of the
Company designated 1,000 shares of its Preferred Stock as the "Series A
Preferred Stock" and issued such 1,000 shares of Series A Preferred Stock to
Valcor in the form of a stock dividend. See "Use of Proceeds." With the
exception of the Series A Preferred Stock, as of the date of this Prospectus,
the Board of Directors of the

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<PAGE> 51

Company has not authorized any series of Preferred Stock and there are no plans,
agreements or understandings for the issuance of any additional shares of
Preferred Stock.

Series A Preferred Stock. Dividends accrue on the Series A Preferred Stock
at the annual rate of $6,000 per share and are cumulative. Dividends shall only
be payable on the Series A Preferred Stock: (i) when, as and if declared by the
Board of Directors of the Company and (ii) at such times as permitted by certain
provisions of the Company's credit agreements. Prior to February 1, 2001, the
declaration and payment of dividends and distributions on the Common Stock shall
not be restricted or limited by the failure to pay cumulative accrued and unpaid
dividends on the Series A Preferred Stock. On and after February 1, 2001, no
dividend (other than dividends payable in certain capital stock of the Company
or certain rights to purchase capital stock of the Company) may be paid or
declared on the shares of Common Stock unless and until the cumulative accrued
and unpaid dividends on the Series A Preferred Stock have been paid in full or
set aside for payment.

In the event of liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, before any payment or distribution of the
assets of the Company shall be made or set apart for the holders of any capital
stock of Company junior to the Series A Preferred Stock, including the Common
Stock, the holders of the shares of Series A Preferred Stock shall be entitled
to receive $50,000 per share plus an amount equal to the cumulative accrued and
unpaid dividends as would be payable on such share were a dividend declared on
the Series A Preferred Stock on the date of final distribution to such holders.

Holders of the Series A Preferred Stock are not entitled to vote (except as
otherwise required by the General Corporation Law of the State of Delaware) and
have no preemptive, subscription, redemption or conversion rights and are not
liable for further call or assessment. All of the outstanding shares of Series A
Preferred Stock are fully paid and nonassessable.

Subject to compliance with certain provisions of the Company's credit
agreements, the Company may, at any time and from time to time, redeem the
shares of Series A Preferred Stock, in whole or in part, at a redemption price
equal to $50,000 per share plus all cumulative accrued and unpaid dividends that
would be payable on such share were a dividend declared on the Series A
Preferred Stock at the time of such redemption. The Company intends to use a
portion of the net proceeds of the Offering to redeem the Series A Preferred
Stock. See "Use of Proceeds".

LIMITATIONS ON DIRECTORS' LIABILITY

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

SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW

Section 203 of the Delaware General Corporation Law ("DGCL") prohibits
certain transactions between a publicly held Delaware corporation and an
"interested stockholder," which is defined as a person who, together with any
affiliates and/or associates of such person, beneficially owns, directly or
indirectly, 15 percent or more of the outstanding voting shares of a Delaware
corporation. A Delaware corporation, pursuant to a provision in its certificate
of incorporation or by-laws, may elect not to be governed by Section 203 of the
DGCL. The Company has made such an election in its Restated Certificate of

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<PAGE> 52

Incorporation and, as a result, the Company is not subject to the provisions of
Section 203 of the DGCL. This provision prohibits certain business combinations
(defined broadly to include mergers, consolidations, sales or other dispositions
of assets having an aggregate value of 10 percent or more of the consolidated
assets of the corporation, and certain transactions that would increase the
interested stockholder's proportionate share ownership in the corporation)
between an interested stockholder and a corporation for a period of three years
after the date the interested stockholder acquired its stock, unless (i) the
business combination or the transaction whereby the person became an interested
stockholder is approved by the corporation's board of directors prior to the
date of such transaction; (ii) the interested stockholder acquired at least 85
percent of the voting stock of the corporation in the transaction in which it
became an interested stockholder; or (iii) the business combination is approved
by a majority of the board of directors and by the affirmative vote of
two-thirds of the outstanding voting stock owned by disinterested stockholders
at an annual or special meeting.

TRANSFER AGENT

Society National Bank will act as the transfer agent for the Common Stock.

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this Offering, the Company will have outstanding
18,850,000 shares of Common Stock, without taking into account any options or
restricted stock granted to officers and employees of the Company. All 6,750,000
of the shares of Common Stock sold hereby are freely tradeable without
restriction or further registration under the Securities Act of 1933 (the
"Securities Act") by persons other than "affiliates" of the Company (defined in
Rule 144 under the Securities Act as a person who directly or indirectly through
the use of one or more intermediaries controls, is controlled by, or is under
common control with, the Company). The remaining 12,100,000 shares of Common
Stock held by Valcor will be deemed restricted securities within the meaning of
Rule 144. Shares of Common Stock acquired or to be acquired by officers and
employees of the Company pursuant to the exercise of options or restricted stock
grants will be freely tradeable without restriction or further registration
under the Securities Act by persons other than "affiliates." Sales of restricted
securities and shares of Common Stock held by "affiliates" are subject to
certain volume, timing and manner of sale restrictions pursuant to Rule 144. Any
sales of substantial amounts of these shares in the public market might
adversely affect prevailing market prices for the shares of Common Stock.

In general, under Rule 144, a person (or persons whose shares are
aggregated) who has beneficially owned shares for at least two years, including
"affiliates" of the Company, would be entitled to sell within any three-month
period that number of shares that does not exceed the greater of (i) 1% of the
number of shares of Common Stock then outstanding or (ii) the average weekly
trading volume of the Common Stock during the four calendar weeks preceding such
sale. Sales pursuant to Rule 144 are subject to certain manner of sale
provisions, notice requirements and the availability of current public
information about the Company. A person (or persons whose shares are aggregated)
who is not deemed to have been an affiliate of the Company at any time during
the 90 days preceding a sale, and who has beneficially owned the shares proposed
to be sold for at least three years, would be entitled to sell such shares under
Rule 144(k) without regard to the requirements described above. The Company is
unable to estimate the number of restricted shares or shares held by affiliates
that will be sold under Rule 144 since this will depend in part on the market
price for the Common Stock, the personal circumstances of the holders of the
shares and other factors.

Each of the Company and Valcor has agreed with the Underwriters not to
issue or sell any of its shares of Common Stock, or shares convertible or
exchangeable or exercisable for its common stock, for a period of 180 days from
the date of this Prospectus. Thereafter, Valcor will be able to sell its shares
of Common Stock in reliance upon Rule 144, subject to the resale volume
limitations described above. In addition, it is possible that in the future
Valcor may cause the Company to register additional shares of Common Stock owned
by Valcor to permit a further distribution of such shares of Common Stock by
Valcor.

Prior to the Offering, there has been no public market for the Common
Stock. Trading of the Common Stock is expected to commence following the
completion of the Offering. There can be no assurance that an active trading
market will develop or continue after the completion of the Offering or that the
market price of

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<PAGE> 53

the Common Stock will not decline below the initial public offering price. No
prediction can be made as to the effect, if any, that future sales of shares of
Common Stock, or the availability of shares for future sale, will have on the
market price prevailing from time to time. Sales of substantial amounts of
Common Stock in the public market, or the perception that such sales could
occur, could adversely affect the prevailing market price of the Common Stock or
the ability of the Company to raise capital through a public offering of its
equity securities.

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

The following is a discussion of certain U.S. federal income and estate tax
consequences of the ownership and disposition of Common Stock by a "Non-U.S.
Holder." A "Non-U.S. Holder" is a person or entity that, for U.S. federal income
tax purposes, is a non-resident alien individual, a foreign corporation, a
foreign partnership, or a foreign estate or trust. An alien individual may be
deemed to be a resident alien (as opposed to a non-resident alien) by virtue of
being present in the U.S. on at least 31 days in the current calendar year and
for a weighted average of 183 days during a three-calendar year period ending
with the current calendar year (computed, for such purposes as the sum of all of
the days present in the current year, one-third of the days present in the
immediately preceding year, and one-sixth of the days present in the second
preceding year). In addition to the "substantial presence test" described in the
immediately preceding sentence, an alien may be treated as a resident alien with
respect to any calendar year if he (i) meets a lawful permanent resident test (a
so-called "green card" test) or (ii) is not otherwise a United States resident
in the calendar year or in the immediately preceding calendar year but elects to
be treated as a U.S. resident in the calendar year (the "election year"). The
election may be made if the alien individual is present in the U.S. for a period
of at least 31 consecutive days in the election year and for at least 75 percent
of the number of days beginning with the first day of such 31 day period and
ending with the last day of the election year (treating the individual for this
purpose as present in the U.S. for up to five (5) days even if absent from the
U.S. on such days) and meets the "substantial presence test" in the immediately
following year. In addition, an alien may be treated as a U.S. resident for only
a portion of a calendar year, and as a nonresident for the remainder of such
year if during the remaining part of the year the individual is not present in
the U.S. and has a closer connection to a foreign country than to the U.S. and
if the individual is not a resident of the U.S. in the following calendar year.
Generally, resident aliens are subject to U.S. federal tax as if they were U.S.
citizens and residents.

This discussion is based on the Code, and administrative and judicial
interpretations as of the date hereof, all of which may be changed either
retroactively or prospectively. This discussion does not address all aspects of
U.S. federal income and estate taxation that may be relevant in light of any
Non-U.S. Holder's particular facts and circumstances (such as being a U.S.
expatriate) and does not address any tax consequences arising under the laws of
any state, local or foreign taxing jurisdiction.

Prospective holders are urged to consult their tax advisors with respect to
the particular U.S. federal, state, local and non-U.S. income and other tax
consequences of holding and disposing Common Stock.

DIVIDENDS

Dividends paid to a Non-U.S. Holder of Common Stock generally will be
subject to U.S. federal income tax at a flat 30% rate or such lower rate as may
be specified by an applicable income tax treaty. The payor of such dividends is
required to withhold the U.S. income tax from the dividend payment. For purposes
of determining whether tax is to be withheld at a 30% rate or at a reduced rate
as specified by an income tax treaty, the Company ordinarily will presume that
dividends paid to an address in a foreign country are paid to a resident of such
country absent knowledge that such presumption is not warranted. However, under
proposed U.S. Treasury regulations which have not yet been put into effect, to
claim the benefits of a tax treaty, a Non-U.S. Holder of Common Stock would be
required to file certain forms with the Company.

There will be no withholding of U.S. federal income tax on dividends that
are effectively connected with the Non-U.S. Holder's conduct of a trade or
business within the U.S. provided that an Internal Revenue Service Form 4224 is
filed with the payor. Instead, the effectively connected dividends will be
subject to

50
<PAGE> 54

regular graduated U.S. income tax which is calculated and is payable in the same
manner as if the Non-U.S. Holder were a U.S. resident. A non-U.S. corporation
receiving effectively connected dividends also may be subject to an additional
"branch profits tax" which is imposed under certain circumstances, at a rate of
30% (or such lower rate as may be specified by an applicable treaty) of the
non-U.S. corporation's effectively connected earnings and profits, subject to
certain adjustments.

GAIN ON DISPOSITION OF COMMON STOCK

A Non-U.S. Holder generally will not be subject to U.S. federal income tax
or withholding of such tax with respect to gain realized on a sale or other
disposition of Common Stock unless (i) the gain is effectively connected with a
trade or business of such holder in the U.S. (which gain, in the case of a
foreign corporation, must also be taken into account for branch profits tax
purposes), (ii) in the case of certain Non-U.S. Holders who are non-resident
alien individuals and hold the Common Stock as a capital asset, such individuals
are present in the U.S. for 183 or more days in the taxable year of the
disposition and (a) have a "tax home" in the U.S. for such year or (b) the gain
is attributable to an office or other fixed place of business maintained in the
U.S. by such individual, or (iii) the Company is or has been a "U.S. real
property holding corporation" within the meaning of Section 897(c)(2) of the
Code at any time within the shorter of the five-year period preceding such
disposition or such Non-U.S. Holder's holding period. U.S. income tax (but not
withholding) applies, at regular graduated rates, for effectively connected
gains, and at a flat 30% rate, for U.S. source gains derived by a nonresident
alien present in the U.S. for at least 183 days in the calendar. The regular
graduated U.S. income tax rates apply with respect to the disposition of an
interest in a U.S. real property holding corporation and 10% of the amount
realized generally is withheld to be applied toward payment of this tax. The
Company believes that it currently is not a U.S. real property holding
corporation and does not anticipate that it will become one in the future.
Further, even if the Company were to become a U.S. real property holding
corporation, any gain recognized by a Non-U.S. Holder still would not be subject
to U.S. tax if the shares were considered to be "regularly traded" (within the
meaning of applicable U.S. Treasury regulations) on an established securities
market (e.g., the NASDAQ National Market System, on which the Company's Common
Stock has been approved for trading, subject to official notice of issuance),
and the Non-U.S. Holder did not own, directly or indirectly, at any time during
the five-year period ending on the date of the disposition, more than five
percent of the Common Stock.

Non-U.S. Holders should note that legislation has been proposed on several
occasions, including as recently as 1992, that would subject certain Non-U.S.
Holders owning a specified percentage of the stock of the Company to U.S. tax on
the gain realized from the sale (or other disposition) of the Common Stock.
Although to date this legislation has not been enacted, it is not possible to
predict whether such legislation will be enacted in the future, and, if so
enacted, in what form.

INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING

Generally, the Company must report to the U.S. Internal Revenue Service the
amount of dividends paid, the name and address of the recipient, and the amount,
if any, of tax withheld. A similar report is sent to the holder. Pursuant to tax
treaties or other agreements, the U.S. Internal Revenue Service may make its
reports available to tax authorities in the recipient's country of residence.
Dividends paid to a Non-U.S. Holder at an address within the U.S. may be subject
to 31% backup withholding if the Non-U.S. Holder fails to establish that it is
entitled to an exemption or to provide a correct taxpayer identification number
and other information to the payor. Dividends paid to a Non-U.S. Holder at an
address outside the U.S. generally will not be subject to backup withholding.
The U.S. Internal Revenue Service, however, has indicated that it is
reconsidering whether the use of an address outside the U.S. is sufficient to
exempt such payments from backup withholding.

Information reporting and 31% backup withholding will apply to the proceeds
of a disposition of Common Stock paid to or through a U.S. office of a broker
unless the disposing holder certifies its non-U.S. status or otherwise
establishes an exemption. A Non-U.S. Holder may establish non-U.S. status by
filing a U.S. Internal Revenue Service Form W-8 with the broker. Generally, U.S.
information reporting and backup withholding will not apply to a payment of
disposition proceeds if the payment is made outside the U.S.

51
<PAGE> 55

through a non-U.S. office of a non-U.S. broker. However, U.S. information
reporting requirements (but not backup withholding) will apply to a payment of
disposition proceeds outside the U.S. if (i) the payment is made through an
office outside the U.S. of a broker that is either (a) a U.S. person, (b) a
foreign person which derives 50% or more of its gross income for certain periods
from the conduct of a trade or business in the U.S. or (c) a "controlled foreign
corporation" for U.S. federal income tax purposes, and (ii) the broker fails to
maintain documentary evidence that the holder is a Non-U.S. Holder and that
certain conditions are met, or that the holder otherwise is entitled to an
exemption.

Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained, provided that the required information is furnished to the U.S.
Internal Revenue Service.

FEDERAL ESTATE TAX

An individual Non-U.S. Holder who is treated as the owner of or has made
certain lifetime transfers of an interest in the Common Stock will be required
to include the value thereof in his gross estate for U.S. federal estate tax
purposes, and may be subject to U.S. federal estate tax unless an applicable
estate tax treaty provides otherwise.

52
<PAGE> 56

UNDERWRITERS

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

<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---------------------------------------------------------------- ---------
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated.............................
Salomon Brothers Inc..........................................
Smith Barney Inc..............................................
---------
Subtotal.............................................. 5,400,000
---------
International Underwriters:
Morgan Stanley & Co. International Limited....................
Salomon Brothers International Limited........................
Smith Barney Inc..............................................
---------
Subtotal.............................................. 1,350,000
---------
Total............................................... 6,750,000
=========
</TABLE>

The U.S. Underwriters and the International Underwriters are collectively
referred to as the "Underwriters." The Underwriting Agreement provides that the
obligations of the several Underwriters to pay for and accept delivery of the
shares of Common Stock offered hereby are subject to the approval of certain
legal matters by their counsel and to certain other conditions. The Underwriters
are obligated to take and pay for all the shares of Common Stock offered hereby
(other than those covered by the over-allotment option described below), if any
are taken.

At the request of the Company, the Underwriters have reserved up to
approximately 25,000 shares of Common Stock for sale at the public offering
price to certain directors, officers and employees of the Company who have
expressed an interest in purchasing shares, as well as to an employee stock
ownership plan created by the Company for the benefit of the employees of the
Company. Sales of shares of Common Stock to such persons will be at the initial
public offering price. Such persons must advise the Underwriters whether they
desire to purchase any of such shares prior to the date of effectiveness of the
Registration Statement with respect to the Offering. The number of shares of
Common Stock available to the general public will be reduced to the extent these
persons purchase the reserved shares.

Pursuant to the Agreement between U.S. and International Underwriters, each
U.S. Underwriter has represented and agreed that, with certain exceptions, (i)
it is not purchasing any U.S. Shares (as defined below) for the account of
anyone other than a United States or Canadian Person (as defined below) and (ii)
it has not offered or sold, and will not offer or sell, directly or indirectly,
any U.S. Shares or distribute any prospectus relating to the U.S. Shares outside
the United States or Canada or to anyone other than a United States or Canadian
Person. Pursuant to the Agreement between U.S. and International Underwriters,
each International Underwriter has represented and agreed that, with certain
exceptions, (i) it is not purchasing any International Shares (as defined below)
for the account of any United States or Canadian Person and (ii) it has not
offered or sold, and will not offer or sell, directly or indirectly, any
International Shares within the United States or Canada or to any United States
or Canadian Person. The foregoing limitations do not apply to stabilization
transactions or to certain other transactions specified in the Agreement between
U.S. and International Underwriters. As used herein, "United States or Canadian
Person" means any national or resident of the United States or Canada, or any
corporation, pension, profit sharing or other trust or other entity organized
under the laws of the United States or Canada or of any political subdivision
thereof (other than a branch located outside the United States and Canada of any
United States or Canadian Person) and

53
<PAGE> 57

includes any United States or Canadian branch of a person who is otherwise not a
United States or Canadian Person. All shares of Common Stock to be purchased by
the U.S. Underwriters and the International Underwriters are referred to herein
as the U.S. Shares and the International Shares, respectively.

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

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

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

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

Pursuant to the Underwriting Agreement the Company has granted to the U.S.
Underwriters an option, exercisable for 30 days from the date of this
Prospectus, to purchase up to an aggregate of 1,012,500 additional shares of
Common Stock at the public offering price set forth on the cover page hereof,
less underwriting discounts and commissions. The U.S. Underwriters may exercise
such option to purchase solely for the purpose of covering over-allotments, if
any, made in connection with this Offering. To the extent such option is
exercised, each U.S. Underwriter will become obligated, subject to certain
conditions, to purchase approximately the same percentage of such additional
shares as the number set forth next to such U.S. Underwriter's name in the
preceding table bears to the total number of shares of Common Stock offered by
the U.S. Underwriters.

The Representatives of the Underwriters have informed the Company that the
Underwriters do not intend to confirm sales to any accounts over which they
exercise discretionary authority.

54
<PAGE> 58

The Common Stock has been approved for trading on the NASDAQ National
Market subject to official notice of issuance.

The Company has agreed in the Underwriting Agreement not to offer, sell,
contract to sell or otherwise dispose of any shares of Common Stock or any
securities convertible into or exchangeable for shares of Common Stock for a
period of 180 days after the date of this Prospectus without the prior written
consent of Morgan Stanley & Co. Incorporated, provided that the Company may
issue the options to acquire shares under the Company's Option Plan as described
under "Management -- Executive Compensation -- Stock Option-Stock Appreciation
Rights Plan" and "-- Non-Employee Director Stock Option Plan."

The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments that the Underwriters may be required to make in respect thereof.

PRICING OF THE OFFERING

Prior to this Offering, there has been no public market for the Common
Stock. The initial public offering price has been determined by negotiations
among the Company and the Representatives of the Underwriters. Among the factors
considered in determining the initial public offering price were the future
prospects of the Company and its industry in general, sales, earnings and
certain other financial and operating information of the Company in recent
periods, and the price-earnings ratios, price-sales ratios, market prices of
securities and certain financial and operating information of companies engaged
in activities similar to those of the Company.

LEGAL MATTERS

Certain legal matters with respect to the shares offered hereby will be
passed upon for the Company by Rogers & Hardin, Atlanta, Georgia. Edward J.
Hardin, who is a partner in the law firm of Rogers & Hardin, serves as a
director of the Company. The Underwriters have been represented by Cravath,
Swaine & Moore, New York, New York.

EXPERTS

The financial statements and schedules included in this Prospectus and
elsewhere in the Registration Statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their report with respect
thereto, and are included hereto in reliance upon the authority of said firm as
experts in accounting and auditing.

ADDITIONAL INFORMATION

The Company has filed a Registration Statement on Form S-1, of which this
Prospectus is a part, under the Securities Act with the Commission, 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549, with respect to the
securities offered hereby. This Prospectus omits certain information contained
in the Registration Statement, and reference is made to the Registration
Statement, including the exhibits thereto, for further information with respect
to the Company and the securities offered hereby. Statements contained herein
concerning the provisions of documents are necessarily summaries of such
documents; when any such document is an exhibit to the Registration Statement,
each such statement is qualified in its entirety by reference to the copy of
such document filed with the Commission. Copies of the Registration Statement
and the exhibits and schedules thereto are on file at the principal office of
the Commission in Washington, D.C. and may be obtained upon payment of the fee
prescribed by the Commission, or may be examined without charge at the public
reference facility of such office.

55
<PAGE> 59

MEDITE CORPORATION

INDEX OF FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----------
<S> <C>
UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
Pro forma Condensed Balance Sheet -- December 31, 1994....................... FA-2
Notes to Pro forma Condensed Balance Sheet................................... FA-3
Pro forma Condensed Statement of Income -- Year ended December 31, 1994...... FA-4
Notes to Pro forma Condensed Statement of Income............................. FA-5

HISTORICAL ANNUAL FINANCIAL STATEMENTS
Report of Independent Public Accountants..................................... FB-1
Balance Sheets -- December 31, 1993 and 1994................................. FB-2/FB-3
Statements of Income -- Years ended December 31, 1992, 1993 and 1994......... FB-4
Statements of Stockholder's Equity -- Years ended December 31, 1992, 1993 and
1994...................................................................... FB-5
Statements of Cash Flows -- Years ended December 31, 1992, 1993 and 1994..... FB-6
Notes to Financial Statements................................................ FB-7/FB-17
</TABLE>

F-1
<PAGE> 60

MEDITE CORPORATION

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following pro forma condensed consolidated financial statements are
based on the historical Financial Statements of the Company included in this
Prospectus, adjusted to give pro forma effect to (i) payment of a dividend to
Valcor by distribution of 1,000 shares of Series A Preferred Stock of the
Company and (ii) the Offering at an assumed offering price of $15 per share and
application of the net proceeds therefrom, as of and for the periods indicated
under the assumptions set forth in the respective notes. The pro forma condensed
consolidated financial statements do not purport to represent what the Company's
consolidated financial position or results of operations would actually have
been had such transactions in fact occurred on such dates nor do such statements
purport to be indicative of the Company's consolidated financial position or
results of operations at any date or for any period in the future.

FA-1
<PAGE> 61

MEDITE CORPORATION

PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1994
(UNAUDITED)
(IN MILLIONS)

<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ADJUSTMENTS ADJUSTMENTS PRO FORMA
HISTORICAL (A) PRO FORMA (B) AS ADJUSTED
---------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................. $ 13.6 $ -- $ 13.6 $ 3.2 $ 16.8
Other..................................... 43.9 -- 43.9 -- 43.9
------ ------- ------- ------- -------
57.5 -- 57.5 3.2 60.7
Other assets................................ 61.8 -- 61.8 -- 61.8
Property and equipment, net................. 88.8 -- 88.8 -- 88.8
------ ------- ------- ------- -------
$208.1 $ -- $ 208.1 $ 3.2 $ 211.3
====== ======= ======= ======= =======
LIABILITIES, REDEEMABLE PREFERRED STOCK AND COMMON STOCKHOLDERS'
EQUITY
Current liabilities:
Current long-term debt.................... $ 10.9 $ -- $ 10.9 $ (8.0) $ 2.9
Other current............................. 20.6 -- 20.6 -- 20.6
------ ------- ------- ------- -------
31.5 -- 31.5 (8.0) 23.5
------ ------- ------- ------- -------
Noncurrent liabilities:
Long-term debt............................ 91.7 -- 91.7 (33.0) 58.7
Other..................................... 30.0 -- 30.0 -- 30.0
------ ------- ------- ------- -------
121.7 -- 121.7 (33.0) 88.7
------ ------- ------- ------- -------
Redeemable preferred stock.................. -- 50.0 50.0 (50.0) --
------ ------- ------- ------- -------
Non-redeemable Preferred stock.............. -- -- -- -- --
Common stockholders' equity:
Common stock.............................. .1 -- .1 .1 .2
Additional paid-in capital................ .8 -- .8 94.1 94.9
Retained earnings......................... 54.0 (50.0) 4.0 -- 4.0
------ ------- ------- ------- -------
54.9 (50.0) 4.9 94.2 99.1
------ ------- ------- ------- -------
$208.1 $ -- $ 208.1 $ 3.2 $ 211.3
====== ======= ======= ======= =======
</TABLE>

See accompanying notes to pro forma condensed balance sheet.

FA-2
<PAGE> 62

MEDITE CORPORATION

NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)

NOTE 1 -- PRO FORMA ADJUSTMENTS:

Pro forma adjustments described below reflect (i) payment of a dividend to
Valcor by distribution of 1,000 shares of Series A Preferred Stock of the
Company and (ii) the Offering at an assumed offering price of $15 per share and
application of the net proceeds therefrom, as described under the caption "Use
of Proceeds," as if such transactions had occurred on December 31, 1994.

(a) Payment of a dividend to Valcor by distribution of 1,000 shares of Series A
Preferred Stock, $1 par value, redeemable by the Company at the redemption
price of $50,000 per share.

<TABLE>
<CAPTION>
AMOUNT
-------------
(IN MILLIONS)
<S> <C> <C>
(b) Proceeds of the Offering:
Issuance of the Common Stock................................................. $ 101.3
Less underwriting discount................................................... (6.6)
Less estimated expenses of the Offering...................................... (.5)
-------
94.2
Redemption of Series A Preferred Stock....................................... (50.0)
Repayment of borrowings under the Timber Credit Agreement.................... (41.0)
-------
Net cash..................................................................... $ 3.2
=======
</TABLE>

FA-3
<PAGE> 63

MEDITE CORPORATION

PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1994
(UNAUDITED)
(IN MILLIONS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA ADJUSTMENTS PRO FORMA,
HISTORICAL ADJUSTMENTS PRO FORMA (A) AS ADJUSTED
---------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues and other income:
Net sales............................ $189.9 $ -- $ 189.9 $ -- $ 189.9
Other, net........................... 1.4 -- 1.4 -- 1.4
------ ------ ------- ----- -------
191.3 -- 191.3 -- 191.3
------ ------ ------- ----- -------

Costs and expenses:
Cost of sales........................ 144.8 -- 144.8 -- 144.8
Selling, general and
administrative.................... 10.4 -- 10.4 -- 10.4
Interest............................. 6.6 -- 6.6 (2.8) 3.8
------ ------ ------- ----- -------
161.8 -- 161.8 (2.8) 159.0
------ ------ ------- ----- -------

Income before income tax............... 29.5 -- 29.5 2.8 32.3
Provision for income taxes............. 11.2 -- 11.2 1.1 12.3
------ ------ ------- ----- -------
Income from continuing
operations...................... 18.3 -- 18.3 1.7 20.0
Provision for preferred dividends...... -- 6.0 6.0 (6.0) --
------ ------ ------- ----- -------
Income available to common
stock........................... $ 18.3 $(6.0) $ 12.3 $ 7.7 $ 20.0
====== ====== ======= ===== =======
Per common share....................... $ 1.02 $ 1.06
======= =======
Common Shares outstanding (in
thousands):
Historical........................... 12,100 -- 12,100
The Offering......................... -- 6,750 6,750
------- ----- -------
12,100 6,750 18,850
======= ===== =======
</TABLE>

See accompanying notes to pro forma condensed statement of income.

FA-4
<PAGE> 64

MEDITE CORPORATION

NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)

NOTE 1 -- PRO FORMA ADJUSTMENTS:

Pro forma adjustments described below reflect (i) payment of a dividend to
Valcor by distribution of 1,000 shares of Series A Preferred Stock of the
Company with a cumulative annual dividend of $6,000 per share and (ii) the
Offering at an assumed offering price of $15 per share and application of the
net proceeds therefrom, as described under the caption "Use of Proceeds," as if
such transactions had occurred on January 1, 1994.

<TABLE>
<S> <C> <C>
(a) Issuance of the Common Stock:
Decrease in interest expense due to repayment of borrowings under the Timber
Credit Agreement........................................................... $ 2.8
Provision for income taxes, at the Company's marginal federal and state
income tax rate of 38%..................................................... (1.1)
-----
$ 1.7
=====
</TABLE>

Pursuant to the Commission's requirements for pro forma information, no pro
forma adjustment has been made for assumed interest income on the $3.2 million
net proceeds of the Offering to be retained by the Company for the Company's
general corporate purposes.

FA-5
<PAGE> 65

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholder and Board of Directors of Medite Corporation:

We have audited the accompanying balance sheets of Medite Corporation (a
Delaware corporation and a wholly-owned subsidiary of Valcor, Inc.) as of
December 31, 1993 and 1994, and the related statements of income, stockholder's
equity and cash flows for each of the three years in the period ended December
31, 1994. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of December
31, 1993 and 1994, and the results of its operations and cash flows for each of
the three years in the period ended December 31, 1994, in conformity with
generally accepted accounting principles.

As discussed in Note 7 to the financial statements, in 1992 the Company
changed its method of accounting for postretirement benefits other than pensions
and income taxes in accordance with Statements of Financial Accounting Standards
Nos. 106 and 109, respectively.

ARTHUR ANDERSEN LLP

Portland, Oregon,
January 27, 1995, except for
Note 13 as to which the date
is February 28, 1995

FB-1
<PAGE> 66

MEDITE CORPORATION

BALANCE SHEETS
DECEMBER 31, 1993 AND 1994
(IN THOUSANDS)

ASSETS

<TABLE>
<CAPTION>
PRO FORMA
1994(1)
1993 1994 -----------
-------- -------- (UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents............................... $ 1,293 $ 13,633 $ 13,633
Accounts and notes receivable, less allowance for
doubtful accounts of $798 and $482................... 16,470 17,507 17,507
Receivable from affiliates.............................. 349 2,211 2,211
Inventories............................................. 21,014 21,186 21,186
Deposits and other...................................... 4,426 2,743 2,743
Deferred income taxes................................... 96 243 243
-------- -------- ---------
Total current assets................................. 43,648 57,523 57,523
-------- -------- ---------
Other assets:
Timber and timberlands.................................. 51,868 53,114 53,114
Prepaid pension cost.................................... 3,899 4,363 4,363
Other................................................... 4,424 4,291 4,291
-------- -------- ---------
Total other assets................................... 60,191 61,768 61,768
-------- -------- ---------
Property and equipment:
Land.................................................... 4,125 4,125 4,125
Buildings............................................... 14,780 22,030 22,030
Equipment............................................... 87,946 125,808 125,808
Construction in progress................................ 14,641 230 230
-------- -------- ---------
121,492 152,193 152,193
Less accumulated depreciation........................... 54,727 63,404 63,404
-------- -------- ---------
Net property and equipment........................... 66,765 88,789 88,789
-------- -------- ---------
$170,604 $208,080 $ 208,080
======== ======== =========
</TABLE>

FB-2
<PAGE> 67

MEDITE CORPORATION

BALANCE SHEETS (CONTINUED)
DECEMBER 31, 1993 AND 1994
(IN THOUSANDS, EXCEPT SHARE DATA)

LIABILITIES, REDEEMABLE PREFERRED STOCK AND

COMMON STOCKHOLDER'S EQUITY

<TABLE>
<CAPTION>
PRO FORMA
1993 1994 1994(1)
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current liabilities:
Current maturities of long-term debt........................ $ 8,270 $ 10,882 $ 10,882
Accounts payable............................................ 8,762 9,824 9,824
Accrued liabilities......................................... 7,358 10,634 10,634
Payable to affiliates....................................... 2 -- --
Income taxes................................................ 286 129 129
-------- -------- ---------
Total current liabilities........................... 24,678 31,469 31,469
-------- -------- ---------
Noncurrent liabilities:
Long-term debt.............................................. 65,766 91,691 91,691
Loans from affiliate........................................ 20,000 5,000 5,000
Deferred income taxes....................................... 18,890 23,208 23,208
Other....................................................... 1,877 1,772 1,772
-------- -------- ---------
Total noncurrent liabilities........................ 106,533 121,671 121,671
-------- -------- ---------
Redeemable preferred stock, $1 par value, stated at redemption
value of $50,000 per share, 1,000 shares authorized and
issued...................................................... -- -- 50,000
Non-redeemable preferred stock, $1 par value; 999,000 shares
authorized, none issued..................................... -- -- --
Common stockholder's equity:
Common stock, $.01 par value; 50,000,000 shares authorized,
12,100,000 shares issued and outstanding................. 121 121 121
Additional paid-in capital.................................. 855 855 855
Retained earnings........................................... 38,417 53,964 3,964
-------- -------- ---------
Total common stockholder's equity................... 39,393 54,940 4,940
-------- -------- ---------
$170,604 $208,080 $ 208,080
======== ======== =========
</TABLE>

Commitments and contingencies (Note 11).

(1) Pro forma to reflect the distribution of 1,000 shares of Series A Preferred
Stock on February 14, 1995. See Note 13.

See accompanying notes to financial statements.

FB-3
<PAGE> 68

MEDITE CORPORATION

STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
1992 1993 1994
-------- -------- --------
<S> <C> <C> <C>
Revenues and other income:
Net sales................................................ $194,810 $174,304 $189,856
Business unit dispositions, net.......................... 3,490 500 --
Interest and other....................................... 4,938 2,034 1,418
-------- -------- --------
203,238 176,838 191,274
-------- -------- --------
Costs and expenses:
Cost of sales............................................ 166,788 140,320 144,740
Selling, general and administrative...................... 10,511 9,724 10,422
Interest................................................. 3,127 3,125 6,584
-------- -------- --------
180,426 153,169 161,746
-------- -------- --------
Income before income taxes............................ 22,812 23,669 29,528

Provision for income taxes................................. 8,246 8,775 11,181
-------- -------- --------
Income before cumulative effect of changes in
accounting principles............................... 14,566 14,894 18,347

Cumulative effect of changes in accounting principles...... 1,285 -- --
-------- -------- --------
Net income............................................ $ 15,851 $ 14,894 18,347
======== ========
Pro forma provision for preferred dividends (unaudited).... (6,000)
--------
Pro forma net income available to common stock
(unaudited)......................................... $ 12,347
========

Pro forma income per common share (unaudited).............. $ 1.02
========

Common shares outstanding.................................. 12,100
</TABLE>

See accompanying notes to financial statements.

FB-4
<PAGE> 69

MEDITE CORPORATION

STATEMENTS OF COMMON STOCKHOLDER'S EQUITY

YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994
(IN THOUSANDS)

<TABLE>
<CAPTION>
TOTAL
ADDITIONAL COMMON
PREFERRED COMMON PAID-IN RETAINED STOCKHOLDER'S
STOCK STOCK CAPITAL EARNINGS EQUITY
--------- ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1991......... $ -- $121 $ 35,855 $ 51,672 $ 87,648
Net income......................... -- -- -- 15,851 15,851
Cash dividends..................... -- -- -- (12,000) (12,000)
----- ---- --------- -------- ---------
Balance at December 31, 1992......... -- 121 35,855 55,523 91,499
Net income......................... -- -- -- 14,894 14,894
Cash dividends..................... -- -- (35,000) (32,000) (67,000)
----- ---- --------- -------- ---------
Balance at December 31, 1993......... -- 121 855 38,417 39,393
Net income......................... -- -- -- 18,347 18,347
Cash dividends..................... -- -- -- (2,800) (2,800)
----- ---- --------- -------- ---------
Balance at December 31, 1994......... $ -- $121 $ 855 $ 53,964 $ 54,940
===== ==== ========= ======== =========
</TABLE>

See accompanying notes to financial statements.

FB-5
<PAGE> 70

MEDITE CORPORATION

STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994
(IN THOUSANDS)

<TABLE>
<CAPTION>
1992 1993 1994
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................... $ 15,851 $ 14,894 $ 18,347
Depreciation and depletion............................... 10,965 8,546 9,639
Deferred income taxes.................................... 3,835 3,342 3,942
Business unit dispositions, net.......................... (3,490) (500) --
Cumulative effect of changes in accounting principles.... (1,285) -- --
Other, net............................................... (310) (732) 120
-------- -------- --------
25,566 25,550 32,048
Change in assets and liabilities:
Accounts and notes receivable......................... 211 103 (403)
Inventories........................................... 1,742 1,111 (172)
Accounts payable and accrued liabilities.............. 2,719 (2,985) 1,940
Accounts with affiliates.............................. 2,287 (2,325) (1,714)
Income taxes.......................................... 284 (161) (157)
Other, net............................................ (891) (507) 1,554
-------- -------- --------
Net cash provided by operating activities........ 31,918 20,786 33,096
-------- -------- --------
Cash flows from investing activities:
Capital expenditures:
Property and equipment................................ (8,422) (19,637) (29,776)
Timber and timberlands................................ (1,253) (1,152) (2,226)
Business unit dispositions:
Insurance proceeds.................................... 10,887 -- --
Other, net............................................ (1,231) (924) (756)
Disposition of property and equipment.................... 158 132 30
-------- -------- --------
Net cash provided (used) by investing
activities..................................... 139 (21,581) (32,728)
-------- -------- --------
</TABLE>

<TABLE>
<S> <C> <C> <C>
Cash flows from financing activities:
Notes payable, long-term debt and loans from affiliates:
Additions............................................. $ 18,723 $123,619 $ 57,675
Principal payments.................................... (33,497) (61,124) (44,138)
Dividends................................................ (12,000) (67,000) (2,800)
Other, net............................................... -- (889) 1,235
-------- -------- --------
Net cash provided (used) by financing
activities..................................... (26,774) (5,394) 11,972
-------- -------- --------
Cash and cash equivalents:
Net increase (decrease).................................. 5,283 (6,189) 12,340
Balance at beginning of year............................. 2,199 7,482 1,293
-------- -------- --------
Balance at end of year................................... $ 7,482 $ 1,293 $ 13,633
======== ======== ========
Supplemental disclosures -- cash paid for:
Interest, net of amount capitalized...................... $ 4,121 $ 2,652 $ 5,824
Income taxes............................................. 2,644 7,745 9,135
</TABLE>

See accompanying notes to financial statements.

FB-6
<PAGE> 71

MEDITE CORPORATION

NOTES TO FINANCIAL STATEMENTS

NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION:

Medite Corporation (the "Company"), a Delaware corporation incorporated in
1932, is a wholly-owned subsidiary of Valcor, Inc., which is in turn a
wholly-owned subsidiary of Valhi, Inc. In 1993, (i) Medford Corporation and
Medite Corporation, each wholly-owned subsidiaries of Valhi, merged, with
Medford surviving the merger and changing its name to "Medite Corporation" and
(ii) Valhi contributed the stock of the Company to Valcor. For financial
reporting purposes, the merger was accounted for as a combination of entities
under common control in a manner similar to a pooling of interests. Accordingly,
the financial statements of the Company for periods prior to the merger
represent the combined financial position, results of operations and cash flows
of the entities comprising the Company following the merger, including the
Company's wholly-owned Irish subsidiary, Medite of Europe Limited. All material
intercompany accounts and balances have been eliminated.

Contran Corporation holds, directly or through subsidiaries, approximately
90% of Valhi's outstanding common stock. Substantially all of Contran's
outstanding voting stock is held by trusts established for the benefit of the
children and grandchildren of Harold C. Simmons, of which Mr. Simmons is sole
trustee. Mr. Simmons, Chairman of the Board of each of Contran, Valhi and
Valcor, may be deemed to control each of such companies and the Company.

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Foreign currency transactions. Medite/Europe does not have a single
functional foreign currency and, accordingly, its functional reporting currency
is deemed to be the U.S. dollar. Accordingly, adjustments resulting from the
translation of assets and liabilities denominated in foreign currencies and
other currency transaction gains and losses are recognized in income currently.
Gains or losses on specific currency contracts designated as hedge transactions
on asset purchases are deferred. See Note 12. The aggregate foreign currency
transaction gains (losses) were $35,000 in 1992, $(353,000) in 1993 and $420,000
in 1994.

Net sales. Sales are recorded when products are shipped.

Inventories and cost of sales. Inventories are stated at the lower of cost
or market. The last-in, first-out method is used to determine the cost of
approximately two-thirds of total inventories. Other inventories are generally
based on average cost.

Cash and cash equivalents. Temporary cash investments, principally
short-term time deposits with original maturities of three months or less, are
classified as cash equivalents.

Timber, timberlands and depletion. Timber and timberlands are stated at
cost less accumulated depletion. Fertilization and other forest management costs
are expensed; costs of reforestation and road improvements are capitalized.
Depletion is computed by the unit-of-production method on the basis of the
annual volume of timber cut in relation to the total estimated volume of
recoverable timber.

Property, equipment and depreciation. Property and equipment are stated at
cost. Maintenance, repairs and minor renewals are expensed; major improvements
are capitalized. Interest costs related to major long-term capital projects are
capitalized as a component of construction costs and were $410,000 in 1993 and
$616,000 in 1994 (nominal in 1992).

Buildings are depreciated primarily by the straight-line method over the
estimated useful lives of eight to 25 years. Equipment is depreciated
principally by the unit-of-production method using a base useful life of 8 to 12
years.

Employee benefit plans. Accounting and funding policies for retirement
plans and postretirement benefits other than pensions ("OPEB") are described in
Note 9.

FB-7
<PAGE> 72

Advertising costs. Advertising costs, expensed as incurred, were $670,000
in 1992, $674,000 in 1993 and $710,000 in 1994.

Income taxes. Medite, Valcor and Valhi are members of Contran's
consolidated United States federal income tax group (the "Contran Tax Group").
The policy for intercompany allocation of federal income taxes provides that
subsidiaries included in the Contran Tax Group compute the provision for federal
income taxes on a separate company basis. Subsidiaries of Valcor make payments
to, or receive payments from, Valcor in the amount they would have paid to or
received from the Internal Revenue Service had they not been members of the
Contran Tax Group. The separate company provisions and payments are computed
using tax elections made by Contran. Refundable income taxes of $330,000 at
December 31, 1993 and $2,069,000 at December 31, 1994 are included in amounts
receivable from affiliates.

Deferred income tax assets and liabilities are recognized for the expected
future tax consequences of temporary differences between the income tax and
financial reporting carrying amounts of assets and liabilities.

NOTE 3 -- OPERATIONS:

The Company's operations are grouped into two segments: MDF operations
(engineered wood products) and traditional timber operations (logs, lumber and
other wood products). MDF operations are conducted in the U.S. and, through
Medite/Europe, in the Republic of Ireland. Traditional timber products
operations are conducted in the U.S.

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1992 1993 1994
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Net sales:
Medium density fiberboard................................ $111,602 $112,131 $134,939
Traditional timber products.............................. 85,441 63,729 56,137
Eliminations............................................. (2,233) (1,556) (1,220)
-------- -------- --------
$194,810 $174,304 $189,856
======== ======== ========
Operating income:
Medium density fiberboard................................ $ 12,077 $ 13,876 $ 27,087
Traditional timber products.............................. 9,882 12,418 9,262
-------- -------- --------
21,959 26,294 36,349
Business unit dispositions:
Insurance gain on plant destroyed by fire................ 8,490 -- --
Operations permanently closed............................ (5,000) 500 --
General corporate items, net............................... 490 -- (237)
Interest expense........................................... (3,127) (3,125) (6,584)
-------- -------- --------
Income before income taxes....................... $ 22,812 $ 23,669 $ 29,528
======== ======== ========
Depreciation and depletion:
Medium density fiberboard................................ $ 6,215 $ 6,738 $ 7,371
Traditional timber products.............................. 4,750 1,808 2,268
-------- -------- --------
$ 10,965 $ 8,546 $ 9,639
======== ======== ========
Capital expenditures:
Medium density fiberboard................................ $ 6,050 $ 9,248 $ 27,495
Traditional timber products.............................. 3,625 11,541 4,507
-------- -------- --------
$ 9,675 $ 20,789 $ 32,002
======== ======== ========
</TABLE>

FB-8
<PAGE> 73

The 1992 insurance gain relates to the destruction by fire of the Company's
veneer and chipping plant in Rogue River, Oregon, as insurance proceeds of $10.9
million exceeded the net carrying value of the assets destroyed and cleanup
costs. The aggregate insurance proceeds of $16.5 million included $5.6 million
attributable to business interruption insurance. The amount attributable to
business interruption insurance, recognized as a component of traditional timber
products operating income through August 1993, was based upon estimates,
negotiated with the insurance carrier, of the expected operating profit of the
Rogue River operations during each month that the various operations were
originally expected to be down.

In 1992 the Company accrued a loss related to its plywood facilities
permanently closed in January 1993, most of which related to the net carrying
value of property and equipment in excess of estimated net realizable sales
value, and includes a $.6 million pension curtailment cost. In 1993, the Company
changed its estimate of the aggregate loss primarily because auction sale
proceeds of certain equipment exceeded previously estimated net realizable
value.

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1992 1993 1994
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Geographic segments
Net sales:
Point of origin:
United States....................................... $139,952 $127,189 $131,055
Republic of Ireland................................. 54,858 47,115 58,801
-------- -------- --------
$194,810 $174,304 $189,856
======== ======== ========
Point of destination:
United States....................................... $115,855 $101,458 $109,107
Europe.............................................. 54,374 43,448 57,933
Far East/Pacific Rim................................ 19,182 22,275 13,872
Other............................................... 5,399 7,123 8,944
-------- -------- --------
$194,810 $174,304 $189,856
======== ======== ========
Operating income:
United States......................................... $ 12,948 $ 19,904 $ 24,059
Republic of Ireland................................... 9,011 6,390 12,290
-------- -------- --------
$ 21,959 $ 26,294 $ 36,349
======== ======== ========
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1993 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Identifiable assets
Business segments:
Medium density fiberboard......................................... $ 80,033 $120,517
Traditional timber products....................................... 87,054 83,784
Corporate and eliminations........................................ 3,517 3,779
-------- --------
$170,604 $208,080
======== ========
Geographic segments:
United States..................................................... $132,172 $132,797
Republic of Ireland............................................... 38,432 75,283
-------- --------
$170,604 $208,080
======== ========
</TABLE>

FB-9
<PAGE> 74

Corporate assets consist principally of property held for sale, which is
carried at estimated net realizable value under current market conditions, and
deferred financing costs. At December 31, 1994, the net assets of Medite/Europe
included in consolidated net assets approximated $34 million.

NOTE 4 -- INVENTORIES:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1993 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Raw materials............................................................ $ 14,724 $ 13,050
In process products...................................................... 1,430 1,481
Finished products........................................................ 1,260 2,711
-------- --------
17,414 17,242
Supplies................................................................. 3,600 3,944
-------- --------
$ 21,014 $ 21,186
======= =======
</TABLE>

The average cost of LIFO inventories exceeded their net carrying value by
approximately $7.5 million and $4.1 million at December 31, 1993 and 1994,
respectively. The effect of partial liquidations of the LIFO inventory base
increased traditional timber products operating income by approximately $1.9
million in 1992, $.5 million in 1993 and $3.2 million in 1994.

NOTE 5 -- LONG-TERM DEBT AND LOAN FROM AFFILIATE:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1993 1994
-------- ---------
(IN THOUSANDS)
<S> <C> <C>
Medite:
Bank credit agreements:
Fixed term loans................................................... $ 50,000 $ 44,000
Reducing revolving term facility................................... 11,000 23,000
Revolving working capital facility................................. -- 2,000
State of Oregon term loan............................................. 4,328 4,141
Other................................................................. 190 184
-------- ---------
65,518 73,325
-------- ---------
Medite/Europe:
Bank fixed term loan.................................................. 1,700 22,411
Revolving working capital facility.................................... 6,741 6,802
Other................................................................. 77 35
-------- ---------
8,518 29,248
-------- ---------
74,036 102,573
Less current maturities................................................. 8,270 10,882
-------- ---------
$ 65,766 $ 91,691
======= ========
Loans payable to Valcor................................................. $ 20,000 $ 5,000
======= ========
</TABLE>

Medite's U.S. bank credit agreement (the "Timber Credit Agreement")
provides for a $75 million term loan facility collateralized by the Company's
timber and timberlands, and a $15 million revolving working capital facility
expiring September 1996 collateralized by the Company's timber and timberlands
and U.S. inventories and receivables. Proceeds of the term loan were utilized in
1993 to prepay existing bank term loans and to pay a $60 million dividend to
Medite's parent company.

FB-10
<PAGE> 75

The Timber Credit Agreement term loan consists of two tranches. Tranche A
in the amount of $50 million bears interest at LIBOR plus 2% and is repayable in
annual installments of $6 million from 1994 to 1999 with the balance due in
2000. Tranche B consists of a $25 million reducing revolving facility that bears
interest at the prime rate plus .5% or, at the Company's option, LIBOR plus
1.75%, and is repayable in six annual installments of $2 million from 1994 to
1999 with the balance due in 2000. The Company has entered into interest rate
swap agreements to mitigate the impact of changes in interest rates for $26
million of the Tranche A term loan that effectively converts the interest rate
on such amount to a fixed rate of 7.6%. The swap agreements mature in 1998
through 2000. See Note 12.

The amount of credit available under the Timber Credit Agreement revolving
credit facility is based upon formula-determined amounts of accounts receivable
and inventories. Outstanding borrowings bear interest at the prime rate plus
.375% or, at the Company's option, LIBOR plus 1.5%.

At December 31, 1994, the weighted average interest rate on borrowings
outstanding under the Timber Credit Agreement, including the effect of interest
rate swaps discussed above, was 7.8%, and $8 million was available for
additional borrowing.

The State of Oregon term loan matures in monthly installments through March
2008, bears interest at 6.9% and is collateralized by certain property and
equipment of the Company's MDF plant in Medford, Oregon.

Medite/Europe has bank credit agreements providing for (i) a $22.4 million
bank term loan, obtained to finance a portion of a plant expansion, repayable in
installments from 1995 through 2000, and (ii) a $12 million multi-currency
revolving credit facility through April 1996. The amount of credit available
under the revolving facility is based upon formula-determined amounts of
accounts receivable and inventories, and bear interest at rates based upon LIBOR
while borrowings under the term facility bears interest at a weighted average
fixed interest rate of 8.4%. Borrowings under both facilities are collateralized
by substantially all of Medite/Europe's assets. At December 31, 1994, the
weighted average interest rate on Medite/Europe's outstanding bank borrowings
was 7.9% and $4 million was available for additional borrowing.

The Company's credit agreements currently require the maintenance of levels
of tangible net worth (as defined), limit dividends and contain other provisions
and restrictive covenants customary in lending transactions of this type. At
December 31, 1994, (i) approximately $3 million of Medite/Europe's net assets
were eligible for repatriation to the Company and (ii) approximately $7 million
of the Company's consolidated stockholder's equity were eligible for payment of
dividends. In addition, the indenture governing certain Senior Notes of Valcor,
Inc., the Company's parent, contains various restrictions and covenants which
may also, among other things, limit the Company's ability to incur indebtedness,
make acquisitions or make investments in new businesses. The aggregate
maturities of long-term debt at December 31, 1994 are shown in the table below.

<TABLE>
<CAPTION>
AMOUNT
YEARS ENDING DECEMBER 31, --------------
------------------------- (IN THOUSANDS)
<S> <C>
1995...................................................... $ 10,882
1996...................................................... 22,305
1997...................................................... 13,519
1998...................................................... 13,037
1999...................................................... 11,555
2000 and thereafter....................................... 31,275
--------
$102,573
========
</TABLE>

At December 31, 1994, a $5 million loan from Valcor bears interest at 5.25%
and is due on demand. In November 1993, the Company received $20 million from
Valcor in exchange for the issuance of 1.1 million shares (on a post-split
basis) of common stock which amount was repaid by the Company in January 1994
through a return of capital dividend to Valcor. These transactions are reported
herein as, in substance, a loan from affiliate. The loans from Valcor are
classified as noncurrent liabilities because Medite has the ability to refinance
such loans with borrowings under its long-term revolving bank credit facility.

FB-11
<PAGE> 76

NOTE 6 -- ACCRUED LIABILITIES:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1993 1994
------- --------
(IN THOUSANDS)
<S> <C> <C>
Employee benefits......................................................... $ 3,820 $ 4,590
Insurance claims and expenses............................................. 2,045 1,789
Environmental and other closing costs..................................... 535 630
Equipment purchases....................................................... -- 2,157
Other..................................................................... 958 1,468
------- --------
$ 7,358 $ 10,634
======= ========
</TABLE>

NOTE 7 -- CHANGES IN ACCOUNTING PRINCIPLES:

The Company (i) elected early compliance with both Statement of Financial
Accounting Standards ("SFAS") No. 106 (OPEB) and SFAS No. 109 (income taxes) as
of January 1, 1992; (ii) elected to apply SFAS No. 109 prospectively and not
restate prior years; and (iii) elected immediate recognition of the OPEB
transition obligation. The cumulative effect of changes in accounting principles
adjustment is shown in the table below.

<TABLE>
<CAPTION>
AMOUNT
--------------
(IN THOUSANDS)
<S> <C>
Increase (decrease) in net assets at January 1, 1992:
Inventories.................................................................. $ 2,629
Timber and timberlands....................................................... 8,606
Property and equipment....................................................... 140
Accrued OPEB cost............................................................ (226)
Deferred income taxes, net................................................... (9,864)
--------
Income from cumulative effect of changes in accounting principles in
1992..................................................................... $ 1,285
========
</TABLE>

NOTE 8 -- INCOME TAXES:

The geographic components of income before income taxes and cumulative
effect of changes in accounting principles ("pretax income"), the difference
between the provision for income taxes attributable to pretax income and the
amounts that would be expected using the United States federal statutory income
tax rate of 35% (34% in 1992), and the components of the provision for income
taxes are presented in the following tables.

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1992 1993 1994
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Pretax income:
United States................................................... $14,651 $17,865 $18,038
Republic of Ireland............................................. 8,161 5,804 11,490
------- ------- -------
$22,812 $23,669 $29,528
======= ======= =======
</TABLE>

FB-12
<PAGE> 77

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1992 1993 1994
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Provision for income taxes:
Expected tax expense............................................ $ 7,756 $ 8,284 $10,335
Non-U.S. tax rates.............................................. (2,067) (2,022) (2,443)
Incremental U.S. tax on income of Medite/Europe................. 2,833 2,090 2,443
State income taxes, net......................................... 317 410 776
Rate change adjustment of deferred taxes........................ -- 323 --
Reduction in prior years taxes.................................. (464) -- --
Other, net...................................................... (129) (310) 70
------- ------- -------
$ 8,246 $ 8,775 $11,181
======= ======= =======
Provision for income taxes:
Currently payable:
Federal...................................................... $ 3,854 $ 5,274 $ 6,499
State and non-U.S............................................ 557 159 740
------- ------- -------
4,411 5,433 7,239
Deferred taxes, principally U.S................................. 3,835 3,342 3,942
------- ------- -------
$ 8,246 $ 8,775 $11,181
======= ======= =======
</TABLE>

The Company is undergoing examinations of certain of its income tax returns
and tax authorities have or may propose tax deficiencies. The Company has
accrued its estimate of the liability associated with these matters and believes
the ultimate disposition of all such examinations should not have a material
adverse effect on the Company's financial position, results of operations or
liquidity. The reduction in prior years income taxes recorded in 1992 resulted
from completion of federal tax return examinations for 1986 through 1988.

The components of the net deferred tax asset (liability) are summarized
below.

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1993 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Tax effect of temporary differences relating to:
Inventories............................................................ $ (1,817) $ (1,693)
Timber and timberlands................................................. (11,306) (11,094)
Property and equipment................................................. (6,004) (8,050)
Accrued liabilities and other deductible differences................... 2,861 3,328
Other taxable differences.............................................. (3,534) (4,500)
Undistributed earnings of Medite/Europe................................ 1,006 (956)
Valuation allowance...................................................... -- --
-------- --------
$(18,794) $(22,965)
======== ========
Current deferred tax assets.............................................. $ 96 $ 243
Noncurrent deferred tax liabilities...................................... (18,890) (23,208)
-------- --------
$(18,794) $(22,965)
======== ========
</TABLE>

NOTE 9 -- EMPLOYEE BENEFIT PLANS:

Defined contribution plans. Valhi maintains an unleveraged noncontributory
Employee Stock Ownership Plan covering approximately two-thirds of the Company's
U.S. employees, and approximately one-half U.S. salaried employees participate
in a Company-sponsored contributory savings plan with partial matching

FB-13
<PAGE> 78

Company contributions. Expense of these plans aggregated $442,000 in 1992,
$357,000 in 1993 and $628,000 in 1994.

Defined benefit pension plans. The Company maintains defined benefit
pension plans covering substantially all of its employees. Defined pension
benefits are based on years of service and compensation, and the related cost
(credit) is based upon independent actuarial valuations. The Company's funding
policy for its U.S. plans is to contribute annually amounts equal to or
exceeding contributions required by the funding requirements ($533,000 in 1992,
$126,000 in 1993 and nil in 1994) of the Employee Retirement Income Security Act
of 1974, as amended. Medite/Europe's plan is contributory and is funded by
Medite/Europe and the participants based upon specified percentages of
compensation.

The rates used in determining the actuarial present value of the projected
benefit obligations were (i) discount rate -- 8.5%, (1993 -- 7.5%), (ii)
expected long-term rate of return on assets 7.5% to 10% and (iii) increase in
future compensation levels -- 4%. The plans' assets are primarily mutual funds.

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1993 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits obligations............................................ $18,120 $16,573
Nonvested benefits..................................................... 1,524 1,102
------- -------
Accumulated benefit obligations........................................ 19,644 17,675
Effect of projected future salary increases............................ 1,267 1,558
------- -------
Projected benefit obligations ("PBO").................................. 20,911 19,233
Plan assets at fair value................................................ 22,492 21,080
------- -------
Plan assets over PBO..................................................... 1,581 1,847
Unrecognized net loss from experience different from actuarial
assumptions............................................................ 2,727 2,703
Unrecognized prior service cost.......................................... 494 448
Unrecognized net assets being amortized over 9 to 11 years............... (903) (635)
------- -------
Prepaid pension cost................................................... $ 3,899 $ 4,363
======= =======
</TABLE>

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1992 1993 1994
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Net periodic pension cost (credit):
Service cost benefits earned................................ $ 710 $ 459 $ 519
Interest cost on PBO........................................ 1,430 1,496 1,592
Actual return on plan assets................................ (1,049) (2,395) 594
Net amortization and deferrals.............................. (1,287) (134) (2,922)
------- ------- -------
$ (196) $ (574) $ (217)
======= ======= =======
</TABLE>

Postretirement benefits other than pensions. Retirees receiving benefits
from the Company-sponsored U.S. salaried employees pension plan are eligible to
participate in the Company's group health program until age 65, and contribute
to the cost of such benefits.

The rates used in determining the actuarial present value of the
accumulated OPEB obligations were (i) discount rate -- 8.5%, (1993 -- 7.5%),
(ii) rate of increase in future compensation levels -- 4% annually and (iii)
rate of increase in future health care costs -- approximately 14% for 1995,
gradually declining to 6% in 2016 and thereafter. If the health care cost trend
rate was increased by one percentage point for each year, OPEB expense would
have increased $5,000 in 1994, and the actuarial present value of accumulated
OPEB obligation at December 31, 1994 would have increased by $30,000.

FB-14
<PAGE> 79

<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1993 1994
---- (IN ----
THOUSANDS)
<S> <C> <C>
Actuarial present value of accumulated OPEB obligations:
Retiree benefits............................................................ $ 25 $ 50
Other fully eligible active plan participants............................... 59 20
Other active plan participants.............................................. 244 203
---- ----
328 273
Unrecognized net gain (loss) from experience different from actuarial
assumptions................................................................. (37) 37
---- ----
Total accrued OPEB cost....................................................... 291 310
Less current portion.......................................................... 12 12
---- ----
Noncurrent accrued OPEB cost................................................ $279 $298
==== ====
</TABLE>

<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------------
1992 1993 1994
--- --- ---
(IN THOUSANDS)
<S> <C> <C> <C>
Net periodic OPEB cost:
Service cost........................................................... $21 $28 $24
Interest cost.......................................................... 17 21 20
--- --- ---
$38 $49 $44
=== === ===
</TABLE>

Multiemployer pension plans. Employees of certain former operations were
covered by union-sponsored, collectively-bargained multiemployer pension plans.
Contributions to multiemployer plans based upon collectively-bargained
agreements were $54,000 in 1992, $8,000 in 1993 and nil in 1994. Based upon
information provided by the multiemployer plans' administrators, such plans' had
no unfunded vested benefits at December 31, 1991 (the latest date available to
the Company).

NOTE 10 -- RELATED PARTY TRANSACTIONS:

The Company may be deemed to be controlled by Harold C. Simmons. See Note
1. It is the policy of the Company to engage in transactions with related
parties on terms, in the opinion of the Company, no less favorable to the
Company than could be obtained from unrelated parties.

Loans and advances between the Company and various related parties pursuant
to term and demand notes, principally for cash management purposes, bear
interest at rates related to credit agreements with unrelated parties. Interest
expense on related party loans was $2,000 in 1992, $1,000 in 1993 and $117,000
in 1994. Interest income from Valhi related to prior years' income tax refunds
was $467,000 in 1992.

The Company received $20 million from Valcor in the fourth quarter of 1993
(repaid in the first quarter of 1994). See Note 5.

Under the terms of Intercorporate Services Agreements, Valhi performs
certain management, financial and administrative services for the Company on a
fee basis. Fees pursuant to these agreements were $321,000 in 1992, $320,000 in
1993 and $316,000 in 1994. Net charges from related parties for services
provided in the ordinary course of business, principally charges for insuring
property and other risks and for foreign sales corporation commissions
aggregated $2,041,000 in 1992, $1,605,000 in 1993 and $1,297,000 in 1994. Such
charges are principally pass-through in nature and, in the Company's opinion,
are not materially different from those that would have been incurred on a
stand-alone basis.

Certain employees of the Company have been awarded shares of restricted
Valhi common stock and/or granted options to purchase Valhi common stock under
the terms of Valhi's stock option plans. The Company will pay Valhi the
aggregate difference between the option price and the market value of Valhi's
common stock on the exercise date of such options. For financial reporting
purposes, the Company accounts for the expense (credit) of $(23,000) in 1992,
nil in 1993 and $221,000 in 1994 in a manner similar to accounting for stock
appreciation rights. At December 31, 1994, employees of the Company held options
to purchase 359,000

FB-15
<PAGE> 80

Valhi shares at prices ranging from $5 to $15 per share (165,000 shares at
prices less than the $7.63 market price of Valhi common stock at December 31,
1994). Restricted stock is forfeitable unless certain periods of employment are
completed. The Company will pay Valhi the market value of the restricted shares
on the dates the restrictions expire, and accrue the related expense over the
restriction period. At December 31, 1994, 4,100 shares of Valhi common stock,
restricted for periods of up to 30 months, were held in escrow for employees of
the Company. Expense related to restricted stock was nil in 1992 and 1993 and
$37,000 in 1994.

Edward J. Hardin, a director of the Company, is a partner in the law firm
of Rogers & Hardin, which serves as legal counsel to the Company. Rogers &
Hardin has also provided and may in the future provide legal services to other
entities which may be deemed to be controlled by Harold C. Simmons.

NOTE 11 -- COMMITMENTS AND CONTINGENCIES:

Legal proceedings. The Company is involved in various routine legal
proceedings incidental to its normal business activities. The Company believes
none of such proceedings is material in relation to the Company's financial
condition, results of operations or liquidity.

Timber contracts. Deposits are made on timber cutting contracts with
public and private sources from which the Company obtains a portion of its
timber requirements. The Company records only the cash deposits and advances on
these contracts because it does not obtain title to the timber until it has been
harvested. At December 31, 1994, the Company had standing timber and log
purchase obligations aggregating approximately $9.5 million under agreements
expiring principally in 1995.

Capital expenditures. At December 31, 1994 the estimated cost to complete
capital projects in process approximated $2.4 million, substantially all of
which relates to the plant expansion project at Medite/Europe.

Concentrations of credit risk. The Company's sales are primarily to
wholesalers of building materials located principally in the Western United
States, Pacific Rim, Europe and Mexico. The Company's ten largest customers
accounted for approximately one-fourth of consolidated sales in each of the last
three years.

At December 31, 1994, 44% of the Company's cash and cash equivalents were
held by a single Irish bank (55% at December 31, 1993).

NOTE 12 -- FINANCIAL INSTRUMENTS:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1993 1994
--------------- ----------------
BOOK FAIR BOOK FAIR
VALUE VALUE VALUE VALUE
----- ----- ------ -----
(IN MILLIONS)
<S> <C> <C> <C> <C>
Cash and cash equivalents.................................. $ 1.3 $ 1.3 $ 13.6 $13.6
===== ===== ====== =====
Long-term debt:
Variable rate debt....................................... $41.9 $41.9 $ 49.8 $49.8
Debt fixed via interest rate swaps....................... 26.0 26.1 26.0 23.3
Other fixed rate debt.................................... 6.2 6.2 26.8 25.9
----- ----- ------ -----
$74.1 $74.2 $102.6 $99.0
===== ===== ====== =====
Loan from Valcor........................................... $ -- $ -- $ 5.0 $ 5.0
===== ===== ====== =====
</TABLE>

The fair value of variable interest rate long-term debt and the demand loan
from Valcor is deemed to approximate book value.

The fair value of debt on which interest rates have been effectively fixed
through interest rate swaps is deemed to approximate book value of the debt plus
or minus the fair value of the related swaps. The fair value of the interest
rate swap agreements (See Note 5) is estimated to be a $.1 million payable at
December 31, 1993 and to be a $2.7 million receivable at December 31, 1994. Such
fair values represent the estimated

FB-16
<PAGE> 81

amounts the Company would pay or receive if it were to terminate the swap
agreements at such dates. The fair value of the swap agreements is estimated by
obtaining quotes from the counter party financial institution. The Company is
exposed to interest rate risk in the event of nonperformance by the other
parties to the agreements, although it does not anticipate nonperformance by
such parties.

The fair value of other fixed rate debt has been estimated based upon
relative changes in the Company's variable borrowing rates since the date
interest rates were fixed.

Medite/Europe has entered into certain currency forward contracts to hedge
exchange rate risk on the equivalent of approximately $1 million of equipment
purchase commitments related to the plant expansion at December 31, 1994 ($4
million at December 31, 1993). At December 31, 1993 and 1994, the fair value of
such currency contracts, estimated by obtaining quotes from the counter party
financial institution, approximated the contract amount.

NOTE 13 -- SUBSEQUENT EVENTS:

On February 14, 1995, the Company paid a $50 million dividend to its parent
by distribution of 1,000 shares of Series A Preferred Stock, $1 par value,
having an aggregate redemption value of $50 million and a cumulative annual
dividend of $6,000 per share. Pro forma balance sheet information is presented
as if such transaction occurred on December 31, 1994 and pro forma net income
per common share is presented as if such transaction occurred on January 1,
1994.

Pro forma net income per common share is presented based upon 12,100,000
shares outstanding after the 11,000-for-1 stock split effected as of February
28, 1995.

FB-17
<PAGE> 82

[MEDITE LOGO]
<PAGE> 83

PROSPECTUS (Subject to Completion)

Issued April 10, 1995

6,750,000 Shares

[MEDITE LOGO]

COMMON STOCK
------------------------

OF THE 6,750,000 SHARES OF COMMON STOCK OFFERED HEREBY, 5,400,000 SHARES ARE
BEING OFFERED INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S.
UNDERWRITERS AND 1,350,000 SHARES ARE BEING OFFERED INITIALLY OUTSIDE OF THE
UNITED STATES AND CANADA BY THE INTERNATIONAL UNDERWRITERS. ALL OF THE
SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY THE COMPANY. SEE
"UNDERWRITERS." PRIOR TO THIS OFFERING, THERE HAS BEEN NO PUBLIC
MARKET FOR THE COMMON STOCK OF THE COMPANY. IT IS CURRENTLY
ESTIMATED THAT THE INITIAL PUBLIC OFFERING PRICE PER SHARE WILL BE
BETWEEN $14 AND $16. SEE "UNDERWRITERS" FOR A DISCUSSION OF THE
FACTORS CONSIDERED IN DETERMINING THE INITIAL PUBLIC OFFERING
PRICE.

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

THE COMMON STOCK HAS BEEN APPROVED FOR TRADING ON THE NASDAQ NATIONAL MARKET
UNDER THE SYMBOL MDFX, SUBJECT TO OFFICIAL NOTICE OF ISSUANCE.

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

THIS OFFERING INVOLVES CERTAIN RISKS. SEE "RISK FACTORS."

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

PRICE $ A SHARE
------------------------

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

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

(2) Before deducting expenses payable by the Company estimated at $515,549.

MORGAN STANLEY & CO.
International

SALOMON BROTHERS INTERNATIONAL LIMITED
SMITH BARNEY INC.

April , 1995
<PAGE> 84
DESCRIPTION OF FOLD OUT PAGE ON INSIDE FRONT COVER OF PROSPECTUS

CLOCKWISE FROM UPPER LEFT

PHOTO 1

PHOTOGRAPH OVERLOOKING A SECTION OF THE COMPANY'S STANDING TIMBER

PHOTO 2

PHOTOGRAPH OF AN INVENTORY PILE OF WOOD RESIDUAL RAW MATERIALS

PHOTO 3

EXAMPLE OF INTERIOR PANELING MADE USING MEDITE FR PRODUCT

PHOTO 4

PHOTO OF KITHEN CABINETS CONSTRUCTED FROM MEDITE 313 INTERIOR MOISTURE
RESISTANT MDF

PHOTO 5

PHOTO OF THE COMPANY'S MDF FACILITY IN CLONMEL, IRELAND

PHOTO 6

PHOTO OF A MUSEUM DISPLAY CASE CONSTRUCTED FROM MEDITE II MDF

PHOTO 7

PHOTO SHOWING ROUTED DOOR PANELS MADE FROM MEDITE'S HIGH DENSITY MDF

PHOTO 8

PHOTO SHOWING HOW MDF ACCEPTS SCREWS AND FASTENERS LIKE SOLID WOOD PRODUCTS

PHOTO 9

PHOTO OF DEMONSTRATING THE MACHINABILITY OF THE COMPANY'S MDF PRODUCT

<PAGE> 85

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The expenses to be paid in connection with the issuance and distribution of
the securities being registered are as follows and will be borne by the
Registrant:

<TABLE>
<S> <C>
SEC Registration Fee...................................................... $ 42,828
NASD Fee.................................................................. 13,596
NASDAQ Listing Fee........................................................ 50,000
Printing and Mailing Expenses............................................. 150,000
Legal Fees and Expenses................................................... 125,000
Accounting Fees and Expenses.............................................. 60,000
Transfer Agent's Fees and Expenses........................................ 5,000
Blue Sky Fees and Expenses................................................ 19,125
Miscellaneous Expenses.................................................... 50,000
--------
Total................................................................ $515,549
========
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Section 102(b)(7) of the General Corporation Law of the State of Delaware
permits a Delaware corporation to limit the personal liability of its directors
in accordance with the provisions set forth therein. The Restated Certificate of
Incorporation of the Registrant provides that the personal liability of its
directors shall be limited to the fullest extent permitted by applicable law.

Section 145 of the General Corporation Law of the State of Delaware
contains provisions permitting Delaware corporations to indemnify directors,
officers, employees or agents against expenses, including attorneys' fees,
judgments, fines, and amounts paid in settlement actually and reasonably
incurred in connection with any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that such person was or is a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, provided that (i) such person acted in good
faith and in a manner he or she reasonably believed to be in, or not opposed to,
the corporation's best interest, and (ii) in the case of a criminal proceeding
such person had no reasonable cause to believe his or her conduct was unlawful.
In the case of actions or suits by or in the right of the corporation, no
indemnification shall be made in a case in which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought shall
have determined upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses. Indemnification as described
above shall only be granted in a specific case upon a determination that
indemnification is proper in the circumstances because the indemnified person
has met the applicable standard of conduct. Such determination shall be made (a)
by a majority vote of the directors who are not parties to such proceeding, even
though less than a quorum, (b) if there are no such directors, or if such
directors so direct, by independent legal counsel in a written opinion, or (c)
by the stockholders of the corporation. Notwithstanding the foregoing, to the
extent that a director, officer, employee or agent of the corporation has been
successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in subsections (a) or (b) of Section 145, or in defense
of any claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith. Additionally, a corporation may purchase and maintain
insurance on behalf of any

II-1
<PAGE> 86

person who is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him and incurred by him
in any such capacity, or arising out of his status as such, whether or not the
corporation could indemnify him against such liability. The Restated Certificate
of Incorporation and the Bylaws of the Registrant provide for indemnification of
its directors and officers to the fullest extent permitted by applicable law.

The Company's directors and officers are also insured against claims
arising out of the performance of their duties in these capacities.

The form of Underwriting Agreement attached hereto as Exhibit 1.1, which
provides for, among other things, the Registrant's sale to the Underwriters of
the securities being registered herein, will obligate the Underwriters to
indemnify the Registrant and Registrant's officers and directors against certain
liabilities under the Securities Act of 1933.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

On November 8, 1993, Valcor, Inc. acquired 1.1 million shares of the Common
Stock of the Registrant in consideration of $20 million. Such amount was
returned to Valcor, Inc. in the first quarter of 1994 as return of capital
dividend. For accounting purposes these transactions were reported as a loan
from affiliate. This stock issuance was made pursuant to the exemption provided
by Section 4(2) of the Securities Act of 1933.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits

The following exhibits are filed pursuant to Item 601 of Regulation S-K.

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -------------------------------------------------------------------------------------
<S> <C>
1.1* Form of Underwriting Agreement.
3.1* Restated Certificate of Incorporation of Registrant.
3.1.1* Certificate of Designations of the Series A Preferred Stock.
3.1.2* Certificate of Amendment of Restated Certificate of Incorporation of Registrant.
3.2* Bylaws of Registrant.
4.1 See Articles Four, Seven, Eight, Nine, Eleven and Twelve of the Restated Certificate
of Incorporation of Registrant filed as Exhibit 3.1 to this Registration Statement,
Exhibits 3.1.1 and 3.1.2 to this Registration Statement and Articles II, VI, VII and
VIII of the Bylaws of the Registrant filed as Exhibit 3.2 to this Registration
Statement.
4.2* Form of Common Stock Certificate.
5.1* Opinion and Consent of Rogers & Hardin.
10.1* Agreement between the Minister for Fisheries and Forestry of Ireland and Medite of
Ireland Limited dated March 18, 1981, incorporated by reference to Exhibit 10.2 of
the Registration Statement on Form S-1 filed by Valcor, Inc. on May 20, 1993
(Registration No. 33-63044).
10.2* Agreement dated January 1, 1991 between the Registrant (formerly Medford Corporation)
and Jerry L. Bramwell, incorporated by reference to Exhibit 10.7 of the Registration
Statement on Form S-1 filed by Valcor, Inc. on May 20, 1993 (Registration No.
33-63044).
10.3* Loan Agreement between the Registrant and United States National Bank of Oregon dated
July 16, 1993, incorporated by reference to Exhibit 10.1 of a Quarterly Report on
Form 10-Q for the quarter ended June 30, 1993 filed by Valhi, Inc. (File No. 1-5467).
</TABLE>

II-2
<PAGE> 87

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -------------------------------------------------------------------------------------
<S> <C>
10.4* Indenture between Valcor, Inc. and Ameritrust Texas, N.A., as Trustee, incorporated
by reference to Exhibit 4.1 of the Registration Statement on Form S-1 filed by
Valcor, Inc. on May 20, 1993 (Registration No. 33-63044)
10.5* Loan Extension Agreement among the Registrant, United States National Bank of Oregon,
NationsBank of North Carolina, N.A. and Societe Generale, Southwest Agency dated as
of September 30, 1994.
10.6* Loan Agreement between Medite of Europe Limited and the Governor and Company of the
Bank of Ireland dated October 7, 1993, incorporated by reference to Exhibit 10.9 of
the Registration Statement on Form S-1 filed by Valcor, Inc. on May 20, 1993
(Registrant No. 33-63044).
10.7* Finance Contract between Medite of Europe Limited, the European Investment Bank, the
Governor and Company of the Bank of Ireland dated October 7, 1993, incorporated by
reference to Exhibit 10.10 of the Registration Statement on Form S-1, as amended by
Amendment No. 4 thereto, filed by Valcor, Inc. on October 27, 1993 (Registration No.
33-63044).
10.8* Intercorporate Services Agreement between the Registrant and Valhi, Inc. effective as
of January 1, 1994.
10.9* Medite Corporation 1995 Stock Option -- Stock Appreciation Rights Plan.
10.10* Consent and waiver among the Registrant, United States National Bank of Oregon,
NationsBank of North Carolina, N.A. and Societe Generale, Southwest Agency dated as
of February 1, 1995.
10.11* Modification Agreement among the Registrant, United States National Bank of Oregon,
NationsBank of North Carolina, N.A. and Societe Generale, Southwest Agency dated as
of February 14, 1995.
10.12* Medite Corporation 1995 Non-Employee Director Stock Option Plan.
10.15* Amendment dated March 10, 1995 to the Finance contract between Medite of Europe
Limited, the European Investment Bank, the Governor and Company of the Bank of
Ireland dated October 7, 1993.
10.16* Modification agreement dated March 1, 1995 to the Loan agreement between Medite of
Europe Limited and the Governor and Company of the Bank of Ireland dated October 7,
1993.
21.1* Subsidiaries of the Registrant.
23.1* Consent of Rogers & Hardin (included in Exhibit 5.1).
23.2* Consent of Arthur Andersen LLP
23.3* Consent of Resource Information Systems, Inc.
23.4* Consent of Jaakko Poyry Consulting (UK) LTD.
23.5 Consent of Arthur Andersen LLP
24.1* Powers of Attorney (included on the signature page to this Registration Statement).
24.2 Power of Attorney of Arnold F. Brookstone
27.1* Financial Data Schedule for the year ended December 31, 1994.
</TABLE>

(b) Financial Statement Schedules.

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Index of Financial Statement Schedules................................ S-1
Report of Independent Public Accountant on Financial Statement
Schedules........................................................... S-2
Schedule I -- Condensed Financial Information of Registrant........... S-3
Schedule II -- Valuation and Qualifying Accounts...................... S-9
Schedule III and IV are omitted because they are not applicable.
</TABLE>

- ---------------
* Previously filed.

II-3
<PAGE> 88

ITEM 17. UNDERTAKINGS.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

The undersigned Registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required to permit prompt delivery
to each purchaser.

The undersigned Registrant hereby undertakes that:

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

(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

II-4
<PAGE> 89

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Dallas,
State of Texas, on the 10th day of April, 1995.

MEDITE CORPORATION

By: /s/ MICHAEL A. SNETZER
Michael A. Snetzer
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)

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

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ----------------------------- ---------------
<S> <C> <C>

/s/ MICHAEL A. SNETZER Chairman of the Board April 10, 1995
Michael A. Snetzer Chief Executive Officer and
Director (Principal
Executive Officer)
* President, Chief Operating April 10, 1995
- ------------------------------------------ Officer and Director
Jerry L. Bramwell

* Treasurer and Chief Financial April 10, 1995
- ------------------------------------------ Officer (Principal
Bobby D. O'Brien Financial Officer and
Principal Accounting
Officer)

* Director April 10, 1995
- ------------------------------------------
Theodore J. Bauer

* Director April 10, 1995
- ------------------------------------------
Arnold F. Brookstone

* Director April 10, 1995
- ------------------------------------------
John J. Costonis

* Director April 10, 1995
- ------------------------------------------
Edward J. Hardin

* Director April 10, 1995
- ------------------------------------------
Harold C. Simmons

By: /s/ MICHAEL A. SNETZER
Michael A. Snetzer
as Attorney-in-Fact
</TABLE>

II-5
<PAGE> 90

MEDITE CORPORATION

INDEX OF FINANCIAL STATEMENT SCHEDULES

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.............................................. S-2
Schedule I -- Condensed Financial Information of Registrant........................... S-3
Schedule II -- Valuation and Qualifying Accounts...................................... S-8
</TABLE>

Schedules III and IV are omitted because they are not applicable.

S-1
<PAGE> 91

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULES

To the Stockholder and Board of Directors of Medite Corporation:

We have audited in accordance with generally accepted auditing standards,
the balance sheets of Medite Corporation (a Delaware corporation and a
wholly-owned subsidiary of Valcor, Inc.) as of December 31, 1993 and 1994, and
the related statements of income, stockholder's equity and cash flows for each
of the three years in the period ended December 31, 1994, and have issued our
report thereon dated January 27, 1995.

Our audits were made for the purpose of forming an opinion on the financial
statements taken as a whole. The financial statement schedules listed in the
accompanying Index of Financial Statement Schedules are the responsibility of
the Company's management and are presented for purposes of complying with the
Securities and Exchange Commission's rules and are not a required part of the
basic financial statements. These financial statement schedules have been
subjected to the auditing procedures applied in our audits of the basic
financial statements and, in our opinion, fairly state in all material respects
the financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.

ARTHUR ANDERSEN LLP

Portland, Oregon,
January 27, 1995.

S-2
<PAGE> 92

MEDITE CORPORATION

SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT

CONDENSED BALANCE SHEETS
DECEMBER 31, 1993 AND 1994
(IN THOUSANDS)

<TABLE>
<CAPTION>
1993 1994
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................ $ 437 $ 1,115
Accounts receivable.................................................. 7,314 6,619
Receivable from affiliates........................................... 425 2,282
Inventories.......................................................... 16,497 14,547
Deposits and other................................................... 4,279 2,397
Deferred income taxes................................................ 32 154
-------- --------
Total current assets......................................... 28,984 27,114
-------- --------
Other assets:
Investment in Medite/Europe.......................................... 24,408 34,225
Timber and timberlands............................................... 51,868 53,114
Prepaid pension cost................................................. 2,983 3,199
Other................................................................ 4,424 4,291
-------- --------
Total other assets........................................... 83,683 94,829
-------- --------
Property and equipment................................................. 74,394 80,737
Less accumulated depreciation.......................................... 30,405 35,587
-------- --------
Net property and equipment................................... 43,989 45,150
-------- --------
$156,656 $167,093
======== ========
</TABLE>

See accompanying notes to condensed financial statements.

S-3
<PAGE> 93

MEDITE CORPORATION

SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT

CONDENSED BALANCE SHEETS (CONTINUED)
DECEMBER 31, 1993 AND 1994
(IN THOUSANDS)

<TABLE>
<CAPTION>
1993 1994
-------- --------
<S> <C> <C>
LIABILITIES AND COMMON STOCKHOLDER'S EQUITY

Current liabilities:
Current maturities of long-term debt................................. $ 8,193 $ 8,206
Accounts payable..................................................... 5,387 5,019
Accrued liabilities.................................................. 6,611 7,046
Income taxes......................................................... 221 --
-------- --------
Total current liabilities.................................... 20,412 20,271
-------- --------
Noncurrent liabilities:
Long-term debt....................................................... 57,325 65,119
Loans from affiliate................................................. 20,000 5,000
Deferred income taxes................................................ 17,649 20,391
Other................................................................ 1,877 1,372
-------- --------
Total noncurrent liabilities................................. 96,851 91,882
-------- --------
Common stockholder's equity............................................ 39,393 54,940
-------- --------
$156,656 $167,093
======== ========
</TABLE>

See accompanying notes to condensed financial statements.

S-4
<PAGE> 94

MEDITE CORPORATION

SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT

CONDENSED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994
(IN THOUSANDS)

<TABLE>
<CAPTION>
1992 1993 1994
-------- -------- --------
<S> <C> <C> <C>
Revenues and other income:
Net sales................................................ $139,952 $127,189 $131,055
Business unit dispositions, net.......................... 3,490 500 --
Interest and other....................................... 5,298 2,710 834
-------- -------- --------
148,740 130,399 131,889
-------- -------- --------
Costs and expenses:
Cost of sales............................................ 125,979 104,873 102,381
Selling, general and administrative...................... 5,777 5,122 5,686
Interest................................................. 2,333 2,539 5,784
-------- -------- --------
134,089 112,534 113,851
-------- -------- --------
Equity in earnings of Medite/Europe........................ 7,453 5,737 9,817
-------- -------- --------
Income before income taxes............................ 22,104 23,602 27,855
Provision for income taxes................................. 7,538 8,708 9,508
-------- -------- --------
Income before cumulative effect of changes in
accounting principles............................... 14,566 14,894 18,347
Cumulative effect of changes in accounting principles...... 1,285 -- --
-------- -------- --------
Net income............................................ $ 15,851 $ 14,894 $ 18,347
======== ======== ========
</TABLE>

See accompanying notes to condensed financial statements.

S-5
<PAGE> 95

MEDITE CORPORATION

SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT

CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994
(IN THOUSANDS)

<TABLE>
<CAPTION>
1992 1993 1994
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................... $ 15,851 $ 14,894 $ 18,347
Depreciation and depletion................................... 8,248 5,805 6,236
Deferred income taxes........................................ 3,275 3,266 2,391
Undistributed earnings of Medite/Europe:
Equity in earnings........................................ (7,453) (5,737) (9,817)
Distributions............................................. -- 8,950 --
Cumulative effect of changes in accounting principles and
other, net................................................ (4,918) (1,015) 247
-------- -------- --------
15,003 26,163 17,404
Change in assets and liabilities, net........................ 6,084 (6,007) 2,649
-------- -------- --------
Net cash provided by operating activities................. 21,087 20,156 20,053
-------- -------- --------
Cash flows from investing activities:
Capital expenditures......................................... (8,380) (13,116) (8,644)
Business unit dispositions................................... 9,656 (924) (756)
Collection of loan to Medite/Europe.......................... 3,542 -- --
Other, net................................................... 71 77 18
-------- -------- --------
Net cash provided (used) by investing activities.......... 4,889 (13,963) (9,382)
-------- -------- --------
Cash flows from financing activities:
Long-term debt and loans from affiliates, net................ (14,425) 60,433 (7,193)
Dividends.................................................... (12,000) (67,000) (2,800)
-------- -------- --------
Net cash used by financing activities..................... (26,425) (6,567) (9,993)
-------- -------- --------
Net cash provided.............................................. (449) (374) 678
Balance at beginning of year................................... 1,260 811 437
-------- -------- --------
Balance at end of year....................................... $ 811 $ 437 $ 1,115
======== ======== ========
Supplemental disclosures -- cash paid for:
Interest, net of amount capitalized.......................... $ 3,302 $ 2,038 $ 5,511
Income taxes................................................. 2,568 7,669 9,077
</TABLE>

See accompanying notes to condensed financial statements.

S-6
<PAGE> 96

MEDITE CORPORATION

SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT

NOTES TO CONDENSED FINANCIAL STATEMENTS

NOTE 1 -- BASIS OF PRESENTATION:

The Consolidated Financial Statements of the Company are incorporated
herein by reference. The Company's investment in Medite of Europe Limited, its
wholly-owned Irish subsidiary, is presented herein by the equity method.

NOTE 2 -- INVENTORIES:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1993 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Raw materials.......................................... $13,469 $10,867
Work in process........................................ 1,180 957
Finished goods......................................... 900 1,535
------- -------
15,549 13,359
Supplies............................................... 948 1,188
------- -------
$16,497 $14,547
======= =======
</TABLE>

NOTE 3 -- LONG-TERM DEBT AND LOAN FROM AFFILIATE:

Components of parent-company long-term debt are included in Note 5 to the
Consolidated Financial Statements. Maturities of parent-company long-term debt
at December 31, 1994 are summarized below:

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
--------------------------------------------------------------- --------------
(IN THOUSANDS)
<S> <C>
1995........................................................... $ 8,206
1996........................................................... 10,221
1997........................................................... 8,237
1998........................................................... 8,255
1999........................................................... 8,273
2000 and thereafter............................................ 30,133
--------
$ 73,325
========
</TABLE>

S-7
<PAGE> 97

MEDITE CORPORATION

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)

<TABLE>
<CAPTION>
ADDITIONS BALANCE
BALANCE AT CHARGED TO AT END
BEGINNING COSTS AND OF
DESCRIPTION OF YEAR EXPENSES DEDUCTIONS RECOVERIES YEAR
- ----------------------------------------------- ---------- ---------- ---------- ---------- ------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1992................. $1,060 $ 85 $ (88) $ -- $1,057
====== ==== ====== ==== ======
Year ended December 31, 1993................. $1,057 $ 52 $ (322) $ 11 $ 798
====== ==== ====== ==== ======
Year ended December 31, 1994................. $ 798 $166 $ (482) $ -- $ 482
====== ==== ====== ==== ======
</TABLE>

S-8
<PAGE> 98
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -------------------------------------------------------------------------------------
<S> <C>
1.1* Form of Underwriting Agreement.
3.1* Restated Certificate of Incorporation of Registrant.
3.1.1* Certificate of Designations of the Series A Preferred Stock.
3.1.2* Certificate of Amendment of Restated Certificate of Incorporation of Registrant.
3.2* Bylaws of Registrant.
4.1 See Articles Four, Seven, Eight, Nine, Eleven and Twelve of the Restated Certificate
of Incorporation of Registrant filed as Exhibit 3.1 to this Registration Statement,
Exhibits 3.1.1 and 3.1.2 to this Registration Statement and Articles II, VI, VII and
VIII of the Bylaws of the Registrant filed as Exhibit 3.2 to this Registration
Statement.
4.2* Form of Common Stock Certificate.
5.1* Opinion and Consent of Rogers & Hardin.
10.1* Agreement between the Minister for Fisheries and Forestry of Ireland and Medite of
Ireland Limited dated March 18, 1981, incorporated by reference to Exhibit 10.2 of
the Registration Statement on Form S-1 filed by Valcor, Inc. on May 20, 1993
(Registration No. 33-63044).
10.2* Agreement dated January 1, 1991 between the Registrant (formerly Medford Corporation)
and Jerry L. Bramwell, incorporated by reference to Exhibit 10.7 of the Registration
Statement on Form S-1 filed by Valcor, Inc. on May 20, 1993 (Registration No.
33-63044).
10.3* Loan Agreement between the Registrant and United States National Bank of Oregon dated
July 16, 1993, incorporated by reference to Exhibit 10.1 of a Quarterly Report on
Form 10-Q for the quarter ended June 30, 1993 filed by Valhi, Inc. (File No. 1-5467).
</TABLE>

<PAGE> 99
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -------------------------------------------------------------------------------------
<S> <C>
10.4* Indenture between Valcor, Inc. and Ameritrust Texas, N.A., as Trustee, incorporated
by reference to Exhibit 4.1 of the Registration Statement on Form S-1 filed by
Valcor, Inc. on May 20, 1993 (Registration No. 33-63044)
10.5* Loan Extension Agreement among the Registrant, United States National Bank of Oregon,
NationsBank of North Carolina, N.A. and Societe Generale, Southwest Agency dated as
of September 30, 1994.
10.6* Loan Agreement between Medite of Europe Limited and the Governor and Company of the
Bank of Ireland dated October 7, 1993, incorporated by reference to Exhibit 10.9 of
the Registration Statement on Form S-1 filed by Valcor, Inc. on May 20, 1993
(Registrant No. 33-63044).
10.7* Finance Contract between Medite of Europe Limited, the European Investment Bank, the
Governor and Company of the Bank of Ireland dated October 7, 1993, incorporated by
reference to Exhibit 10.10 of the Registration Statement on Form S-1, as amended by
Amendment No. 4 thereto, filed by Valcor, Inc. on October 27, 1993 (Registration No.
33-63044).
10.8* Intercorporate Services Agreement between the Registrant and Valhi, Inc. effective as
of January 1, 1994.
10.9* Medite Corporation 1995 Stock Option -- Stock Appreciation Rights Plan.
10.10* Consent and waiver among the Registrant, United States National Bank of Oregon,
NationsBank of North Carolina, N.A. and Societe Generale, Southwest Agency dated as
of February 1, 1995.
10.11* Modification Agreement among the Registrant, United States National Bank of Oregon,
NationsBank of North Carolina, N.A. and Societe Generale, Southwest Agency dated as
of February 14, 1995.
10.12* Medite Corporation 1995 Non-Employee Director Stock Option Plan.
10.15* Amendment dated March 10, 1995 to the Finance contract between Medite of Europe
Limited, the European Investment Bank, the Governor and Company of the Bank of
Ireland dated October 7, 1993.
10.16* Modification agreement dated March 1, 1995 to the Loan agreement between Medite of
Europe Limited and the Governor and Company of the Bank of Ireland dated October 7,
1993.
21.1* Subsidiaries of the Registrant.
23.1* Consent of Rogers & Hardin (included in Exhibit 5.1).
23.2* Consent of Arthur Andersen LLP
23.3* Consent of Resource Information Systems, Inc.
23.4* Consent of Jaakko Poyry Consulting (UK) LTD.
23.5 Consent of Arther Andersen LLP
24.1* Powers of Attorney (included on the signature page to this Registration Statement).
24.2 Power of Attorney of Arnold F. Brookstone.
27.1* Financial Data Schedule for the year ended December 31, 1994.
</TABLE>

<PAGE> 1

EXHIBIT 23.5

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our
reports dated January 27, 1995 (except as to Note 13 of the financial
statements, as to which the date is February 28, 1995), included in or made part
of this registration statement and to all references to our firm included in
this registration statement.

ARTHUR ANDERSEN LLP

Portland, Oregon
April 10, 1995

<PAGE> 1

EXHIBIT 24.2

POWER OF ATTORNEY

Arnold F. Brookstone hereby constitutes and appoints Michael A. Snetzer and
Bobby D. O'Brien, and each of them, his true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution for him and in his
name, place and stead in any and all capacities, to sign in his name and on his
behalf the registration statement of Medite Corporation on Form S-1
(Registration No. 33-57891), and any and all amendments (including
post-effective amendments) to such registration statement, and to file the same
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully and all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent or his substitute, may lawfully do or cause to be
done by virtue hereof.

/s/ ARNOLD F. BROOKSTONE Director April 5, 1995

Arnold F. Brookstone Date