STONE CONTAINER CORP, S-1/A, 1994-09-28

STONE CONTAINER CORP
S-1/A, 1994-09-28
PAPERBOARD MILLS

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 28, 1994

REGISTRATION NO. 33-54769
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

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

AMENDMENT NO. 3
TO
FORM S-1

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------

STONE CONTAINER CORPORATION
(Exact name of Registrant as specified in its charter)

<TABLE>
<S> <C> <C>
DELAWARE 2621 36-2041256
(State or Other Jurisdiction (Primary Standard (I.R.S. Employer
of Incorporation or Industrial Identification No.)
Organization) Classification Code
Number)
</TABLE>

150 North Michigan Avenue
Chicago, Illinois 60601
312-346-6600
(Address including zip code, and telephone number
including area code, of Registrant's principal executive offices)
------------------------

Arnold F. Brookstone
Executive Vice President-Chief Financial and Planning Officer
Stone Container Corporation
150 North Michigan Avenue
Chicago, Illinois 60601
312-346-6600
(Name, address, including zip code, and
telephone number, including area code, of agent for service)

COPIES TO:

<TABLE>
<S> <C> <C>
Richard G. Clemens Barry M. Fox Leslie T. Lederer
Sidley & Austin Cleary, Gottlieb, Steen & Stone Container Corporation
One First National Hamilton 150 North Michigan Avenue
Plaza One Liberty Plaza Chicago, Illinois 60601
Chicago, Illinois New York, New York 10006
60603
</TABLE>

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

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.

If 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.

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<PAGE>
STONE CONTAINER CORPORATION
CROSS REFERENCE SHEET

<TABLE>
<CAPTION>
ITEM NO.
- ---------
<C> <S> <C>
1. Forepart of the Registration Statement
and Outside Front Cover Page of
Prospectus........................... Facing Sheet; Outside Front Cover Page of
Prospectus
2. Inside Front and Outside Back Cover
Pages of Prospectus.................. Available Information; Inside Front and
Outside Back Cover Pages of Prospectus
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges... Outside Front Cover Page of Prospectus;
Prospectus Summary; The Company; Risk
Factors; Selected Financial Data
4. Use of Proceeds....................... Prospectus Summary; Use of Proceeds
5. Determination of Offering Price....... Outside Front Cover Page of Prospectus;
Underwriting
6. Dilution.............................. Not Applicable
7. Selling Security Holders.............. Not Applicable
8. Plan of Distribution.................. Outside Front Cover Page of Prospectus;
Prospectus Summary; Underwriting
9. Description of Securities to be
Registered........................... Outside Front Cover Page of Prospectus;
Capitalization; Description of Notes,
The Collateral Under the First Mortgage
Note Indenture
10. Interests of Named Experts and
Counsel.............................. Experts; Legal Matters
11. Information with Respect to the
Registrant........................... Outside Front Cover Page of Prospectus;
Prospectus Summary; Summary Financial
Data; The Company; Risk Factors;
Capitalization; Selected Consolidated
Financial Data; Management's Discussion
and Analysis of Financial Condition and
Results of Operations; Business;
Properties; Management; Security
Ownership By Certain Beneficial Owners
and Management; Credit Agreement;
Description of Notes, The Collateral
Under the First Mortgage Note Indenture;
Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.......................... Not Applicable
</TABLE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>

SUBJECT TO COMPLETION DATED SEPTEMBER 28, 1994

$700,000,000
[LOGO]
STONE CONTAINER CORPORATION

$500,000,000
% FIRST MORTGAGE NOTES DUE 2002

$200,000,000
% SENIOR NOTES DUE 2004

Interest on the % First Mortgage Notes due , 2002 (the "First
Mortgage Notes") is payable semi-annually on and of
each year, commencing , 1995. Interest on the % Senior Notes due
, 2004 (the "Senior Notes") is payable semi-annually on
and of each year, commencing , 1995. The First
Mortgage Notes and the Senior Notes are collectively referred to herein as the
"Notes." The First Mortgage Notes may not be redeemed by Stone Container
Corporation (the "Company") prior to , 1999 and are redeemable
thereafter at the redemption prices set forth herein. The Senior Notes may not
be redeemed by the Company prior to , 1999 and are redeemable
thereafter at the redemption prices set forth herein. The Notes do not provide
for any sinking fund. Upon a Change of Control (as defined), and upon the
satisfaction of certain conditions, the Company will be required to offer to
repurchase the outstanding Notes at a price equal to 101% of the aggregate
principal amount of such Notes, plus accrued and unpaid interest to the date of
repurchase. See "Description of Notes -- Change of Control."

The First Mortgage Notes will be senior secured obligations of the Company and
the Senior Notes will be senior unsecured obligations of the Company. The First
Mortgage Notes will be secured by a first ranking lien on four of the Company's
containerboard mills. The Notes will rank PARI PASSU in right of payment with
each other and all other Senior Indebtedness (as defined) of the Company. The
Notes will be senior in right of payment to all Subordinated Indebtedness (as
defined) of the Company. See "Description of Notes -- Ranking." The net proceeds
to the Company from the issuance and sale of the Notes offered hereby (the
"Offering") will be used to repay indebtedness and for general corporate
purposes. See "Use of Proceeds." The issuance and sale of the Notes in the
Offering will occur concurrently with certain related transactions and the
closing by the Company of a new senior secured credit agreement (the "Credit
Agreement"), each of which is conditioned upon the successful completion of the
other. The Credit Agreement is comprised of a $400 million term loan and a $450
million revolving credit facility. The revolving credit facility borrowing
availability will be reduced by any letter of credit commitments, of which
approximately $61 million will be outstanding at closing, and approximately $
million which the Company will borrow at closing. Borrowings under the Credit
Agreement will constitute Senior Indebtedness and will be secured by a
significant portion of the assets of the Company. See "Credit Agreement."

Application will be made to list the First Mortgage Notes and the Senior Notes
on the New York Stock Exchange.

SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN RISK FACTORS THAT SHOULD BE
CONSIDERED IN CONNECTION WITH THIS OFFERING.

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.
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT COMPANY(1)(2)
<S> <C> <C> <C>
Per First Mortgage Note.......................................................... % % %
Total............................................................................ $ $ $
Per Senior Note.................................................................. % % %
Total............................................................................ $ $ $
- ----------------------------------------------------------------------------------------------------------------
<FN>
(1) Plus accrued interest, if any, from date of issuance.
(2) Before deduction of expenses of the Offering payable by the Company
estimated at $ .
</TABLE>

The First Mortgage Notes and the Senior Notes are offered subject to receipt and
acceptance by the Underwriters, to prior sale and to the Underwriters' right to
reject any order in whole or in part and to withdraw, cancel or modify the offer
without notice. It is expected that delivery of the First Mortgage Notes and the
Senior Notes will be made at the office of Salomon Brothers Inc, Seven World
Trade Center, New York, New York, or through the facilities of The Depository
Trust Company, on or about , 1994.

SALOMON BROTHERS INC

BT SECURITIES CORPORATION

MORGAN STANLEY & CO.
INCORPORATED
KIDDER, PEABODY P CO.
INCORPORATED
BEAR, STEARNS & CO. INC.

The date of this Prospectus is , 1994.
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY EFFECT TRANSACTIONS WHICH
STABILIZE OR MAINTAIN THE MARKET PRICE OF THE FIRST MORTGAGE NOTES AND/ OR THE
SENIOR NOTES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

2
<PAGE>
PROSPECTUS SUMMARY

THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED INFORMATION AND
FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING ELSEWHERE IN THIS
PROSPECTUS. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FACTORS SET
FORTH HEREIN UNDER THE CAPTION "RISK FACTORS." CERTAIN CAPITALIZED TERMS USED
HEREIN ARE DEFINED ELSEWHERE IN THIS PROSPECTUS. AS USED HEREIN, THE TERM
"COMPANY" INCLUDES STONE CONTAINER CORPORATION, ITS SUBSIDIARIES AND ITS
AFFILIATES, EXCEPT AS THE CONTEXT OTHERWISE MAY REQUIRE.

THE COMPANY

The Company is a major international pulp and paper company engaged
principally in the production and sale of paper, packaging products, and market
pulp. The Company believes that it is the world's largest producer of unbleached
containerboard and kraft paper and the world's largest converter of those
products into corrugated containers and paper sacks and bags. The Company also
believes that it is one of the world's largest paper companies in terms of
annual tonnage, having produced approximately 7.5 million total tons of paper
and pulp in each of 1993 and 1992. The Company produced approximately 4.9
million and 5.0 million tons of unbleached containerboard and kraft paper in
1993 and 1992, respectively, which accounted for approximately 66% of its total
tonnage produced for both 1993 and 1992. The Company had net sales of
approximately $5.1 billion and $5.5 billion in 1993 and 1992, respectively. The
Company owns or has an interest in 135 manufacturing facilities in the United
States, 26 in Canada, 15 in Germany, six in France, two in Belgium and one in
each of the United Kingdom and the Netherlands. The facilities include 23 mills.
The Company also maintains sales offices in the United States, Canada, the
United Kingdom, Germany, Belgium, France, Mexico, China and Japan, has a
forestry operation in Costa Rica and has a joint venture relationship in
Venezuela.

PAPERBOARD AND PAPER PACKAGING

The Company believes that its integrated unbleached paperboard and paper
packaging system is the largest in the world with 16 mills and 136 converting
plants located throughout the United States and Canada and in Europe. The major
products in this business are containerboard and corrugated containers, which
are primarily sold to a broad range of manufacturers of consumable and durable
goods; kraft paper and paper bags and sacks, which are primarily sold to
supermarket chains, retailers of consumer products and, in the case of multiwall
shipping sacks, to the agricultural, chemical and cement industries; and
boxboard and folding cartons, which are sold to manufacturers of consumable
goods and other box manufacturers. The unbleached packaging business of the
Company has an annual capacity of approximately 5.3 million tons and is more
than 80% integrated. In 1993, total sales for the paperboard and paper packaging
business of the Company were approximately $3.8 billion, or approximately 75% of
total consolidated sales.

WHITE PAPER AND PULP

The Company believes that, together with its 75% owned consolidated
subsidiary, Stone-Consolidated Corporation ("Stone-Consolidated"), it is the
largest producer of uncoated groundwood paper in North America and the fourth
largest producer of newsprint in North America. Stone-Consolidated, a Canadian
corporation, owns all of the Canadian and United Kingdom newsprint and uncoated
groundwood paper assets of the Company. Stone-Consolidated owns three newsprint
mills (two in Canada and one in the United Kingdom) and two uncoated groundwood
paper mills in Canada. The newsprint production of the Company's linerboard and
newsprint mill in Snowflake, Arizona is marketed by Stone-Consolidated on a
commission basis. The Company and Stone-Consolidated have the capacity to
produce 1.4 million tons of newsprint and 500,000 tons of uncoated groundwood
paper annually. Newsprint is marketed to newspaper publishers and commercial
printers. Uncoated groundwood paper is sold for use primarily in newspaper
inserts, retail store advertising fliers, magazines, telephone directories and
as computer paper.

The Company believes it is a major market producer in the production of
market pulp in North America. The Company owns and operates five market pulp
mills in North America, including the Castlegar, British Columbia mill in which
the Company has a 25% interest (the "Celgar mill"). These mills

3
<PAGE>
have the capacity to produce 1.5 million tons of market pulp annually. The
geographic diversity of the Company's mills enables the Company to offer its
customers a product mix of bleached northern and southern hardwood and bleached
northern softwood pulp. Market pulp is sold to manufacturers of paper products,
including fine papers, photographic papers, tissue and newsprint.

In 1993, total sales for the white paper and pulp business of the Company
(which includes Stone-Consolidated sales) were approximately $965 million, or
approximately 19% of total consolidated sales.

PRODUCT PRICING AND INDUSTRY TRENDS

The markets for products sold by the Company are highly competitive and are
also sensitive to changes in industry capacity and cyclical changes in the
economy, both of which can significantly impact selling prices and thereby the
Company's profitability. From 1990 through the third quarter of 1993, the
Company experienced substantial declines in the pricing of most of its products.
Market conditions have improved since October 1993, which have allowed the
Company to increase prices for most of its products. While prices for most of
the Company's products are approaching the historical high prices achieved
during the peak of the last industry cycle, the Company's production costs
(including labor, fiber and energy), as well as its interest expense, have also
significantly increased since the last pricing peak in the industry, increasing
pressure on the Company's net margins for its products.

The Company's containerboard and corrugated container product lines, which
represent a substantial portion of the Company's net sales, generally
experienced declining product prices from 1990 through the third quarter of
1993. Since October 1, 1993, the Company has increased the price of linerboard
in the fourth quarter of 1993 and the first quarter and third quarter of 1994 by
$25 per ton, $30 per ton and $40 per ton, respectively. Prices for corrugating
medium also increased by $25 per ton, $40 per ton and $50 per ton in the
corresponding periods. In addition, in the first half of 1994, the Company
implemented corrugated container price increases and began implementing on July
25, 1994, a 9.5% price increase for corrugated containers. Historically,
suppliers, including the Company, have taken up to 90 days to pass increased
linerboard and corrugating medium prices through to corrugated container
customers. The Company converts more than 80% of its linerboard and corrugating
medium products into corrugated containers, making the achievement of price
increases for corrugated containers essential for the Company to realize
substantial financial benefit from linerboard and corrugating medium price
increases. On August 5, 1994, the Company announced to its customers an
additional price increase of $40 per ton for linerboard and $50 per ton for
corrugating medium effective for the fourth quarter of 1994. While there can be
no assurance that these price increases will be implemented or that prices will
continue to increase or even be maintained at present levels, the Company
believes that the supply/ demand characteristics for linerboard, corrugating
medium and corrugated containers have improved which could allow for further
price increases for these product lines.

According to industry publications, immediately preceding the price increase
effective October 1, 1993, the reported transaction price for 42 lb. kraft
linerboard, the base grade of linerboard, was $300 per ton and as of August 1,
1994, the reported transaction price for this base grade was $385-$395 per ton.
According to industry publications, the reported transaction price for
corrugating medium immediately preceding October 1, 1993 was $280 per ton and
$375-$385 per ton as of August 1, 1994.

The Company has also implemented price increases in kraft paper and kraft
paper converted products. The Company increased prices for retail bags and sacks
by 8% on each of April 1, May 1, and July 1, 1994 and announced and began
implementing a further price increase of 10% effective September 1, 1994. In
addition, the Company has announced and began implementing on August 1, 1994 a
$50 per ton (approximately 8.6%) price increase for kraft paper.

Pricing for market pulp has improved substantially in 1994. The Company has
increased prices for various grades of market pulp by up to $260 per metric
tonne since November 1993. According to industry publications, the reported
transaction price for southern bleached hardwood kraft ("SBHK") was $370 per
metric tonne as of the third quarter of 1993 and $500-570 per metric tonne as of
the second

4
<PAGE>
quarter of 1994. On July 1, 1994 the Company implemented a further price
increase of $70 per metric tonne (approximately 12.2%). The Company has
announced a further price increase of $70 per metric tonne to be implemented in
the fourth quarter.

After further declines in the first quarter of 1994, pricing for newsprint
has also recently improved. The Company increased newsprint prices in the second
quarter of 1994 by $48 per metric tonne in the eastern markets of North America
and $41 per metric tonne in the western markets of North America and $41 per
metric tonne in the eastern markets of North America and $48 per metric tonne in
the western markets of North America in the third quarter of 1994. According to
industry publications, the reported transaction price for newsprint in the
eastern markets of North America was $411 per metric tonne as of March 1, 1993
and $470 per metric tonne as of August 1, 1994. To date, uncoated groundwood
papers have not achieved significant price increases. However, a further price
increase of approximately $48 per metric tonne has been announced for the fourth
quarter of 1994.

Although supply/demand balances appear favorable for most of the Company's
products, there can be no assurance that announced price increases will be
achieved or that prices can be maintained at present levels.

The price of recycled fiber, one of the principal raw materials in the
manufacture of certain of the Company's products, has increased substantially in
1994. The historically cyclical markets for wood fiber and recycled fiber are
highly competitive, and as the demand for the Company's products rises, the
demand for and cost of fiber, particularly recycled fiber, may further increase.
See "Risk Factors -- Cyclicality and Pricing; Fiber Supply and Pricing."

FINANCIAL STRATEGY

In 1993, the Company adopted a financial plan designed to increase the
Company's liquidity and improve its financial flexibility, by prepaying the near
term scheduled amortizations under its bank credit agreements (the "1989 Credit
Agreement"). The financial plan was implemented in response to continuing net
losses resulting from depressed sales prices for the Company's products and the
Company's highly leveraged capital structure and related interest expense
associated with indebtedness incurred to finance the acquisition of
Consolidated-Bathurst Inc. (a Canadian corporation, renamed Stone Container
(Canada) Inc. ("Stone Canada")). In 1993, as part of the financial plan, the
Company satisfied its remaining 1993 and 1994 scheduled amortization obligations
under the 1989 Credit Agreement and repaid outstanding borrowings (a portion of
which could subsequently be reborrowed) under the revolving credit facility
portion of the 1989 Credit Agreement with the proceeds from (i) the sale of $400
million aggregate principal amount of additional Company indebtedness, (ii) the
public offering in Canada of approximately 25% of the common stock (Cdn. $231
million) of Stone-Consolidated and the contemporaneous sale by
Stone-Consolidated of Cdn. $231 million principal amount of convertible
subordinated debentures in Canada and $225 million principal amount of senior
secured notes in the U.S., and (iii) the sale of approximately $125 million of
assets. In February 1994, the Company sold $710 million principal amount of
9 7/8% Senior Notes due 2001 and approximately 19 million shares of its common
stock for gross proceeds of approximately $289 million from the sale of such
common stock (the "February 1994 Offerings"). The Company used the $962 million
of net proceeds from the February 1994 Offerings to (i) prepay scheduled
amortizations under the 1989 Credit Agreement for all of 1995 and a portion of
1996 and 1997, (ii) fully redeem the principal amount of the Company's 13 5/8%
Subordinated Notes due 1995, and (iii) repay outstanding borrowings under the
revolving credit facility portion of the 1989 Credit Agreement, a portion of
which remained available for reborrowing thereunder.

5
<PAGE>

will dispose of excess assets including inventory as soon as practicable in an
orderly liquidation. The impact of such closure and sale of assets on the
Company's 3rd Quarter results has not yet been fully determined but is not
expected to have a material effect on the Company.

The Company is continuing to pursue its financial strategy of increasing the
Company's liquidity and improving its financial flexibility. Concurrently with
the closing of this Offering, the Company will (i) repay all of the outstanding
indebtedness and commitments under and terminate the 1989 Credit Agreement, (ii)
enter into the Credit Agreement and (iii) repay the outstanding borrowings under
the credit agreement of Stone Savannah River Pulp & Paper Corporation ("Savannah
River") and, on or prior to December 30, 1994, redeem the outstanding senior
subordinated notes and Series A preferred stock of Savannah River, each of which
(other than the redemptions) is conditioned upon the successful completion of
the other transactions (collectively, the "Related Transactions"). The Credit
Agreement will consist of a $400 million secured term loan and a $450 million
secured revolving credit facility. The revolving credit facility borrowing
availability will be reduced by any letter of credit commitments, of which
approximately $61 million will be outstanding at closing, and approximately $
million which the Company will borrow at closing. Savannah River is currently a
93% owned subsidiary of the Company. On or prior to the closing of the Offering,
the Company will (i) repay all of the indebtedness outstanding under and
terminate Savannah River's bank credit agreement (the "Savannah River Credit
Agreement"), (ii) give notice of redemption to, and deposit the redemption price
with, the trustee of the $130 million principal amount of Savannah River's
14 1/8% Senior Subordinated Notes due 2000 (the "Savannah River Notes"), which
shall be redeemed on or prior to December 30, 1994, and (iii) purchase the
72,346 outstanding shares of common stock of Savannah River not owned by the
Company pursuant to a merger of a wholly owned subsidiary of the Company and
Savannah River. On or before December 30, 1994, the Company will also cause the
425,243 outstanding shares of Series A Cumulative Redeemable Exchangeable
Preferred Stock of Savannah River (the "Savannah River Preferred") not owned by
the Company to be redeemed. The completion of this Offering, together with the
Related Transactions, will extend the scheduled amortization obligations and
final maturities of more than $1 billion of the Company's indebtedness, improve
the Company's liquidity by replacing its current $166 million revolving credit
facility commitments with $450 million of revolving credit commitments (of which
borrowing availability will be reduced by any letter of credit commitments, of
which approximately $61 million will be outstanding at closing, and
approximately $ million of borrowings thereunder which will be borrowed at
closing) and improve the Company's financial flexibility through entering into
the Credit Agreement.

The Company will incur a charge for the write-off of previously unamortized
debt issuance costs, related to the debt being repaid (approximately $45
million, net of income tax benefit) upon the completion of the Offering and
Related Transactions. This non-cash charge will be recorded as an extraordinary
loss from the early extinguishment of debt in the Company's Consolidated
Statements of Operations and Retained Earnings (Accumulated Deficit).

6
<PAGE>
The sources and uses of funds in connection with the Offering and the
Related Transactions are estimated to be as follows:

<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C>
Sources: $
First Mortgage Notes.........................................................
Senior Notes.................................................................
Credit Agreement
Term Loan..................................................................
Revolving Credit Facility(1)...............................................
Other(2).....................................................................
-------------
Total:......................................................................... $
-------------
-------------
Uses:
Repayment of 1989 Credit Agreement borrowings................................ $
Repayment of Savannah River Credit Agreement borrowings......................
Redemption of Savannah River Notes...........................................
Redemption of Savannah River Preferred.......................................
Repurchase of Savannah River Common Stock....................................
General corporate purposes(3)................................................
-------------
Total:......................................................................... $
-------------
-------------
<FN>
- ------------------------
(1) Commitment of $450 million (of which borrowing availability will be reduced
by any letter of credit commitments, of which approximately $61 million
will be outstanding at closing and approximately $ million of borrowings
thereunder which will be borrowed at closing).
(2) Cash escrow relating to letters of credit released due to the repayment of
the 1989 Credit Agreement.
(3) Includes payment of fees and expenses relating to the Credit Agreement,
which are estimated to total $29 million and expenses relating to the
Offering (other than the Underwriters' discount) estimated to total $2
million.
</TABLE>

7
<PAGE>
THE OFFERING OF NOTES

<TABLE>
<S> <C>
Securities Offered................ $500 million principal amount of % First Mortgage
Notes due 2002 (the "First Mortgage Notes").
$200 million principal amount of % Senior Notes due
2004 (the "Senior Notes") (the Senior Notes and the
First Mortgage Notes being collectively referred to as
the "Notes").
The First Mortgage Notes will be issued pursuant to an
indenture dated as of , 1994 (the "First Mortgage
Note Indenture") between the Company and Norwest Bank
Minnesota, N.A., as trustee (the "First Mortgage Note
Trustee"), and the Senior Notes will be issued pursuant
to an indenture dated as of , 1994 (the "Senior
Note Indenture") between the Company and The Bank of New
York, as trustee (the "Senior Note Trustee"). The First
Mortgage Note Indenture and the Senior Note Indenture
will be substantially identical, except for provisions,
including certain covenants, with respect to the
Collateral (as defined) securing the First Mortgage
Notes, and are collectively referred to herein as the
"Indentures."
Interest Payment Dates............ Interest on the First Mortgage Notes will be payable
semi-annually on and
, commencing , 1995.
Interest on the Senior Notes will be payable
semi-annually on and , commencing ,
1995.
Optional Redemption............... The First Mortgage Notes are redeemable at the option of
the Company, in whole or from time to time in part, on
and after , 1999, at the redemption prices set
forth herein, together with accrued and unpaid interest.
See "Description of Notes -- Optional Redemption."
The Senior Notes are redeemable at the option of the
Company, in whole or from time to time in part, on and
after , 1999, at the redemption prices set forth
herein, together with accrued and unpaid interest. See
"Description of Notes -- Optional Redemption."
Change of Control................. Upon the occurrence of a Change of Control (as defined)
the Company is required to offer to repurchase each
holder's Notes at a purchase price equal to 101% of the
aggregate principal amount thereof plus accrued and
unpaid interest, if any, to the date of repurchase. If
such repurchase would constitute an event of default
under Specified Bank Debt (as defined), then, prior to
making such repurchase offer, the Company is required to
(i) repay in full in cash such Specified Bank Debt or
(ii) obtain the requisite consent of lenders of such
Specified Bank Debt to permit the repurchase of Notes
without giving rise to an event of default under such
Specified Bank Debt. Such Change of Control provisions
in and of themselves may not afford holders of the Notes
protection in the event of a highly leveraged
transaction, reorganization, restructuring, merger or
similar transaction involving the Company that may
adversely affect such holders if such transaction is not
the type
</TABLE>

8
<PAGE>

<TABLE>
<S> <C>
of transaction included within the definition of Change
of Control. A transaction involving specified Stone
family members or their affiliates will result in a
Change of Control only if it is the type of transaction
specified by such definition. See "Description of Notes
-- Change of Control." There can be no assurance that
the Company would have sufficient funds to pay the
required purchase price for all Notes tendered by the
holders thereof in the event of a Change of Control.
Neither the Board of Directors of the Company nor the
respective trustees under the Indentures relating to the
Notes may waive the Change of Control provisions.
Ranking........................... The Notes will rank PARI PASSU in right of payment with
all existing and future Senior Indebtedness (as defined)
of the Company and senior in right of payment and in
rights upon liquidation to all existing and future
Subordinated Indebtedness (as defined) of the Company.
Obligations of the Company's subsidiaries, however, will
represent prior claims with respect to the assets and
earnings of such subsidiaries. Borrowings under the
Credit Agreement will constitute Senior Indebtedness and
will be secured by a significant portion of the
Company's assets. The First Mortgage Notes will be
secured by certain other assets of the Company as
described herein. See "Description of Notes -- Ranking."
Limitation on Future Liens........ FIRST MORTGAGE NOTES AND SENIOR NOTES. If the Company or
any Subsidiary (as defined) shall create or permit the
existence of any Lien (as defined) other than Permitted
Liens (as defined) upon any of its respective assets as
security for (i) any Indebtedness (as defined) or other
obligation of the Company that ranks PARI PASSU with the
Notes or any Indebtedness or other obligation of a
Subsidiary of the Company, the Company will secure or
will cause such Subsidiary to guarantee and secure the
outstanding Notes equally and ratably with such
Indebtedness or other obligation or (ii) any
Subordinated Indebtedness (as defined), the Company will
secure the outstanding Notes prior to such Subordinated
Indebtedness; PROVIDED, HOWEVER, that the foregoing
shall not apply to certain specified Liens, including
Liens to secure any Indebtedness under the Credit
Agreement which Indebtedness will be secured by Liens on
a significant portion of the assets of the Company and
Liens in favor of the First Mortgage Notes described
herein.
FIRST MORTGAGE NOTES. Under the terms of the First
Mortgage Note Indenture, the Company will not, and will
not permit any of its Subsidiaries to, directly or
indirectly, (i) incur or suffer to exist any Lien upon
any of the Collateral other than Permitted Collateral
Liens (as defined), (ii) take any action or omit to take
any action with respect to the Collateral that might or
would have the result of adversely affecting, impairing
or failing to maintain without interruption the security
interests in the Collateral under the First Mortgage
Note Indenture or the Security Documents (as defined),
or (iii) grant any interest whatsoever (other than
</TABLE>

9
<PAGE>

<TABLE>
<S> <C>
Permitted Collateral Liens) in any of the Collateral to
any other Person (other than the Company or the First
Mortgage Note Trustee) or suffer to exist any such
interest.
Limitation on Future Guaranties... The Company will not guarantee the Indebtedness of any
Subsidiary and will not permit any Subsidiary or
Seminole Kraft Corporation ("Seminole") to guarantee (i)
any Indebtedness of the Company that ranks PARI PASSU
with the Notes, (ii) any Indebtedness of a Subsidiary of
the Company or (iii) any Subordinated Indebtedness;
PROVIDED, HOWEVER, that the foregoing shall not apply to
certain specified guaranties, including guaranties in a
principal amount up to the principal amount outstanding
or committed under the 1989 Credit Agreement as of
November 1, 1991, plus $250 million, less the proceeds
from the sale of Indebtedness under the 1991 Indenture
(as defined) issued from time to time that are applied
to repay Indebtedness under the Credit Agreements (as
defined) as refinanced or extended from time to time
(which would include Indebtedness under the new Credit
Agreement).
For further information on ranking, limitations on Liens
and limitations on guaranties, see "Description of Notes
-- Certain Covenants -- Limitation on Future Liens and
Guaranties." For further information on the collateral
securing the borrowings under the Credit Agreement, see
"Credit Agreement -- Security."
Collateral Asset Disposition...... FIRST MORTGAGE NOTES. Pursuant to the First Mortgage
Note Indenture, within 360 days following the
consummation of a Collateral Asset Disposition (as
defined) or the receipt of proceeds from a Collateral
Loss Event (as defined), the Company will apply the net
proceeds therefrom (i) to an investment in specified
replacement Collateral; (ii) in the case of a Collateral
Loss Event, to Restore (as defined) the relevant
Collateral and/or (iii) subject to the receipt of
certain minimum proceeds, to make an offer to repurchase
First Mortgage Notes at 100% of the principal amount
thereof plus accrued interest thereon to the date of
purchase. See "Description of Notes -- Additional First
Mortgage Note Covenants -- Limitation on Collateral As-
set Dispositions."
Certain Other Covenants........... Each of the Indentures, among other things, (i)
proscribes the use of certain proceeds of certain Asset
Dispositions (as defined) by the Company or its
Restricted Subsidiaries (as defined), (ii) restricts the
ability of the Company and its Subsidiaries, subject to
certain exceptions, to pay dividends or make
distributions with respect to shares of the Company's
Capital Stock (as defined) or acquire or retire Capital
Stock of the Company, (iii) subject to certain
significant exceptions, restricts the ability of the
Company and its Restricted Subsidiaries to create, incur
or guarantee Indebtedness and (iv) requires the Company
to make certain offers to repurchase Debt Securities (as
defined) in the event that the Company's Subordinated
Capital Base (as defined) is less than a specified
level. See "Description of Notes -- Certain Covenants."
</TABLE>

10
<PAGE>

<TABLE>
<S> <C>
Use of Proceeds................... The net proceeds of this Offering, together with
borrowings under the Credit Agreement, will be used to
(i) repay all of the outstanding indebtedness under and
terminate the 1989 Credit Agreement, (ii) repay all of
the outstanding indebtedness under and terminate the
Savannah River Credit Agreement and redeem the Savannah
River Notes, (iii) purchase the 72,346 outstanding
shares of Savannah River common stock not owned by the
Company and (iv) redeem or otherwise acquire the 425,243
outstanding shares of Savannah River Preferred not owned
by the Company. See "Use of Proceeds."
</TABLE>

COLLATERAL FOR THE FIRST MORTGAGE NOTES

The First Mortgage Notes will be initially secured by a first ranking lien
on four mills owned by the Company described below.

<TABLE>
<CAPTION>
NUMBER OF
ANNUAL PRODUCTION PAPER
MILL LOCATION CAPACITY IN 1993 MACHINES TYPE OF MILL
- ---------------------------------------------------------------- -------- ---------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Missoula, Montana....................................... 702.9 654.3 3 Linerboard
Ontonagon, Michigan..................................... 262.8 248.4 2 Medium
Uncasville, Connecticut................................. 165.1 158.5 1 Medium
York, Pennsylvania...................................... 110.2 110.0 2 Medium
</TABLE>

See "The Collateral Under the First Mortgage Note Indenture."

11
<PAGE>
SUMMARY FINANCIAL DATA

The following summary Statement of Operations and Balance Sheet Data for the
five years ended December 31, 1993 has been derived from, and should be read in
conjunction with, the related audited consolidated financial statements and
accompanying notes of the Company. The audit report relating to the Company's
1993 consolidated financial statements contains an explanatory paragraph
referring to certain liquidity matters discussed in Notes 11 and 18 to the
Company's 1993 consolidated financial statements included elsewhere in this
Prospectus. The selected financial data for the six months ended June 30, 1994
and June 30, 1993 have been derived from the unaudited consolidated financial
statements for the quarters ended June 30, 1994 and 1993 included elsewhere in
this Prospectus. The summary financial data do not purport to be indicative of
the Company's future results of operations or financial position.

<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
---------------------------- ----------------------------------------------------------------------------
1994 1993 1993 1992(A) 1991 1990 1989(B)
------------ ------------ ------------ ------------ ------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS
DATA:
Net sales..... $ 2,645,150 $ 2,573,909 $ 5,059,579 $ 5,520,655 $ 5,384,291 $ 5,755,858 $ 5,329,716
Cost of
products
sold......... 2,183,989 2,120,535 4,223,444 4,473,746 4,287,212(c) 4,421,930 3,893,842
Selling,
general and
administrative
expenses..... 270,462 267,325 512,174 543,519 522,780 495,499 474,438
Depreciation
and
amortization... 177,749 175,907 346,811 329,234(c) 273,534(c) 257,041 237,047
Income (loss)
before
interest
expense,
income taxes,
minority
interest,
extraordinary
loss and
cumulative
effects of
accounting
changes...... 32,504 6,746 (36,598) 162,107 385,113 615,736 826,542
Interest
expense...... 224,259 204,055 426,726 386,122 397,357 421,667 344,693
Income (loss)
before income
taxes,
minority
interest,
extraordinary
loss and
cumulative
effects of
accounting
changes...... (191,755) (197,309) (463,324) (224,015) (12,244) 194,069 481,849
Extraordinary
loss from
early
extinguishment
of debt (net
of income tax
benefit)..... (16,782) -- -- -- -- -- --
Cumulative
effect of
change in
accounting
for post-
employment
benefits (net
of income tax
benefit)..... (14,189) -- -- -- -- -- --
Cumulative
effect of
change in
accounting
for post-
retirement
benefits (net
of income tax
benefit)..... -- (39,544) (39,544) -- -- -- --
Cumulative
effect of
change in
accounting
for income
taxes........ -- -- -- (99,527) -- -- --
Net income
(loss)....... (160,648) (173,780) (358,729) (269,437) (49,149) 95,420 285,828
Income (loss)
per common
share before
extraordi-
nary loss and
cumulative
effects of
accounting
changes...... (1.55) (1.94) (4.59) (2.49)(d) (.78)(d) 1.56(d) 4.67(d)
Net income
(loss) per
common
share........ (1.92) (2.50) (5.15) (3.89)(d) (.78)(d) 1.56(d) 4.67(d)
Ratio of
earnings to
fixed
charges...... (e) (e) (e) (e) (e) 1.2 2.0
Dividends paid
per common
share (d).... -- -- -- $ 0.35 $ 0.71 $ 0.71 $ 0.70
Average common
shares
outstanding... 85,960 71,150 71,163 70,987(d) 63,207(d) 61,257(d) 61,223(d)
BALANCE SHEET
DATA (AT END OF
PERIOD):
Working
capital...... $ 823,904 $ 121,626 $ 809,504 $ 756,964 $ 770,457 $ 439,502 $ 614,433
Property,
plant and
equipment --
net.......... 3,281,898 3,499,603 3,386,395 3,703,248 3,520,178 3,364,005 2,977,860
Goodwill...... 875,855 945,859 910,534 983,499 1,126,100 1,160,516 1,089,817
Total
assets....... 6,688,380 6,829,103 6,836,661 7,026,973 6,902,852 6,689,989 6,253,708
Long-term
debt......... 4,094,238(f) 3,586,569(f) 4,268,277(f) 4,104,982(f) 4,046,379(f) 3,680,513(f) 3,536,911(f)
Stockholders'
equity....... 691,990 896,274 607,019 1,102,691 1,537,543 1,460,487 1,347,624
OTHER DATA:
Net cash
provided by
(used in)
operating
activities... $ (98,251) $ (1,990) $ (212,685) $ 85,557 $ 210,498 $ 451,579(c) $ 315,196(c)
Capital
expenditures... 66,258(g) 63,497(g) 149,739(g) 281,446(g) 430,131(g) 551,986(g) 501,723(g)
Paperboard,
paper and
market pulp:
Produced
(thousand
tons)...... 3,892 3,698 7,475 7,517 7,365 7,447 6,772
Converted
(thousand
tons)...... 2,185 2,169 4,354 4,373 4,228 4,241 3,930
Corrugated
shipments
(billion sq.
ft.)......... 26.2 26.2 52.48 51.67 49.18 47.16 41.56
<FN>
- ----------------------------------------
(a) Restated to reflect the adoption of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" retroactive to January 1,
1992.
(b) The Company acquired Stone Canada in 1989.
(c) Adjusted to conform with the current financial statement presentation.
(d) Amounts per common share and average common shares outstanding have been
adjusted to reflect a 2% Common Stock dividend issued September 15, 1992.
(e) The Company's earnings for the six months ended June 30, 1994 and 1993 and
the years ended December 31, 1993, 1992 and 1991 were insufficient to cover
fixed charges by $193.1 million and $203.2 million and $466.5 million,
$270.1 million and $94.6 million, respectively.
(f) Includes approximately $657.0 million and $551.8 million as of June 30,
1994 and 1993, respectively, and $672.6 million, $574.8 million, $573.3
million, $471.2 million and $267.2 million as of December 31, 1993, 1992,
1991, 1990 and 1989, respectively, of long-term debt of certain
consolidated subsidiaries that is non-recourse to the parent.
(g) Includes approximately $5.0 million and $7.3 million for the six months
ended June 30, 1994 and 1993, respectively, and $14.6 million, $79.1
million, $219.8 million, $245.2 million and $36.8 million for 1993, 1992,
1991, 1990 and 1989, respectively, of expenditures financed through project
financings.
</TABLE>

12
<PAGE>
RISK FACTORS

BEFORE INVESTING, PROSPECTIVE PURCHASERS OF THE NOTES SHOULD CAREFULLY
CONSIDER THE RISK FACTORS SET FORTH BELOW AND THE OTHER INFORMATION INCLUDED
ELSEWHERE IN THIS PROSPECTUS.

SIGNIFICANT LEVERAGE AND DEBT SERVICE REQUIREMENTS

Since July 1993, the Company has issued more than $1.1 billion of debt
securities, the proceeds from which were used to refinance indebtedness,
including the repayment of revolving credit facilities (which were subsequently
reborrowed), and to fund working capital needs due to continued losses.
Therefore, the Company remains significantly leveraged and will continue to be
significantly leveraged after completion of the Offering and the Related
Transactions. The Company's long-term debt to total capitalization ratio was
75.3% at June 30, 1994. On a pro forma basis, after giving effect to (i) the
Offering and the use of the estimated net proceeds therefrom, together with
borrowings under the Credit Agreement and (ii) the consummation of the Related
Transactions, such ratio at June 30, 1994 would have been approximately 78.4%.
Capitalization, for purposes of this ratio, includes long-term debt, deferred
income taxes, redeemable preferred stock, minority interests and stockholders'
equity. Giving effect to the Offering and the Related Transactions, the amounts
of long-term debt (excluding capitalized lease obligations) outstanding at June
30, 1994 maturing through 2000 and thereafter are as follows:

<TABLE>
<CAPTION>
THE COMPANY
NON-RECOURSE EXCLUDING
CONSOLIDATED INDEBTEDNESS OF SEMINOLE AND
(IN MILLIONS) TOTAL CERTAIN SUBSIDIARIES(1) STONE-CONSOLIDATED
---------------------- ------------ -------------------------- -------------------
<S> <C> <C> <C>
Remainder of 1994................................... $ 19.8 $ 13.1 $ 6.7
1995................................................ 274.1(2) 21.8 252.3(2)
1996................................................ 47.5 27.7 19.8
1997................................................ 254.6 22.6 232.0
1998................................................ 485.5 20.5 465.0
1999................................................ 471.6(3) 21.6 450.0(3)
2000................................................ 716.1 255.2 460.9
Thereafter.......................................... 2,157.3 167.2 1,990.1
<FN>
- ------------------------------
(1) Includes indebtedness of Seminole and Stone-Consolidated. See "-- Credit
Agreement Restrictions."
(2) The 1995 maturities currently include approximately $232.0 million
outstanding under Stone Financial Corporation's and Stone Fin II
Receivables Corporation's revolving credit facilities at June 30, 1994,
which the Company intends to refinance. The Company is currently planning a
transaction to refinance these two existing receivables programs
contemplated to approximate up to $300 million of receivables financing,
which would be scheduled to mature in 1999. The proposed refinancing is
subject to execution of definitive documentation and the public offering of
notes by a newly created financial corporation to provide funding for such
receivables financing, and there can be no assurance that such transactions
will be consummated.
(3) The revolving credit facility under the Credit Agreement will mature in
May, 1999 and the letter of credit relating to certain industrial revenue
bonds in Florence County, South Carolina (the "Florence Letter of Credit"),
currently in the amount of approximately $61 million, will expire in May,
1999. This amount does not account for any borrowings which may be
outstanding under the revolving credit facility of the Credit Agreement as
of its expiration.
</TABLE>

In order to meet its amortization obligations for 1996 and subsequent years
(assuming successful refinancing of the two existing receivables programs), the
Company will be required to raise sufficient funds from operations and/or other
sources and/or refinance or restructure maturing indebtedness. No assurance can
be given that the Company will be successful in doing so.

In addition to these amortization obligations, the Company will continue to
incur substantial ongoing interest expense relating to its indebtedness. The
Company's income before interest expense, income taxes, extraordinary loss and
cumulative effects of accounting changes was insufficient to cover interest
expense for the six months ended June 30, 1994 and June 30, 1993 by $189.7
million and $198.9 million respectively, and for the years ended December 31,
1993 and 1992 by $466.9 million and $229.3 million, respectively, and will be
insufficient for the year 1994. The Company's net interest expense will increase
as a result of this Offering and the Related Transactions, as the estimated net
proceeds of the Offering and borrowings under the Credit Agreement will be used
in part to (i) repay all of

13
<PAGE>

the outstanding borrowings under the 1989 Credit Agreement and the Savannah
River Credit Agreement, which borrowings currently bear interest at lower rates
than expected interest rates for the Notes, and (ii) purchase the shares of
common stock of Savannah River not owned by the Company and redeem the shares of
Savannah River Preferred not owned by the Company. See "Use of Proceeds."
Furthermore, even though the Company has repaid amounts borrowed under its 1989
Credit Agreement, borrowings under the Credit Agreement will still bear interest
calculated based upon a floating rate of interest, and the Company's cost of
borrowing under the Credit Agreement will fluctuate as these underlying base
rates of interest change. See "Credit Agreement."

The Company will continue to require access to significant funds, whether
from operating cash flows, revolving credit facilities or other sources of
liquidity, such as additional asset sales, to meet its debt service requirements
in the future. Moreover, the restrictive terms of certain indebtedness of
Seminole and Stone-Consolidated (which owns all of the Canadian and United
Kingdom newsprint and uncoated groundwood assets of the Company) will not permit
Seminole or Stone-Consolidated to provide funds to the Company (whether by
dividend, loan or otherwise) including from cash generated from operations, if
any, to fund the Company's obligations, including its payment obligations with
respect to the Notes, until certain financial covenants contained in such debt
instruments of these companies have been met. Such financial covenants have not
been satisfied to date and are not likely to be satisfied in 1994. There can be
no assurances that such financial covenants will be met in the future.

CYCLICALITY AND PRICING; FIBER SUPPLY AND PRICING

The markets for paper, packaging products and market pulp sold by the
Company are highly competitive, and are sensitive to changes in industry
capacity and cyclical changes in the economy, both of which can significantly
impact selling prices and thereby the Company's profitability. From 1990 through
the third quarter of 1993, the Company experienced substantial declines in the
pricing of most of its products. Market conditions have improved since October
1993, which have allowed the Company to increase prices for most of its
products. While prices for most of the Company's products are approaching the
historical high prices achieved during the peak of the last industry cycle, the
Company's production costs (including labor, fiber and energy), as well as its
interest expense, have also significantly increased since the last pricing peak
in the industry, increasing pressure on the Company's net margins for its
products.

In addition, since the Company is more than 80% integrated in the production
of corrugated containers, price increases for corrugated containers, which
typically occur up to 90 days after linerboard and corrugated medium price
increases and accordingly have not to date fully reflected the price increases
for linerboard and corrugating medium, are essential for the Company to obtain
substantial financial benefits from price increases in the Company's linerboard
and corrugated medium product lines.

Although supply/demand balances appear favorable for most of the Company's
products, there can be no assurance that announced price increases will be
achieved, that linerboard and corrugating medium price increases will be fully
passed through to corrugated container customers or that prices can be
maintained at present levels.

14
<PAGE>
environmental and conservation regulations, natural disasters, such as forest
fires and hurricanes, and weather. In addition, recent increased demand for the
Company's products has resulted in greater demand for raw materials which has
recently translated into higher raw material prices.

The Company purchases or cuts a variety of species of timber from which the
Company utilizes wood fiber depending upon the product being manufactured and
each mill's geographic location. Despite this diversification, wood fiber prices
have increased substantially in 1994. A decrease in the supply of wood fiber,
particularly in the Pacific Northwest and the southeastern United States due to
environmental considerations, has caused, and will likely continue to cause,
higher wood fiber costs in those regions. In addition, the increase in demand
for products manufactured in whole or in part from recycled fiber has caused a
shortage of recycled fiber, particularly old corrugated containers ("OCC") used
in the manufacture of premium priced recycled containerboard and related
products. The Company's paperboard and paper packaging products use a large
volume of recycled fiber. In 1993, the Company processed approximately 1.9
million tons of recycled fiber. The Company used approximately 1.25 million tons
of OCC in its products in 1993. The Company believes that the cost of OCC has
risen from $55 per ton at June 30, 1993 to $110 per ton as of September 1, 1994.
While the Company has not experienced any significant difficulty in obtaining
wood fiber and recycled fiber in economic proximity to its mills, there can be
no assurances that this will continue to be the case for any or all of its
mills. In addition, there can be no assurance that all or any part of increased
fiber costs can be passed along to consumers of the Company's products directly
or in a timely manner.

RECENT LOSSES; NET CASH USED IN OPERATING ACTIVITIES

For the first six months of 1994, the loss was $129.7 million, or $1.55 per
common share, before the extraordinary loss on the early extinguishment of debt
and the cumulative effect of a change in accounting for post-employment benefits
("SFAS 112"). Including the extraordinary loss and the cumulative effect of SFAS
112, the Company reported a net loss of $160.7 million, or $1.92 per common
share, for the first six months of 1994.

For the first six months of 1993, the Company's loss was $134.3 million, or
$1.94 per common share, before the cumulative effect of a change in accounting
for post-retirement benefits other than pensions (SFAS 106). The adoption of
SFAS 106, effective January 1, 1993, resulted in a one-time non-cash cumulative
charge of $39.5 million net of income taxes, or $.56 per common share, resulting
in a net loss of $173.8 million, or $2.50 per common share, for the first six
months of 1993.

The second-quarter and first-half losses were increased by significantly
higher costs of recycled fiber for the Company's North American paper mills.
Costs of OCC, the primary source of recycled fiber for containerboard, were
approximately $20 million higher in the second quarter 1994 compared to the
second quarter 1993, and approximately $18 million higher in the second quarter
1994 compared to the first quarter 1994.

Income from operations for the second quarter 1994 includes a gain from an
involuntary conversion relating to a digester rupture at the Company's Panama
City, Florida, pulp and paperboard mill. This $22 million pre-tax gain reflects
the expected net proceeds from the property damage claim in excess of the
carrying value of the assets destroyed or damaged. The operations of the Panama
City mill were shut down until August 19 and September 8, 1994, when the mill
started up its pulp and linerboard operations, respectively.

For the year 1993, the Company incurred a loss (before the cumulative effect
of an accounting change) of $319.2 million, or $4.59 per common share, and
(after the cumulative effect of such change) a

15
<PAGE>
net loss of $358.7 million or $5.15 per common share. For the year 1992, the
loss (before the cumulative effect of an accounting change), was $169.9 million,
or $2.49 per common share and (after the cumulative effect of such change) a net
loss of $269.4 million or $3.89 per common share.

The Company's continued net losses have significantly impaired its liquidity
and available sources of liquidity. Net cash used in operating activities
totalled $98.3 million for the six months ended June 30, 1994 compared with $2.0
million for the same period in 1993 and totalled $213 million for the year ended
December 31, 1993, while net cash provided by operating activities totalled $86
million for the year ended December 31, 1992. See "Selected Consolidated
Financial Data."

Notwithstanding the improvements in the Company's liquidity and financial
flexibility which will result from the Offering and the execution and delivery
of the new Credit Agreement, unless the Company achieves and maintains increased
selling prices beyond current levels, the Company will continue to incur net
losses and will not generate sufficient cash flows to meet fully the Company's
debt service requirements in the future. Without such price increases, the
Company may exhaust all or substantially all of its cash resources and borrowing
availability under the existing revolving credit facilities. In such event, the
Company would be required to pursue other alternatives to improve liquidity,
including further cost reductions, additional sales of assets, the deferral of
certain capital expenditures, obtaining additional sources of funds or liquidity
and/or pursuing the possible restructuring of its indebtedness. There can be no
assurance that such measures, if required, would generate the liquidity required
by the Company to operate its business and service its indebtedness. Beginning
in 1996 (assuming successful refinancing of the two existing receivables
programs) and continuing thereafter, the Company will be required to make
significant amortization payments on its existing indebtedness which will
require the Company to raise sufficient funds from operations and/or other
sources and/or refinance or restructure maturing indebtedness. No assurance can
be given that the Company will be successful in doing so.

CREDIT AGREEMENT RESTRICTIONS

All indebtedness under the Credit Agreement will be secured by a significant
portion of the assets of the Company. The Credit Agreement is expected to
contain covenants that include, among other things, requirements to maintain
certain financial tests and ratios (including an indebtedness ratio and a
minimum interest coverage ratio) and certain restrictions and limitations,
including those on capital expenditures, changes in control, payment of
dividends, sales of assets, lease payments, investments, additional
indebtedness, liens, repurchases or prepayment of certain indebtedness,
guarantees of indebtedness, mergers and purchases of stock and assets. The
Credit Agreement is also expected to contain cross default provisions to the
indebtedness of $10 million or more of the Company and certain subsidiaries, as
well as cross-acceleration provisions to the non-recourse debt of $10 million or
more of Stone-Consolidated, Seminole and Stone Venepal (Celgar) Pulp Inc.
("SVCP"), through which the Company indirectly owns a 25% interest in the Celgar
mill. Additionally, the term loan portion of the Credit Agreement will provide
for mandatory prepayments from sales of certain assets (other than the
Collateral and the collateral pledged under the Credit Agreement ("Bank
Collateral")), certain debt financings and excess cash flows. All mandatory and
voluntary prepayments will be allocated against the term loan amortizations in
inverse order of maturity. Amortization amounts under the term loan will be 0.5%
of principal amount on each April 1 and October 1 for the period from April 1,
1995 through April 1, 1999, 47.5% on October 1, 1999 and 48.0% on April 1, 2000.
In addition, mandatory prepayments from sales of Bank Collateral (unless
substitute collateral has been provided) will be allocated pro rata between the
term loan (in inverse order of maturities) and the revolving credit facility,
and, to the extent applied to repay the revolving credit facility, will
permanently reduce loan commitments thereunder.

16
<PAGE>
obligated to sell all of Seminole's linerboard production. Seminole produces
100% recycled linerboard and is dependent upon an adequate supply of recycled
fiber, in particular OCC. Under the agreement, the Company paid fixed prices for
linerboard, which generally exceeded market prices, until June 3, 1994.
Thereafter, the Company is only obligated to pay market prices for the remainder
of the agreement. Because market prices for linerboard are currently less than
the fixed prices previously in effect under the output purchase agreement and
due to recent significant increases in the cost of recycled fiber, it is
anticipated that Seminole will not comply with certain financial covenants at
September 30, 1994. Seminole's lenders under its credit agreement have agreed to
grant waivers and amendments with respect to such covenants for periods up to
and including June 30, 1995. Furthermore, in the event that management
determines that it is probable that Seminole will not be able to comply with any
covenant contained in the Seminole credit agreement within twelve months after
the waiver of a violation of such covenant, then the debt under the Seminole
credit agreement would be reclassified as short-term debt under the provisions
of Emerging Issues Task Forces Issue No. 86-30 "Classification of Obligations
When a Violation is Waived By the Creditor." There can be no assurance that
Seminole will not require additional waivers in the future. Depending upon the
level of market prices and the cost and supply of OCC, Seminole may need to
undertake additional measures to meet its debt service requirements and its
financial covenants including obtaining additional sources of funds or
liquidity, postponing or restructuring of debt service payments or refinancing
the indebtedness. In the event that such measures are required and not
successful, and such indebtedness is accelerated by the respective lenders to
Seminole, the lenders to the Company under the Credit Agreement and various
other of its debt instruments would be entitled to accelerate the indebtedness
owed by the Company. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Financial Condition and Liquidity."

There can be no assurance that the Company will be able to achieve and
maintain compliance with the prescribed financial ratio tests or other
requirements of the Credit Agreement. Failure to achieve or maintain compliance
with such financial ratio tests or other requirements under the Credit
Agreement, in the absence of a waiver or amendment, would result in an event of
default and could lead to the acceleration of the obligations under the Credit
Agreement. While the Company has successfully sought and received waivers and
amendments under its 1989 Credit Agreement on various occasions, if waivers or
amendments are requested by the Company under the Credit Agreement, there can be
no assurance that the new lenders under the Credit Agreement will grant requests
if required by the Company. The failure to obtain any waivers or amendments from
the lenders under the Credit Agreement could reduce the Company's flexibility to
respond to adverse industry conditions and could have a material adverse effect
on the Company. See "Credit Agreement -- Covenants."

ENVIRONMENTAL MATTERS

The Company's operations are subject to extensive environmental regulation
by federal, state and local authorities in the United States and regulatory
authorities with jurisdiction over its foreign operations. The Company has in
the past made significant capital expenditures to comply with water, air and
solid and hazardous waste regulations and expects to make significant
expenditures in the future. Capital expenditures for environmental control
equipment and facilities were approximately $29.7 million in 1993 and the
Company anticipates that 1994 and 1995 environmental capital expenditures will
approximate $78 million and $114 million, respectively (not including any
expenditures required under the proposed "cluster rules" described below).
Included in these amounts are capital expenditures for Stone-Consolidated which
were approximately $6.7 million in 1993 and are anticipated to approximate $43
million in 1994 and $82 million in 1995. Although capital expenditures for
environmental control equipment and facilities and compliance costs in future
years will depend on legislative and technological developments which cannot be
predicted at this time, the Company anticipates that these costs will increase
when final "cluster rules" are adopted and as further environmental regulations
are imposed on the Company.

In December 1993, the U.S. Environmental Protection Agency (the "EPA")
issued a proposed rule affecting the pulp and paper industry. These proposed
regulations, informally known as the "cluster

17
<PAGE>
rules," would make more stringent requirements for discharge of wastewaters
under the Clean Water Act and would impose new requirements on air omissions
under the Clean Air Act. Pulp and paper manufacturers (including the Company)
have submitted extensive comments to the EPA on the proposed regulations in
support of the position that requirements under the proposed regulations are
unnecessarily complex, burdensome and environmentally unjustified. The EPA has
indicated that it may reopen the comment period on the proposed regulations to
allow review and comment on new data that the industry will submit to the agency
on the industry's air toxic emissions. It cannot be predicted at this time
whether the EPA will modify the requirements in the final regulations which are
scheduled to be issued in 1996, with compliance required within three years from
such date. The Company is considering and evaluating the potential impact of the
rules, as proposed, on its operations and capital expenditures over the next
several years. Preliminary estimates indicate that the Company could be required
to make capital expenditures of $350-$450 million during the period of 1996
through 1998 in order to meet the requirements of the rules, as proposed. In
addition, annual operating expenses would increase by as much as $20 million
beginning in 1998. The ultimate financial impact of the regulations cannot be
accurately estimated at this time but will be affected by several factors,
including the actual requirements imposed under the final rule, advancements in
control process technologies, possible reconfiguration of mills and inflation.

In addition, the Company is from time to time subject to litigation and
governmental proceedings regarding environmental matters in which injunctive
and/or monetary relief is sought. The Company has been named as a potentially
responsible party ("PRP") at a number of sites which are the subject of remedial
activity under the federal Comprehensive Environmental Response, Compensation
and Liability Act of 1980 ("CERCLA" or "Superfund") or comparable state laws.
Although the Company is subject to joint and several liability imposed under
Superfund, at most of the multi-PRP sites there are organized groups of PRPs and
costs are being shared among PRPs. Future environmental regulations, including
the final "cluster rules," may have an unpredictable adverse effect on the
Company's operations and earnings, but they are not expected to adversely affect
the Company's competitive position. For further information, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations
Financial Condition and Liquidity -- Environmental Issues."

RANKING

The First Mortgage Notes will be senior secured obligations of the Company
and the Senior Notes will be senior unsecured obligations of the Company. The
First Mortgage Notes and the Senior Notes will rank PARI PASSU in right of
payment with each other and with all existing and future Senior Indebtedness of
the Company, including the indebtedness under the Credit Agreement and the
Company's $240 million principal amount of 11 7/8% Senior Notes due 1998, $150
million principal amount of 12 5/8% Senior Notes due 1998 and $710 million
principal amount of 9 7/8% Senior Notes due 2001. The payment of the principal
of, interest on and any other amounts due on Subordinated Indebtedness will be
subordinated in right of payment to the prior payment in full of the Notes. As
of June 30, 1994, the total amount of outstanding Senior Indebtedness was
approximately $2.3 billion (which amount does not reflect the effects of the
Offering or the Related Transactions).

Obligations of the Company's subsidiaries will represent prior claims with
respect to assets and earnings of such subsidiaries. Thus, the Notes will be
structurally subordinated to all current and future indebtedness of the
Company's subsidiaries, including trade payables.

A significant portion of the Company's assets will secure borrowings
outstanding under the Credit Agreement. See "Credit Agreement -- Security." The
First Mortgage Notes are also secured obligations of the Company. See
"Description of Notes -- Additional First Mortgage Note Indenture Definitions --
Collateral." In the event of the Company's insolvency or liquidation, the claims
of the lenders under the Credit Agreement would have to be satisfied out of the
Bank Collateral securing borrowings under the Credit Agreement before any such
assets would be available to pay claims of holders of the Notes. Similarly, the
holders of First Mortgage Notes would have to be satisfied out of the Collateral
under the First Mortgage Note Indenture and Security Documents (as defined)
before any such assets would be

18
<PAGE>
available to pay claims of holders of the Senior Notes. If the lenders under the
Credit Agreement and/or the First Mortgage Note Trustee under the First Mortgage
Note Indenture and the Security Documents should foreclose on their respective
collateral, no assurance can be given that there will be sufficient assets
available in the Company to pay amounts due on the First Mortgage Notes or the
Senior Notes, respectively. See "Description of Notes -- Ranking."

Pursuant to the Company's receivables financing programs (excluding
Stone-Consolidated's program), at June 30, 1994, approximately $232 million was
outstanding under Stone Financial Corporation's and Stone Fin II Receivables
Corporation's revolving credit facilities. The Company is currently planning a
transaction to refinance these two existing receivables programs contemplated to
approximate $300 million of receivables financing which would be scheduled to
mature in 1999. The proposed refinancing is subject to execution of definitive
documentation and the public offering of notes by a newly created financial
corporation to provide funding for such receivables financing, and there can be
no assurance that it will be consummated.

FIRST MORTGAGE NOTE HOLDERS MAY RECEIVE
LESS THAN THEIR INVESTMENT UPON LIQUIDATION

No assurance can be given that the proceeds of a sale of the Collateral
securing the First Mortgage Notes would be sufficient to repay all of the First
Mortgage Notes upon acceleration. The aggregate appraised value as of September
1, 1994 of the four mills pledged as collateral securing the First Mortgage
Notes (the "Collateral Mills") as estimated by American Appraisal Associates,
Inc. (the "Consultant") is $695,000,000. The amount that might be realized from
the sale of the Collateral Mills may be materially less than its appraised
value. The appraisal is only the Consultant's estimate or opinion of the value
of the Collateral Mills and cannot be relied upon as a precise measure of its
value or worth or as an assurance that a buyer willing and able to buy the
Collateral Mills existed at the date of such appraisal or will exist at the time
of sale of the Collateral Mills. The Collateral Mills are valued in the
appraisal on the assumption that the assets comprising them would, upon sale,
remain at their present locations as part of the current operations. Currently,
the products manufactured at the Collateral Mills are utilized by the Company in
the production of corrugated containers at other facilities of the Company which
will be pledged to secure the indebtedness under the Credit Agreement. The
amount that the First Mortgage Note Trustee could obtain in connection with the
liquidation of the Collateral Mills could be less than would be obtained for the
Collateral Mills if they were sold together with facilities of the Company which
currently use their production. In addition, the appraisal reflects the
Consultant's estimate or opinion of the value of the Collateral Mills as of the
date of the appraisal and assumes that a sale would not be made under distress
conditions. Accordingly, the actual amount realized from a sale of the
Collateral Mills could be significantly reduced by adverse changes in market
conditions, the condition of the Collateral Mills or other factors affecting the
resale value of the Collateral Mills between the date of the appraisal and the
estimates, as the case may be, and such sale or if such sale took place under
distress conditions. See "The Collateral Under the First Mortgage Note Indenture
- -- Appraisal." Moreover, the value of the Collateral Mills, and the First
Mortgage Note Trustee's ability to foreclose upon and sell the Collateral Mills,
could be affected by environmental conditions existing at any of the Collateral
Mills, as well as capital expenditures required to comply with existing and
future environmental regulations. See "-- Environmental Matters" and "The
Collateral Under the First Mortgage Note Indenture -- Environmental
Considerations."

If the net proceeds received from the sale of the Collateral Mills (after
payment of any expenses of the sale and repayment of indebtedness secured by
Permitted Collateral Liens (see "Description of the Notes -- Additional First
Mortgage Note Indenture Definitions -- Permitted Collateral Liens") or other
liens on the Collateral Mills which might, in either case, have priority under
applicable law to the lien on the Collateral Mills in favor of the First
Mortgage Note Trustee) were insufficient to pay all amounts due on the First
Mortgage Notes, then holders of the First Mortgage Notes would (to the extent of
such insufficiency) only have an unsecured claim against any remaining
unencumbered assets of the Company (subject, in the case of subsidiaries of the
Company, to the claims of holders of indebtedness of each subsidiary). As a
result, there is a risk that holders of the First Mortgage Notes will receive
less than

19
<PAGE>
their investment upon any liquidation of the Company. Furthermore, the ability
of the First Mortgage Note Trustee to cause the Collateral Mills to be sold will
be delayed if the Company is the subject of any bankruptcy or receivership
proceedings. See "The Collateral under the First Mortgage Note Indenture --
Bankruptcy Considerations."

FUTURE ACCESS TO THE CAPITAL MARKETS

Giving effect to the Offering, the Company will have sold debt securities on
a number of occasions since July 1993 for total proceeds of approximately $1.8
billion and in February 1994 sold equity securities for total proceeds of
approximately $290 million. The recent issuance of a substantial amount of
securities may make it difficult, at least in the near future, for the Company
to access the capital markets for further financings and therefore may limit the
Company's sources for future liquidity.

LIMITED MARKET FOR NOTES

The Company will apply to list both the First Mortgage Notes and the Senior
Notes on the New York Stock Exchange. Nonetheless, it is likely that the First
Mortgage Notes and the Senior Notes will each have a limited trading market.
Certain of the Underwriters have indicated an intention initially to make a
market in the First Mortgage Notes and/or the Senior Notes as permitted by
applicable laws and regulations. No Underwriter, however, is obligated to make a
market in the First Mortgage Notes and/or the Senior Notes and any such market
making could be discontinued at any time at the sole discretion of such
Underwriter.

20
<PAGE>
COMPANY PROFILE

The following is the current profile of the Company's products, markets,
industry position, manufacturing facilities and 1993 production and shipment
figures:

<TABLE>
<CAPTION>
MANUFACTURING 1993 PRODUCTION &
MARKETS INDUSTRY POSITION FACILITIES SHIPMENTS
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
PAPERBOARD AND CONTAINERBOARD A broad range of Industry leader Production at 16 4.388 million
PAPER PACKAGING AND CORRUGATED manufacturers of mills short tons of
CONTAINERS consumable and containerboard
durable goods and Converting at 111 produced
other plants
manufacturers of 52.5 billion
corrugated square feet of
containers. corrugated
containers
shipped
KRAFT PAPER AND Supermarket Industry leader Production at 5 500 thousand
BAGS AND SACKS chains and other mills short tons of
retailers of kraft paper
consumable Converting at 18 produced
products. plants
Industrial and 613 thousand
consumer bags short tons of
sold to the food, paper bags and
agricultural, sacks shipped
chemical and
cement
industries, among
others.
BOXBOARD, FOLDING Manufacturers of A major position Production at 2 81 thousand short
CARTONS AND OTHER consumable goods, in Europe; a mills tons of boxboard
especially food, nominal position and other
beverage and in North America paperboard
tobacco products, produced
and other box Converting at 10
manufacturers. plants 92 thousand short
tons of folding
cartons and
partitions
shipped
WHITE PAPER AND NEWSPRINT Newspaper A major position Production at 5 1.312 million
PULP publishers and mills short tons
commercial produced
printers.
UNCOATED Producers of A major position Production at 2 461 thousand
GROUNDWOOD PAPER advertising mills short tons
materials, produced
magazines,
telephone
directories and
computer papers.
MARKET PULP Manufacturers of A major position Production at 6 733 thousand
paper products, mills short tons
including fine produced
papers,
photographic
papers, tissue
and newsprint.
WOOD PRODUCTS LUMBER, PLYWOOD Construction and A moderate Production at 17 581 million board
AND VENEER furniture position in North mills feet of lumber
industries. America produced
425 million
square feet of
plywood and
veneer produced
</TABLE>

21
<PAGE>
USE OF PROCEEDS

The net proceeds to the Company from the Offering, together with borrowings
under the Credit Agreement, will be used to (i) repay all of the outstanding
indebtedness under and terminate the 1989 Credit Agreement, (ii) repay all of
the outstanding indebtedness under and terminate the Savannah River Credit
Agreement and redeem the Savannah River Notes, (iii) purchase the 72,346
outstanding shares of Savannah River common stock not owned by the Company, (iv)
redeem the 425,243 outstanding shares of Savannah River Preferred not owned by
the Company, and (v) for general corporate purposes. Such net proceeds are
estimated to aggregate $ million.

The sources and uses of funds in connection with the Offering and the
Related Transactions are estimated to be as follows:

<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C>
Sources:
First Mortgage Notes......................................................... $
Senior Notes.................................................................
Credit Agreement
Term Loan..................................................................
Revolving Credit Facility(1)...............................................
Other(2).....................................................................
-------------
Total:......................................................................... $
-------------
-------------
Uses:
Repayment of 1989 Credit Agreement borrowings................................ $
Repayment of Savannah River Credit Agreement borrowings......................
Redemption of Savannah River Notes...........................................
Redemption of Savannah River Preferred.......................................
Repurchase of Savannah River Common Stock....................................
General corporate purposes(3)................................................
-------------
Total:......................................................................... $
-------------
-------------
<FN>
- ------------------------
(1) Commitment of $450 million (of which borrowing availability will be reduced
by any letter of credit commitments, of which approximately $61 million
will be outstanding at closing, and approximately $ million of borrowings
thereunder which will be borrowed at closing).
(2) Cash escrow relating to letters of credit released due to the repayment of
the 1989 Credit Agreement.
(3) Includes payment of fees and expenses relating to the Credit Agreement,
which are estimated to total $29 million and expenses relating to the
Offering (other than the Underwriters' discount) estimated to total $2
million.
</TABLE>

The 1989 Credit Agreement, which will be fully repaid with the proceeds from
the Offering and borrowings under the Credit Agreement, consists of two term
loan facilities, an additional term loan (the "Additional Term Loan") and two
revolving credit facilities. The final scheduled amortization payment with
respect to the term loan facilities and the Additional Term Loan are each due
March 1, 1997 and each of the revolving credit facilities matures on March 1,
1997.

The term loans (other than the Additional Term Loan) and the revolving
credit facilities under the 1989 Credit Agreement had weighted average interest
rates for the first six months of 1994 of 9.3% and 6.7%, respectively, and for
the year ended December 31, 1993 of 8.3% and 5.7%, respectively. The weighted
average interest rate on the Additional Term Loan was 6.8% for the first six
months of 1994 and 6.3% for the year ended December 31, 1993.

The Savannah River Credit Agreement consists of a term loan (of which $249.5
million was outstanding as of June 30, 1994) and a revolving credit facility (of
which no amount was outstanding as of June 30, 1994). The term loan requires
monthly amortization payments, and all outstanding loan amounts under the
Savannah River Credit Agreement are due on December 1, 1998. The weighted
average interest rate on the outstanding borrowings under the Savannah River
Credit Agreement were 7.0% and 8.4% for the first six months of 1994 and for the
year ended December 31, 1993, respectively.

The Savannah River Notes bear interest at 14 1/8% and mature December 15,
2000.

22
<PAGE>
CAPITALIZATION

The following table sets forth a summary of the short-term debt and
capitalization of the Company, on a consolidated basis at June 30, 1994, and as
adjusted to give effect to the Offering and the application of the estimated net
proceeds therefrom, and the Related Transactions.

<TABLE>
<CAPTION>
JUNE 30, 1994
------------------------------------
AS ADJUSTED FOR THE
OFFERING AND THE
ACTUAL RELATED TRANSACTIONS
------------ ---------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Short-term debt:
Current maturities of senior and subordinated long-term debt............... $ 18,057 $ 22,057(a)
Current maturities of debt of consolidated subsidiaries
(non-recourse to parent).................................................. 271,320 21,781(b)
------------ -----------
Total short-term debt.................................................. $ 289,377 $ 43,838
------------ -----------
------------ -----------
Long-term debt:
Senior debt:
1989 Credit Agreement (other than revolving credit facilities)............. $ 650,509 $ -- (c)
Credit Agreement (other than revolving credit facilities).................. -- 400,000
Revolving credit facilities................................................ 20,212 20,559(d)(e)
12 5/8% Senior Notes due July 15, 1998..................................... 150,000 150,000
11 7/8% Senior Notes due December 1, 1998.................................. 238,984 238,984
9 7/8% Senior Notes due February 1, 2001................................... 710,000 710,000
% First Mortgage Notes due 2002.......................................... -- 500,000
% Senior Notes due 2004.................................................. -- 200,000
4% - 11 5/8% fixed rate debt and other variable rate debt (including
capitalized lease obligations)............................................ 293,970 293,970
Obligations under accounts receivable securitization programs.............. 232,000 232,000
Less: Current maturities..................................................... (18,057) (22,057)(a)
------------ -----------
Total senior long-term debt................................................ 2,277,618 2,723,456
------------ -----------
Subordinated debt:
10 3/4% Senior Subordinated Notes due June 15, 1997........................ 150,000 150,000
11% Senior Subordinated Notes due August 15, 1999.......................... 125,000 125,000
11 1/2% Senior Subordinated Notes due September 1, 1999.................... 230,000 230,000
10 3/4% Senior Subordinated Debentures due April 1, 2002................... 199,146 199,146
8 7/8% Convertible Senior Subordinated Notes due July 15, 2000............. 248,558 248,558
12 1/8% Subordinated Debentures due September 15, 2001(f).................. 91,902 91,902
6 3/4% Convertible Subordinated Debentures due February 15, 2007........... 115,000 115,000
Less: Current maturities..................................................... 0 0
------------ -----------
Total subordinated long-term debt.......................................... 1,159,606 1,159,606
------------ -----------
Debt of consolidated subsidiaries (non-recourse to parent)................... 928,334 549,724(g)
Less: Current maturities..................................................... (271,320) (21,781)(b)
------------ -----------
Total long-term debt of consolidated subsidiaries (non-recourse to
parent)................................................................... 657,014 527,943
------------ -----------
Total long-term debt....................................................... 4,094,238 4,411,005
------------ -----------
Redeemable preferred stock of consolidated affiliate......................... 42,314 -- (h)
------------ -----------
Stockholders' equity:
$1.75 Series E Cumulative Convertible Exchangeable Preferred Stock
(4,600,000 shares, $25 per share liquidation preference).................. 114,983 114,983
Common Stock............................................................... 853,035 849,035(i)
Accumulated deficit........................................................ (72,753) (120,933)(j)
Foreign currency translation adjustment.................................... (197,385) (197,385)
Unamortized expense of restricted stock plan............................... (5,890) (5,890)
------------ -----------
Total stockholders' equity............................................. 691,990 639,810
------------ -----------
Total capitalization................................................... 4,828,542 5,050,815
------------ -----------
Total short-term debt and capitalization............................... $ 5,117,919 $ 5,094,653
------------ -----------
------------ -----------
<FN>
- --------------------------

(a) Reflects an additional $4.0 million associated with borrowings due under
the Credit Agreement.

(b) Reflects the repayment of $249.5 million of borrowings under the Savannah
River Credit Agreement.

23
<PAGE>

<TABLE>
<S> <C>
(d) Reflects the repayment of outstanding borrowings of $20.2 million under the
revolving credit facility of the 1989 Credit Agreement.

(e) Reflects initial borrowings of $20.6 million under the revolving credit
facility under the Credit Agreement. These borrowings are net of $34.1
million of cash escrow released due to the repayment of the 1989 Credit
Agreement and $7.7 million of Savannah River's cash balance at June 30,
1994.
(f) Obligations of Stone-Southwest, Inc., a wholly owned subsidiary of the
Company.

(g) Reflects the repayment of $249.5 million of borrowings under the Savannah
River Credit Agreement as described in Note (b) and the $129.1 million
repayment of the Savannah River Notes.

(h) Reflects the redemption of the Savannah River Preferred not owned by the
Company, which will occur on or before December 30, 1994.
(i) Reflects a charge to common stock of $4.0 million associated with the
redemption of the Savannah River Preferred not owned by the Company, which
will occur on or before December 30, 1994.
(j) Reflects an extraordinary loss from the early extinguishment of debt of
$48.1 million, net of income tax benefit, pertaining to the write-off of
unamortized deferred debt issuance costs related to the debt being repaid
in Notes (b), (c), (d) and (g), and costs associated with the redemption of
the Savannah River Notes.
</TABLE>

24
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA

The following selected Statement of Operations and Balance Sheet Data for
the five years ended December 31, 1993 has been derived from, and should be read
in conjunction with, the related audited consolidated financial statements and
accompanying notes of the Company. The audit report relating to the Company's
1993 consolidated financial statements contains an explanatory paragraph
referring to certain liquidity matters discussed in Notes 11 and 18 to the
Company's 1993 consolidated financial statements included elsewhere in this
Prospectus. The selected financial data for the six months ended June 30, 1994
and June 30, 1993 have been derived from the unaudited consolidated financial
statements for the quarters ended June 30, 1994 and 1993 included elsewhere in
this Prospectus. The summary financial data do not purport to be indicative of
the Company's future results of operations or financial position.

<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
---------------------------- ----------------------------------------------------------------------------
1994 1993 1993 1992(A) 1991 1990 1989(B)
------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS)
STATEMENT OF
OPERATIONS
DATA:
Net sales..... $ 2,645,150 $ 2,573,909 $ 5,059,579 $ 5,520,655 $ 5,384,291 $ 5,755,858 $ 5,329,716
Cost of
products
sold......... 2,183,989 2,120,535 4,223,444 4,473,746 4,287,212(c) 4,421,930 3,893,842
Selling,
general and
administrative
expenses..... 270,462 267,325 512,174 543,519 522,780 495,499 474,438
Depreciation
and
amortization... 177,749 175,907 346,811 329,234(c) 273,534(c) 257,041 237,047
Income (loss)
before
interest
expense,
income taxes,
minority
interest,
extraordinary
loss and
cumulative
effects of
accounting
changes...... 32,504 6,746 (36,598) 162,107 385,113 615,736 826,542
Interest
expense...... 224,259 204,055 426,726 386,122 397,357 421,667 344,693
Income (loss)
before income
taxes,
minority
interest,
extraordinary
loss and
cumulative
effects of
accounting
changes...... (191,755) (197,309) (463,324) (224,015) (12,244) 194,069 481,849
Extraordinary
loss from
early
extinguishment
of debt (net
of income tax
benefit)..... (16,782) -- -- -- -- -- --
Cumulative
effect of
change in
accounting
for
postemployment
benefits (net
of income tax
benefit)..... (14,189) -- -- -- -- -- --
Cumulative
effect of
change in
accounting
for
post-retirement
benefits (net
of income tax
benefit)..... -- (39,544) (39,544) -- -- -- --
Cumulative
effect of
change in
accounting
for income
taxes........ -- -- -- (99,527) -- -- --
Net income
(loss)....... (160,648) (173,780) (358,729) (269,437) (49,149) 95,420 285,828
Income (loss)
per common
share before
extraordinary
loss and
cumulative
effects of
accounting
changes...... (1.55) (1.94) (4.59) (2.49)(d) (.78)(d) 1.56(d) 4.67(d)
Net income
(loss) per
common
share........ (1.92) (2.50) (5.15) (3.89)(d) (.78)(d) 1.56(d) 4.67(d)
Ratio of
earnings to
fixed
charges...... (e) (e) (e) (e) (e) 1.2 2.0
Dividends paid
per common
share (d).... -- -- -- $ 0.35 $ 0.71 $ 0.71 $ 0.70
Average common
shares
outstanding.. 85,960 71,150 71,163 70,987(d) 63,207(d) 61,257(d) 61,223(d)
BALANCE SHEET
DATA (AT END OF
PERIOD):
Working
capital...... $ 823,904 $ 121,626 $ 809,504 $ 756,964 $ 770,457 $ 439,502 $ 614,433
Property,
plant and
equipment --
net.......... 3,281,898 3,499,603 3,386,395 3,703,248 3,520,178 3,364,005 2,977,860
Goodwill...... 875,855 945,859 910,534 983,499 1,126,100 1,160,516 1,089,817
Total
assets....... 6,688,380 6,829,103 6,836,661 7,026,973 6,902,852 6,689,989 6,253,708
Long-term
debt......... 4,094,238(f) 3,586,569(f) 4,268,277(f) 4,104,982(f) 4,046,379(f) 3,680,513(f) 3,536,911(f)
Stockholders'
equity....... 691,990 896,274 607,019 1,102,691 1,537,543 1,460,487 1,347,624
OTHER DATA:
Net cash
provided by
(used in)
operating
activities... $ (98,251) $ (1,990) $ (212,685) $ 85,557 $ 210,498 $ 451,579(c) $ 315,196(c)
Capital
expenditures... 66,258(g) 63,497(g) 149,739(g) 281,446(g) 430,131(g) 551,986(g) 501,723(g)
Paperboard,
paper and
market pulp:
Produced
(thousand
tons)...... 3,892 3,698 7,475 7,517 7,365 7,447 6,772
Converted
(thousand
tons)...... 2,185 2,169 4,354 4,373 4,228 4,241 3,930
Corrugated
shipments
(billion sq.
ft.)......... 26.2 26.2 52.48 51.67 49.18 47.16 41.56
<FN>
- ----------------------------------
(a) Restated to reflect the adoption of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" retroactive to January 1,
1992.
(b) The Company acquired Stone Canada in 1989.
(c) Adjusted to conform with the current financial statement presentation.
(d) Amounts per common share and average common shares outstanding have been
adjusted to reflect a 2% Common Stock dividend issued September 15, 1992.
(e) The Company's earnings for the six months ended June 30, 1994 and 1993 and
the years ended December 31, 1993, 1992 and 1991 were insufficient to cover
fixed charges by $193.1 million and $203.2 million and $466.5 million,
$270.1 million and $94.6 million, respectively.
(f) Includes approximately $657.0 million and $551.8 million as of June 30,
1994 and 1993, respectively, and $672.6 million, $574.8 million, $573.3
million, $471.2 million and $267.2 million as of December 31, 1993, 1992,
1991 and 1990 and 1989, respectively, of long-term debt of certain
consolidated subsidiaries that is non-recourse to the parent.
(g) Includes approximately $5.0 million and $7.3 million for the six months
ended June 30, 1994 and 1993, respectively, and $14.6 million, $79.1
million, $219.8 million, $245.2 million and $36.8 million for 1993, 1992,
1991, 1990 and 1989, respectively, of expenditures financed through project
financings.
</TABLE>

25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with the
audited consolidated financial statements of the Company and the notes thereto
included elsewhere in this Prospectus.

GENERAL

The Company's major products are containerboard and corrugated containers,
newsprint and market pulp. The markets for these products are highly competitive
and sensitive to changes in industry capacity and cyclical changes in the
economy, both of which can significantly impact selling prices and the Company's
profitability. From 1990 through the third quarter of 1993, the Company
experienced substantial declines in the pricing of most of its products. Market
conditions have improved since October 1993, which has allowed the Company to
increase prices for most of its products. While prices for the Company's
products are approaching the historical high prices achieved during the peak of
the last industry cycle, the Company's production costs (including labor, fiber
and energy), as well as its interest expense, have also significantly increased
since the last pricing peak in the industry, increasing pressure on the
Company's net margins for its products. In recent years, price changes have had
a greater impact on the Company's sales and profitability than changes in sales
volume. The Company believes that near term market conditions may permit the
Company to realize further improved product pricing for most of its product
lines. However, there is no assurance any such price increases will be achieved
or that current prices can be maintained. See "Financial Condition and Liquidity
- -- Outlook."

Due to industry conditions during the past few years and due principally to
depressed product prices and significant interest costs attributable to its
highly leveraged capital structure, the Company incurred net losses in each of
the last three years and for the first half of 1994 and expects to incur a net
loss for the 1994 fiscal year. Such net losses have significantly impaired the
Company's liquidity and available sources of liquidity and will continue to
adversely affect the Company. Unless the Company achieves and maintains
increased selling prices beyond current levels, the Company will continue to
incur net losses and will not generate sufficient cash flows to meet fully the
Company's debt service requirements in the future. See "Financial Condition and
Liquidity" for further details.

26
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1994 COMPARED WITH THREE MONTHS AND
SIX MONTHS ENDED JUNE 30, 1993
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
---------------------------------------------
1994 1993
--------------------- ---------------------
PERCENT PERCENT
OF OF
(DOLLARS IN MILLIONS) AMOUNT NET SALES AMOUNT NET SALES
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales....................................................................... $ 1,354.3 100.0% $ 1,267.6 100.0%
Cost of products sold........................................................... 1,116.9 82.5 1,050.3 82.9
Selling, general and administrative expenses.................................... 136.9 10.1 131.3 10.4
Depreciation and amortization................................................... 88.5 6.5 88.8 7.0
Equity loss from affiliates..................................................... 1.5 .1 1.7 .1
Other net operating (income) expense............................................ (28.5) (2.1) 2.3 .1
--------- --------- --------- ---------
Income (loss) from operations................................................... 39.0 2.9 (6.8) (.5)
Interest expense................................................................ (110.7) (8.2) (101.8) (8.0)
Other, net...................................................................... 1.0 .1 .3 --
--------- --------- --------- ---------
Loss before income taxes, minority interest, extraordinary loss and cumulative
effects of accounting changes.................................................. (70.7) (5.2) (108.3) (8.5)
Credit for income taxes......................................................... (20.0) (1.4) (37.7) (3.0)
Minority interest............................................................... (.1) -- (1.0) (.1)
--------- --------- --------- ---------
Loss before extraordinary loss and cumulative effects of accounting changes..... (50.8) (3.8) (71.6) (5.6)
Extraordinary loss from early extinguishment of debt............................ -- -- -- --
Cumulative effect of change in accounting for postemployment benefits........... -- -- -- --
Cumulative effect of change in accounting for postretirement benefits........... -- -- -- --
--------- --------- --------- ---------
Net loss........................................................................ $ (50.8) (3.8) $ (71.6) (5.6)
--------- --------- --------- ---------
--------- --------- --------- ---------

SIX MONTHS ENDED JUNE 30,
---------------------------------------------
1994 1993
--------------------- ---------------------
PERCENT PERCENT
OF OF
(DOLLARS IN MILLIONS) AMOUNT NET SALES AMOUNT NET SALES
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales....................................................................... $ 2,645.1 100.0% $ 2,573.9 100.0%
Cost of products sold........................................................... 2,184.0 82.6 2,120.5 82.5
Selling, general and administrative expenses.................................... 270.5 10.2 267.3 10.4
Depreciation and amortization................................................... 177.7 6.7 175.9 6.8
Equity loss from affiliates..................................................... 5.7 .2 3.6 .1
Other net operating (income) expense............................................ (33.4) (1.2) 2.9 .1
--------- --------- --------- ---------
Income from operations.......................................................... 40.6 1.5 3.7 .1
Interest expense................................................................ (224.3) (8.5) (204.1) (7.9)
Other, net...................................................................... (8.1) (.3) 3.1 .1
--------- --------- --------- ---------
Loss before income taxes, minority interest, extraordinary loss and cumulative
effects of accounting changes.................................................. (191.8) (7.3) (197.3) (7.7)
Credit for income taxes......................................................... (60.0) (2.3) (64.6) (2.5)
Minority interest............................................................... 2.1 .1 (1.6) --
--------- --------- --------- ---------
Loss before extraordinary loss and cumulative effects of accounting changes..... (129.7) (4.9) (134.3) (5.2)
Extraordinary loss from early extinguishment of debt (net of $9.8 income tax
benefit)....................................................................... (16.8) (.7) -- --
Cumulative effect of change in accounting for postemployment benefits (net of
$9.5 income tax benefit)....................................................... (14.2) (.5) -- --
Cumulative effect of change in accounting for postretirement benefits (net of
$23.3 income tax benefit)...................................................... -- -- (39.5) (1.5)
--------- --------- --------- ---------
Net loss........................................................................ $ (160.7) (6.1) $ (173.8) (6.7)
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>

27
<PAGE>
The net loss for the second quarter of 1994 was $50.8 million or $.58 per
share of common stock, compared to a net loss of $71.6 million or $1.03 per
share of common stock for the second quarter of 1993.

For the six months ended June 30, 1994, the loss before the extraordinary
loss from the early extinguishment of debt and the cumulative effect of a change
in the accounting for postemployment benefits ("SFAS 112"), was $129.7 million,
or $1.55 per share of common stock. The Company recorded in the 1994 first
quarter an extraordinary loss from the early extinguishment of debt of $16.8
million, net of income tax benefit, or $.20 per share of common stock and a
one-time, non-cash cumulative effect charge of $14.2 million, net of income tax
benefit, or $.17 per share of common stock from the adoption of SFAS 112,
resulting in a net loss for the six months ended June 30, 1994 of $160.7
million, or $1.92 per share of common stock. For the six months ended June 30,
1993, the loss before the cumulative effect of a change in the accounting for
postretirement benefits other than pensions ("SFAS 106") was $134.3 million, or
$1.94 per share of common stock. The adoption of SFAS 106 resulted in a
one-time, non-cash cumulative effect charge of $39.5 million, net of income tax
benefit, or $.56 per share of common stock, resulting in a net loss of $173.8
million or $2.50 per share of common stock.

Income from operations increased $45.8 million and $36.9 million for the
three months and six months ended June 30, 1994, respectively, over the
comparable prior year periods. These increases primarily reflect improved
product pricing, particularly for market pulp, and a $22 million pretax
involuntary conversion gain associated with a digester rupture at the Company's
Panama City, Florida pulp and paperboard mill which more than offset an increase
in recycled fiber costs of approximately $20 million and $24 million for the
three and six months ended June 30, 1994. Substantially offsetting the
improvement in operating earnings for these periods, however, were higher
interest expense and a decrease in the credit for income taxes. Additionally,
the first half of 1994 reflected a $10.7 million increase in foreign currency
transaction losses which further offset the improved operating earnings for the
six months ended June 30, 1994 over the first half of 1993.

PAPERBOARD AND PAPER PACKAGING:

Net sales for the three and six months ended June 30, 1994 for the
paperboard and paper packaging segment increased 3.4% and 0.7%, respectively,
over the comparable prior year periods. Net sales for 1993 included sales for
the Company's European folding carton operations, which in the early part of
1993 were merged into a joint venture and, accordingly, are now accounted for
under the equity method of accounting. Sales from these operations were
approximately $16 million and $60 million for the second quarter and first six
months of 1993. Excluding the effect of the folding carton operations, sales for
the second quarter and first six months of 1994 increased 5.1% and 3.9%,
respectively, from the prior year periods reflecting increased sales of
paperboard, corrugated containers and paper bags and sacks. The sales increases
for paperboard and paper bags and sacks reflect higher sales volumes which more
than offset lower average selling prices. The sales increases for corrugated
containers reflect higher average selling prices, particularly during the 1994
second quarter, and increased sales volume. Kraft paper sales were virtually
unchanged from the prior year periods.

Shipments of corrugated containers, including the Company's proportional
share of the shipments by its foreign affiliates, were 13.3 billion square feet
for both the second quarter of 1994 and 1993. For the first six months of 1994
and 1993, the Company shipped 26.2 billion square feet of corrugated containers.
The 1993 shipments include 49% of the shipments by its previously owned
non-consolidated affiliate Empaques de Carton Titan, S.A. ("Titan"). The Company
sold its 49% equity interest in Titan in December 1993. Excluding shipments from
Titan, the Company's shipments of corrugated containers for the second quarter
and first six months of 1994 increased 472 million square feet, or 3.7% and 954
million square feet, or 3.8%, respectively, over the comparable 1993 periods.
Shipments of paper bags and sacks were 163 thousand tons and 322 thousand tons
for the three and six month periods ended June 30, 1994, respectively, compared
with 144 thousand tons and 303 thousand tons shipped during the comparable 1993
periods.

28
<PAGE>
Production of containerboard and kraft paper for the three and six month
periods ended June 30, 1994, including 100% of the production at Seminole and
Savannah River, was 1.29 million tons and 2.58 million tons, respectively,
compared to 1.21 million tons and 2.41 million tons produced during the
comparable prior year periods. Excluding the proportional share of the 1993
production of Titan, production of containerboard and kraft paper for the three
and six month periods ended June 30, 1994, increased 100 thousand tons or 8.4%
and 198 thousand tons, or 8.3%, respectively compared to the prior year periods.

Operating income for the paperboard and paper packaging segment increased
2.1% for the three months ended June 30, 1994 and decreased 7.7% for the six
months ended June 30, 1994, as compared to the corresponding 1993 periods.
Operating income for the second quarter and first half of 1994 include a pretax
gain of approximately $11.0 million which represents the segment's portion of
the previously mentioned involuntary conversion gain relating to a digester
rupture at the Company's Panama City, Florida pulp and paperboard mill.
Excluding this gain, operating income for the second quarter and first half of
1994 would have decreased approximately 19% and 17%, respectively. These
decreases were mainly attributable to reduced operating margins primarily
resulting from low average selling prices for the Company's paperboard and paper
packaging products and higher recycled fiber costs.

WHITE PAPER AND PULP:

Net sales for the second quarter and first half of 1994 for the white paper
and pulp segment increased 15.5% and 8.9%, respectively, compared to the prior
year periods, primarily due to a significant increase in market pulp sales.
Increased sales of newsprint, particularly during the second quarter of 1994
also contributed to the sales increases for this segment. The sales increases
for market pulp mainly resulted from significantly higher average selling
prices, particularly during the second quarter of 1994. Additionally, while 1994
second quarter market pulp sales volume was virtually unchanged from that of the
corresponding prior year period, the significant volume increase for the first
quarter of 1994 contributed to the increased market pulp sales for the first
half of 1994 over the comparable 1993 period. The sales increases for newsprint
for the second quarter and first half of 1994 over the comparable 1993 periods
primarily resulted from increased sales volume.

Production of newsprint, market pulp and groundwood paper for the three and
six month periods ended June 30, 1994, including 100% of the production at
Stone-Consolidated Corporation, the Company's 75% owned Canadian subsidiary, and
25% of the production at the Company's Celgar mill in British Columbia, was 600
thousand tons and 1.27 million tons, respectively, compared with 607 thousand
tons and 1.25 million tons produced during the comparable prior year periods.

Operating losses for the second quarter and first half of 1994 for the white
paper and pulp segment decreased 81.6% and 46.7%, respectively, from the
previous year periods. These decreases are mainly attributable to improved
operating margins primarily resulting from the higher average selling prices for
market pulp and a pre-tax gain of approximately $11 million which represents the
segment's portion of the previously mentioned involuntary conversion gain
relating to a digester rupture at the Company's Panama City, Florida pulp and
paperboard mill.

OTHER:

Net sales for the second quarter and first half of 1994 for the other
segment increased over the comparable 1993 periods primarily as a result of
increased sales volume and higher average selling prices for the Company's
Canadian lumber and wood products. The increase in operating income for the
second quarter and first half of 1994 over the 1993 periods mainly reflect a
gain from the sale of certain non-core assets. Shortages of timber available to
be harvested due to environmental concerns in the Pacific Northwest continue to
keep raw material costs high for this segment.

29
<PAGE>
Comparative Results of Operations

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
1993 1992 1991
------------------------ ------------------------ ------------------------
PERCENT PERCENT PERCENT
OF NET OF NET OF NET
AMOUNT SALES AMOUNT SALES AMOUNT SALES
----------- ----------- ----------- ----------- ----------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Net sales............................................ $ 5,060 100.0% $ 5,521 100.0% $ 5,384 100.0%
Cost of products sold................................ 4,223 83.5 4,474 81.0 4,287 79.6
Selling, general and administrative expenses......... 512 10.1 544 9.9 523 9.7
Depreciation and amortization........................ 347 6.9 329 6.0 273 5.1
Equity (income) loss from affiliates................. 12 .2 5 .1 (1)
Other net operating (income) expense................. 5 .1 13 .2 (63) (1.2)
----------- ----------- ----------- ----------- ----------- -----------
Income (loss) from operations........................ (39) (.8) 156 2.8 365 6.8
Interest expense..................................... (427) (8.4) (386) (6.9) (397) (7.4)
Other, net........................................... (1) -- 1 -- 14 .3
----------- ----------- ----------- ----------- ----------- -----------
Loss before income taxes and cumulative effects of
accounting changes.................................. (467) (9.2) (229) (4.1) (18) (.3)
Provision (credit) for income taxes.................. (148) (2.9) (59) (1.0) 31 .6
----------- ----------- ----------- ----------- ----------- -----------
Loss before cumulative effects of accounting
changes............................................. (319) (6.3) (170) (3.1) (49) (.9)
Cumulative effect of change in accounting for
postretirement benefits............................. (40) (.8) -- -- -- --
Cumulative effect of change in accounting for income
taxes............................................... -- -- (99) (1.8) -- --
----------- ----------- ----------- ----------- ----------- -----------
Net loss............................................. $ (359) (7.1) $ (269) (4.9) $ (49) (.9)
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
</TABLE>

YEAR ENDED DECEMBER 31, 1993 COMPARED WITH YEAR ENDED DECEMBER 31, 1992

Net sales for 1993 were $5.1 billion, a decrease of 8.4% from 1992 net sales
of $5.5 billion. Net sales decreased as a result of both reduced sales volume
and lower average selling prices for most of the Company's products. In 1993,
the Company incurred a loss before the cumulative effect of a change in the
accounting for postretirement benefits other than pensions of $319 million, or
$4.59 per common share. The Company adopted SFAS 106 effective January 1, 1993,
and recorded a one-time, non-cash cumulative effect charge of $39.5 million net
of income taxes or $.56 per common share, resulting in a net loss of $359
million or $5.15 per common share. In 1992, the Company incurred a loss before
the cumulative effect of a change in the accounting for income taxes of $170
million, or $2.49 per common share. The adoption of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"),
effective January 1, 1992, required a one-time, non-cash cumulative effect
charge of $99.5 million, or $1.40 per common share, resulting in a net loss of
$269 million or $3.89 per common share. The increase in the loss before the
cumulative effects of accounting changes primarily resulted from lower average
selling prices for most of the Company's products.

The 1993 results included a $35.4 million pretax gain from the sale of the
Company's 49% equity interest in Titan and the favorable effect of a reduction
in an accrual relating to a change in the Company's vacation pay policy. The
earnings impact of these non-recurring items was partially offset by the
writedown of the carrying values of certain Company assets. The 1993 results
also reflect both an increase in interest expense, primarily associated with a
reduction in capitalized interest caused by completion of capital projects, and
foreign currency transaction losses of $11.8 million. The 1992 results included
foreign currency transaction losses of $15.0 million and an $8.8 million pretax
charge relating to the writedown of investments. The Company recorded an income
tax benefit of $147.7 million in 1993 as compared with an income tax benefit of
$59.4 million in 1992. The increase in the income tax benefit primarily reflects
the tax effect associated with the increased pretax loss for 1993 over 1992.
Additionally, deferred income taxes were provided for the retroactive increase
in the U.S. federal income tax rate, which was more than offset by the effects
of an enacted decrease in German and Canadian income tax rates. The Company's
effective income tax rates for both years reflect the impact of non-deductible
depreciation and amortization.

30
<PAGE>
Segment Data

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------
1993 1992
------------------------- -------------------------
INCOME (LOSS) INCOME (LOSS)
BEFORE INCOME BEFORE INCOME
TAXES AND TAXES AND 1991
CUMULATIVE CUMULATIVE -------------------------
EFFECT OF AN EFFECT OF AN INCOME (LOSS)
ACCOUNTING ACCOUNTING BEFORE INCOME
NET SALES CHANGE NET SALES CHANGE NET SALES TAXES
--------- ------------- --------- ------------- --------- -------------
(IN MILLIONS)

<S> <C> <C> <C> <C> <C> <C>
Paperboard and paper
packaging.......... $3,810 $ 206 $4,186 $ 322 $4,038 $ 356
White paper and
pulp............... 965 (194) 1,078 (87) 1,116 84
Other............... 331 37 303 12 275 (6)
Intersegment........ (46) -- (46) -- (45) --
--------- ------ --------- ------ --------- ------
5,060 49 5,521 247 5,384 434
Interest expense.... (427) (386) (398)
Foreign currency
transaction gains
(losses)........... (12) (15) 5
General corporate
and miscellaneous
(net).............. (77) (75) (59)
--------- ------ --------- ------ --------- ------
Total........... $5,060 $(467) $5,521 $(229) $5,384 $ (18)
--------- ------ --------- ------ --------- ------
--------- ------ --------- ------ --------- ------
</TABLE>

Segment and Product Line Sales Data

<TABLE>
<CAPTION>
NET SALES PERCENTAGE CHANGE
---------------------- -------------------------------------
YEAR ENDED DECEMBER 1993 VS 1992 1992 VS 1991
31, ----------------- -----------------
---------------------- SALES SALES SALES SALES
1993 1992 1991 REVENUE VOLUME REVENUE VOLUME
------ ------ ------ ------- ------- ------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
Paperboard and paper
packaging:
Corrugated
containers....... $2,155 $2,234 $2,094 (3.5)% 1.4% 6.7% 4.1%
Paperboard and
kraft paper...... 901 1,032 996 (12.7) (5.1) 3.6 1.3
Paper bags and
sacks............ 579 634 677 (8.7) (11.0) (6.4) (6.3)
Folding cartons... 60 178 166 (66.3) nm 7.2 .1
Other............. 115 108 105 6.5 nm 2.9 nm
------ ------ ------
Total
paperboard
and paper
packaging.... 3,810 4,186 4,038 (9.0) nm 3.7 nm
------ ------ ------
White paper and
pulp:
Newsprint......... 527 538 660 (2.0) .8 (18.5) (2.5)
Market pulp....... 187 312 229 (40.0) (8.4) 36.2 30.3
Groundwood
paper............ 243 219 227 11.0 19.4 (3.5) 9.8
Other............. 8 9 -- (11.1) nm nm nm
------ ------ ------
Total white
paper and
pulp......... 965 1,078 1,116 (10.5) nm (3.4) nm
------ ------ ------
Other............... 331 303 275 9.2 nm 10.2 nm
Intersegment........ (46) (46) (45) -- nm 2.2 nm
------ ------ ------
Total net
sales........ $5,060 $5,521 $5,384 (8.4) nm 2.5 nm
------ ------ ------
------ ------ ------
<FN>
- ------------------------------
nm = not meaningful
</TABLE>

PAPERBOARD AND PAPER PACKAGING:

The 1993 net sales for the paperboard and paper packaging segment decreased
9.0% compared to 1992. This decrease was due in part to the exclusion of sales
for the Company's European folding carton operations which in the early part of
1993 were merged into a joint venture and accordingly are now accounted for
under the equity method of accounting. Sales from these operations were
approximately $178 million in 1992. Sales for 1993 were approximately $60
million prior to the merger in May 1993. Excluding the effect of the folding
carton operations, 1993 net sales for the paperboard and paper packaging segment
decreased 6.4%.

31
<PAGE>
Net sales of corrugated containers decreased 3.5% from 1992 primarily due to
lower average selling prices in 1993 which more than offset a slight increase in
sales volume. Net sales of paperboard decreased 11.9% from 1992 as a result of
significantly lower average selling prices and declines in sales volume. Net
sales of kraft paper decreased 28.0% from 1992, primarily due to reduced sales
volume.

Net sales for paper bags and sacks decreased from 1992 primarily due to
lower sales volume and a decrease in average selling prices for retail paper
bags which more than offset a modest increase in average selling prices for
industrial paper bags.

Operating income for the paperboard and paper packaging segment for 1993
decreased 35.9% from 1992 due to significantly lower operating margins,
primarily resulting from the lower average selling prices for corrugated
containers and containerboard. Operating income for this segment includes the
previously mentioned $35.4 million pretax gain from the sale of Titan and a
favorable effect of a reduction in an accrual resulting from a change in the
Company's vacation policy. The earnings impact from these non-recurring items
was partially offset by the writedowns of the carrying values of certain Company
assets.

WHITE PAPER AND PULP:

The 1993 net sales for the white paper and pulp segment decreased 10.5%, as
a significant sales decline for market pulp more than offset a sales increase
for uncoated groundwood paper. The sales decline for market pulp was primarily
attributable to significantly lower average selling prices which deteriorated
further in 1993 from the low average selling prices of 1992. Reduced sales
volume in 1993 also contributed to the lower market pulp sales. Newsprint sales
declined slightly in 1993 compared to 1992, primarily as a result of unfavorable
foreign exchange translation effects attributable to the stronger U.S. dollar,
which more than offset the benefits of higher average selling prices and a
slight volume increase. Net sales for groundwood paper increased 11%, primarily
as a result of significant volume increases which more than offset the effects
of slightly lower average selling prices.

The operating loss for the white paper and pulp segment for 1993 increased
significantly over 1992 due to reduced operating margins primarily resulting
from the significantly lower average selling prices for market pulp. Slightly
lower average selling prices for groundwood paper also contributed to the
reduced earnings, although to a much lesser extent. While average selling prices
for newsprint in 1993 improved over the depressed levels of 1992 (although such
prices declined in the fourth quarter of 1993 and in the first quarter of 1994),
and certain cost reductions have been implemented, the margins associated with
such improvements have only partially offset the effects of the lower average
selling prices for market pulp and groundwood paper.

OTHER:

Net sales and operating income for the other segment increased over 1992
mainly due to improved demand and a reduced supply of timber available to the
U.S. building industry. This resulted in increased sales volume and the
realization of higher average selling prices for certain of the Company's lumber
and wood products. However, shortages of timber available to be harvested due to
environmental concerns in the Pacific Northwest continue to keep raw material
costs high.

YEAR ENDED DECEMBER 31, 1992 COMPARED WITH YEAR ENDED DECEMBER 31, 1991

Net sales for 1992 were $5.5 billion, an increase of 2.5% over 1991 net
sales of $5.4 billion. Net sales rose primarily as a result of increased sales
volume, most of which was offset by reduced average selling prices for certain
of the Company's products. In 1992, the Company incurred a loss before the
cumulative effect of a change in accounting for income taxes of $170 million, or
$2.49 per common share, compared to a loss of $49 million, or $.78 per common
share in 1991. The Company adopted SFAS 109, effective January 1, 1992, and
recorded a one-time, non-cash cumulative effect charge of $99.5 million or $1.40
per common share. All per share amounts have been adjusted to reflect a 2%
common stock dividend issued September 15, 1992. The increase in the loss before
the cumulative effect of a change in

32
<PAGE>
accounting for income taxes primarily resulted from lower average selling prices
for newsprint and groundwood paper in 1992 as compared with 1991. Additionally,
continued low average selling prices for the majority of the Company's other
products contributed to the net loss for 1992.

The 1992 results include foreign currency transaction losses of $15.0
million and an $8.8 million pretax charge relating to the writedown of
investments. The 1991 results included non-recurring pretax gains of $59.3
million and foreign currency transaction gains of $4.9 million. The Company
recorded an income tax benefit of $59.4 million in 1992 as compared with a $31.1
million income tax expense in 1991. This change primarily reflects the tax
effect associated with the increased pretax loss for 1992 over 1991. The
Company's effective income tax rates for both years reflect the impact of
non-deductible depreciation and amortization, together with taxes payable by
certain foreign subsidiaries at rates in excess of the U.S. statutory rate.

PAPERBOARD AND PAPER PACKAGING:

The 1992 net sales for the paperboard and paper packaging segment increased
3.7% as sales increases for corrugated containers, paperboard and folding
cartons more than offset sales declines for kraft paper and paper bags and
sacks.

Net sales of corrugated containers increased 6.7% over 1991, primarily as a
result of increased sales volume. Additionally, slightly higher average selling
prices in 1992 contributed to this increase. However, such selling prices
continued to remain at unsatisfactory levels.

Net sales of paperboard increased over 1991 mainly as a result of modestly
higher average selling prices. Such 1992 average paperboard selling prices were
still, however, at unsatisfactory levels. Slight volume increases also
contributed to the improved paperboard sales for 1992. Net sales of kraft paper
decreased 9.3% from 1991, primarily due to reduced sales volume.

Net sales of paper bags and sacks decreased from 1991 primarily due to lower
sales volume and a decrease in average selling prices for retail paper bags.

Operating income for the paperboard and paper packaging segment for 1992
decreased 9.5%, primarily as a result of the inclusion, in 1991, of a
non-recurring pretax gain of $17.5 million from an involuntary conversion
relating to a boiler explosion at the Company's Missoula, Montana linerboard
mill. Excluding this 1991 non-recurring item, 1992 operating income for this
segment would have decreased by 4.8%. This decrease is mainly attributable to
reduced operating margins resulting from continued low average selling prices
for the Company's paperboard and paper packaging products.

WHITE PAPER AND PULP:

The 1992 net sales for the white paper and pulp segment decreased 3.4%, as
significant sales decreases for newsprint more than offset a significant sales
increase for market pulp. The significant decrease in newsprint sales resulted
primarily from lower average selling prices. Additionally, reduced volume
associated with market-related downtime contributed to the lower sales of
newsprint. Net sales for groundwood paper decreased slightly as lower average
selling prices more than offset volume increases for this product. The increase
in 1992 market pulp sales mainly resulted from volume increases associated with
sales generated from the Savannah River mill, which commenced market pulp
operations in the fourth quarter of 1991. Furthermore, while market pulp selling
prices declined significantly in the fourth quarter of 1992, the Company
realized modestly higher average selling prices for this product in 1992, as
compared with the even more depressed average selling prices of 1991.

Operating income for the white paper and pulp segment for 1992 decreased
significantly from 1991, primarily due to reduced operating margins resulting
from the significantly lower average selling prices for newsprint and groundwood
paper. The 1991 results included a non-recurring pretax gain of $41.8 million
resulting from the settlement and termination of a Canadian supply contract.

OTHER:

Net sales and operating income for the other segment increased over 1991
mainly due to improved demand and a tighter supply of timber available to the
U.S. building industry. This resulted in increased

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<PAGE>
sales volume and the realization of higher average selling prices for certain of
the Company's lumber and wood products. However, shortages of timber due to
environmental concerns in the Pacific Northwest continued to keep raw material
costs high.

FINANCIAL CONDITION AND LIQUIDITY

The Company's working capital ratio was 1.9 to 1 at June 30, 1994 and at
December 31, 1993 and 1.8 to 1 at December 31, 1992. The Company's long-term
debt to total capitalization ratio was 75.3% at June 30, 1994, 75.9% at December
31, 1993 and 69.2% at December 31, 1992. Capitalization, for purposes of this
ratio, includes long-term debt (which includes debt of certain consolidated
affiliates which is non-recourse to the Company), deferred income taxes,
redeemable preferred stock, minority interest and stockholders' equity.

The Company's primary capital requirements consist of debt service and
capital expenditures, including capital investment for compliance with certain
environmental legislation requirements and ongoing maintenance expenditures and
improvements. After giving effect to the Offering and the Related Transactions,
the Company will continue to be highly leveraged. Other than the 1995 maturities
of Stone Financial Corporation and Stone Fin II Receivables Corporation (which
the Company currently plans to refinance), there will be no significant debt
amortization obligations until June 1997. However, the Company will continue to
incur substantial ongoing interest expense. The Company spent $149.7 million on
capital expenditures in 1993 and expects to spend approximately $190 million in
1994.

The Company intends to repay its outstanding indebtedness under and
terminate the 1989 Credit Agreement with the net proceeds of this Offering and
borrowings under the Credit Agreement. The Credit Agreement will consist of a
$400 million term loan and a $450 million revolving credit facility. The
revolving credit facility borrowing availability will be reduced by any letter
of credit commitments, of which approximately $61 million will be outstanding at
closing, and less approximately $ million which the Company will borrow at
closing. All indebtedness under the Credit Agreement will be secured by a
significant portion of the assets of the Company. The Credit Agreement is
expected to contain covenants that include, among other things, requirements to
maintain certain financial tests and ratios (including an indebtedness ratio and
a minimum interest coverage ratio) and certain restrictions and limitations,
including those on capital expenditures, changes in control, payment of
dividends, sales of assets, lease payments, investments, additional borrowings,
liens, repurchases or prepayment of certain indebtedness, guarantees of
indebtedness, mergers and purchases of stock and assets. The Credit Agreement is
also expected to contain cross-default provisions to the indebtedness of $10
million or more of the Company and certain subsidiaries, as well as
cross-acceleration provisions to the non-recourse debt of $10 million or more of
Stone-Consolidated, Seminole and SVCP. Additionally, the term loan portion of
the Credit Agreement will provide for mandatory prepayments from sales of
certain assets (other than the Collateral and the Bank Collateral pledged under
the Credit Agreement), certain debt financings and excess cash flows. All
mandatory and voluntary prepayments will be allocated against the term loan
amortizations in inverse order of maturity. Amortization amounts under the term
loan will be 0.5% of principal amount on each April 1 and October 1 for the
period from April 1, 1995 through April 1, 1999, 47.5% on October 1, 1999 and
48.0% on April 1, 2000. In addition, mandatory prepayments from sales of Bank
Collateral (unless substitute collateral has been provided) will be allocated
pro rata between the term loan and the revolving credit facility, and, to the
extent applied to repay the revolving credit facility, will permanently reduce
loan commitments thereunder.

The Credit Agreement limits, except in certain specific circumstances, any
further investments by the Company in Stone-Consolidated, Seminole and SVCP. As
of June 30, 1994, Seminole had $153.1 million in outstanding indebtedness
(including $115.1 million in secured indebtedness owed to bank lenders) and is
significantly leveraged. Pursuant to an output purchase agreement entered into
in 1986 with Seminole, the Company is obligated to purchase and Seminole is
obligated to sell all of Seminole's linerboard production. Seminole produces
100% recycled linerboard and is dependent upon an adequate supply of recycled
fiber, in particular OCC. Under the agreement, the Company paid fixed prices for
linerboard, which generally exceeded market prices, until June 3, 1994.
Thereafter, the

34
<PAGE>
Company is only obligated to pay market prices for the remainder of the
agreement. Because market prices for linerboard are currently less than the
fixed prices previously in effect under the output purchase agreement and due to
recent significant increases in the cost of recycled fiber, it is anticipated
that Seminole will not comply with certain financial covenants at September 30,
1994. Seminole's lenders under its credit agreement have agreed to grant waivers
and amendments with respect to such covenants for periods up to and including
June 30, 1995. There can be no assurance that the lenders will grant such
waivers or that Seminole will not require additional waivers in the future.
Furthermore, in the event that management determines that it is probable that
Seminole will not be able to comply with any covenant contained in the Seminole
credit agreement within twelve months after the waiver of a violation of such
covenant, then the debt under the Seminole credit agreement would be
reclassified as short-term debt under the provisions of Emerging Issues Task
Forces Issue No. 86-30 "Classification of Obligations When a Violation is Waived
By the Creditor." Depending upon the level of market prices and the cost and
supply of OCC, Seminole may need to undertake additional measures to meet its
debt service requirements (including covenants), including obtaining additional
sources of funds or liquidity, postponing or restructuring of debt service
payments or refinancing the indebtedness. In the event that such measures are
required and not successful, and such indebtedness is accelerated by the
respective lenders to Seminole, the lenders to the Company under the Credit
Agreement and various other of its debt instruments would be entitled to
accelerate the indebtedness owed by the Company.

There can be no assurance that the Company will be able to achieve and
maintain compliance with the prescribed financial ratio tests or other
requirements of the Credit Agreement. Failure to achieve or maintain compliance
with such financial ratio tests or other requirements under the Credit
Agreement, in the absence of a waiver or amendment, would result in an event of
default and could lead to the acceleration of the obligations under the Credit
Agreement. While the Company has successfully sought and received waivers and
amendments under its 1989 Credit Agreement on various occasions, if waivers or
amendments are requested by the Company under the Credit Agreement, there can be
no assurance that the new lenders under the Credit Agreement will grant such
requests. The failure to obtain any such waivers or amendments would reduce the
Company's flexibility to respond to adverse industry conditions and could have a
material adverse effect on the Company. See "Credit Agreement -- Covenants."

OUTLOOK:

Due to industry conditions during the past few years and due principally to
depressed product prices and significant interest costs attributable to the
Company's highly leveraged capital structure, the Company incurred net losses in
each of the last three years and for the first half of 1994 and expects to incur
a net loss for the 1994 fiscal year. Such net losses have significantly impaired
the Company's liquidity and available sources of liquidity and will continue to
adversely affect the Company. Unless the Company achieves and maintains price
increases with respect to paperboard and paper packaging products and
significant sustained price increases for white paper and pulp products, the
Company will continue to incur net losses and will not generate sufficient cash
flows to meet fully the Company's debt service requirements in the future.

35
<PAGE>

containers essential for the Company to realize substantial financial benefit
from linerboard and corrugating medium price increases. On August 5, 1994, the
Company announced to its customers an additional price increase of $40 per ton
for linerboard and $50 per ton for corrugating medium effective for the fourth
quarter of 1994. While there can be no assurance that prices will continue to
increase or even be maintained at present levels, the Company believes that the
supply/demand characteristics for linerboard, corrugating medium and corrugated
containers have improved which could allow for further price increases for these
product lines.

The Company has also implemented price increase in kraft paper and kraft
converted products. The Company increased prices for retail bags and sacks by 8%
on each of April 1, May 1 and July 1, 1994 and announced and began implementing
a further price increase of 10% effective September 1, 1994. In addition, the
Company has announced and began implementing on August 1, 1994 a $50 per ton
(approximately 8.6%) price increase for kraft paper.

Pricing conditions for market pulp, newsprint and uncoated groundwood paper
have been volatile in recent years. Additions to industry-wide capacity and
declines in demand for such products during the past three years led to
supply/demand imbalances that have contributed to depressed prices for these
products. In 1994, however, pricing for market pulp has improved substantially.
The Company has increased prices for various grades of market pulp by up to $260
per metric tonne since November 1993. According to industry publications, the
reported transaction price for SBHK was $370 per metric tonne as of the third
quarter of 1993 and $500-570 per metric tonne as of the second quarter of 1994.
On July 1, 1994, the Company implemented a further price increase of $70 per
metric tonne (approximately 12.2%). The Company has announced a further price
increase of $70 per metric tonne to be implemented in the fourth quarter. After
further declines in the first quarter of 1994, pricing for newsprint has also
recently improved. The Company increased newsprint prices in the second quarter
of 1994 by $48 per metric tonne in the eastern markets of North America and $41
per metric tonne in the western markets in North America and $41 per metric ton
in the eastern markets of North America and $48 per metric tonne in the western
markets of North America in the third quarter of 1994. According to industry
publications, the reported transaction price for newsprint in the eastern
markets of North America was $411 per metric tonne as of March 1, 1993 and $470
per metric tonne as of August 1, 1994. The benefit to the Company's cash flows
from such partial price recovery in newsprint is limited, however, because
Stone-Consolidated owns all of the Canadian and United Kingdom newsprint and
uncoated groundwood assets of the Company and the restrictive terms of
Stone-Consolidated's indebtedness will not permit Stone-Consolidated to provide
funds to the Company (whether by dividend, loan or otherwise) including from
cash generated from operations, if any, until certain financial covenants have
been satisfied. Such financial covenants have not been satisfied to date and are
not likely to be satisfied in 1994. There can be no assurances that such
financial covenants will be met in the future. To date, uncoated groundwood
papers have not achieved significant price increases. However, a further price
increase of approximately $48 per metric tonne has been announced for the fourth
quarter of 1994. While other producers have announced similar price increases
for market pulp and newsprint, there can be no assurance that such price
increases will be achieved as scheduled.

Although supply/demand balances appear favorable for most of the Company's
products, there can be no assurance that the above price increases will be
achieved or that prices can be maintained at the present levels.

36
<PAGE>
particular, is dependent upon a variety of factors over which the Company has no
control, including environmental and conservation regulations, natural
disasters, such as forest fires and hurricanes, and weather. In addition, recent
increased demand for the Company's products has resulted in greater demand for
raw materials which has recently translated into higher raw material prices.

The Company purchases or cuts a variety of species of timber from which the
Company utilizes wood fiber depending upon the product being manufactured and
each mill's geographic location. Despite this diversification, wood fiber prices
have increased substantially in 1994. A decrease in the supply of wood fiber,
particularly in the Pacific Northwest and the southeastern United States due to
environmental considerations, has caused, and will likely continue to cause,
higher wood fiber costs in those regions. In addition, the increase in demand
for products manufactured in whole or in part from recycled fiber has caused a
shortage of recycled fiber, particularly OCC used in the manufacture of premium
priced recycled containerboard and related products. The Company's paperboard
and paper packaging products use a large volume of recycled fiber. In 1993, the
Company processed approximately 1.9 million tons of recycled fiber. The Company
used approximately 1.25 million tons of OCC in its products in 1993. The Company
believes that the cost of OCC has risen from $55 per ton at June 30, 1993 to
$110 per ton as of September 1, 1994. While the Company has not experienced any
significant difficulty in obtaining wood fiber and recycled fiber in economic
proximity to its mills, there can be no assurances that this will continue to be
the case for any or all of its mills. In addition, there can be no assurance
that all or any part of increased fiber costs can be passed along to consumers
of the Company's products directly or in a timely manner.

Notwithstanding the improvements in the Company's liquidity and financial
flexibility which will result from the Offering and the execution and delivery
of the Credit Agreement, unless the Company achieves and maintains increased
selling prices beyond current levels, the Company will continue to incur net
losses and will not generate sufficient cash flows to meet fully the Company's
debt service requirements in the future. Without such price increases, the
Company may exhaust all or substantially all of its cash resources and borrowing
availability under the existing revolving credit facilities. In such event, the
Company would be required to pursue other alternatives to improve liquidity,
including further cost reductions, additional sales of assets, the deferral of
certain capital expenditures, obtaining additional sources of funds and/or
pursuing the possible restructuring of its indebtedness. There can be no
assurance that such measures, if required, would generate the liquidity required
by the Company to operate its business and service its indebtedness. As
currently scheduled, beginning in 1996 (assuming successful refinancing of the
two existing receivables programs) and continuing thereafter, the Company will
be required to make significant amortization payments on its existing
indebtedness which would require the Company to raise sufficient funds from
operations and/or other sources and/or refinance or restructure maturing
indebtedness. No assurance can be given that the Company will be successful in
doing so.

The Company will incur a charge for the write-off of previously unamortized
debt issuance costs, related to the debt being repaid, (approximately $45
million, net of income tax benefit) upon completion of the Offering and Related
Transactions. This non-cash charge will be recorded as an extraordinary loss
from the early extinguishment of debt in the Company's Consolidated Statements
of Operations and Retained Earnings (Accumulated Deficit).

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<PAGE>
CASH FLOWS FROM OPERATIONS:

The following table shows, for the first six months of 1993 and 1994 and for
the last three years, the net cash provided by (used in) operating activities:

<TABLE>
<CAPTION>
YEAR
SIX MONTHS ENDED
ENDED DECEMBER
JUNE 30, 31,
---------------- -------
1994 1993 1993 1992 1991
------ ------ ------- ------- ------
(IN MILLIONS)

<S> <C> <C> <C> <C> <C>
Net loss...................... $ (161) $ (174) $ (359) $ (269) $ (49)
Extraordinary loss from early
extinguishment of debt...... 17 -- -- -- --
Cumulative effect of change in
postemployment benefits..... 14 -- -- -- --
Cumulative effect of change in
accounting for
postretirement benefits..... -- 39 39 -- --
Cumulative effect of change in
accounting for income
taxes....................... -- -- -- 99 --
Depreciation and
amortization................ 178 176 347 329 274
Deferred taxes................ (64) (60) (134) (67) 22
Payment on settlement of
interest rate swaps......... -- -- (33) -- --
Decrease (increase) in
accounts and notes
receivable -- net........... (81) (3) 45 (67) 33
Decrease (increase) in
inventories................. 57 3 29 11 (60)
Decrease (increase) in other
current assets.............. (37) (9) (9) 9 (75)
Increase (decrease) in
accounts payable and other
current liabilities......... 21 26 (60) (35) 59
Other......................... (42) -- (78)(a) 76(b) 7
------ ------ ------- ------- ------
Net cash provided by (used in)
operating activities........ $ (98) $ (2) $ (213) $ 86 $ 211
------ ------ ------- ------- ------
------ ------ ------- ------- ------
<FN>
- ------------------------
(a) Includes debt issuance costs of $84 million and an adjustment to remove the
effect of a $35 million gain from the sale of the Company's 49% equity
interest in Titan, partially offset by adjustments to remove the effects of
amortization of deferred debt issuance costs and a non-cash charge of $19
million pertaining to the writedown of certain decommissioned assets.
(b) Includes $54 million of cash received from the sale of an energy contract
in October 1992.
</TABLE>

The results of operations for the first six months of 1994 and 1993 and the
years 1991 through 1993 have had a significant adverse impact on the Company's
cash flow. Borrowings in the first six months of 1994 and 1993 and the years
1991, 1992 and 1993 have increased to meet cash flow needs.

During 1993 and in the first six months of 1994, the Company entered into
various financing and investing activities designed to provide liquidity and
enhance financial flexibility. See "Financing activities" and "Investing
activities."

The decrease in cash flows for the first six months of 1994 compared to the
first six months of 1993 resulted primarily from an increase in debt issuance
cost payments and the effects of increases in accounts and notes receivable and
other current assets. These decreases were partially offset by the favorable
effect of a significant reduction in inventories and a modest decrease in the
loss (before the extraordinary loss and the non-cash, cumulative effects of
accounting changes) for the first six months of 1994 compared to the prior year
period.

The 1993 decrease in accounts and notes receivable reflects the timing of
receivable collections, lower average selling prices for a majority of the
Company's products and the writedown of certain

38
<PAGE>
receivables to net realizable value. The increase in accounts and notes
receivable for 1992 reflect an increase in sales volume for certain of the
Company's products during the latter part of 1992 over 1991 and the timing of
receivable collections resulting from the continued slow recovery of the
economy.

Inventories decreased in 1993 due primarily to a reduction in certain
paperstock and newsprint levels, partially attributable to market related
downtime. The decrease in inventories for 1992 resulted mainly from reductions
in certain paperstock levels due to increased sales volume during the latter
part of 1992 and market-related downtime.

The 1992 decrease in other current assets resulted mainly from the
collection of $43 million of cash related to the 1991 settlement and termination
of a Canadian supply contract.

The decreases in accounts payable and other current liabilities for 1993 and
1992 were due primarily to the timing of payments.

FINANCING ACTIVITIES:

On February 10, 1994, under the Company's $1 billion shelf registration, the
Company sold $710 million principal amount of 9 7/8% Senior Notes due February
1, 2001 and 16.5 million shares of common stock for an additional $251.6 million
at $15.25 per common share in the February 1994 Offerings, which included the
exercise by the underwriters of their option to sell an additional 2.47 million
shares of common stock for an additional $37.7 million, also at $15.25 per
common share. The net proceeds from the February 1994 Offerings of approximately
$962 million were used to (i) prepay approximately $652 million of 1995, 1996
and 1997 required amortization under the Company's 1989 Credit Agreement,
including the ratable amortization payment under the revolving credit facilities
which had the effect of reducing the total commitments thereunder to
approximately $168 million; (ii) redeem the Company's 13 5/8% Subordinated Notes
due 1995 at a price equal to par, approximately $98 million principal amount,
plus accrued interest to the redemption date; (iii) repay approximately $136
million of the outstanding borrowings under the Company's revolving credit
facilities without reducing the commitments thereunder; and (iv) provide
liquidity in the form of cash.

The following summarizes the Company's significant financing activities in
1993:

- During 1993, outstanding borrowings under the Company's revolving credit
facilities increased approximately $6.8 million. The net increase takes
into account the financial transactions discussed below and those
transactions discussed in the "Investing activities" section following.
Borrowings and payments made on debt as presented in the Statement of Cash
Flows does not take into account certain repayments and subsequent
reborrowings under the revolving credit facilities which occurred as a
result of these transactions.

- In December 1993, Stone-Consolidated acquired the newsprint and uncoated
groundwood papers business of Stone Canada and sold $346.5 million of
units in an initial public offering comprised of both common stock and
convertible subordinated debentures (the "Units Offering"). Each unit was
priced at $2,100 and consisted of 100 shares of common stock at $10.50 per
share and $1,050 principal amount of convertible subordinated debentures.
The convertible subordinated debentures mature December 31, 2003, bear
interest at an annual rate of 8% and are convertible beginning June 30,
1994, into 6.211 shares of common stock for each Canadian $100 principal
amount, representing a conversion price of $12.08 per share. Concurrently
with the initial public offering, Stone-Consolidated sold $225 million of
senior secured notes in a public offering in the United States. The senior
secured notes mature December 15, 2000 and bear interest at an annual rate
of 10.25%. As a result of the Units Offering, 16.5 million shares of
common stock, representing 25.4% of the total shares outstanding of
Stone-Consolidated, were sold to the public, resulting in the recording in
the Company's Consolidated Balance Sheet of a minority interest liability
of $236.7 million. The Company used approximately $373 million of the net
proceeds from the sale of the Stone-Consolidated securities for repayment
of commitments under its 1989 Credit Agreement and the remainder for
general corporate purposes. As a result of the Units Offering, the Company
recorded a charge of $74.4 million to common stock related to the excess
carrying value per common share over the offering price per common share
associated with the shares issued.

39
<PAGE>
- In December 1993, the Company sold two of its short-line railroads in a
transaction in which the Company has guaranteed to contract minimum
railroad services which will provide freight revenues to the railroads
over a 10 year period. The transaction has been accounted for as a
financing and accordingly, had no impact on the Company's 1993 net loss.
The Company received proceeds of approximately $28 million, of which
approximately $19 million was used to repay commitments under the 1989
Credit Agreement.

- In the fourth quarter of 1993, the Company sold, prior to their expiration
date, certain of the U.S. dollar denominated interest rate and cross
currency swaps associated with the 1989 Credit Agreement borrowings of
Stone-Canada. The net proceeds totaled approximately $34.9 million, the
substantial portion of which was used to repay borrowings under the
revolving credit facilities of the 1989 Credit Agreement. The sale of the
swaps resulted in a deferred loss which will be amortized over the
remaining life of the underlying obligation.

- In July 1993, the Company sold $150 million principal amount of 12 5/8%
Senior Notes due July 15, 1998 and, in a private transaction, sold $250
million principal amount of 8 7/8% Convertible Senior Subordinated Notes
due July 15, 2000. The Company filed a shelf registration statement
declared effective August 13, 1993 registering the 8 7/8% Convertible
Senior Subordinated Notes for resale by the holders thereof. The net
proceeds of approximately $386 million received from the sales of these
notes were used by the Company to repay borrowings without reducing
commitments under the revolving credit facilities of its 1989 Credit
Agreement, thereby restoring borrowing availability thereunder.

INVESTING ACTIVITIES:

Capital expenditures for the six months ended June 30, 1994 totalled
approximately $66.2 million.

The following summarizes the Company's significant 1993 investing
activities:

- The Company sold its 49% equity interest in Titan. The net proceeds were
used to repay commitments under the 1989 Credit Agreement and for
repayment of borrowings under its revolving credit facilities without
reducing commitments thereunder.

- During 1993, the Company increased its ownership in the common stock of
Savannah River from 90.2% to 92.8% through the purchase of an additional
6,152 common shares and through the receipt of Series D Preferred Stock as
a dividend in kind on Savannah River's Series B Preferred Stock and the
election of its right to convert the Series D Preferred Stock into 198,438
common shares.

- On May 6, 1993, the Company's wholly owned German subsidiary, Europa
Carton A.G., ("Europa Carton"), completed a joint venture with Financiere
Carton Papier ("FCP"), a French company, to merge the folding carton
operations of Europa Carton with those of FCP ("FCP Group"). Under the
joint venture, FCP Group is owned equally by Europa Carton and the
shareholders of FCP immediately prior to the merger. The Company's
investment in this joint venture is being accounted for under the equity
method of accounting.

- Capital expenditures for 1993 totaled approximately $150 million
(including capitalized interest of approximately $9 million), of which
approximately $15 million was funded from existing project financings. The
Company's capital expenditures for 1994 are budgeted at approximately $190
million.

ENVIRONMENTAL ISSUES:

40
<PAGE>

Stone-Consolidated which were approximately $6.7 million in 1993 and are
anticipated to approximate $43 million in 1994 and $82 million in 1995. Although
capital expenditures for environmental control equipment and facilities and
compliance costs in future years will depend on legislative and technological
developments which cannot be predicted at this time, the Company anticipates
that these costs will increase when final "cluster rules" are adopted and as
other environmental regulations become more stringent. Environmental control
expenditures include projects which, in addition to meeting environmental
concerns, yield certain benefits to the Company in the form of increased
capacity and production cost savings. In addition to capital expenditures for
environmental control equipment and facilities, other expenditures incurred to
maintain environmental regulatory compliance (including any remediation)
represent ongoing costs to the Company. In addition, the Company is from time to
time subject to litigation and governmental proceedings regarding environmental
matters in which injunctive and/or monetary relief is sought.

In December 1993, the EPA issued a proposed rule affecting the pulp and
paper industry. These proposed regulations, informally known as the "cluster
rules," would make more stringent requirements for discharge of wastewaters
under the Clean Water Act and would impose new requirements on air omissions
under the Clean Air Act. Pulp and paper manufacturers (including the Company)
have submitted extensive comments to the EPA on the proposed regulations in
support of the position that requirements under the proposed regulations are
unnecessarily complex, burdensome and environmentally unjustified. The EPA has
indicated that it may reopen the comment period on the proposed regulations to
allow review and comment on new data that the industry will submit to the agency
on the industry's air toxics emissions. It can not be predicted at this time
whether the EPA will modify the requirements in the final regulations which are
scheduled to be issued in 1996, with compliance required within three years from
such date. The Company is considering and evaluating the potential impact of the
rules, as proposed, on its operations and capital expenditures over the next
several years. Preliminary estimates indicate that the Company could be required
to make capital expenditures of $350-$450 million during the period of 1996
through 1998 in order to meet the requirements of the rules, as proposed. In
addition, annual operating expenses would increase by as much as $20 million
beginning in 1998. The ultimate financial impact of the regulations cannot be
accurately estimated at this time but will be affected by several factors,
including the actual requirements imposed under the final rule, advancements in
control process technologies, possible reconfiguration of mills and inflation.

In addition, the Company is from time to time subject to litigation and
governmental proceedings regarding environmental matters in which injunctive
and/or monetary relief is sought. The Company has been named as a PRP at a
number of sites which are the subject of remedial activity under CERCLA or
comparable state laws. Although the Company is subject to joint and several
liability imposed under Superfund, at most of the multi-PRP sites there are
organized groups of PRPs and costs are being shared among PRPs. Future
environmental regulations, including the final "cluster rules," may have an
unpredictable adverse effect on the Company's operations and earnings, but they
are not expected to adversely affect the Company's competitive position.

ACCOUNTING STANDARDS CHANGES

In November 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits" ("SFAS 112"), which requires accrual accounting for the
estimated costs of providing certain benefits to former or inactive employees
and the employees' beneficiaries and dependents after employment but before
retirement. Upon adoption of SFAS 112, the Company recorded its catch-up
obligation (approximately $24 million) by recognizing a one-time, non-cash
charge of $14.2 million, net of income tax benefit, as a cumulative effect of an
accounting change in its 1994 first quarter Statement of Operations and Retained
Earnings (Accumulated Deficit).

41
<PAGE>
BUSINESS

GENERAL

The Company owns or has an interest in 135 manufacturing facilities in the
United States, 26 in Canada, 15 in Germany, six in France, two in Belgium and
one in each of the United Kingdom and the Netherlands. The facilities include 23
mills. The Company also maintains sales offices in the United States, Canada,
the United Kingdom, Germany, Belgium, France, Mexico, China and Japan, has a
forestry operation in Costa Rica and has a joint venture relationship in
Venezuela.

The Company is incorporated in Delaware and its Common Stock is listed on
the New York Stock Exchange. The Company's executive offices are located at 150
North Michigan Avenue, Chicago, Illinois 60601; telephone number (312) 346-6600.

PRODUCT PRICING AND INDUSTRY TRENDS

The markets for products sold by the Company are highly competitive and are
also sensitive to changes in industry capacity and cyclical changes in the
economy, both of which can significantly impact selling prices and thereby the
Company's profitability. From 1990 through the third quarter of 1993, the
Company experienced substantial declines in the pricing of most of its products.
Market conditions have improved since October 1993, which have allowed the
Company to increase prices for most of its products. While prices for most of
the Company's products are approaching the historical high prices which were
achieved during the peak of the last industry cycle, the Company's production
costs (including labor, fiber and energy), as well as its interest expense, have
also significantly increased since the last pricing peak in the industry,
increasing pressure on the Company's net margins for its products.

The Company's containerboard and corrugated container product lines, which
represent a substantial portion of the Company's net sales, generally
experienced declining product prices from 1990 through the third quarter of
1993. Since October 1, 1993, the Company has increased the price of linerboard
in the fourth quarter of 1993 and the first quarter and third quarter of 1994 by
$25 per ton, $30 per ton and $40 per ton, respectively. Prices for corrugating
medium also increased by $25 per ton, $40 per ton and $50 per ton in the
corresponding periods. In addition, in the first half of 1994, the Company
implemented corrugated container price increases and began implementing on July
25, 1994 a 9.5% price increase for corrugated containers effective July 25,
1994. Historically, suppliers, including the Company, have taken up to 90 days
to pass increased linerboard and corrugating medium prices through to corrugated
container customers. The Company converts more than 80% of its linerboard and
corrugating medium products into corrugated containers, making the achievement
of price increases for corrugated containers essential for the Company to
realize substantial financial benefit from linerboard and corrugating medium
price increases. On August 5, 1994, the Company announced to its customers an
additional price increase of $40 per ton for linerboard and $50 per ton for
corrugating medium effective for the fourth quarter of 1994. While there can be
no assurance that price increases will be implemented or that prices will
continue to increase or even be maintained at present levels, the Company
believes that the supply/demand characteristics for linerboard, corrugating
medium and corrugated containers have improved which could allow for further
price increases for these product lines.

42
<PAGE>
According to industry publications, immediately preceding the price increase
effective October 1, 1993, the reported transaction price for 42 lb. kraft
linerboard, the base grade of linerboard, was $300 per ton and as of August 1,
1994, the reported transaction price for this base grade was $385-395 per ton.
According to industry publications, the reported price for corrugating medium
immediately preceding October 1, 1993 was $280 per ton and $375-$385 per ton as
of August 1, 1994.

The Company has also implemented price increases in kraft paper and kraft
paper converted products. The Company increased prices for retail bags and sacks
by 8% on each of April 1, May 1 and July 1, 1994 and announced and began
implementing a further price increase of 10% effective September 1, 1994. In
addition, the Company has announced and began implementing on August 1, 1994 a
$50 per ton (approximately 8.6%) price increase for kraft paper.

Pricing for market pulp has also improved substantially in 1994. The Company
has increased prices for various grades of market pulp by up to $260 per metric
tonne since November 1993. According to industry publications, the reported
transaction price for SBHK was $370 per metric tonne as of the third quarter of
1993 and $500-570 per metric tonne as of the second quarter of 1994. On July 1,
1994, the Company implemented a further price increase of $70 per metric tonne
(approximately 12.2%). The Company has announced a further price increase of $70
per metric tonne to be implemented in the fourth quarter.

After further declines in the first quarter of 1994, pricing for newsprint
has also recently improved. The Company increased newsprint prices in the second
quarter of 1994 by $48 per metric tonne in the eastern markets of North America
and $41 per metric tonne in the western markets of North America and of $41 per
metric tonne in the eastern markets of North America and $48 per metric tonne in
the western markets of North America in the third quarter of 1994. According to
industry publications, the reported transaction price for newsprint in the
eastern markets of North America was $411 per metric tonne as of March 1, 1993
and $470 per metric tonne as of August 1, 1994. To date, uncoated groundwood
papers have not achieved significant price increases. However, a further price
increase of approximately $48 per metric tonne has been announced for the fourth
quarter of 1994.

Wood fiber and recycled fiber, the principal raw materials in the
manufacture of the Company's products, are purchased in highly competitive,
price sensitive markets. These raw materials have historically exhibited price
and demand cyclicality. In addition, the supply and price of wood fiber, in
particular, is dependent upon a variety of factors over which the Company has no
control, including environmental and conservation regulations, natural
disasters, such as forest fires and hurricanes, and weather. In addition, recent
increased demand for the Company's products has resulted in greater demand for
raw materials which has recently translated into higher raw material prices.

The Company purchases or cuts a variety of species of timber from which the
Company utilizes wood fiber depending upon the product being manufactured and
each mill's geographic location. Despite this diversification, wood fiber prices
have increased substantially in 1994. A decrease in the supply of wood fiber,
particularly in the Pacific Northwest and the southeastern United States due to
environmental considerations, has caused, and will likely continue to cause,
higher wood fiber costs in those regions. In addition, the increase in demand
for products manufactured in whole or in part from recycled fiber has caused a
shortage of recycled fiber, particularly OCC used in the manufacture of premium
priced recycled containerboard and related products. The Company's paperboard
and paper packaging products use a large volume of recycled fiber. In 1993, the
Company processed approximately 1.9 million tons of recycled fiber. The Company
used approximately 1.25 million tons of OCC in its products in 1993. The Company
believes that the cost of OCC has risen from $55 per ton at June 30, 1993 to
$110 per ton as of September 1, 1994. While the Company has not experienced any
significant difficulty in obtaining wood fiber and recycled fiber in economic
proximity to its mills, there can be no

43
<PAGE>
assurances that this will continue to be the case for any or all of its mills.
In addition, there can be no assurance that all or any part of increased fiber
costs can be passed along to consumers of the Company's products directly or in
a timely manner.

FINANCIAL STRATEGY

In 1993, the Company adopted a financial plan designed to increase the
Company's liquidity and improve its financial flexibility by prepaying the near
term scheduled amortizations under the 1989 Credit Agreement. The financial plan
was implemented in response to continuing net losses resulting from depressed
sales prices for the Company's products and the Company's highly leveraged
capital structure and related interest expense associated with indebtedness
incurred to finance the acquisition of Stone Canada. In 1993, as part of the
financial plan, the Company satisfied its remaining 1993 and 1994 scheduled
amortization obligations under the 1989 Credit Agreement and repaid outstanding
borrowings (a portion of which could subsequently be reborrowed) under the
revolving credit facility portion of the 1989 Credit Agreement with the proceeds
from (i) the sale of $400 million aggregate principal amount of additional
Company indebtedness, (ii) the public offering in Canada of approximately 25% of
the common stock (Cdn. $231 million) of Stone-Consolidated and the
contemporaneous sale by Stone-Consolidated of Cdn. $231 million principal amount
of convertible subordinated debentures in Canada and $225 million principal
amount of senior secured notes in the U.S., and (iii) the sale of approximately
$125 million of assets. In February 1994, the Company sold $710 million
principal amount of 9 7/8% Senior Notes due 2001 and approximately 19 million
shares of its common stock for gross proceeds of approximately $289 million from
the sale of such common stock in the February 1994 Offerings. The Company used
the $962 million of net proceeds from the February 1994 Offerings to (i) prepay
scheduled amortizations under the 1989 Credit Agreement for all of 1995 and a
portion of 1996 and 1997, (ii) fully redeem the principal amount of the
Company's 13 5/8% Subordinated Notes due 1995, and (iii) repay outstanding
borrowings under the revolving credit facility portion of the 1989 Credit
Agreement, a portion of which remained available for reborrowing thereunder.

The Company, as part of its financial plan, is evaluating certain
alternatives for the disposition and monetization of its non-core assets
including the U.S. wood products business. As an initial step in achieving this
objective, the Company on September 27, 1994, announced the closure of three
facilities of the wood products business in the Pacific Northwest. The
operations of the closed facilities will be consolidated with other wood product
operations of the Company in the Northwest, while the Company will dispose of
excess assets including inventory as soon as practicable in an orderly
liquidation. The impact of such closure and sale of assets on the Company's 3rd
Quarter results has not yet been fully determined but is not expected to have a
material effect on the Company.

44
<PAGE>

completion of this Offering, together with the Related Transactions, will extend
the scheduled amortization obligations and final maturities of more than $1
billion of the Company's indebtedness, improve the Company's liquidity by
replacing its current $166 million revolving credit facility commitments with
$450 million of revolving credit commitments (of which borrowing availability
will be reduced by any letter of credit commitments, of which approximately $61
million will be outstanding at closing, and less approximately $ million of
borrowings thereunder which will be borrowed at closing) and improve the
Company's financial flexibility through entering into the Credit Agreement.

OPERATIONS

The following table presents actual annual mill production capacity of the
Company at December 31, 1993 and at December 31, 1992:

<TABLE>
<CAPTION>
PAPERBOARD AND
PAPER WHITE PAPER
PACKAGING AND PULP TOTAL
-------------- -------------- --------------
1993 1992 1993 1992 1993 1992
------ ------ ------ ------ ------ ------
(IN THOUSANDS OF SHORT TONS)(A)
<S> <C> <C> <C> <C> <C> <C>
United States.............................................. 4,583 4,572 853 847 5,436 5,419
Canada..................................................... 429 436 2,176 1,783 2,605 2,219
Europe..................................................... 314 310 307 306 621 616
Other...................................................... -- 58 -- -- -- 58
------ ------ ------ ------ ------ ------
5,326 5,376 3,336 2,936 8,662 8,312
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
<FN>
- ------------------------
(a) Includes 25% of production capacity of the Celgar mill, 49% of the Titan
mill at December 31, 1992 and 100% of Seminole and Savannah River mills and
100% of Stone-Consolidated.
</TABLE>

PAPERBOARD AND PAPER PACKAGING

The Company believes that its integrated unbleached paperboard and paper
packaging business is the largest in the world with 16 mills and 136 converting
plants located throughout the United States and Canada and in Europe. The major
products in this business are containerboard and corrugated containers, which
are primarily sold to a broad range of manufacturers of consumable and durable
goods; kraft paper and paper bags and sacks, which are primarily sold to
supermarket chains, retailers of consumer products and, in the case of multiwall
shipping sacks, to the agricultural, chemical and cement industries; and
boxboard and folding cartons, which are sold to manufacturers of consumable
goods and other box manufacturers. The unbleached packaging business of the
Company has an annual capacity of approximately 5.3 million tons and is more
than 80% integrated. In 1993, total sales for the paperboard and paper packaging
business of the Company were approximately $3.8 billion, or approximately 75% of
total consolidated sales.

The paperboard and packaging business requires a large volume of recycled
fiber for its paperboard and paper packaging business. In 1993, the Company
processed 1.25 million tons of recycled fiber. Recycled fiber is obtained from a
variety of sources through Paper Recycling International L.P. ("PRI"), a fifty
percent-owned joint venture. PRI is paid a fee by the Company for procuring
recycled fiber. See "Fiber Supply."

CONTAINERBOARD AND CORRUGATED SHIPPING CONTAINERS. The Company believes it
is the world's largest producer of containerboard, of which more than 80% is
converted by the Company into corrugated shipping containers. The Company's
total sales of corrugated shipping containers in 1993 were $2.2 billion.

45
<PAGE>
The Company's mills produce containerboard, including unbleached kraft
linerboard, recycled linerboard, medium and paper. Containerboard tons produced
and converted for the last three years were:

<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- --------
(SHORT TONS IN THOUSANDS)
<S> <C> <C> <C>
Containerboard
Production................................................. 4,388.1 4,424.4 4,330.9
Converted.................................................. 3,709.5 3,649.5 3,488.1
</TABLE>

Containerboard is produced at the Company's mills located in Snowflake,
Arizona; Jacksonville, Florida; Panama City, Florida; Port Wentworth, Georgia;
Hoya, Germany; Hodge, Louisiana; Missoula, Montana; New Richmond (Chaleurs),
Quebec; Florence, South Carolina and Hopewell, Virginia. Corrugating medium is
produced at the Company's mills located in Uncasville, Connecticut; Hoya,
Germany; Viersen, Germany; Hodge, Louisiana; Ontonagon, Michigan; Bathurst, New
Brunswick; Coshocton, Ohio and York, Pennsylvania. The Jacksonville, Florida
linerboard mill is owned by Seminole, a 99% owned subsidiary of the Company.
Seminole is not expected to be permitted to provide funds to the Company from
its cash generated from operations, if any, because of restrictions in the terms
of certain of Seminole's debt instruments.

The Company's containerboard and corrugated container operations are more
than 80% integrated and the Company believes this integration enhances its
ability to respond quickly and efficiently to customers and to fill orders on
short lead times. The Company believes it is the largest producer of corrugated
shipping containers in the U.S., with more than 100 board converting operations.
Corrugated shipping containers, manufactured from containerboard in converting
plants, are used to ship such diverse products as home appliances, electric
motors, small machinery, grocery products, produce, books, tobacco and
furniture, and for many other applications. The Company stresses the value-added
aspects of its corrugated containers, such as labeling and multi-color graphics,
to differentiate its products and respond to customer requirements. The
Company's container plants serve local customers and large national accounts and
are located in the United States, Belgium, Canada, France and Germany, generally
in or near large metropolitan areas. Corrugated shipping containers sales volume
for 1993, 1992 and 1991 were 52.5, 51.7, and 49.2 billion square feet
respectively.

KRAFT PAPER AND BAGS AND SACKS. The Company also has a highly integrated
kraft paper and converted product operation and is a net buyer of kraft paper
from third parties. The Company operates 20 kraft and paper converting
facilities, which shipped approximately 613 thousand tons and 689 thousand tons
of paper bags and sacks nationwide in 1993 and 1992, respectively. The Company
believes it is among the largest producers of grocery bags and sacks. Kraft
paper volume produced and converted for the last three years was:

<TABLE>
<CAPTION>
1993 1992 1991
----- ----- -----
(TONS IN THOUSANDS)
<S> <C> <C> <C>
Kraft Paper
Production....................................................... 499.8 563.2 534.8
Converted........................................................ 644.7 723.9 739.7
</TABLE>

The Company produces kraft paper and recycled paper for conversion into bags
and sacks at its mills in Snowflake, Arizona; Hodge, Louisiana; Florence, South
Carolina; and the Seminole mill in Jacksonville, Florida.

Grocery bags and sacks are sold primarily to supermarket chains and
merchandise bags are sold to retailers of consumer products. Multiwall shipping
sacks, considered a premium product, are sold to the agricultural, chemical and
cement industries, among other industries. The Company's total sales of bags and
sacks in 1993 were $579.3 million. Sales volumes for bags and sacks for 1993,
1992 and 1991 were 612.9, 688.6, and 734.6 thousand tons respectively.

46
<PAGE>
WHITE PAPER AND PULP:

The Company believes that, together with its 75% owned (60.1% on a fully
diluted basis) consolidated subsidiary, Stone-Consolidated, it is the largest
producer of uncoated groundwood paper in North America and the fourth largest
producer of newsprint in North America. Stone-Consolidated, a Canadian
corporation and a consolidated subsidiary of the Company, owns all of the
Canadian and United Kingdom newsprint and uncoated groundwood paper assets of
the Company. The restrictive terms of Stone-Consolidated's indebtedness at this
time are unlikely to permit Stone-Consolidated to provide funds to the Company
from its excess cash flow, if any. Stone-Consolidated owns three newsprint mills
(two in Canada and one in the United Kingdom) and two uncoated groundwood paper
mills in Canada. The Company owns a newsprint mill in Snowflake, Arizona, the
production of which is marketed by Stone-Consolidated on a commission basis. The
Company and Stone-Consolidated have the capacity to produce 1.4 million tons of
newsprint and 500,000 tons of uncoated groundwood paper annually. Newsprint is
marketed to newspaper publishers and commercial printers. Uncoated groundwood
paper is sold for use primarily in newspaper inserts, retail store advertising
fliers, magazines, telephone directories and as computer paper.

The Company believes it has a major market position in North America in the
production of market pulp. The Company owns and operates five market pulp mills
in North America, including the Celgar mill in Castlegar, British Columbia in
which the Company has a 25% interest. These mills have the capacity to produce
1.5 million tons of market pulp annually and produced 733.2 thousand tons in
1993 (including 25% of the production at the Celgar mill). The geographic
diversity of the Company's mills enables the Company to offer its customers a
product mix of bleached northern hardwood and bleached southern softwood pulp.
Market pulp is sold to manufacturer of paper products, including fine papers,
photographic papers, tissue and newsprint.

In 1993, total sales for the white paper and pulp business of the Company
(which includes Stone-Consolidated sales) were approximately $965 million, or
approximately 19% of total consolidated sales.

NEWSPRINT. Stone-Consolidated owns and operates two fully integrated
newsprint mills located in Shawinigan (Belgo mill) and Ville de La Baie (Port
Alfred mill), Quebec and a third newsprint mill located in Ellesmere Port
(Bridgewater mill), United Kingdom. The Company owns and operates a fully
integrated newsprint mill in Snowflake, Arizona. Smaller quantities of newsprint
are also produced on other machines located at the Grand-Mere (Laurentide) and
Trois-Rivieres (Wayagamack) mills. In 1993, the Company produced approximately
1.3 million tons of newsprint. The Company's revenues from the sale of newsprint
in 1993 (including 100% of Stone-Consolidated) were approximately $526.9
million. Newsprint is primarily purchased by newspaper publishers and commercial
printers.

The newsprint produced by the Company contain a significant percentage of
recycled fibre from deinked pulp using flotation de-inking technology ("FDI")
technology. Management believes that the ability to produce newsprint with
recycled content has become an important competitive factor. Management
anticipates that the demand for newsprint with recycled content will continue to
grow as a result of further legislative activity and customer preferences,
although at a slower rate than in recent years. While an increasing number of
producers are gaining the ability to supply newsprint with recycled content,
management believes its deinking facilities and the relative proximity of the
mills to reliable sources of waste paper from urban centers will give the
Company a competitive advantage with customers who demand newsprint with
recycled content, although there can be no assurances that the Company will be
able to maintain such a competitive advantage.

UNCOATED GROUNDWOOD PAPERS. The Company's principal uncoated groundwood
paper production facilities include five paper machines located at the
Grand-Mere (Laurentide) and Trois-Rivieres (Wayagamack), Quebec mills; smaller
quantities of uncoated groundwood papers are also produced on other machines
located at the Ellesmere Port (Bridgewater) and Shawinigan (Belgo) mills. The
Company produced approximately 461.0 thousand tons of uncoated groundwood papers
in 1993. All uncoated groundwood production facilities are owned by
Stone-Consolidated. The Company's net capacity increased in both 1991 and 1992
as a result of the introduction and ramping up of a new paper machine

47
<PAGE>
at the Laurentide mill. The Company had revenues from the sale of uncoated
groundwood papers of approximately $243.3 million in 1993. The Company's
operating margins on the sale of uncoated groundwood papers are significantly
higher than for newsprint.

In 1993, the Company produced approximately 461,000 tons of uncoated
groundwood papers. Uncoated groundwood papers are manufactured using production
processes similar to those used for newsprint but are generally of higher
quality and command higher prices and higher operating margins.

The principal grades of uncoated groundwood papers manufactured and sold by
the Company are directory papers, rotogravure and offset papers used in
newspaper inserts, retail store advertising fliers, Sunday magazines and other
periodicals, bulky book papers used for mass circulation paperback novels and
form papers for use in the manufacture of computer printout and other business
forms. During 1993, the Company's production of uncoated groundwood papers
consisted of 69% rotogravure and offset papers, 21% directory papers, 8% bulky
book papers and 2% forms papers. Major customers for rotogravure and offset
papers include major retailers, publishers of Sunday magazines and other
periodicals and major commercial printers. Major customers for directory papers
include telephone companies and independent publishers of telephone directories
and large commercial printers.

MARKET PULP. The Company owns and operates five market pulp mills in North
America including mill operations in Panama City, Florida; Port Wentworth,
Georgia; Bathurst, New Brunswick; Portage-du-Fort, Quebec and Trois-Rivieres,
Quebec and at its 25% owned operation in Castlegar, British Columbia. Total
sales of market pulp (including 25% of the Celgar mill) approximated $187.3
million in 1993.

The Company has invested substantial sums to increase the production
capacity of market pulp. In 1992, the addition of market pulp capacity was
completed at the Company's Port Wentworth mill. The cost of the project was
approximately $425 million. In addition, the Celgar mill was completely rebuilt
and approximately doubled in capacity at a cost of approximately Cdn.$693
million.

FIBER SUPPLY:

Wood fiber, particularly from wood chips, and waste paper constitute the
basic raw materials for linerboard, corrugating medium, unbleached kraft paper,
newsprint, uncoated groundwood paper and market pulp. Wood fiber resources are
available within economic proximity of the mills and the Company has not
experienced any significant difficulty in obtaining such resources, although
environmental concerns in the Pacific Northwest (including the designation of
the spotted owl as a threatened species) have reduced the supply of wood in that
region. Consistent with its strategy to obtain long-term wood fiber sources
without the costs associated with land ownership, the Company sold approximately
329 thousand acres of timberland during the years 1988 through 1992. This
acreage had been owned by Southwest Forest Industries, Inc., now named Stone
Southwest, Inc., which was acquired by the Company in 1987. At December 31,
1993, the Company had approximately 11 thousand and 339 thousand acres of
private fee timberland in the United States and Canada, respectively. The
Company assists certain landowners in the southeastern United States in managing
approximately 2.0 million acres of timberland.

Recycled fiber, one of the Company's principal raw material components along
with wood fiber, must be purchased in a price sensitive market. The Company
believes that the demand for recycled fiber will increase and expects that the
cost of purchasing recycled fiber will also increase as a result of increased
demand and market conditions. As a result of the recognition of greater recycled
fiber utilization in the United States, the Company and WMX Technologies, Inc.
(formerly Waste Management Corporation) have formed PRI, which assists the
Company in the procurement of waste fiber.

MARKETS AND COMPETITION

The major markets in which the Company sells its principal products are
highly competitive. Its products compete with similar products manufactured by
others and, in some instances, with products manufactured from other materials.
Areas of competition include price, innovation, quality and service.

48
<PAGE>
The Company's products and the raw materials needed to manufacture those
products have historically exhibited price and demand cyclicality. Cyclical
economic factors such as growth in the economy generally, interest rates,
unemployment levels and fluctuations in currency exchange rates have had a
significant impact on prices and sales of the Company's products. The
availability and cost of wood fiber, including wood chips, and waste paper may
be subject to substantial variation, depending upon economic, political and
conservation considerations.

The Company's business is not dependent upon a single customer or upon a
small number of major customers. The loss of any one customer would not have a
material adverse effect on the Company.

Backlogs are not a significant factor in the industry in which the Company
operates; most orders placed with the Company are for delivery within 60 days or
less.

The Company owns patents, licenses, trademarks and tradenames on products.
The loss of any patent, license, trademark and tradename would not have a
material adverse effect on the Company's operations.

EMPLOYEES

As of December 31, 1993, the Company had approximately 29,000 employees, of
whom approximately 21,100 were employees of U.S. operations and the remainder
were employees of foreign operations. Of those in the United States,
approximately 12,300 are union employees.

LEGAL PROCEEDINGS

On October 27, 1992, the Florida Department of Environmental Regulation
("DER") filed a civil complaint in the Fourteenth Judicial Circuit Court of Bay
County, Florida against the Company seeking injunctive relief, an unspecified
amount of fines and civil penalties, and other relief based on alleged
groundwater contamination at the Company's Panama City, Florida pulp and paper
mill site. In addition, the complaint alleges operation of a solid waste
facility without a permit and discrepancies in hazardous waste shipping
manifests. Because of uncertainties in the interpretation and application for
DER's rules, it is premature to assess the Company's potential liability, if
any, in the event of an adverse ruling. At the parties' request, the case has
been placed in abeyance pending the conclusion of a related administrative
proceeding petitioned by the Company following DER's proposal to deny the
Company a permit renewal to continue operating its wastewater pretreatment
facility at the mill site. The administrative proceeding has been referred to a
hearing officer for an administrative hearing on the consolidated issues of
compliance with a prior consent order, denial of the permit renewal, completion
of a contamination assessment and denial of a sodium exemption. As of July 19,
1994, the hearing officer had postponed the administrative hearing pending
settlement negotiations between the parties. The Company intends to vigorously
assert its entitlement to the permit renewal and to defend against the
groundwater contamination and unpermitted facility allegations.

In November 1990, the EPA announced its decision to list two bodies of water
in Arizona, Dry Lake and Twin Lakes, as "waters of the United States" impacted
by toxic pollutant discharges under Section 304(l) of the federal Clean Water
Act. These bodies of water have been used by the Company's Snowflake, Arizona
pulp and paper mill for the evaporation of its process wastewater. The EPA is
preparing a draft consent decree to resolve the alleged past unpermitted
discharges which will include the EPA's proposal that the Company pay civil
penalties in the amount of $900,000. The Company has vigorously disputed the
application of the Clean Water Act to these two privately owned evaporation
ponds. The Company has begun implementation of a plan to use its wastewater to
irrigate a biomass plantation and discontinue using Dry Lake to evaporate
wastewater. It is premature to predict the amount of penalties that will
eventually be assessed.

By letter dated January 4, 1994, the Company received a notice of violation
from the Water Management Division of the EPA, Region 9 alleging violations of
discharge limits and monitoring

49
<PAGE>
requirements of the applicable NPDES permit at the Company's Flagstaff, Arizona
sawmill during the period from January 1990 through December 1992. The Company
and the EPA have reached a settlement in principle under which the Company will
pay penalties of $98,000.

On April 20, 1994, Carolina Power & Light ("CP&L") commenced proceedings
against the Company before the Federal Energy Regulatory Commission ("FERC")
(the "FERC Proceeding") and in the United States District Court for the Eastern
District of North Carolina (the "Federal Court Action"). Both proceedings relate
to the Company's electric cogeneration facility located at its Florence, South
Carolina plant (the "Facility") and the Company's Electric Power Purchase
Agreement (the "Agreement") with CP&L. Prior to the filing of the proceedings,
the Company and CP&L had been in discussions relating to a transaction involving
the Facility and the Agreement.

In the FERC Proceeding, CP&L alleges that the Facility lost its qualifying
facility ("QF") certification under the Public Utility Regulatory Policy Act of
1978 on August 13, 1991, when the Agreement pursuant to which CP&L purchases
electricity generated by the Facility was amended to reflect the Company's
election under the Agreement to switch to a "buy-all/sell-all mode of
operation." As a result, CP&L alleges the Company became a "public utility" on
August 13, 1991 subject to FERC regulation under the Federal Power Act. CP&L has
also requested FERC to determine the "just and reasonable rate" for sales of
electric energy and capacity from the Facility since August 13, 1991 and to
order the Company to refund any amounts paid in excess of that rate, plus
interest and penalties.

In its answer filed with the FERC on June 2, 1994, the Company stated that
its power sales to CP&L fully complied with the FERC's regulations. The Company
also requested the FERC to waive compliance with any applicable FERC regulations
in the event that the FERC should determine, contrary to the Company's position,
that the Company has not complied with the FERC's regulations in any respect.
CP&L has also filed several other pleadings to which the Company has responded.
If the FERC were to determine that the Company had become a "public utility,"
the Company's issuance of securities and incurrence of debt after the date that
it became a "public utility" could be subject to the jurisdiction and approval
of the FERC unless the FERC granted a waiver. In the absence of such a waiver,
certain other activities and contracts of the Company after such date could also
be subject to additional federal and state regulatory requirements, and defaults
might be created under certain existing agreements. Based on past administrative
practice of the FERC in granting waivers of certain other regulations, the
Company believes that it is likely that such a waiver would be granted by the
FERC in the event that such a waiver became necessary. However, the FERC
Proceeding is in its preliminary stages and no assurance can be provided as to
the timing of the FERC's decision or the outcome.

In the Federal Court Action, CP&L has requested declaratory judgments that
sales of electric energy and capacity under the Agreement since August 13, 1991
are subject to a just and reasonable rate to be determined by FERC and that the
Agreement has been terminated as a result of the Company's failure to maintain
the Facility's QF status and the invalidity of the Agreement's rate provisions.
CP&L has also sought damages for breach of contract and for purchases in excess
of the just and reasonable rate to be determined by FERC. On June 9, 1994, the
Company moved to dismiss CP&L's Federal Court Action on the principal grounds
that any proceedings in the United States District Court are premature unless
and until the FERC Proceeding is finally resolved.

The Company intends to contest these actions vigorously. Due to the pendency
of the litigation, a planned transaction involving a favorable energy contract
related to the Facility and the Agreement did not occur.

On April 13, 1994, a digester vessel ruptured at the Company's pulp and
paperboard mill in Panama City, Florida resulting in the deaths of three
employees and injuries to other employees and causing extensive damage to
certain of the facility's assets. The occurrence has been investigated by the
Occupational Safety and Health Administration ("OSHA"). On August 4, 1994, OSHA
held a closing conference with the Company to discuss OSHA's preliminary
findings. Even though the findings have not been finalized, OSHA has disclosed
that certain "apparent" violations of OSHA standards have been found. The
category of each apparent violation has not yet been determined. The Company has
not yet

50
<PAGE>
fully reviewed the apparent violations. The Company believes it will not receive
the final determination of any violations until mid-September. Upon final review
of such final determinations, the Company will decide whether to contest OSHA's
claims. In addition, on August 29, 1994, OSHA informed the Company that it was
being cited for violations connected with the start-up of operations at the
Panama City mill. These violations are not related to the expected final
determinations mentioned above. The Company intends to vigorously defend the
imposition of penalties relating to these violations.

On July 14, 1994, the European Commission ("EC") imposed fines on a group of
19 manufacturers of carton-board, a product used to manufacture folding cartons,
in the aggregate amount of $164.8 million. The Company's German subsidiary,
Europa Carton AG, ("Europa Carton"), was fined $2.5 million. The fines were a
result of alleged price fixing activities by these manufacturers. At this time,
the Company believes that Europa Carton did not participate in the alleged price
fixing scheme and the Company is considering an appeal of its fine and is
awaiting formal notification from the EC of its reason for imposing the fine on
Europa Carton. While Europa Carton is a member of the association implicated by
the EC and did implement price increases which were generally implemented by
members of the association, Europa Carton is not a large manufacturer of this
product and is not represented on the council of the association.

The Company is involved in contractual disputes, administrative and legal
proceedings and investigations of various types. Although any litigation,
proceeding or investigation has an element of uncertainty, the Company believes
that the outcome of any proceeding, lawsuit or claim which is pending or
threatened, or all of them combined, would not have a material adverse effect on
its consolidated financial position or results of operations.

For additional information relating to the Company see "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Results of Operations," "-- Investing Activities" and "-- Environmental Issues"
and the Notes to the Consolidated Financial Statements, "Note 2 -- Subsequent
Events," pages F-22 - F-23, "Note 3 -- Acquisitions/Mergers/Dispositions," page
F-23, "Note 4 -- Public Offering of Subsidiary Stock," page F-24, "Note 16 --
Related Party Transactions," pages F-45 - F-46 and "Note 19 -- Segment
Information," pages F-49 - F-52.

51
<PAGE>
PROPERTIES

The Company, including its subsidiaries and affiliates, maintains
manufacturing facilities and sales offices throughout North America, continental
Europe and the United Kingdom, as well as sales offices in Japan and China. A
listing of such worldwide facilities as of December 31, 1993 is provided on
pages 52-53 of this Prospectus.

The approximate annual production capacity of the Company's mills is
summarized in the following table:

<TABLE>
<CAPTION>
PAPERBOARD
AND PAPER WHITE PAPER
PACKAGING AND PULP TOTAL
------------ ------------ ------------
DECEMBER 31,
----------------------------------------
1993 1992 1993 1992 1993 1992
----- ----- ----- ----- ----- -----
(IN THOUSANDS OF SHORT TONS)
<S> <C> <C> <C> <C> <C> <C>
United States (1).......................................... 4,583 4,572 853 847 5,436 5,419
Canada (2)(3).............................................. 429 436 2,176 1,783 2,605 2,219
Europe (3)................................................. 314 310 307 306 621 616
Other (4).................................................. -- 58 -- -- -- 58
----- ----- ----- ----- ----- -----
5,326 5,376 3,336 2,936 8,662 8,312
----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- -----
<FN>
- ------------------------
(1) Includes 100% of Seminole and Savannah River mills.
(2) Includes 25% of the Celgar mill.
(3) Includes 100% of Stone-Consolidated.
(4) Includes 49% of the Titan mill at December 31, 1992.
</TABLE>

All mills and converting facilities are owned, or partially owned through
investments in other companies, by the Company, except for 45 converting plants
in the United States, which are leased.

The Company owns certain properties that have been mortgaged or otherwise
encumbered. These properties include 12 paper mills, 9 bag plants and 45
corrugated container plants, including those subject to a leasehold mortgage.

The Company's properties and facilities are properly equipped with machinery
suitable for their use. Such facilities and related equipment are well
maintained and adequate for the Company's current operations.

For additional information relating to the Company's properties for the year
ended December 31, 1993 see the Notes to the Consolidated Financial Statements,
"Note 3 -- Acquisitions/Mergers/Dispositions," page F-23, "Note 4 -- Public
Offering of Subsidiary Stock," page F-24, "Note 10 -- Long-term Debt," pages
F-32 - F-40 and "Note 13 -- Long-term Leases," pages F-41 - F-42.

52
<PAGE>
WORLDWIDE FACILITIES

UNITED STATES
ALABAMA
Birmingham-

ARIZONA
EagarV
Glendale-
Phoenixt
SnowflakeZ
SnowflakeZ
THE APACHE
RAILWAY
COMPANY

ARKANSAS
Jacksonvillet
(LITTLE ROCK)
Little Rock-
Rogers-

CALIFORNIA
City of Industry-
(LOS ANGELES)
Fullerton-
Los Angelest
Salinas-
San Jose-
Santa Fe Springs--

COLORADO
Denver-
South ForkV

CONNECTICUT
Portland-
Torrington-
UncasvilleZ

FLORIDA
Cantonmentt
(PENSACOLA)
GracevilleV
JacksonvilleZ
Panama CityZ
Yuleet
Orlando-
PACKAGING SYSTEMS
Jacksonville-
PREPRINT

GEORGIA
Atlanta---
Port WentworthZ
AtlantaZ
TECHNOLOGY AND
ENGINEERING CENTER

ILLINOIS
Bedford Park-
(CHICAGO)
Bloomington-
Cameo-
(CHICAGO)
Danville-
*Herrin-
Joliet-
Naperville-
(CHICAGO)
North Chicago-
Plainfieldt
Quincyt
*Ziont
Burr RidgeZ
TECHNOLOGY AND
ENGINEERING CENTER
Oakbrook-
MARKETING AND
TECHNICAL CENTER

INDIANA
Columbus-
Indianapolis-
Mishawaka-
South Bend-

IOWA
Des Moines-t
Keokuk-
Sioux City-

KANSAS
Kansas City-

KENTUCKY
Louisville-t

LOUISIANA
Arcadiat
HodgetZ
New Orleans-

MARYLAND
Savaget
(BALTIMORE)

MASSACHUSETTS
Mansfield-
Westfield-

MICHIGAN
Detroit-
Grand Rapidst
OntonagonZ
Melvindale-
(DETROIT)

MINNESOTA
Minneapolis-
Rochester-
St. Cloud-
St. Paul-
Minneapolis-
PREPRINT

MISSISSIPPI
Jackson-
Tupelo--

MISSOURI
Blue Springs-
Kansas Cityt
Liberty-
(KANSAS CITY)
Springfield-
St. Joseph-
St. Louis-

MONTANA
MissoulaZ

NEBRASKA
Omaha-

NEW JERSEY
Elizabetht
Teterboro-

NEW MEXICO
ReserveV

NEW YORK
Buffalo-

NORTH CAROLINA
Charlotte-
Lexington-
Raleigh-

NORTH DAKOTA
Fargo-
OHIO
Cincinnati-
CoshoctonZ
Jefferson-
Mansfield-
Marietta-
New Philadelphiat

OKLAHOMA
Oklahoma City-
Sand Springs-
(TULSA)

OREGON
Grants PassV
MedfordV
White CityV

PENNSYLVANIA
Philadelphia--
Williamsport-
YorkZ

SOUTH CAROLINA
Columbia-V
FlorenceZ
Fountain Inn-
OrangeburgV

SOUTH DAKOTA
Sioux Falls-

TENNESSEE
Chattanooga-
Collierville-
(MEMPHIS)
Nashville-

53
<PAGE>
WORLDWIDE FACILITIES

TEXAS
Dallas-
El Paso--.
Grand Prairie-
(DALLAS)
Houston-
Temple-
Tyler-
UTAH
Salt Lake Cityt
Salt Lake Cityt
BAG PACKAGING SYSTEMS

VIRGINIA
HopewellZ
Martinsville-
Richmond--t

WEST VIRGINIA
Wellsburgt

WISCONSIN
Beloit-
Germantown-
(MILWAUKEE)
Nennah-
CANADA
ALBERTA
*Calgary-
*Edmonton-

BRITISH COLUMBIA
*CastlegarZ
*New Westminster-

MANITOBA
*Winnipeg-

NEW BRUNSWICK
BathurstZV
*Saint John-

NOVA SCOTIA
*Dartmouth-

ONTARIO
*Etobicoke-
*Guelph-
*Pembroke-
*Rexdale-
*Whitby-

QUEBEC
ChibougamauV
Grand-MereZ
La BaieZ
Portage-du-FortZ
RobervalV
Saint-FulgenceV
*Saint-Laurent-
ShawiniganZ
Trois-RivieresZ
*Ville Monte-Royal-
RESEARCH CENTER

SASKATCHEWAN
*Regina-

GERMANY
*Augsburg.
*Bremen.
Dusseldorf-
*Frankfurt.
Germersheim-
Hamburg-
*Heppenheim.
HoyaZ
Julich-
Lauenburg-
Lubbecke-
Neuburg-
Platting-
ViersenZ
Waren-

HAMBURG
INSTITUTE FOR
PACKAGE AND
CORPORATE DESIGN

UNITED
KINGDOM
Ellesmere PortZ

NETHERLANDS
*Sneek.

BELGIUM
Ghlin-
Grand-Bigard-

FRANCE
*Bordeaux.
*Cholet.
Molieres-Sur-Ceze-
Nimes-
*Soissons.
*Strasbourg.

COSTA RICA
Palmar NorteV
San JoseV
ADMINISTRATIVE
OFFICE

VENEZUELA
*Puerto OrdazV
ADMINISTRATIVE OFFICE

CORPORATE HEADQUARTERS
Chicago, Illinois

FAR EAST OFFICES
Beijing, China
Tokyo, Japan
STONE CONTAINER
JAPAN COMPANY,
LTD.

<TABLE>
<C> <S>
- Corrugated Container
Z Paperboard/Paper/Pulp
t Bag
V Forest Products
. Folding Carton

*affiliates
</TABLE>

54
<PAGE>
MANAGEMENT

INFORMATION AS TO DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth the directors of the Company and their
beneficial ownership of Common Stock as of March 1, 1994.

<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
YEAR FIRST COMMON STOCK
ELECTED A BENEFICIALLY PERCENT OF COMMON
NAME PRINCIPAL OCCUPATION DIRECTOR OWNED(C) STOCK OUTSTANDING
- --------------------------- -------------------------------------------- ----------- ------------ -----------------
<S> <C> <C> <C> <C>
Richard A. Giesen*++ Chairman of the Board & Chief Executive 1974 12,717 (a)
Officer of Continere Corporation
James J. Glasser++ Chairman of the Board, President and Chief 1986 10,200 (a)
Executive Officer of GATX Corporation
George D. Kennedy+# Chairman of the Board of Mallinckrodt Group 1989 1,020 (a)
Inc. formerly IMCERA Group Inc.
Howard C. Miller, Jr.*+ Consultant 1981 2,066 (a)
John D. Nichols+# Chairman of the Board and Chief Executive 1989 2,040 (a)
Officer of Illinois Tool Works Inc.
Jerry K. Pearlman*+++ Chairman of the Board and Chief Executive 1984 3,672 (a)
Officer of Zenith Electronics Corporation
Richard J. Raskin Attorney 1983 575,448 (a)(b)
Alan Stone* Senior Vice President 1969 1,062,143 1.2 %(b)
Avery J. Stone President of IDC Management 1969 906,415 1.0 %(b)
Ira N. Stone Senior Vice President 1969 1,004,296 1.1 %(b)
James H. Stone* President of Stone Management Corporation 1969 563,377 (a)(b)
Roger W. Stone* Chairman of the Board, President and Chief 1969 1,715,127 1.9 %(b)
Executive Officer
<FN>
- ------------------------

* Member of the Executive Committee

+ Member of the Audit Committee

++ Member of the Compensation Committee

# Member of the Nominating Committee

(a) Does not exceed one percent (1%) of the outstanding stock.

(b) There is included in the stock beneficially owned in the foregoing table,
Common Stock owned by spouses and associates, except those associates
separately listed in the table, beneficial ownership of which is
disclaimed. See footnote (b) under "Security Ownership by Certain
Beneficial Owners and Management -- Security Ownership by Management".

55
<PAGE>
The following information indicates the principal occupation and employment
for the directors and executive officers for the last five years, unless
otherwise indicated.

DIRECTORS:

RICHARD A. GIESEN, born October 7, 1929, is Chairman of the Board and Chief
Executive Officer of Continere Corporation, a packaging distribution company.
Mr. Giesen is a director of GATX Corporation and Continere Corporation.

JAMES J. GLASSER, born June 5, 1934, is Chairman of the Board, President and
Chief Executive Officer of GATX Corporation, a leasing and financial services
company. Mr. Glasser is a director of General American Transportation
Corporation, GATX Leasing Corporation, The B.F. Goodrich Company, Harris
Bankcorp, Inc., Harris Trust & Savings Bank, and Bank of Montreal.

GEORGE D. KENNEDY, born May 30, 1926, is Chairman of the Board of
Mallinckrodt Group Inc. formerly IMCERA Group Inc., a diversified health care
company. Mr. Kennedy is a director of Illinois Tool Works Inc., Kemper
Corporation, Kemper National Insurance Co., Brunswick Corporation, American
National Can Corporation, Scottsman Industries, Inc., and Medical Care America,
Inc.

HOWARD C. MILLER, JR., born September 2, 1926, is a consultant in private
practice, consulting in general business matters. Mr. Miller is a director of
Automobile Protection Corporation.

JOHN D. NICHOLS, born September 20, 1930, is Chairman of the Board and Chief
Executive Officer of Illinois Tool Works Inc., a diversified manufacturing
company. Mr. Nichols is a director of Philip Morris Companies, Inc., Household
International, Inc. and Rockwell International Corporation.

JERRY K. PEARLMAN, born March 27, 1939, is Chairman of the Board and Chief
Executive Officer of Zenith Electronics Corporation, a manufacturer of consumer
electronics and cable television products. Mr. Pearlman is a director of First
Chicago Corporation and The First National Bank of Chicago.

RICHARD J. RASKIN, born April 4, 1945, is an attorney in private practice
with the law firm of Richard J. Raskin, Attorney at Law. See Footnote (b) under
"Security Ownership by Certain Beneficial Owners and Management -- Security
Ownership by Management".

ALAN STONE, born February 5, 1928, Senior Vice President, Purchasing; is
responsible for corporate purchasing. See Footnote (b) under "Security Ownership
by Certain Beneficial Owners and Management -- Security Ownership by
Management".

AVERY J. STONE, born November 7, 1932, is President of IDC Management Co., a
management and investment company. See Footnote (b) under "Security Ownership by
Certain Beneficial Owners and Management -- Security Ownership by Management".

IRA N. STONE, born February 4, 1932, Senior Vice President since 1991, is
responsible for Corporate Marketing, Communication and Public Affairs. See
Footnote (b) under "Security Ownership by Certain Beneficial Owners and
Management -- Security Ownership by Management".

JAMES H. STONE, born March 4, 1939, is President of Stone Management
Corporation, a management consulting firm (not affiliated with the Company). Mr.
Stone is a director of Fullerton Metals Company. See Footnote (b) under
"Security Ownership by Certain Beneficial Owners and Management -- Security
Ownership by Management".

ROGER W. STONE, born February 16, 1935, is Chairman of the Board, President
and Chief Executive Officer. Mr. Stone is a director of First Chicago
Corporation, The First National Bank of Chicago, Continere Corporation,
McDonald's Corporation, Morton International, Inc., Stone-Consolidated
Corporation, and Option Care, Inc. See Footnote (b) under "Security Ownership by
Certain Beneficial Owners and Management -- Security Ownership by Management".

56
<PAGE>
OTHER EXECUTIVE OFFICERS:

ARNOLD F. BROOKSTONE, born April 8, 1930, Executive Vice President, Chief
Financial and Planning Officer since 1991. Previously, Mr. Brookstone was Senior
Vice President, Chief Financial and Planning Officer. Mr. Brookstone is a
director of Stone-Consolidated Corporation, Continere Corporation, Donnelly
Corporation, MFRI, Inc., and Rembrandt Funds.

JAMES DOUGHAN, born November 9, 1933, President and Chief Executive Officer
of Stone-Consolidated Corporation since 1993. Previously, Mr. Doughan was
Executive Vice President, Containerboard and Paper and Pulp Marketing and Sales.
Mr. Doughan is a director of Stone-Consolidated Corporation.

MORTY ROSENKRANZ, born February 21, 1928, Executive Vice President,
Administration since 1993. Previously, Mr. Rosenkranz was Executive Vice
President North American Integrated Packaging.

JOHN D. BENCE, born June 18, 1932, Senior Vice President, European Packaging
Operations, joined the Company in December 1988 and was elected Vice President
in March 1989 and Senior Vice President in January 1991.

THOMAS W. CADDEN, SR., born September 4, 1933, Senior Vice President and
General Manager Industrial and Retail Packaging since 1993. Previously, Mr.
Cadden was Senior Vice President and General Manager of the Corrugated Container
Division.

THOMAS P. CUTILLETTA, born July 5, 1943, Senior Vice President and Corporate
Controller, is the Company's Chief Accounting Officer. Mr. Cutilletta was
elected Senior Vice President in January 1991.

HAROLD E. GREGG, born May 17, 1929, Senior Vice President since 1993 working
on special projects for the Chairman of the Board. Previously Mr. Gregg was
Senior Vice President Marketing and Corporate Sales.

GERALD M. FREEMAN, born April 18, 1937, Senior Vice President and General
Manager, Forest Products Division since 1987, is responsible for the operations
of that division.

JAMES B. HEIDER, born July 27, 1943, Senior Vice President and General
Manager, Containerboard and Paper Division since December, 1988.

MATTHEW S. KAPLAN, born March 13, 1957, Senior Vice President and General
Manager, Corrugated Container Division, since June, 1993. Previously, Mr. Kaplan
was Vice President and General Manager, Retail Bag Division. Mr. Kaplan is the
son-in-law of Roger W. Stone.

WILLIAM J. KLAISLE, born September 13, 1941, Vice President Corporate
Development since April 1993. Previously, Mr. Klaisle was Vice President,
Corporate Marketing and Communications.

LESLIE T. LEDERER, born July 20, 1948, Vice President, Secretary and Counsel
since 1987.

MICHAEL B. WHEELER, born February 15, 1945, Vice President since 1984 and
Treasurer and Assistant Secretary since 1981.

MEETINGS AND COMMITTEES OF DIRECTORS

The Audit Committee of the Board meets, as necessary, to receive and review
the results of the audits of the Company's books and records performed by the
independent auditors, to review matters relating to internal auditing,
accounting policies, procedures and adjustments, and to participate in the
selection of independent auditors for the following year.

The Compensation Committee of the Board meets, as necessary, to review the
Company's programs for the development of management personnel and to consider
recommendations and proposals to be made to the Board on directors' fees and
management compensation.

The Nominating Committee of the Board meets, as necessary, to seek out,
review the qualifications of, and propose to the Board, nominees for election as
directors. The Company's By-Laws provide, in general, that any stockholder
entitled to vote in the election of directors generally may nominate one or more
persons for election as directors at a meeting of stockholders at which
directors are to be elected

57
<PAGE>
only if written notice of such stockholder's intent to make such nomination has
been received by the Secretary of the Company not less than 60 nor more than 90
days prior to such meeting. The By-Laws further specify the requirements of such
notice.

The Executive Committee of the Board exercises the power and authority of
the Board of Directors as may be necessary during intervals between meetings of
the Board of Directors, subject to such limitations as are provided by law, the
Company's By-Laws or resolutions of the Board of Directors.

Non-employee directors receive an annual retainer of $25,000 for their
services plus $1,000 per meeting for attendance at Board and Board Committee
meetings. In addition, the Chairman of the Audit Committee and the Chairman of
the Compensation Committee receive an additional $3,000 per year retainer. Under
the Company's unfunded deferred director fee plans, a director may elect to
defer payment of his director's fees so that payment would be made in ten equal
annual installments commencing in the year following the director's retirement
from the Board of Directors plus earnings on the deferred amounts. In addition,
it is the policy of the Company to appoint a director with ten or more years
service as a director to be a consultant to the Company for a period of five
years after retirement from the Board, at an annual fee based upon the
director's retainer in effect at the date of retirement.

CERTAIN TRANSACTIONS

During 1984, the Company loaned to Mr. James Doughan, President & Chief
Executive Officer of Stone-Consolidated the amount of $347,250 in connection
with Mr. Doughan's relocation to Chicago upon his assuming his duties with the
Company. Mr. Doughan subsequently repaid a portion of such loan; the outstanding
balance as of March 1, 1994 was $275,000. During 1988, the Company made a loan
to Mr. James B. Heider, Senior Vice President and General Manager,
Containerboard and Paper Division, in the amount of $320,000 in connection with
his move to Chicago. Mr. Heider has subsequently repaid a portion of such loan;
the outstanding balance as of March 1, 1994 was $250,000. Such loans bear no
interest and are repayable on demand by the Company. The interest rate imputed
on such loans was 4.98% during 1993.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Roger W. Stone, Chairman of the Board, President and Chief Executive Officer
of the Company, serves as a director of Continere Corporation, whose Chairman
and Chief Executive Officer, Richard A. Giesen, serves on the Compensation
Committee of the Company.

58
<PAGE>
SECURITY OWNERSHIP BY CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT

SECURITY OWNERSHIP BY CERTAIN BENEFICIAL OWNERS

As of February 14, 1994, the following persons were known to the Company to
own beneficially more than 5% of the outstanding Common Stock of the Company:

<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK PERCENT OF COMMON
NAME AND ADDRESS BENEFICIALLY OWNED(1) STOCK OUTSTANDING
- ------------------------------------------------------------------ ----------------------- ---------------------
<S> <C> <C>
FMR Corp.......................................................... 10,184,373(2) 11.58%
82 Devonshire Street
Boston, MA 02109-3614
Sanford C. Bernstein & Co., Inc................................... 6,337,584 7.2 %
767 Fifth Avenue
New York, NY 10153
Reliance Financial Services Corp.................................. 4,761,904(3) 5.4 %
Park Avenue Plaza
55 East 52nd Street
New York, NY 10055
<FN>
- ------------------------
(1) Information with respect to beneficial ownership is based upon information
furnished by each owner.
(2) Includes (i) 5,350,817 shares resulting from the assumed conversion of
$61,802,000 principal amount of the Company's 8 7/8% Convertible Senior
Subordinated Notes due 2000, (ii) 7,949 shares resulting from the assumed
conversion of shares of the Company's $1.75 Series E Cumulative Convertible
Exchangeable Preferred Stock and (iii) 60,694 shares resulting from the
assumed conversion of $2,060,000 principal amount of the Company's 6.75%
Convertible Subordinated Debentures.
(3) All 4,761,904 shares are based upon the assumed conversion of the Company's
8 7/8% Convertible Senior Subordinated Notes due 2000.
</TABLE>

SECURITY OWNERSHIP BY MANAGEMENT

As of March 1, 1994, each of the executive officers named in the Summary
Compensation Table below, individually, and all directors and executive officers
as a group, beneficially owned the following shares of Common Stock of the
Company:

<TABLE>
<CAPTION>
NUMBER OF
SHARES
OF COMMON STOCK PERCENT OF
BENEFICIALLY COMMON STOCK
NAME OWNED OUTSTANDING
- ----------------------------------- --------------- -------------
<S> <C> <C>
Arnold F. Brookstone............... 112,400 (a)
James Doughan...................... 49,296 (a)
James B. Heider.................... 44,795 (a)
Morty Rosenkranz................... 68,168 (a)
Roger W. Stone..................... 1,715,127 1.9%(b)
All directors and executive
officers as a group............... 11,203,767 12.4%(b)
<FN>
- ------------------------
(a) Does not exceed one percent (1%) of the outstanding stock.
(b) The shares of Common Stock owned by all directors and executive officers as
a group include those of Jerome H. Stone and Marvin N. Stone, each of whom
is a Founding Director and as such is, pursuant to the Company's By-Laws,
entitled to attend and participate at meetings of directors but has no
vote. Jerome H. Stone, Marvin N. Stone and Norman H. Stone (deceased) are
brothers. Alan Stone and Ira N. Stone are sons of Norman H. Stone. Avery J.
Stone and Roger W. Stone are sons of Marvin N. Stone. James H. Stone is the
son and Richard J. Raskin is the son-in-law of Jerome H.
</TABLE>

59
<PAGE>
<TABLE>
<S> <C>
Stone. Matthew S. Kaplan is the son-in-law of Roger W. Stone. The members
of the Stone family own an aggregate (but not as a group) of approximately
13,000,000 shares of Common Stock (approximately 15% of the outstanding
shares).
</TABLE>

EXECUTIVE COMPENSATION

The following table sets forth the compensation paid to, as well as the
value of stock awards earned by, the Company's Chief Executive Officer and the
Company's four other most highly compensated executive officers during the past
three fiscal years.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION --------------------------------------
--------------------------------- RESTRICTED STOCK LONG-TERM INCENTIVE
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS AWARDS(1)(2) PLAN PAYOUTS(3)
- ----------------------------------------- --------- ----------- --------- ---------------- --------------------
<S> <C> <C> <C> <C> <C>
Roger W. Stone .......................... 1993 $ 730,000 -- $ 395,604 -0-
Chairman, President 1992 730,000 -- 389,360 172,150
Chief Executive Officer 1991 730,000 -- 381,547 177,000
Morty Rosenkranz ........................ 1993 410,000 -- 156,545 -0-
Executive Vice President 1992 391,250 -- 154,836 65,340
1991 363,250 -- 150,121 69,000
James Doughan ........................... 1993 373,000 -- 131,000 -0-
Executive Vice President 1992 358,000 -- 118,856 65,340
1991 341,750 -- 114,276 69,000
Arnold F. Brookstone .................... 1993 310,000 -- 113,004 -0-
Executive Vice President 1992 295,000 -- 104,295 61,270
1991 280,250 -- 99,774 69,000
James B. Heider ......................... 1993 275,000 -- 87,770 -0-
Senior Vice President 1992 253,250 -- 87,210 25,300
1991 225,500 -- 76,751 29,850
<FN>
- ------------------------
(1) Stock awards made under the Long-Term Incentive Plan do not vest until the
fifth anniversary of the award.

(2) Dividends on shares of restricted stock are paid at the same time and at
the same rate as dividends on all other shares of the Company's Common
Stock. The aggregate number as of December 31, 1993 and value as of the
date of the grant of each named executive's restricted stock holdings are
as follows: Mr. Stone, 119,081 shares, $2,332,807.25; Mr. Rosenkranz,
36,550 shares, $729,229.00; Mr. Doughan, 29,120 shares $598,140.25; Mr.
Brookstone, 24,671 shares, $510,369.75; Mr. Heider, 20,458 shares,
$370,071.50.

(3) Cash payouts under the Long-Term Incentive Plan reflected in this column
are on account of awards made and earned over the preceding five year
period.
</TABLE>

60
<PAGE>
LONG TERM INCENTIVE PLAN -- AWARDS IN LAST FISCAL YEAR

The following table sets forth the long-term incentive plan performance unit
awards made to each of the named executives in 1993.

<TABLE>
<CAPTION>
PERFORMANCE OR ESTIMATED FUTURE PAYOUTS UNDER
OTHER PERIOD NON-STOCK PRICE BASED PLANS(1)
UNTIL -----------------------------------
NUMBER OF MATURATION OR THRESHOLD TARGET MAXIMUM
NAME UNITS PAYOUT ($) ($) ($)
- ------------------------------------------------- ----------- --------------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
Roger W. Stone................................... 3956 5 years 197,800 395,600 593,400
Morty Rosenkranz................................. 1566 5 years 78,300 156,600 234,900
James Doughan.................................... 1197 5 years 59,850 119,700 179,550
Arnold F. Brookstone............................. 1048 5 years 52,400 104,800 157,200
James B. Heider.................................. 878 5 years 43,900 87,800 131,700
<FN>
- ------------------------
(1) Cash payout under the Company's Long-Term Incentive Plan.
</TABLE>

In addition to the restricted stock awards reflected in the Summary
Compensation Table, the Company's Long-Term Incentive Plan provides for
incentive awards to each named executive officer, in the form of performance
units, based upon the long-term performance of the Company. Such awards may be
earned upon the expiration of the five year period after the date of award to
the extent that the Company has achieved the designated performance goals for
such five-year performance cycle. Awards are granted each year based upon each
participant's level of responsibility and average salary mid-point level
projected as of the end of each five year performance cycle with awards ranging
from 40% to 100% of such salary mid-point. Performance unit awards are payable
in cash, if earned, upon the completion of each five year performance cycle. The
targeted performance goal for each performance cycle is realization by the
Company of a designated average corporate return on beginning equity. Cash
payments (from 0% to 150% of the performance unit award) are then determined by
the degree to which the Company attains or exceeds the targeted goal, ranging
from a minimum of 88% to a maximum of 133% of such goal. No cash payments will
be made if the Company does not achieve at least 88% of such goal. For example,
the cash payment, if any, to be paid to a participant under the plan will be in
an amount equal to (i) 100% of the value of the performance unit at the time of
its award if the Company attains the targeted goal at the end of the performance
cycle; (ii) 150% of such value if the Company attains 133% of such targeted
goal; (iii) 50% of such value if the Company attains 88% of such targeted goal,
or (iv) nothing, if the Company does not attain 88% of its targeted goal.

SALARIED EMPLOYEES RETIREMENT PLAN:

The Stone Container Corporation Salaried Employees Retirement Plan provides
for the payment of a monthly pension to retiring salaried employees equal to the
larger of (a) 1.67% of his or her average monthly compensation based on the
highest 60 consecutive months compensation (within the last 180 months) for each
year of service to a maximum of 30 years service, reduced by 3/4 of 1% of the
employee's covered compensation under social security or (b) 1% of such average
monthly compensation (not greater than $900) for each year of service. This
benefit is then reduced, if applicable, by the monthly retirement income that
could be provided on an actuarial equivalent basis from the employee's
participation in certain previously sponsored retirement plans of the Company.
Employees become vested for retirement income benefits after completion of 5
years of service or, if earlier, upon reaching age 65. The payment or accrual in
respect of any specified person is not and cannot readily be separately or
individually calculated by the actuaries for this defined benefit plan. Upon the
recommendation of the independent actuaries, the Company did not make a cash
contribution to the Plan for the year 1993. The following table shows the
estimated annual benefits payable upon retirement to persons in specified
remuneration and years-of-service classifications.

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<PAGE>
PENSION PLAN TABLE
ILLUSTRATIVE PROJECTED ANNUAL RETIREMENT BENEFIT
FOR SELECTED REMUNERATION AND YEARS OF SERVICE CLASSIFICATIONS (A)

<TABLE>
<CAPTION>
YEARS OF SERVICE AT RETIREMENT
---------------------------------------------------------------
REMUNERATION (B) 15 20 25 30 35
- ---------------------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$ 100,000................... $ 25,050 33,400 41,750 50,100 50,100
150,000................... 37,575 50,100 62,625 75,150 75,150
200,000................... 50,100 66,800 83,500 100,200 100,200
250,000................... 62,625 83,500 104,375 125,250 125,250
300,000................... 75,150 100,200 125,250 150,300 150,300
400,000................... 100,200 133,600 167,000 200,400 200,400
600,000................... 150,300 200,400 250,500 300,600 300,600
800,000................... 200,400 267,200 334,000 400,800 400,800
1,000,000.................. 250,500 334,000 417,500 501,000 501,000
<FN>
- ------------------------
(a) Benefit shown would be reduced by 3/4 of 1% of the retiree's covered
compensation under social security while employed by the Company, as
defined in the Plan, and would be limited to the extent required by the
provisions of the Internal Revenue Code of 1986. Under federal law, an
employee's benefits under a qualified pension plan such as the Stone
Container Corporation Salaried Employees Retirement Plan are limited to
certain maximum amounts. The Company maintains the Stone Container
Corporation Excess Benefit Plan, which supplements the benefits of any
participant in the qualified pension plan by direct payment of a lump sum
or by an annuity, on an unfunded basis, of the amount by which any
participant's benefits under the pension plan are limited by law. The table
illustrates the amount of annual pension without regard to such limitations
for an employee retiring in 1994 calculated on a single life annuity basis.

(b) In estimating the annual benefit it is assumed that the five year average
monthly compensation is equal to 1993 earnings.
</TABLE>

The base compensation covered by the Plan includes salary and any bonus
earned. Since no bonuses were paid to the individuals named in the summary
compensation table for the years 1991, 1992 and 1993, the base compensation
covered by the Plan for those years is equal to the amounts set forth in the
Salary column of that table. The years of service as of January 1, 1994 for such
individuals are: 37.4 for Mr. Stone, 29.9 for Mr. Rosenkranz, 9.9 for Mr.
Doughan, 28.7 for Mr. Brookstone and 13.2 for Mr. Heider.

Mr. James Doughan, Executive Vice President of the Company, has entered into
an agreement with the Company whereby the Company has agreed to pay Mr. Doughan
a supplemental retirement benefit commencing when Mr. Doughan attains age 65.
The supplemental retirement benefit is computed by taking the difference between
$12,500 per month and the amount Mr. Doughan will receive from the Stone
Container Corporation Salaried Employees Retirement Plan and, if applicable, the
Stone Container Corporation Excess Benefit Plan at age 65. Such supplemental
monthly benefit will be payable to Mr. Doughan only in the event Mr. Doughan is
either an employee of the Company at age 65 or becomes disabled while employed.
In the event Mr. Doughan dies either while an employee of Stone or after
commencement of such supplemental monthly benefit, his surviving spouse will
receive 50% of such supplemental monthly benefit for the remainder of her life.

EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN CONTROL
ARRANGEMENTS

The Board of Directors has authorized management to execute continuity
contracts for corporate and divisional officers (other than Roger W. Stone) who,
with certain exceptions, have been employed by the Company for at least five
years, providing for continuation of salary, bonus (based upon the average bonus
for the last three calendar years) and certain fringe benefits, in the event of
involuntary termination of employment after a change in control, as defined in
such continuity contracts, of the Company.

62
<PAGE>
Payments under these contracts would continue until the earliest of three years
from the date of such officer's involuntary termination, age 70, death,
disability or an offer of comparable employment. The Company has entered into
such contracts with each of the individuals named in the Summary Compensation
Table other than Mr. Stone. The amount of such payments to be received by the
individuals named in the Summary Compensation Table is dependent upon whether
such individual obtains employment elsewhere. Any amounts received by such
individual from other employment will offset the payment made pursuant to these
contracts.

The Company entered into consulting agreements in 1974 with each of Messrs.
Jerome H. Stone, Marvin N. Stone and Norman H. Stone (deceased), under which
each serves or was to serve as a consultant to the Company for a fee of $80,000
per annum during his lifetime and, should he die leaving a widow, $40,000 per
annum to such widow during her lifetime. Mr. Norman H. Stone died during 1985
and his widow receives the specified payments. The consulting fees are in
addition to the retirement benefits previously noted.

63
<PAGE>
CREDIT AGREEMENT

Concurrently with the closing of this Offering, it is contemplated that the
Company will repay the outstanding indebtedness under and terminate its existing
1989 Credit Agreement and enter into the Credit Agreement. The Credit Agreement
will consist of a $400 million senior secured term loan and a $450 million
senior secured revolving credit facility. The revolving credit facility
borrowing availability will be reduced by any letter of credit commitments, and
approximately $ million which the Company will borrow at closing.
Availability under the revolving credit facility will also be reduced by the
approximately $61 million outstanding letters of credit (the "Florence Letter of
Credit") securing the variable rate demand industrial revenue bonds issued by
Florence County, South Carolina relating to the Company's linerboard mill
located in Florence County. Up to $50 million of the revolving credit facility
will be available as a letter of credit sub-facility (other than the Florence
Letter of Credit). Any letters of credit issued under the sub-facility will
reduce borrowing availability under the revolving credit facility. In addition,
Bankers Trust Company will provide a swingline sub-facility under which the
Company may make borrowings of up to $25 million. Swingline loans will reduce
availability under the revolving credit facility on a dollar-for-dollar basis.

The Credit Agreement is expected generally to include terms, conditions,
representations and warranties, covenants, indemnities and events of default and
other provisions which are customary in such agreements. The following is a
summary of certain of the principal terms expected to be included in the Credit
Agreement. The terms and conditions of the Credit Agreement are subject to
negotiation, commitments from a lending group, the execution of definitive
documentation and closing (which is conditional upon the successful closing of
this Offering and the Related Transactions).

MATURITIES AND MANDATORY PREPAYMENTS

The term loan under the Credit Agreement will mature on April 1, 2000.
Amounts outstanding under the term loan will amortize on a semi-annual basis
(April 1 and October 1) based upon the applicable percentage of the initial
principal amount of the term loan. Amortization amounts will be .5% of principal
amount for the period from April 1, 1995 through April 1, 1999, 47.5% on October
1, 1999 and 48.0% on April 1, 2000. The revolving credit facility will mature on
May 15, 1999 and the Florence Letter of Credit will also expire May 15, 1999.

Mandatory prepayments will be required under the term loan portion of the
Credit Agreement as follows: (i) 50% (subject to performance-related step downs
to 25%) of Excess Cash Flow (as defined in the Credit Agreement) (excluding the
first $50 million of Excess Cash Flow in each fiscal year); (ii) 100% of the net
proceeds of (a) the issuance or incurrence of additional indebtedness (excluding
certain specified refinancings and $200 million (the "Debt Basket") of other
debt), and (b) certain non-ordinary course asset sales (excluding $200 million
(the "Asset Basket") of proceeds from such sales (other than sales of Collateral
or collateral under the Credit Agreement pledged to the lenders under the Credit
Agreement (the "Bank Collateral")), in each case for which substitute collateral
is not provided). All mandatory prepayments (except mandatory redemptions
related to sales of Bank Collateral) will be allocated entirely against the term
loan amortizations in inverse order of maturity. In addition, mandatory
prepayments from sales of Bank Collateral (unless substitute collateral has been
provided) will be allocated pro rata between the term loan (and applied in
inverse order of maturity) and the revolving credit facility, and, in the case
of the revolving credit facility, will result in a corresponding permanent
commitment reduction.

At the Company's request, the holders of loans under the term loan, voting
individually, may waive their individual right to any mandatory prepayment (and,
if lenders representing a majority of the outstanding principal of the term loan
waive such prepayment, then all holders will have been deemed to waive
prepayment), in which case the amounts otherwise payable to such holders (or all
of them) may be retained by the Company. The cash flow in excess of the required
mandatory repayment, the net proceeds from the Debt Basket, the net proceeds
from the Asset Basket, and waived prepayment obligations may be used for (i)
general corporate purposes, (ii) capital expenditures, acquisitions or

64
<PAGE>
investments in excess of annual limitations (without reducing permitted basket
amounts (except that Debt Basket amounts may not be used for this purpose)) and
(iii) prepayment of publicly issued debt securities ("Permitted Uses").

The Company will also be permitted to voluntarily reduce the unutilized
portion of the revolving credit facility and voluntarily prepay the term loan,
with voluntary term loan prepayments to be applied against amortizations in
inverse order of maturity.

INTEREST RATES

The Credit Agreement permits the Company to choose among various interest
rate options for the revolving credit facility and the term loan and to specify
the interest rate period to which the interest rate options are to apply,
subject to certain parameters. The applicable interest rates will be: (i) under
the revolving credit facility (a) the higher of Bankers Trust Company's prime
rate and the Federal Funds Effective Rate plus 1/2 of 1% (the alternative base
rate ("ABR")) plus 1 5/8% per annum or (b) the London Interbank Offered Rate
("LIBOR"), as adjusted ("Adjusted LIBOR"), plus 2 5/8% per annum; (ii) under the
swingline loan, ABR plus 1 5/8% per annum and (iii) under the term loan, ABR
plus 2 1/8% per annum or Adjusted LIBOR plus 3 1/8% per annum. Upon achievement
of specified indebtedness ratios and cash flow coverage ratios or other
performance related tests, the interest rate margins for the revolving credit
facility (including the swingline sub-facility) will be reduced. Additionally,
the Company pays a 1/2% commitment fee on the unused portions of the revolving
credit facilities but without giving effect to reductions in availability for
swingline loans, letters of credit outstanding or for the Florence Letter of
Credit. The Company will pay a fee on the outstanding letters of credit issued
under the revolving credit facility at a rate equal to the greater of (i) the
spread over Adjusted LIBOR applicable to the revolving credit facility MINUS
1/2% and (ii) 1%.

SECURITY

All indebtedness under the Credit Agreement will be secured by a significant
portion of the assets of the Company. Loans and letters of credit (other than
the Florence Letter of Credit) under the Credit Agreement will be secured by a
mortgage on the following mills and box plants owned or leased by the Company or
its subsidiaries, as well as liens on the machinery, equipment and inventory
located at each mill or box plant:

<TABLE>
<CAPTION>
PAPER MILLS: BOX PLANTS:
- --------------------------------- ----------------------------
<S> <C>
Snowflake, Arizona 48 Owned Box Plants
Panama City, Florida 34 Leased Box Plants(1)
Port Wentworth, Georgia
Florence, South Carolina
Hopewell, Virginia
Hodge, Louisiana Coshocton, Ohio
<FN>
- ------------------------
(1) Subject to receipt of requisite landlord consents.
</TABLE>

COVENANTS

The Credit Agreement is expected to contain covenants that include, among
other things, requirements to maintain certain financial tests and ratios
(including an indebtedness ratio and a minimum interest coverage ratio) and
certain restrictions and limitations, including those on capital expenditures,
changes in control, payment of dividends, sales of assets, lease payments,
investments (including investments in Stone-Consolidated, Seminole and SVCP),
additional borrowings, liens, repurchases or prepayment of certain indebtedness,
guarantees of indebtedness, mergers and purchases of stock and assets.

65
<PAGE>
INDEBTEDNESS RATIO

The Company will be required to have an indebtedness ratio (ratio of total
consolidated indebtedness to consolidated net worth plus total consolidated
indebtedness, as such terms are defined in the Credit Agreement) not exceeding
the following amounts as of the end of each fiscal quarter ending on a date as
indicated below:

<TABLE>
<CAPTION>
FISCAL QUARTER RATIO
- --------------------------------------------------------------- ---------
<S> <C>
December 31, 1994 through March 31, 1996....................... .85 to 1
June 30, 1996 through September 30, 1996....................... .80 to 1
December 31, 1996 through September 30, 1997................... .77 to 1
December 31, 1997 through September 30, 1998................... .72 to 1
December 31, 1998 through September 30, 1999................... .67 to 1
December 31, 1999 and thereafter............................... .62 to 1
</TABLE>

At June 30, 1994, the Company's actual indebtedness ratio (as defined) was
81.0%.

INTEREST COVERAGE RATIO

The Company will be required to have an interest coverage ratio (ratio of
earnings before interest, taxes, depreciation and amortization to interest
expense) of at least the following ratios at the end of each fiscal quarter,
calculated for the most recent four fiscal quarters (or if four fiscal quarters
have not been completed since the date thereof, then the number of fiscal
quarters that have been completed since the date thereof) as indicated below:

<TABLE>
<CAPTION>
DATE RATIO
- ------------------------------------------------------------- -----------
<S> <C>
December 31, 1994............................................ 1.00 to 1
March 31, 1995............................................... 1.15 to 1
June 30, 1995................................................ 1.25 to 1
September 30, 1995........................................... 1.35 to 1
December 31, 1995............................................ 1.50 to 1
March 31, 1996............................................... 1.65 to 1
June 30, 1996................................................ 1.75 to 1
September 30, 1996........................................... 1.85 to 1
December 31, 1996............................................ 2.00 to 1
March 31, 1997............................................... 2.25 to 1
June 30, 1997................................................ 2.25 to 1
September 30, 1997 and thereafter............................ 2.50 to 1
</TABLE>

For the three months ended June 30, 1994, the Company's actual interest
coverage ratio was .78 to 1.

RESTRICTIONS ON INVESTMENTS IN SUBSIDIARIES AND GUARANTEES; CROSS-DEFAULTS

The Credit Agreement contains restrictions on investments in
Stone-Consolidated, Seminole and SVCP. The Company is also not permitted to
guarantee the indebtedness of Stone-Consolidated, Seminole or SVCP and there are
restrictions on other guarantees. There are also restrictions on transactions
with affiliates which are not wholly owned subsidiaries. Any event of default or
default with respect to the Company's or a Subsidiary's (as defined in the
Credit Agreement) indebtedness for money borrowed having an aggregate principal
amount of $10 million or more constitutes an event of default under the Credit
Agreements. Any acceleration of any indebtedness having an aggregate principal
amount of $10 million or more of Stone-Consolidated, SVCP or Seminole also
constitutes an event of default under the Credit Agreement.

RESTRICTIONS ON DIVIDENDS

The Credit Agreement provides that the Company's dividend payments,
distributions or purchases of any class of capital stock of the Company and its
subsidiaries cannot exceed the sum of (A) an amount equal to (i) 75% of the
consolidated net income (as defined by the Credit Agreement) of the

66
<PAGE>
Company from October 1, 1994 to the date of payment of such dividends, minus
(ii) 100% of the consolidated net loss (as defined by the Credit Agreement) of
the Company from October 1, 1994 to the date of payment of such dividend plus
(iii) 100% of any net cash proceeds from sales of common stock or certain
preferred stock of the Company from the closing date to the date of payment of
such dividends, minus (iv) the total of certain permitted investments and
permitted capital expenditures, which the Company will be permitted to make in
lieu of dividends the Company would be permitted to pay pursuant to this
dividend formula. Consolidated Net Income will not include the charge to
earnings related to the Offering or the Related Transactions or to charges to
earnings for unamortized fees relating to the early extinguishment of debt. In
addition, the Credit Agreement permits the Company to pay dividends on its
preferred stock outstanding on the date of the Credit Agreement to the extent
permitted by the Company's senior subordinated indenture dated as of March 15,
1992.

RESTRICTIONS ON INCURRENCE OF INDEBTEDNESS

The Credit Agreement restricts the incurrence of additional indebtedness,
subject to certain exceptions (including the refinancing of existing
indebtedness). The Credit Agreement permits the Company to undertake accounts
receivable securitization financings of up to $500 million as well as the
incurrence of the Debt Basket amounts.

67
<PAGE>
DESCRIPTION OF NOTES

The Senior Notes will be issued under an Indenture dated as of ,
1994 (the "Senior Note Indenture"), between the Company and The Bank of New
York, as trustee (the "Senior Note Trustee"). The First Mortgage Notes will be
issued under an Indenture dated as of , 1994 (the "First Mortgage Note
Indenture") to be entered into by the Company and Norwest Bank Minnesota,
National Association, as trustee (the "First Mortgage Note Trustee"). The Senior
Notes and First Mortgage Notes are collectively referred to herein as the
"Notes," the Senior Note Indenture and the First Mortgage Note Indenture are
referred to herein individually as an "Indenture" and, collectively, as the
"Indentures" and the Senior Note Trustee and the First Mortgage Note Trustee are
referred to herein individually as the "Trustee" and, collectively, as the
"Trustees."

The following summaries of certain provisions of the First Mortgage Notes
and the Senior Notes and the First Mortgage Note Indenture and the Senior Note
Indenture do not purport to be complete and are subject to, and are qualified in
their entirety by express reference to, all the provisions of the First Mortgage
Note Indenture and the Senior Note Indenture, including the definitions therein
of certain terms. A copy of each of the First Mortgage Note Indenture and the
Senior Note Indenture is filed as an exhibit to the Registration Statement of
which this Prospectus is a part. Certain capitalized terms herein are defined in
the applicable Indenture.

GENERAL

The Senior Note Indenture limits the aggregate principal amount of Senior
Notes which may be issued thereunder to $200 million. The First Mortgage Note
Indenture limits the principal amount of First Mortgage Notes issuable
thereunder to $500 million.

The Senior Notes will be unsecured obligations of the Company.

The First Mortgage Notes will be secured by the Collateral. See "--
Additional First Mortgage Note Indenture Definitions -- Collateral."

The principal of, and any premium or interest on, the Notes will be payable,
and the Notes will be exchangeable and transfers thereof will be registrable, at
the respective Place of Payment set forth in the applicable Indenture, provided
that, at the option of the Company, payment of interest may be made by check
mailed to the address of the person entitled thereto as it appears in the
Register relating to such Notes.

The Notes will be issued in United States dollars in fully registered form,
without coupons, in denominations of $1,000 or any integral multiple thereof. No
service charge will be made for any transfer or exchange of the Notes, but the
Company may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith.

With respect to any Deficiency Offer, First Mortgage Note Offer, Change of
Control Offer, Asset Disposition Offer or optional redemption of the Notes, the
Company shall comply with the requirements of Section 14(e) and Rule 14e-1 under
the Exchange Act, as applicable.

RANKING

The Notes will rank PARI PASSU in right of payment with all existing and
future Senior Indebtedness (as defined) of the Company and senior in right of
payment and rights upon liquidation to all existing and future Subordinated
Indebtedness of the Company. After giving effect to the Offering and the Related
Transactions, the total outstanding Senior Indebtedness of the Company is
expected to be approximately $ .

A significant portion of the Company's assets will secure borrowings
outstanding under the Credit Agreement. See "Credit Agreement -- Security."
Likewise, the First Mortgage Notes are secured obligations of the Company. In
the event of the Company's insolvency or liquidation, the claims of the lenders
under the Credit Agreement would have to be satisfied out of the collateral
securing the Credit Agreement before any such assets would be available to pay
claims of holders of the Notes. Similarly,

68
<PAGE>
the holders of First Mortgage Notes would have to be satisfied out of the
Collateral under the First Mortgage Note Indenture before any such assets would
be available to pay claims of holders of the Senior Notes. If the lenders under
the Credit Agreement and/or the First Mortgage Note Trustee under the First
Mortgage Note Indenture should foreclose on their respective collateral, no
assurance can be given that there will be sufficient assets available in the
Company to pay amounts due on the First Mortgage Notes or the Senior Notes,
respectively.

The Notes are obligations exclusively of the Company. Because certain of the
operations of the Company are currently conducted by subsidiaries (primarily
Stone Canada and its subsidiaries, including Stone-Consolidated, and Seminole),
the Company's cash flow and consequent ability to service debt, including the
Notes, are dependent, in part, upon the earnings of its subsidiaries and the
distribution of those earnings or upon loans or other payments of funds by those
subsidiaries to the Company. The subsidiaries of the Company are separate and
distinct legal entities and have no obligation, contingent or otherwise, to pay
any amount due pursuant to the Notes or to make any funds available therefor,
whether by dividends, loans or other payments. In addition, the payment of
dividends and the making of loans and advances to the Company by its
subsidiaries may be subject to statutory or contractual restrictions (as well as
potential foreign tax withholding under certain circumstances), are contingent
upon the earnings of those subsidiaries and are subject to various business
considerations. See "Risk Factors -- Credit Agreement Restrictions."

Any right of the Company to receive assets of any of its subsidiaries upon
their liquidation or reorganization (and the consequent right of the holders of
the Notes to participate in the distribution of or proceeds from those assets)
will be structurally subordinated to the claims of such subsidiary's creditors
(including trade creditors and holders of debt issued by such subsidiary),
except to the extent that the Company is itself recognized as a creditor of such
subsidiary, in which case the claims of the Company would still be subordinate
to any security interests in the assets of such subsidiary and any indebtedness
of such subsidiary senior to that held by the Company.

PARTICULAR TERMS OF THE FIRST MORTGAGE NOTES

The First Mortgage Notes will mature on , 2002.The First
Mortgage Notes are not redeemable at the option of the Company prior to
, 1999. Thereafter, the First Mortgage Notes may be redeemed
at the option of the Company, in whole or in part from time to time, on not less
than 30 days, nor more than 45 days, prior notice, mailed by first class mail to
the First Mortgage Note holders' last addresses as they shall appear in the
Register, at the following prices (expressed as percentages of the principal
amount of the First Mortgage Notes), if redeemed during the twelve months
beginning of the year indicated below, in each case together
with interest accrued to the Redemption Date:

<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- -------------------------------------------------------------------------------- -------------
<S> <C>
1999............................................................................ %
2000............................................................................ %
2001 and thereafter............................................................. %
</TABLE>

Selection of First Mortgage Notes for redemption will be made by the First
Mortgage Note Trustee, upon notice, substantially pro rata. The First Mortgage
Note Indenture provides that, if any First Mortgage Note is to be redeemed in
part only, the notice which relates to the redemption of such First Mortgage
Note shall state the portion of the principal amount to be redeemed, and shall
state that on or after the Redemption Date, upon surrender of such First
Mortgage Note, a new First Mortgage Note or First Mortgage Notes in principal
amount equal to the unredeemed portion thereof will be issued.

The First Mortgage Notes will bear interest at the rate per annum shown on
the cover page of this Prospectus from the date of original issuance of the
First Mortgage Notes. Interest on the First Mortgage

69
<PAGE>
Notes will be payable semi-annually on and
of each year, commencing , 1995, to the
Holders in whose names the First Mortgage Notes are registered at the close of
business on the preceding and respectively.

In the event that the Company is required but unable to make a Deficiency
Offer, the Reset Rate on the First Mortgage Notes will be the greater of (x) the
initial Interest Rate and (y) the sum of (A) basis points and (B) the higher
of the Year Treasury Rate and the Year Treasury Rate and shall further
increase by an additional 50 basis points on each succeeding Interest Payment
Date, PROVIDED, HOWEVER that in no such event shall the interest rate at any
time exceed the Initial Interest Rate by more than 200 basis points.

ADDITIONAL FIRST MORTGAGE NOTE COVENANTS

LIMITATION ON LIENS ON COLLATERAL. Under the terms of the First Mortgage
Note Indenture, the Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, (a) incur or suffer to exist any Lien
upon any of the Collateral other than Permitted Collateral Liens, (b) take any
action or omit to take any action with respect to the Collateral that would have
or could be reasonably expected to have the result of adversely affecting,
impairing or failing to maintain without interruption the security interests in
the Collateral under the First Mortgage Note Indenture or the Security
Documents, or (c) grant any interest whatsoever (other than Permitted Collateral
Liens) in any of the Collateral to any Person (other than the Company or the
First Mortgage Note Trustee) or suffer to exist any such interest. The Company
may not enter into a sale-leaseback transaction involving any Collateral.

LIMITATION ON COLLATERAL ASSET DISPOSITIONS. Under the terms of the First
Mortgage Note Indenture, the Company will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, consummate or permit a
Collateral Asset Disposition unless: (a) the Company receives consideration in
respect of and concurrently with such Collateral Asset Disposition at least
equal to the fair market value of the relevant Collateral; (b) with respect to
each such Collateral Asset Disposition, the Company delivers an Officer's
Certificate to the First Mortgage Note Trustee dated no more than 30 days prior
to the date of consummation of the relevant Collateral Asset Disposition,
certifying that (i) such disposition complies with clause (a) above, (ii) the
fair market value of the Collateral being sold was determined in good faith by
the Board of Directors of the Company, including a majority of the Independent
Directors (whose determination was based on the opinion of a qualified
Independent Appraiser or Independent Financial Adviser prepared
contemporaneously with such Collateral Asset Disposition and which opinion will
be evidenced by an opinion letter of the Independent Appraiser or Independent
Financial Adviser and attached to the Officer's Certificate), as evidenced by
copies of the resolutions of the Board of Directors of the Company, indicating
the requisite approval by the Independent Directors and the Board of Directors
(which shall also indicate that the relevant Collateral Asset Disposition is
being made for an appropriate business purpose which is not the redemption of
the First Mortgage Notes), adopted in respect of and concurrently with such
Collateral Asset Disposition and (iii) in the case of a release of less than all
of a Collateral Property, the release of the relevant portion of such Collateral
Property will not interfere with or materially and adversely affect the value of
the remaining portion of such Collateral Property, the maintenance and operation
of such remaining portion or the First Mortgage Note Trustee's uninterrupted
valid first ranking Lien (subject to Permitted Collateral Liens) on such
remaining portion (accompanied by a binding commitment of a title insurer to
issue an endorsement to the title insurance policy previously issued in respect
of such Collateral Property confirming that, after such release, the First
Mortgage Note Trustee's first ranking Lien on such remaining portion will remain
unimpaired and uninterrupted (subject only to Permitted Collateral Liens
existing on the date of the First Mortgage Note Indenture or obtaining priority
through operation of law)); (c) at least 90% of such consideration is in cash or
Cash Equivalents; (d) the Net Proceeds therefrom shall be paid directly by the
purchaser thereof to the First Mortgage Note Trustee and deposited into the Cash
Collateral Account pending application in accordance with clause (g) below and
the Company takes such actions, at its sole expense, as shall be required to
ensure that the First Mortgage Note Trustee has from such date a first ranking
Lien thereon (subject to Permitted Collateral Liens) pursuant to the First
Mortgage Note Indenture and the Security Documents; (e) concurrently with the
relevant Collateral Asset Disposition, the Company takes

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such actions, at its sole expense, as shall be required to ensure that the First
Mortgage Note Trustee has from such date a first ranking Lien (subject to
Permitted Collateral Liens) on any portion of such consideration which is not in
the form of cash or Cash Equivalents ("Non-Cash Consideration"), and, upon
receipt thereof, of property received in the future in exchange for all or any
part of such Non-Cash Consideration, pursuant to the terms of the First Mortgage
Note Indenture and the Security Documents; (f) the Company takes such other
actions, at its sole expense, as shall be required to permit the First Mortgage
Note Trustee to release the Collateral being sold from the Lien of the First
Mortgage Note Indenture and the Security Documents; and (g) the Company, within
six months from the date of consummation of a Collateral Asset Disposition,
applies all of the Net Proceeds therefrom for the following purposes,
individually or in combination, (i) to purchase or otherwise invest in
Replacement Collateral (in accordance with the third paragraph of this covenant)
or (ii) to make a First Mortgage Note Offer; PROVIDED that, (1) in the event
that the Company enters into a binding commitment to purchase or otherwise
invest in Replacement Collateral pursuant to the foregoing clause (g)(i) within
such six month period, the Company will have eighteen months from the date of
consummation of such Collateral Asset Disposition to consummate such purchase or
investment, which shall be completed with due diligence and (2) in connection
with a Collateral Asset Disposition involving all (but not less than all) of the
Collateral Property located in York, Pennsylvania (as more specifically
described in the relevant Security Document), the Company may, concurrently with
such Collateral Asset Disposition, make subject to the Lien of the First
Mortgage Note Indenture as Replacement Collateral any other assets of the
Company satisfying the definition of "Replacement Collateral" in accordance with
the third paragraph of this covenant below in lieu of the assets purchased with
the Net Proceeds of such Collateral Asset Disposition. The Company will not and
will not permit any of its Restricted Subsidiaries, directly or indirectly, to
enter into a Sale-leaseback transaction involving the Collateral.

Under the terms of the First Mortgage Note Indenture, the Company will not,
and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, suffer or permit a Collateral Loss Event unless: (a) the Net
Proceeds therefrom are paid directly by the party providing such Net Proceeds to
the First Mortgage Note Trustee and deposited in the Cash Collateral Account,
(b) the Company takes such actions, at its sole expense, as shall be required to
ensure that the First Mortgage Note Trustee has from the date of such deposit a
first ranking Lien (subject to Permitted Collateral Liens) on such Net Proceeds
in the Cash Collateral Account pursuant to the terms of the First Mortgage Note
Indenture and the Security Documents and (c) the Company, within six months of
receipt of the Net Proceeds therefrom, applies all the Net Proceeds received
therefrom for the following purposes, individually or in combination: (i) to
purchase or otherwise invest in Replacement Collateral; (ii) to Restore the
relevant Collateral; or (iii) to make a First Mortgage Note Offer; PROVIDED
that, in the event that the Company enters into a binding commitment to purchase
or otherwise invest in Replacement Collateral pursuant to the foregoing clause
(c)(i) or to Restore the relevant Collateral pursuant to the foregoing clause
(c)(ii) within six months of receipt of such Net Proceeds from a Collateral Loss
Event, the Company will have eighteen months from the date of such receipt to
consummate or complete such purchase, investment or Restoration, which shall be
carried out with due diligence. In connection with any Restoration, the Company
shall follow the procedures set forth in the First Mortgage Note Indenture.

Under the terms of the First Mortgage Note Indenture, in the event that the
Company (a) elects pursuant to clause (g)(i) of the first paragraph of this
covenant or clause (c)(i) of the second paragraph of this covenant to apply any
portion of the Net Proceeds from a Collateral Asset Disposition or Collateral
Loss Event, respectively, to purchase or otherwise invest in Replacement
Collateral, (b) pursuant to the last paragraph of this covenant is deemed to
purchase or otherwise invest in Replacement Collateral or (c) pursuant to clause
(2) of the first paragraph of this covenant elects to provide other assets of
the Company as Replacement Collateral for the Collateral Property located in
York, Pennsylvania following the sale thereof (1) the Company shall deliver an
Officers' Certificate to the First Mortgage Note Trustee dated no more than 30
days prior to the date of consummation of the relevant purchase of or investment
in Replacement Collateral (in the case of (a)), or of the relevant Collateral
Asset Disposition (in the case of (c)) or dated the date of withdrawal (in the
case of (b)), certifying that (i) in the case of clause (a), the purchase price
for or the amount of the investment in the relevant Replacement Collateral does
not

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exceed the fair market value of such Replacement Collateral, (ii) in the case of
clause (b), the Company is required to use the relevant portion of such Net
Proceeds to fund an "Asset Disposition Offer" under the 1991 Indenture in
accordance with the last paragraph of this covenant and has complied with the
last paragraph of this covenant in connection therewith or (iii), in the case of
(c), the fair market value of such Replacement Collateral is not less than $31
million as determined in good faith by the Board of Directors of the Company,
including a majority of the Independent Directors (whose determination in the
case of clauses (i) and (iii) was based on the opinion of a qualified
Independent Appraiser or Independent Financial Adviser prepared
contemporaneously with the consummation of such purchase of or investment in the
relevant Replacement Collateral and which opinion will be evidenced by an
opinion letter of the Independent Appraiser or Independent Financial Adviser
attached to the Officers' Certificate), as evidenced by copies of the
resolutions of the Board of Directors, indicating the requisite approval of the
Independent Directors, adopted in respect of and concurrently with the purchase
of or investment in such Replacement Collateral; and (2) the Company shall take
such actions, at its sole expense, as shall be required to permit the First
Mortgage Note Trustee to release such Net Proceeds (or proceeds required to be
applied to the prepayment of Indebtedness under the 1991 Indenture, as described
in the last paragraph of this covenant) from the Lien of the First Mortgage Note
Indenture and the Security Documents and to ensure that the First Mortgage Note
Trustee has, from the date of such purchase or investment, a first ranking Lien
(subject to Permitted Collateral Liens) on such Replacement Collateral pursuant
to the terms of the First Mortgage Note Indenture and the Security Documents.
Furthermore, the First Mortgage Note Trustee shall have received, concurrently
with the grant to it of the Lien in respect of any Replacement Collateral
constituting real property or equipment, the documents set forth in the First
Mortgage Note Indenture relating to such Replacement Collateral substantially in
the form delivered to the First Mortgage Note Trustee on the date of the First
Mortgage Note Indenture in respect of the original Collateral Properties.

Notwithstanding the foregoing, under the terms of the First Mortgage Note
Indenture the Company may defer a First Mortgage Note Offer until such time as
the Excess Proceeds exceed $15 million (30 days from which time the Company must
make a First Mortgage Note Offer), PROVIDED that (a) the Company provides
written notice to the First Mortgage Note Trustee of such deferred application
of Excess Proceeds, (b) all Excess Proceeds are deposited and remain on deposit
in the Cash Collateral Account pending a First Mortgage Note Offer and (c) any
First Mortgage Note Offer shall include all Excess Proceeds on deposit in the
Cash Collateral Account on the date of such First Mortgage Note Offer,
regardless of whether the Excess Proceeds exceed $15 million at such time. All
amounts remaining after the completion of any First Mortgage Note Offer shall
remain in the Cash Collateral Account subject to the Lien of the First Mortgage
Note Indenture. The Company may use such amounts to purchase or otherwise invest
in Replacement Collateral securing the First Mortgage Notes on the basis
described in the previous paragraph at any time and from time to time.

Under the terms of the First Mortgage Note Indenture, within 30 days of any
decision by the Company to make a First Mortgage Note Offer or of the date upon
which the Excess Proceeds exceed $15 million, the Company, or the First Mortgage
Note Trustee at the Company's request, will mail or cause to be mailed to all
Holders of First Mortgage Notes a notice of the First Mortgage Note Offer and of
the Holders' rights resulting therefrom. Such notice will contain all
instructions and materials necessary to enable Holders of First Mortgage Notes
to tender their First Mortgage Notes to the Company.

On the First Mortgage Note Offer Payment Date, the Company shall (i) accept
for payment First Mortgage Notes or portions thereof tendered pursuant to the
First Mortgage Note Offer in an aggregate principal amount equal to the First
Mortgage Note Offer Amount or such lesser amount of First Mortgage Notes as
shall have been tendered, (ii) deposit with the Paying Agent money sufficient to
pay the purchase price of all First Mortgage Notes or portions thereof so
accepted, and (iii) deliver or cause to be delivered to the Trustee First
Mortgage Notes so accepted together with an Officer's Certificate stating the
First Mortgage Notes or portions thereof accepted by the Company. If the
aggregate principal amount of First Mortgage Notes surrendered exceeds the
aggregate principal amount of First Mortgage Notes subject to the First Mortgage
Note Offer, as indicated in the notice required by this covenant, the

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Trustee shall select the First Mortgage Notes to be purchased on a PRO RATA
basis to the nearest one thousand dollars ($1,000) of principal amount. The
Paying Agent shall promptly mail or deliver to Holders of First Mortgage Notes
so accepted payment in an amount equal to the purchase price, and the Company
shall execute and the Trustee shall promptly authenticate and mail or make
available for delivery to such Holders a new First Mortgage Note equal in
principal amount to any unpurchased portion of the First Mortgage Note
surrendered. The Company will publicly announce the results of the First
Mortgage Note Offer.

If, pursuant to the 1991 Indenture, the Company is required to make an
"Asset Disposition Offer" (as defined thereunder) using proceeds from a
Collateral Asset Disposition, the Company may use such proceeds as are on
deposit in the Cash Collateral Account to fund the purchase of Indebtedness
under the 1991 Indenture tendered pursuant to such offer; PROVIDED that the
Company shall have subjected to the Lien of the First Mortgage Note Indenture
and the Security Documents cash in an amount equal to such proceeds as
Replacement Collateral pursuant to the third paragraph of this covenant in lieu
of the cash released from the Cash Collateral Account, the amount so released
being deemed to be the amount invested in or used to purchase Replacement
Collateral for the purpose of such clause and such release and substitution
being deemed to constitute a purchase of such Replacement Collateral. In the
event that the Company is required to make an Asset Disposition Offer under the
1991 Indenture using proceeds from a Collateral Asset Disposition (including to
the extent that proceeds from a Collateral Asset Disposition remain in the Cash
Collateral Account after completion of a First Mortgage Note Offer) and the
Company does not have sufficient additional funds to make such Asset Disposition
Offer, an event of default may occur under the 1991 Indenture and, if so, events
of default may occur under other indebtedness of the Company. If such an event
of default occurs and indebtedness of $25 million or more is accelerated as a
result thereof, such acceleration (if not rescinded or waived within applicable
cure periods) would constitute an event of default under the Indentures.

CERTAIN OTHER COVENANTS WITH RESPECT TO THE COLLATERAL. The First Mortgage
Note Indenture also contains certain covenants of the Company to protect the
Collateral, including, for example, covenants to maintain title to the
Collateral, execute supplemental documents as required to perfect and protect
the Liens without interruption, refrain from impairing the Collateral or any
Liens thereon, notify the First Mortgage Note Trustee with respect to leases
related to any of the Collateral Properties, pay all taxes and assessments,
ensure compliance in all material respects with Environmental Laws, maintain
insurance coverage on the Collateral, maintain all material licenses and permits
required to own and operate the Collateral Properties and preserve the Liens
created under the First Mortgage Note Indenture and the Security Documents.

PARTICULAR TERMS OF THE SENIOR NOTES

The Senior Notes will mature on , 2004. The Senior Notes are not
redeemable at the option of the Company prior to , 1999.
Thereafter, the Senior Notes may be redeemed at the option of the Company, in
whole or in part from time to time on not less than 30 days, nor more than 45
days, prior notice, mailed by first class mail to the Senior Note holders' last
addresses as they shall appear in the note register, at the following prices
(expressed as percentages of the principal amount of the Senior Notes), if
redeemed during the twelve months beginning of the year
indicated below, in each case together with interest accrued to the Redemption
Date:

<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- -------------------------------------------------------------------------------- -------------
<S> <C>
1999............................................................................ %
2000............................................................................ %
2001............................................................................ %
2002............................................................................ %
2003 and thereafter............................................................. %
</TABLE>

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Selection of Senior Notes for redemption will be made by the Senior Note
Trustee, upon notice, substantially pro rata, by lot, or by any other method
that the Senior Note Trustee considers fair and appropriate. The Senior Note
indenture provides that, if any Senior Note is to be redeemed in part only, the
notice which relates to the redemption of such Senior Note shall state the
portion of the principal amount to be redeemed, and shall state that on or after
the Redemption Date, upon surrender of such Senior Note, a new Senior Note or
Senior Notes in principal amount equal to the unredeemed portion thereof will be
issued.

The Senior Notes will bear interest at the rate per annum shown on the cover
page of this Prospectus from the date of original issuance of the Senior Notes.
Interest on the Senior Notes will be payable semi-annually on
and of each year, commencing
, 1995, to the Holders in whose names the Notes are
registered at the close of business on the preceding and
respectively.

In the event that the Company is required but unable to make a Deficiency
Offer, the Reset Rate on the Senior Notes will be the greater of (x) the Initial
Interest Rate and (y) the sum of (A) basis points and (B) the higher of the
Year Treasury Rate and the Year Treasury Rate and shall further increase
by an additional 50 basis points on each succeeding Interest Payment Date,
PROVIDED, HOWEVER that in no such event shall the interest rate at any time
exceed the Initial Interest Rate by more than 200 basis points.

COMMON TERMS OF THE FIRST MORTGAGE NOTES AND THE SENIOR NOTES

THE TERMS AND PROVISIONS OF THE INDENTURES ARE SUBSTANTIALLY IDENTICAL,
EXCEPT THAT THE FIRST MORTGAGE NOTE INDENTURE CONTAINS ADDITIONAL TERMS AND
PROVISIONS RELATING TO THE COLLATERAL SECURING THE FIRST MORTGAGE NOTES AS
DESCRIBED IN "-- ADDITIONAL FIRST MORTGAGE NOTE COVENANTS" AND "-- ADDITIONAL
FIRST MORTGAGE NOTE INDENTURE DEFINITIONS." SET FORTH BELOW IS A DESCRIPTION OF
THE COMMON TERMS OF THE NOTES. IN THIS SECTION, THE TERM "INDENTURE" REFERS TO
THE FIRST MORTGAGE NOTE INDENTURE OR THE SENIOR NOTE INDENTURE, AS THE CASE MAY
BE, AND THE TERM "NOTES" REFERS TO THE FIRST MORTGAGE NOTES OR THE SENIOR NOTES,
AS APPLICABLE.

In addition to the Senior Notes offered hereby, the Company has also issued
$150 million principal amount of its 12 5/8% Senior Notes due July 15, 1998,
$240 million principal amount of its 11 7/8% Senior Notes due December 1, 1998
and $710 million principal amount of its 9 7/8% Senior Notes due February 1,
2001 under its Indenture dated November 1, 1991, as amended and supplemented
(the "1991 Indenture"), between the Company and The Bank of New York, as
trustee.

CERTAIN COVENANTS

MAINTENANCE OF SUBORDINATED CAPITAL BASE

The Indenture provides that, subject to the exception described in the
fourth following paragraph, in the event that the Company's Subordinated Capital
Base is less than $1 billion (the "Minimum Subordinated Capital Base") as at the
end of each of any two consecutive fiscal quarters (the last day of the second
such fiscal quarter, a "Deficiency Date"), then, with respect to the Notes, the
Company shall, no later than 60 days after the Deficiency Date (105 days if a
Deficiency Date is also the end of the Company's fiscal year), make an offer to
all Holders of Notes to purchase (a "Deficiency Offer") 10% of the principal
amount of Notes originally issued, or such lesser amount as may be Outstanding
at the time such Deficiency Offer is made (the "Deficiency Offer Amount"), at a
purchase price equal to 100% of principal amount, plus accrued and unpaid
interest to the Deficiency Payment Date (as defined below). Thereafter,
semiannually the Company shall make like Deficiency Offers for the then
applicable Deficiency Offer Amount of Notes until the Company's Subordinated
Capital Base as at the end of any subsequent fiscal quarter shall be equal to or
greater than the Minimum Subordinated Capital Base. Notwithstanding the
foregoing, after any specified Deficiency Date, the last day of any subsequent
fiscal quarter shall not constitute a Deficiency Date (giving rise to an
additional obligation under the first

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sentence of this paragraph) unless the Company's Subordinated Capital Base was
equal to or greater than the Minimum Subordinated Capital Base as at the end of
a fiscal quarter that followed such specified Deficiency Date and preceded such
subsequent quarter.

Within 60 days (105 days if the Deficiency Date is also the end of the
Company's fiscal year) following a Deficiency Date, the Company shall mail a
notice to each Holder of Notes in respect of the Deficiency Offer (which notice
shall contain all instructions and materials necessary to enable such Holders to
tender Notes).

Notes tendered pursuant to a Deficiency Offer will be accepted for payment,
in amounts as set forth below, on the date which shall be 20 Business Days from
the date such notice is mailed or, if acceptance for payment and payment is not
then lawful, on the earliest subsequent Business Day on which acceptance for
payment and payment is then lawful (a "Deficiency Payment Date").

On a Deficiency Payment Date, the Company shall (i) accept for payment Notes
or portions thereof tendered pursuant to the Deficiency Offer in an aggregate
principal amount equal to the Deficiency Offer Amount or such lesser principal
amount of such Notes as shall have been tendered, (ii) deposit with the Paying
Agent money sufficient to pay the purchase price of all such Notes or portions
thereof so accepted, and (iii) deliver, or cause to be delivered, to the Trustee
Notes or portions thereof so accepted together with an Officer's Certificate
stating the Notes or portions thereof accepted by the Company. If the aggregate
principal amount of such Notes tendered exceeds the Deficiency Offer Amount, the
Company shall select the Notes to be purchased on a pro rata basis to the
nearest $1,000 of principal amount. The Paying Agent shall promptly mail or make
available for delivery to Holders of Notes so accepted payment in amounts equal
to the purchase prices therefor, and the Company shall execute and the Trustee
shall promptly authenticate and mail or make available for delivery to such
Holders new Notes equal in principal amounts to, any unpurchased portion of
Notes surrendered. The Company will publicly announce the results of the
Deficiency Offer.

Notwithstanding the foregoing, in the event that (1) the making of a
Deficiency Offer by the Company or (2) the purchase of Notes by the Company in
respect of a Deficiency Offer would constitute a default (with the giving of
notice, the passage of time or both) with respect to any Specified Bank Debt at
the time outstanding, then, in lieu of the making of a Deficiency Offer in the
circumstances set forth above, (i) the interest rate on the Notes shall be reset
as of the first day of the second fiscal quarter following the Deficiency Date
(the "Reset Date") to a rate per annum (the "Reset Rate") specified above under
the headings "Description of Notes -- Particular Terms of the Senior Notes" and
"Description of Notes -- Particular Terms of the First Mortgage Notes,"
respectively, (ii) on the first Interest Payment Date following the Reset Date,
the interest rate on the Notes as reset on the Reset Date, shall increase by 50
basis points, and (iii) the interest rate on the Notes shall further increase by
an additional 50 basis points on each succeeding Interest Payment Date;
PROVIDED, HOWEVER, that in no event shall the interest rate on the Notes at any
time exceed the initial interest rate as set forth on the face of such Note
(with respect to each such Note, the "Initial Interest Rate") by more than 200
basis points. If the Company's Subordinated Capital Base falls below $1 billion,
it is probable that the Company would also be in default under certain covenants
expected to be contained in the Credit Agreement.

Once the interest rate on the Notes has been reset as set forth above, if
the Company's Subordinated Capital Base is equal to or greater than the Minimum
Subordinated Capital Base as of the last day of any fiscal quarter subsequent to
the Deficiency Date, interest on the Notes shall return to the Initial Interest
Rate effective as of the first day of the second following fiscal quarter;
PROVIDED, HOWEVER, that the interest rate on the Notes shall again be adjusted
as set forth above if the Company's Subordinated Capital Base shall thereafter
be less than the Minimum Subordinated Capital Base as at the last day of each of
any two consecutive subsequent fiscal quarters and if the making of a Deficiency
Offer or the purchase of Notes by the Company in respect of a Deficiency Offer
would, at such time, constitute a default (with the giving of notice, passage of
time or both) with respect to any Specified Bank Debt at the time outstanding.

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<PAGE>
The Company shall notify the Trustee of the Reset Rate not later than two
Business Days after the Reset Date in the circumstances set forth in the second
preceding paragraph. Not later than five Business Days after the Trustee has
received such notice from the Company, the Trustee shall mail to each Holder of
Notes such notice setting forth the Reset Rate. The Company shall notify the
Trustee and the Holders of Notes promptly when the interest rate on the Notes
returns to the Initial Interest Rate as set forth above.

LIMITATION ON FUTURE INCURRENCE OF INDEBTEDNESS

The Indenture provides that the Company will not, and will not permit any
Restricted Subsidiary to, incur, create, assume, guarantee or in any other
manner become directly or indirectly liable with respect to or responsible for
the payment of any Indebtedness except: (1) Permitted Indebtedness; and (2)
Indebtedness of the Company if at the time thereof and after giving effect
thereto the Consolidated Interest Coverage Ratio of the Company, on a pro forma
basis for the four most recent full quarters, taken as a whole (giving effect to
(i) such Indebtedness and (ii) the effect on the Consolidated Cash Flow
Available for Fixed Charges of the Company for the then four most recent full
fiscal quarters, taken as a whole, as a result of any acquisition of a Person
acquired by the Company or any Restricted Subsidiary with the proceeds of such
Indebtedness), would be greater than 1.75 to 1. Without limiting the foregoing,
the Company shall not, and shall not permit any Restricted Subsidiary to,
guarantee, or in any other manner become directly or indirectly liable with
respect to or responsible for the payment of, Indebtedness of any Unrestricted
Subsidiary in an amount greater than, for all guaranties and undertakings of
responsibility by the Company and its Restricted Subsidiaries, 20% of the
aggregate amount of Indebtedness of such Unrestricted Subsidiary.

RESTRICTIONS ON DIVIDENDS

The Indenture provides that the Company will not, and will not permit any
Subsidiary of the Company to, directly or indirectly, (1) declare or pay any
dividend or make any distribution, in cash or otherwise, in respect of any
shares of Capital Stock of the Company or to the holders of Capital Stock of the
Company as such (other than dividends or distributions payable in shares of
Capital Stock of the Company (other than Redeemable Stock)) or (2) purchase,
redeem or otherwise acquire or retire for value any of the Capital Stock of the
Company or options, warrants or other rights to acquire any such Capital Stock,
other than acquisitions of Capital Stock or such options, warrants or other
rights by any Subsidiary of the Company from the Company (any such transaction
included in clause (1) or (2), a "Restricted Payment") if (i) at the time of
such Restricted Payment and after giving effect thereto, (a) an Event of Default
shall have occurred and be continuing or (b) the Consolidated Net Worth of the
Company shall be less than $750 million; or if (ii) after giving effect to such
Restricted Payment, the aggregate amount expended subsequent to November 1,
1991, for all such Restricted Payments (the amount of any Restricted Payment, if
other than cash, to be the fair market value of such payment as determined by
the Board of Directors of the Company, whose reasonable determination shall be
conclusive and evidenced by a Board Resolution) exceeds the algebraic sum of (w)
a number calculated as follows: (A) if the aggregate Consolidated Net Income of
the Company earned on a cumulative basis during the period subsequent to
September 30, 1991 through the end of the last fiscal quarter that is prior to
the declaration of any such dividend or distribution or the giving of notice of
such purchase, redemption or other acquisition or retirement and for which such
financial information is then available, is a positive number, then 100% of such
positive number, and (B) if the aggregate Consolidated Net Income of the Company
earned on a cumulative basis during the period subsequent to September 30, 1991
through the end of the last fiscal quarter that is prior to the declaration of
any such dividend or distribution or the giving of notice of such purchase,
redemption or other acquisition or retirement and for which such financial
information is then available, is a negative number, then 100% of such negative
number, (x) the aggregate net cash proceeds received by the Company from the
issuance and sale, other than to a Subsidiary of the Company, subsequent to
November 1, 1991, of Capital Stock (including Capital Stock issued upon the
conversion of, or in exchange for, securities other than Capital Stock and
options, warrants or other rights to acquire Capital Stock, but excluding
Redeemable Stock), (y) the aggregate net cash proceeds originally received by
the Company from the issuance and sale, other than

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<PAGE>
to a Subsidiary of the Company, of Indebtedness of the Company that is converted
into Capital Stock of the Company subsequent to November 1, 1991, and (z) $300
million; PROVIDED, HOWEVER, that the retirement of any shares of the Company's
Capital Stock by exchange for, or out of the proceeds of the substantially
concurrent sale of, other shares of Capital Stock of the Company other than
Redeemable Stock shall not constitute a Restricted Payment. If all of the
conditions to the declaration of a dividend or distribution that are described
above are satisfied at the time such dividend or distribution is declared, then
such dividend or distribution may be paid or made within sixty days after such
declaration even if the payment of such dividend, the making of such
distribution or the declaration thereof would not have been permitted at any
time after such declaration.

LIMITATION ON FUTURE LIENS AND GUARANTIES

Pursuant to the terms of the Indenture, if the Company or any Subsidiary of
the Company shall create, incur, assume or suffer to exist any Lien, upon any of
the assets of the Company or a Subsidiary of the Company other than upon the
Collateral (whether such assets are owned at November 1, 1991 or thereafter
acquired) as security for (1) any Indebtedness or other obligation (whether
unconditional or contingent) of the Company that ranks PARI PASSU with the Notes
or any Indebtedness or other obligation (whether unconditional or contingent) of
a Subsidiary of the Company, the Company will secure or will cause such
Subsidiary to guarantee and secure the Outstanding Notes equally and ratably
with (or, at the option of the Company, prior to) such Indebtedness or other
obligation, so long as such Indebtedness or other obligation shall be so
secured, or (2) any Subordinated Indebtedness, the Company will secure the
Outstanding Notes prior to such Subordinated Indebtedness, so long as such
Subordinated Indebtedness shall be so secured; PROVIDED, HOWEVER, that this
covenant does not apply in the case of Permitted Liens or Liens granted by any
Unrestricted Subsidiary to secure Indebtedness or other obligations of itself or
of any Person other than the Company and its Restricted Subsidiaries.

In addition, pursuant to the terms of the Indenture, the Company will not
guarantee the Indebtedness of any Subsidiary of the Company and will not permit
any such Subsidiary or Seminole to guarantee (i) any Indebtedness of the Company
that ranks PARI PASSU with the Notes, (ii) any Indebtedness of a Subsidiary of
the Company or (iii) any Subordinated Indebtedness; PROVIDED, HOWEVER, that this
paragraph does not apply to (1) any guaranty by a Subsidiary if such Subsidiary
also guarantees the Notes on a PARI PASSU basis with respect to guaranties of
Indebtedness described in clauses (i) and (ii) and on a senior basis with
respect to guaranties of Indebtedness described in clause (iii); (2) any
guaranty existing on November 1, 1991 or any extension or renewal of such
guaranty to the extent such extension or renewal is for the same or a lesser
amount; (3) any guaranty which constitutes Indebtedness permitted by clause (v)
or (vi) of the definition of Permitted Indebtedness granted by a Person
permitted to incur such Indebtedness; (4) any guaranty by the Company of
Indebtedness of a Restricted Subsidiary, PROVIDED that (A) incurrence of such
Indebtedness of the Restricted Subsidiary is not prohibited by the Indenture and
(B) (x) such guaranty constitutes Indebtedness of the Company incurred as
Permitted Indebtedness pursuant to clause (vii) or (viii) of the definition of
Permitted Indebtedness (it being understood that, for purposes of determining
Permitted Indebtedness, any such guaranty shall be deemed to constitute
Indebtedness separate from, and, in addition to, Indebtedness of a Restricted
Subsidiary which is so guaranteed) or (y) immediately prior to and (on a pro
forma basis) after granting such guaranty, the Company would be permitted to
incur an additional dollar of Indebtedness (not constituting Permitted
Indebtedness) under the restrictions described in "Limitation on Future
Incurrence of Indebtedness" above; (5) any guaranty by an Unrestricted
Subsidiary of Indebtedness or other obligations of any Person other than the
Company and its Restricted Subsidiaries; (6) any guaranty by the Company or any
Subsidiary or Seminole of Indebtedness or other obligations constituting
Indebtedness permitted by clause (i)(a) of the definition of Permitted
Indebtedness in a principal amount not exceeding the principal amount
outstanding or committed under the Credit Agreements (including any letter of
credit facility, but without duplication with respect to commitments for loans
the use of proceeds of which is restricted to repayment of other Indebtedness
under the Credit Agreements) as of November 1, 1991, PLUS $250 million and LESS
the proceeds from the sale of all Indebtedness under the 1991 Indenture issued
from time to time that are applied to repay Indebtedness under the Credit

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Agreements); (7) any guaranty by the Company of Indebtedness of any Restricted
Subsidiary outstanding on November 1, 1991 which is not subordinated to any
Indebtedness of such Restricted Subsidiary, and any renewal extension or
refinancing of such Indebtedness permitted by the Indenture; (8) any guaranty by
the Company of Indebtedness of any Restricted Subsidiary that is organized under
the laws of a jurisdiction other than the United States or any subdivision
thereof, PROVIDED that the incurrence of such Indebtedness of such Restricted
Subsidiary is not prohibited by the Indenture; (9) any guaranty by a Restricted
Subsidiary that is organized under the laws of a jurisdiction other than the
United States or any subdivision thereof of the Indebtedness of any of its
Subsidiaries that is a Restricted Subsidiary and that is organized under the
laws of a jurisdiction other than the United States or any subdivision thereof,
PROVIDED that incurrence of such Indebtedness of such Restricted Subsidiary is
not prohibited by the Indenture; (10) any guaranty by the Company or a
Subsidiary of the Company of Indebtedness or other obligations in a principal
amount not exceeding $250,000; (11) any guaranty in the form of an endorsement
of negotiable instruments for deposit or collection and similar transactions;
(12) any guaranty arising under or in connection with performance bonds,
indemnity bonds, surety bonds or commercial letters of credit not exceeding $25
million in aggregate principal amount from time to time outstanding; (13) any
guaranty by a Subsidiary of the Company of Indebtedness or other obligations of
another Subsidiary in effect at the time of such guarantor becoming a Subsidiary
and not created in contemplation thereof; or (14) any guaranty by the Company or
a Restricted Subsidiary of any Interest Swap Obligation, Currency Agreement or
Commodities Agreement relating to Indebtedness that is guaranteed pursuant to
another clause of this paragraph.

LIMITATION ON ASSET DISPOSITIONS

The Indenture provides that (i) the Company will not, and will not permit
any Restricted Subsidiary to, make any Asset Disposition unless the Company (or
the Restricted Subsidiary, as the case may be) receives consideration at the
time of such Asset Disposition at least equal to the fair market value for the
assets sold or otherwise disposed of (which shall be determined in good faith
(x) in the case of dispositions of assets having a fair market value of $10
million or more, by the Board of Directors of the Company, whose reasonable
determination shall be conclusive and evidenced by a Board Resolution, or (y) in
the case of dispositions of assets having a fair market value of less than $10
million but not less than $5 million, an Officer of the Company, whose
reasonable determination shall be conclusive and evidenced by a certificate of
such Officer) and (ii) the Company will apply the aggregate net proceeds in
excess of $300 million received by the Company or any Restricted Subsidiary from
all Asset Dispositions occurring subsequent to November 1, 1991 (but excluding
for purposes of this clause (ii), whether before or after the receipt of net
proceeds in excess of $300 million, (1) the net proceeds of any Asset
Disposition or series of related Asset Dispositions where the net proceeds are
less than $5 million and (2) the first $25 million of net proceeds in each
fiscal year without taking into account any amount excluded pursuant to (1)) as
follows: (a) to the payment or prepayment of any Senior Indebtedness within six
months of such Asset Disposition, or (b) to investment in the business of the
Company and its Restricted Subsidiaries (including, without limitation, by
acquiring equity, other than Redeemable Stock, of the transferee of such Asset
Disposition) within six months of such Asset Disposition or, if such investment
is with respect to a project to be completed within a period greater than six
months from such Asset Disposition, then within the period of time necessary to
complete such project; PROVIDED, HOWEVER, that (x) in the case of applications
contemplated by clause (b), the Board of Directors has, within such six-month
period, adopted in good faith a resolution committing such excess proceeds to
such investment, (y) except as provided in the next sentence, none of such
excess proceeds shall be used to make any Restricted Payment or any payment in
respect of Subordinated Indebtedness and (z) to the extent not applied in
accordance with clauses (a) or (b) above, or if after being so applied there
remain excess net proceeds in an amount greater than $10 million, the Company
shall make a pro rata offer to all Holders to purchase Notes at 100% of
principal amount, plus accrued and unpaid interest to the Asset Disposition
Payment Date (as defined below), up to an aggregate principal amount equal to
such excess net proceeds (the "Asset Disposition Offer Amount"). If after being
applied in accordance with clauses (a), (b) and (z) above there remain excess
net proceeds, the Company will apply such excess net proceeds to the general
corporate purposes of the Company or any Subsidiary of the Company.

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Notwithstanding the foregoing, to the extent the Company or any of its
Restricted Subsidiaries receives securities or other non-cash property or assets
as proceeds of an Asset Disposition (other than equity in the transferee not
constituting Redeemable Stock), the Company shall not be required to make any
application required by the preceding paragraph until it receives cash proceeds
from a sale, repayment, exchange, redemption or retirement of or extraordinary
dividend or return of capital on such non-cash property, EXCEPT that if and to
the extent the sum of all cash proceeds plus the fair market value of equity
(other than Redeemable Stock) in the transferee of such Asset Disposition
received at the time of such Asset Disposition is less than 70% of the fair
market value of the total proceeds of such Asset Disposition (with such fair
market value determined and evidenced in the same manner as stated in clause (i)
of the preceding paragraph), the amount of such deficiency (the "Deficiency
Amount") shall be applied as required by the preceding paragraph as if received
at the time of the Asset Disposition. Any amounts deferred pursuant to the
preceding sentence shall be applied in accordance with the preceding paragraph
when cash proceeds are thereafter received from a sale, repayment, exchange,
redemption or retirement of or extraordinary dividend or return of capital on
such non-cash property; PROVIDED, HOWEVER, that the Company shall not be
required to apply with respect to any equity interest in a transferee an amount
exceeding the fair market value attributable to such equity interest at the time
of the Asset Disposition; and PROVIDED, FURTHER, that if a Deficiency Amount was
applied pursuant to the exception contained in the preceding sentence, then once
the cumulative amount of applications made pursuant to the preceding paragraph
and this paragraph (including any Deficiency Amounts) equals 100% of the fair
market value of the total proceeds of the Asset Disposition at the time of such
Asset Disposition, cash proceeds thereafter received from a sale, repayment,
exchange, redemption or retirement of or extraordinary dividend or return of
capital on such non-cash property shall not be required to be applied in
accordance with the preceding paragraph except to the extent such cash proceeds
exceed the Deficiency Amount.

An offer to purchase Notes required to be made pursuant to this covenant is
an "Asset Disposition Offer" and the date on which the purchase of Notes
relating to any such Asset Disposition Offer is to be made is an "Asset
Disposition Payment Date."

Notice of an Asset Disposition Offer shall be mailed on behalf of the
Company by the Trustee to all Holders of Notes at their last registered
addresses not less than 30 days nor more than 60 days before the Asset
Disposition Payment Date, which shall be a date not more than 210 days after the
Asset Disposition giving rise to such Asset Disposition Offer. The Asset
Disposition Offer shall remain open from the time of the mailing of such notice
until not more than five Business Days before the Asset Disposition Payment
Date.

On the Asset Disposition Payment Date, the Company shall (i) accept for
payment Notes or portions thereof tendered pursuant to the Asset Disposition
Offer in an aggregate principal amount equal to the Asset Disposition Offer
Amount or such lesser amount of Notes as shall have been tendered, (ii) deposit
with the Paying Agent money sufficient to pay the purchase price of all Notes or
portions thereof so accepted, and (iii) deliver or cause to be delivered to the
Trustee, Notes so accepted together with an Officer's Certificate stating the
Notes or portions thereof accepted by the Company. If the aggregate principal
amount of Notes tendered exceeds the Asset Disposition Offer Amount, the Company
shall select the Notes to be purchased on a PRO RATA basis to the nearest $1,000
of principal amount. The Paying Agent shall promptly mail or deliver to Holders
of Notes so accepted payment in an amount equal to the purchase price, and the
Company shall execute and the Trustee shall promptly authenticate and mail or
make available for delivery to such Holders a new Note equal in principal amount
to any unpurchased portion of the Note surrendered. The Company will publicly
announce the results of the Asset Disposition Offer.

The Company shall not make an "Asset Disposition Offer" (as defined)
required under the 1991 Indenture in connection with a disposition of assets
other than the Collateral unless the Company shall have made an Asset
Disposition Offer in respect of the First Mortgage Notes and Senior Notes (and
certain other Senior Indebtedness in accordance with the following sentence) on
a PRO RATA basis (in an aggregate amount equal to the amount to be offered
pursuant to the Asset Disposition Offer under the

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1991 Indenture), the closing date of which is prior to six months after the
asset disposition triggering the obligations of the Company under the 1991
Indenture. Notwithstanding the previous sentence, if on or after the date of the
Indenture, the Company issues any Senior Indebtedness (including the Senior
Notes or the First Mortgage Notes, as the case may be) containing a requirement
that an offer be made to repurchase such Senior Indebtedness under the same
circumstances and in the same manner (including the prescribed time periods
hereof) provided herein, then (i) the Company may apply the Asset Disposition
Offer Amount (before any adjustment pursuant to this sentence) to the pro rata
purchase of First Mortgage Notes and Senior Notes tendered under the Indentures
and the Senior Indebtedness tendered thereunder and (ii) the Asset Disposition
Offer Amount available to repurchase the First Mortgage Notes or the Senior
Notes, as the case may be, shall be reduced by the amount applied to the
purchase of such Senior Indebtedness; PROVIDED that this sentence shall only
apply to (i) Senior Indebtedness issued on or after the Issue Date that
explicitly permits the pro rata purchase of First Mortgage Notes and Senior
Notes as described in the Indenture and refers to the "Limitation on Asset
Dispositions" covenant and any Indebtedness outstanding at the Issue Date that
is amended to explicitly permit the PRO RATA purchase of First Mortgage Notes
and Senior Notes as described therein and refers to the "Limitation on Asset
Dispositions" covenant and (ii) asset dispositions not involving Collateral.

In the event that the First Mortgage Notes are refinanced through a public
or private offering of Indebtedness constituting debt securities and the amount
of such refinancing Indebtedness is no greater than the principal amount of the
First Mortgage Notes Outstanding as of the date of such refinancing, the Company
need not comply with the first paragraph of this covenant in respect of an Asset
Disposition involving the collateral securing such Indebtedness (other than
collateral granted in respect of such Indebtedness pursuant to a negative pledge
or similar provision contained in the indenture or similar instrument relating
to such Indebtedness) to the extent that such compliance would constitute a
default under such indenture or similar instrument.

RESTRICTIONS ON MERGERS AND CONSOLIDATIONS AND SALES OF ASSETS

The Indenture provides that the Company shall not consolidate with, or merge
with or into any other corporation (whether or not the Company shall be the
surviving corporation), or sell, assign, transfer or lease all or substantially
all of its properties and assets as an entirety or substantially as an entirety
to any Person or group of affiliated Persons, in one transaction or a series of
related transactions, unless: (1) either the Company shall be the continuing
Person or the Person (if other than the Company) formed by such consolidation or
with which or into which the Company is merged or the Person (or group of
affiliated Persons) to which all or substantially all the properties and assets
of the Company are sold, assigned, transferred or leased is a corporation (or
constitute corporations) organized under the laws of the United States of
America or any State thereof or the District of Columbia and expressly assumes,
by an indenture supplemental to the Indenture, all the obligations of the
Company under the Notes, the Indenture and, in the case of the First Mortgage
Notes, the Security Documents, including the First Mortgage Note Trustee's
uninterrupted Lien (subject to Permitted Collateral Liens) in respect of the
Collateral; (2) immediately before and after giving effect to such transaction
or series of related transactions, no Event of Default, and no Default, shall
have occurred and be continuing; (3) immediately after giving effect to such
transaction or series of related transactions, on a pro forma basis, but prior
to any purchase accounting adjustments resulting from the transaction or series
of related transactions, the Consolidated Net Worth of the Company (or of the
surviving, consolidated or transferee entity if the Company is not continuing,
treating such entity as the Company for purposes of determining Consolidated Net
Worth) shall be at least equal to the Consolidated Net Worth of the Company
immediately before such transaction; (4) immediately after giving effect to such
transaction or series of related transactions, the Company (or the surviving,
consolidated or transferee entity if the Company is not continuing, but treating
such entity as the Company for purposes of making such determination) would be
permitted to incur an additional dollar of Indebtedness (not constituting
Permitted Indebtedness) immediately prior to such transaction or series of
related transactions, under the covenant contained in the Indenture restricting
the incurrence of Indebtedness; PROVIDED, HOWEVER, that this clause (4) shall be

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inapplicable if (a) such transaction or series of related transactions, would
result in the occurrence of a Change of Control or (b) immediately prior to
giving effect to such transaction or series of related transactions, the Company
would not be permitted to incur an additional dollar of Indebtedness (not
constituting Permitted Indebtedness) under such covenant, and immediately after
giving effect to such transaction or series of related transactions, on a pro
forma basis, but prior to any purchase accounting adjustments resulting from the
transaction or series of related transactions, the Consolidated Interest
Coverage Ratio of the Company (or the surviving, consolidated or transferee
entity if the Company is not continuing, treating such entity as the Company for
purposes of determining the Consolidated Interest Coverage Ratio) shall be at
least equal to the Consolidated Interest Coverage Ratio of the Company
immediately before such transaction or series of related transactions; and (5)
the Company shall have delivered to the Trustee an Officer's Certificate and an
Opinion of Counsel, each stating that such consolidation, merger or transfer and
such supplemental indenture comply with the Indenture and that all conditions
precedent to the consummation of the transaction or series of related
transactions under the Indenture have been met. Notwithstanding the foregoing,
if clause (4) of the preceding sentence is inapplicable by reason of clause (b)
of the proviso thereto, and at the date three months after the consummation of
such transaction or series of related transactions, the rating ascribed to the
Notes by Standard and Poor's Corporation or Moody's Investors Service, Inc.
shall be lower than the rating ascribed to the Notes prior to the public
announcement of such transaction, then the Company shall make an offer for the
Notes at the same price and following the same procedures and obligations as
required with respect to a Change of Control (as if such date three months after
the giving effect to such transaction were the "Change of Control Date"). See
"-- Limitation on Future Incurrence of Indebtedness" above and "-- Change of
Control" below.

If, upon any consolidation or merger, or upon any sale, assignment, transfer
or lease, as provided in the preceding paragraph, any material property of the
Company or any Restricted Subsidiary or any shares of Capital Stock or
Indebtedness of any Restricted Subsidiary, owned immediately prior thereto,
would thereupon become subject to any Lien securing any indebtedness for
borrowed money of, or guaranteed by, such other corporation or Person (other
than any Permitted Lien), the Company, prior to such consolidation, merger,
sale, assignment, transfer or lease, will, by an indenture supplemental to the
Indenture, secure the due and punctual payment of the principal of, and premium,
if any, and interest on the Notes then Outstanding (together with, if the
Company shall so determine, any other indebtedness of, or guaranteed by, the
Company or any Restricted Subsidiary and then existing or thereafter created)
equally and ratably with (or, at the option of the Company, prior to) the
Indebtedness secured by such Lien.

CHANGE OF CONTROL

Upon the occurrence of a Change of Control (the "Change of Control Date")
and subject to the requirements of the next succeeding sentence, each Holder
shall have the right to require that the Company repurchase such Holder's Notes
in whole or in part pursuant to the offer described below (the "Change of
Control Offer") at a purchase price equal to 101% of the aggregate principal
amount of such Notes plus accrued and unpaid interest, if any, to the date of
such repurchase. If such repurchase would constitute an event of default under
Specified Bank Debt, then, prior to giving the notice to Holders provided below,
the Indenture requires the Company to (1) repay in full in cash such Specified
Bank Debt or (2) obtain the requisite consent of holders of such Specified Bank
Debt to permit the repurchase of Notes without giving rise to an event of
default under such Specified Bank Debt.

After giving effect to the Offerings and the Related Transactions,
approximately $ million of Specified Bank Debt is expected to be outstanding.

Promptly upon satisfaction of either one of the obligations, if then
applicable, described above, Company shall mail a notice to each Holder of Notes
and the Trustee in respect of the Change of Control Offer (which notice shall
contain all instructions and materials necessary to enable such Holders to
tender Notes). All Notes tendered will be accepted for payment on a date (the
"Change of Control

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Payment Date") which shall be no earlier than 30 days nor later than 40 days
from the date such notice is mailed, but in any event prior to the date on which
any Subordinated Indebtedness is paid pursuant to the terms of a provision
similar to the Change of Control Offer covenant.

On the Change of Control Payment Date, the Company shall (i) accept for
payment Notes or portions thereof tendered pursuant to the Change of Control
Offer, (ii) deposit with the Paying Agent money sufficient to pay the purchase
price of all Notes or portions thereof so accepted and (iii) deliver or cause to
be delivered to the Trustee Notes so accepted, together with an Officer's
Certificate stating the aggregate principal amount of the Notes or portions
thereof so accepted by the Company. The Paying Agent shall promptly mail or
deliver to the Holder of Notes so accepted payment in an amount equal to the
purchase price, and the Trustee shall promptly authenticate and mail or make
available for delivery to such Holder a new Note and equal in principal amount
to any unpurchased portion of the Note surrendered. The Company will publicly
announce the results of the Change of Control Offer.

Whether a Change of Control has occurred depends entirely on the
accumulation of common stock of the Company and on certain changes in the
composition of the Company's Board of Directors. As a result, the Company can
enter into certain highly leveraged transactions, including certain
recapitalizations, mergers or stock repurchases, that would not result in the
application of the Change of Control provisions. Because the definitions of
"Change of Control" and "Acquiring Person" exclude the Company, any Subsidiary
of the Company and certain members of the Stone family, certain transactions in
which such entities and persons participate as beneficial owners of Common Stock
(including, among others, a leveraged buyout or recapitalization) would not
constitute a Change of Control.

RANKING OF NOTES

The payment of the principal of, interest on and any other amounts due on
Subordinated Indebtedness will be subordinated in right of payment to the prior
payment in full of the Senior Notes and the First Mortgage Notes. The Senior
Notes and the First Mortgage Notes are senior to the Company's $150 million
principal amount of 10 3/4% Senior Subordinated Notes due June 15, 1997, $125
million principal amount of 11% Senior Subordinated Notes due August 15, 1999,
$230 million principal amount of 11 1/2% Senior Subordinated Notes due September
1, 1999, $200 million principal amount of 10 3/4% Senior Subordinated Debentures
due April 1, 2002, $250 million principal amount of 8 7/8% Convertible Senior
Subordinated Notes due July 15, 2000 and $115 million principal amount of 6 3/4%
Convertible Subordinated Debentures due February 15, 2007.

EVENTS OF DEFAULT AND NOTICE THEREOF

The following are Events of Default under the Indenture: (1) failure to pay
interest on any Note when due, continued for 30 days; (2) failure to pay the
principal of (or premium, if any, on) any Note when due and payable at Maturity,
upon redemption, upon repurchase pursuant to a Deficiency Offer as described
under "Maintenance of Subordinated Capital Base" above, pursuant to an Asset
Disposition Offer described under "Limitation on Asset Dispositions," First
Mortgage Note Offer as described under "Particular Terms of the First Mortgage
Notes -- Limitation on Collateral Asset Dispositions" or a Change in Control
Offer as described under "Change of Control Offer" above or otherwise; (3)
failure to observe or perform any other covenant, warranty or agreement
contained in the Notes or in the Indenture continued for a period of 60 days
after notice has been given to the Company by the Trustee or Holders of at least
25% in aggregate principal amount of the Outstanding Notes; (4) failure to pay
at final maturity, or acceleration of, Indebtedness of the Company having an
aggregate principal amount of not less than $25 million (or, if less, the least
amount contained in any similar provision of an instrument governing any
outstanding Subordinated Indebtedness of the Company, but in no event less than
$10 million), unless cured within 15 days after notice has been given to the
Company by the Trustee or Holders of at least 25% in aggregate principal amount
of the Outstanding Notes; (5) the entering against the Company of one or more
judgments or decrees involving an aggregate liability of $25 million or more
unless vacated, discharged, satisfied or stayed within 30 days of the entering
of such judgments or decrees; (6) certain events of bankruptcy, insolvency or
reorganization relating to the Company; (7) in the case of the First Mortgage
Note Indenture, the failure to observe or perform any covenant or agreement
under the

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"Limitation on Collateral Asset Dispositions" covenant and continuance of such
failure for 30 days; and (8) in the case of the First Mortgage Note Indenture,
(i) a default in performance or breach of any covenant or agreement contained in
any Security Document which is not cured within 30 days after notice has been
given to the Company by the First Mortgage Note Trustee or Holders of at least
25% of the principal amount of Outstanding First Mortgage Notes, (ii) for any
reason, other than the satisfaction in full and discharge of all obligations
secured thereby, to the extent permitted by the First Mortgage Note Indenture or
any Security Document, any Security Document ceases to be in full force and
effect, any Lien intended to be created thereby ceases to be or is not a valid
and perfected Lien having the ranking or priority contemplated thereby or any
Person (other than the Trustee and the Holders or the Company) obtains any
interest in the Collateral or any part thereof, except for Permitted Collateral
Liens and continuance of such condition for 30 days, or (iii) the Company
asserts in writing that any Security Document has ceased to be or is not in full
force and effect, in contravention of the First Mortgage Note Indenture.

The Indenture provides that the Trustee shall, within 30 days after the
occurrence of any Default or Event of Default give the Holders of Notes notice
of all uncured Defaults or Events of Default known to it (the term "Default" to
include the events specified above without grace or notice); PROVIDED, HOWEVER,
that, except in the case of an Event of Default or a Default in payment on any
Note, the Trustee shall be protected in withholding such notice if and so long
as the board of directors, the executive committee or directors or responsible
officers of the Trustee in good faith determine that the withholding of such
notice is in the interest of the Holders of Notes.

If an Event of Default (other than due to event of bankruptcy, insolvency or
reorganization) occurs and is continuing, the Trustee or the Holders of at least
25% in aggregate principal amount of the Outstanding Notes by notice in writing
to the Company (and to the Trustee if given by the Holders of at least 25% in
aggregate amount of Notes), may declare the unpaid principal of and accrued
interest to the date of acceleration on all the Outstanding Notes to be due and
payable immediately and, upon any such declaration, the Notes shall become
immediately due and payable.

If an Event of Default occurs due to bankruptcy, insolvency or
reorganization, all unpaid principal (without premium) of and accrued interest
on the Outstanding Notes IPSO FACTO becomes immediately due and payable without
any declaration or other act on the part of the Trustee or any Holder of any
Notes.

Any such declaration with respect to Notes may be annulled and past Events
of Default and Defaults (except, unless theretofore cured, an Event of Default
or a Default, in payment of principal of or interest on the Notes) may be waived
by the Holders of at least two-thirds of the principal amount of the Outstanding
Notes upon the conditions provided in the Indenture.

The Indenture provides that the Company will periodically file statements
with the Trustee regarding compliance by the Company with certain of the
covenants thereof and specifying any Event of Default or Defaults in performing
such covenants of which the signers may have knowledge.

MODIFICATION OF INDENTURES; WAIVER

The Indenture may be modified by the Company and the Trustee without the
consent of any Holders with respect to certain matters, including (i) to cure
any ambiguity, defect or inconsistency or to correct or supplement any provision
which may be inconsistent with any other provision of the Indenture and (ii) to
make any change that does not materially adversely affect the interests of any
Holder of Notes. In addition, under the Indenture, certain rights and
obligations of the Company and the rights of Holders of the Notes may be
modified by the Company and the Trustee with the written consent of the Holders
of at least two-thirds of the principal amount of the Outstanding Notes; but no
extension of the maturity of any Notes, reduction in the interest rate or
extension of the time for payment of interest, change in the optional redemption
or repurchase provisions in a manner adverse to any Holder of Notes, other

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modification in the terms of payment of the principal of or interest on any
Notes or reduction of the percentage required for modification, will be
effective against any Holder of any Outstanding Note without his consent.

The Holders of at least two-thirds in principal amount of the Outstanding
Notes may on behalf of the Holders of all Notes waive compliance by the Company
with certain restrictive covenants of the Indenture. The Holders of at least
two-thirds in principal amount of the Outstanding Notes may on behalf of the
Holders of all Notes waive any past Event of Default or Default under the
Indenture, except an Event of Default or a Default in the payment of the
principal of or premium, if any, or any interest on any Note or in respect of a
provision which under the Indenture cannot be modified or amended without the
consent of the Holder of each Outstanding Note.

SATISFACTION AND DISCHARGE OF INDENTURES; DEFEASANCE

The Company may terminate its substantive obligations in respect of the
Notes by delivering all Outstanding Notes to the Trustee for cancellation and
paying all sums payable by it on account of principal of and interest on all
Notes. The Company may terminate its substantive obligations in respect of the
Notes (except for its obligations to pay the principal of (and premium, if any,
on) and the interest on the Notes) by (i) depositing with the Trustee under the
terms of an irrevocable trust agreement, money or United States Government
Obligations sufficient to pay all remaining indebtedness on the Notes, (ii)
delivering to the Trustee either an Opinion of Counsel or a ruling directed to
the Trustee from the Internal Revenue Service to the effect that the Holders of
the Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such deposit and termination of obligations, and (iii)
complying with certain other requirements set forth in the Indenture. In
addition, the Company may terminate all of its substantive obligations in
respect of the Notes (including its obligations to pay the principal of (and
premium, if any, on) and interest on the Notes) by (i) depositing with the
Trustee under the terms of an irrevocable trust agreement, money or United
States Government Obligations sufficient to pay all remaining indebtedness on
the Notes, (ii) delivering to the Trustee either a ruling directed to the
Trustee from the Internal Revenue Service to the effect that the Holders of the
Notes will not recognize income, gain or loss for federal income tax purposes as
a result of such deposit and termination of obligations or an Opinion of
Counsel, based upon such a ruling or a change in the applicable federal tax law
since the date of the Indenture, to such effect, and (iii) complying with
certain other requirements set forth in the Indenture.

THE TRUSTEES

The Bank of New York will be the Trustee under the Senior Note Indenture.
The Company maintains normal commercial banking relations with The Bank of New
York, which may also be a lender under the Credit Agreement and which is the
trustee under other indentures of the Company.

Norwest Bank Minnesota, National Association will be the Trustee under the
First Mortgage Notes Indenture. Norwest Bank Minnesota is the trustee under
other indentures of the Company.

CERTAIN DEFINITIONS

For purposes of the Indenture, certain defined terms have the following
meanings:

"ACQUIRING PERSON" means any Person or group (as defined in Section 13(d)(3)
of the Exchange Act) who or which, together with all affiliates and associates
(as defined in Rule 12b-2 under the Exchange Act), becomes the beneficial owner
of shares of common stock of the Company having more than 50% of the total
number of votes that may be cast for the election of directors of the Company;
PROVIDED, HOWEVER, that an Acquiring Person shall not include (i) the Company,
(ii) any Subsidiary of the Company, (iii) any employee benefit plan of the
Company or any Subsidiary of the Company or any entity holding common stock of
the Company for or pursuant to the terms of any such plan, (iv) any descendant
of Joseph Stone or the spouse of any such descendant, the estate of any such
descendant or the spouse of any such descendant, any trust or other arrangement
for the benefit of any such descendant or the spouse of any such descendant or
any charitable organization established by any such descendant or the spouse of
any such descendant (collectively, the "Stone Family"), or (v) any

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group which includes any member or members of the Stone Family and a majority of
the common stock of the Company held by such group is beneficially owned by such
member or members. Notwithstanding the foregoing, no Person shall become an
"Acquiring Person" as the result of an acquisition of common stock by the
Company which, by reducing the number of shares outstanding, increases the
proportionate number of shares beneficially owned by such Person to more than
50% or more of the common stock of the Company then outstanding; PROVIDED,
HOWEVER, that if a Person shall become the beneficial owner of more than 50% or
more of the common stock of the Company then outstanding by reason of share
purchases by the Company and shall, after such share purchases by the Company,
become the beneficial owner of any additional shares of common stock of the
Company, then such Person shall be deemed to be an "Acquiring Person."

"ASSET DISPOSITION" means any sale, transfer, sale-leaseback or other
disposition of (i) shares of Capital Stock of a Restricted Subsidiary (other
than directors' qualifying shares) or (ii) property or assets of the Company or
any Restricted Subsidiary (other than a sale, transfer, sale-leaseback or other
disposition of Receivables and other assets or property described in clause (vi)
of the definition of Permitted Liens pursuant to a Receivables sale constituting
Indebtedness pursuant to clause (ii) of the definition thereof); PROVIDED,
HOWEVER, that an Asset Disposition shall not include any sale, transfer or other
disposition (a) of Collateral, (b) by a Restricted Subsidiary to the Company or
to another Restricted Subsidiary or by the Company to a Restricted Subsidiary,
(c) of defaulted Receivables for collection or (d) in the ordinary course of
business, but shall include any sale, transfer, sale-leaseback or other
disposition by the Company or a Restricted Subsidiary to an Unrestricted
Subsidiary of the shares, property or assets referred to in clauses (i) and
(ii). The designation by the Company of a Subsidiary of the Company as an
"Unrestricted Subsidiary" shall constitute an Asset Disposition of such
Subsidiary's property and assets net of its liabilities, unless the transfer of
property and assets to such Subsidiary has previously constituted an Asset
Disposition.

"CAPITALIZED LEASE OBLIGATION" means, in respect of any Person, an
obligation to pay rent or other amounts under a lease that is required to be
capitalized for financial reporting purposes in accordance with GAAP, and the
amount of Indebtedness represented by such obligation shall be the capitalized
amount of such obligation determined in accordance with such principles.

"CHANGE OF CONTROL" means any event by which (i) an Acquiring Person has
become such or (ii) Continuing Directors cease to comprise a majority of the
members of the Board of Directors of the Company.

"CONSOLIDATED AMORTIZATION EXPENSE" means, for any period, the amortization
expense of the Company and its Restricted Subsidiaries for such period,
determined on a consolidated basis in accordance with GAAP.

"CONSOLIDATED CASH FLOW AVAILABLE FOR FIXED CHARGES" means, for any period,
(a) the sum of the amounts for such period of (i) Consolidated Net Income, (ii)
Consolidated Interest Expense, (iii) Consolidated Income Tax Expense, (iv)
Consolidated Depreciation Expense, (v) Consolidated Amortization Expense and
(vi) other non-cash items reducing Consolidated Net Income, MINUS (b) non-cash
items increasing Consolidated Net Income, all as determined on a consolidated
basis for the Company and its Restricted Subsidiaries in accordance with GAAP.

"CONSOLIDATED DEPRECIATION EXPENSE" means, for any period, the depreciation
expense of the Company and its Restricted Subsidiaries for such period,
determined on a consolidated basis in accordance with GAAP.

"CONSOLIDATED FREE CASH FLOW" means, for any period, (a) the sum of the
amounts for such period of (i) Consolidated Net Income, (ii) Consolidated
Depreciation Expense and (iii) Consolidated Amortization Expense, MINUS (b) the
sum of (i) Restricted Payments (as defined under the subsection entitled
"Dividend Restrictions" above) during such period, (ii) net reduction during
such period in Indebtedness of the Company and its Restricted Subsidiaries
(other than as a result of Asset Dispositions, Collateral

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Asset Dispositions or Collateral Loss Events) and (iii) the excess (but not the
deficit) of capital expenditures of the Company and its Restricted Subsidiaries
for such period not financed pursuant to clause (vi) of the definition of
Permitted Indebtedness over Consolidated Depreciation Expense.

"CONSOLIDATED INCOME TAX EXPENSE" means, for any period, the aggregate of
the income tax expense of the Company and its Restricted Subsidiaries for such
period, determined on a consolidated basis in accordance with GAAP.

"CONSOLIDATED INTEREST COVERAGE RATIO" means, for any period, the ratio of
(i) Consolidated Cash Flow Available for Fixed Charges to (ii) Consolidated
Interest Expense.

"CONSOLIDATED INTEREST EXPENSE" means, for any period, the interest expense
(including the interest component of all Capitalized Lease Obligations and the
earned discount or yield with respect to a Receivables sale constituting
Indebtedness) of the Company and its Restricted Subsidiaries for such period,
determined on a consolidated basis in accordance with GAAP; PROVIDED, HOWEVER,
that, with respect to revolving credit, revolving Receivables purchases or other
similar arrangements, the interest expense in respect thereof for any period
shall be, the pro forma interest expense attributable to all amounts committed
during such period under such revolving credit, revolving Receivables purchases
or other similar arrangements, whether or not such amounts were actually
outstanding during such period, in accordance with the terms thereof, in each
case on a consolidated basis in accordance with GAAP.

"CONSOLIDATED NET INCOME" means, for any period, the net income (or loss) of
the Company and its Restricted Subsidiaries on a consolidated basis for such
period taken as a single accounting period, determined in accordance with GAAP;
PROVIDED, HOWEVER, that: (a) there shall be excluded therefrom (i) the net
income (or loss) of any Person (other than the Company) which is not a
Restricted Subsidiary, except to the extent of the amount of dividends or other
distributions actually paid in cash or tangible property or tangible assets
(such property or assets to be valued at their fair market value net of any
obligations secured thereby) to the Company or any of its Restricted
Subsidiaries by such Person during such period, (ii) EXCEPT to the extent
includible pursuant to the foregoing clause (i), the net income (or loss) of any
Person accrued prior to the date it becomes a Restricted Subsidiary or is merged
into or consolidated with the Company or any of its Restricted Subsidiaries or
that Person's property or assets are acquired by the Company or any of its
Restricted Subsidiaries, (iii) the net income of any Restricted Subsidiary to
the extent that the declaration or payment of dividends or similar distributions
by that Restricted Subsidiary of that income is not at the time permitted by
operation of the terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to that
Restricted Subsidiary (other than restrictions contained in the instruments
relating to the 12 1/8% Subordinated Debentures due September 15, 2001 of Stone
Southwest) and (iv) the excess (but not the deficit), if any, of (x) any gain
which must be treated as an extraordinary item under GAAP or any gain realized
upon the sale or other disposition of any asset that is not sold in the ordinary
course of business or of any Capital Stock of a Restricted Subsidiary over (y)
any loss which must be treated as an extraordinary item under GAAP or any loss
realized upon the sale or other disposition of any asset that is not sold in the
ordinary course of business or of any Capital Stock of a Restricted Subsidiary;
and (b) there shall be included therein the amount of cash realized by the
Company or any of its Restricted Subsidiaries during such period on account of
dividends or other distributions theretofore paid in other than cash or tangible
property or tangible assets by a Person which is not a Restricted Subsidiary.

"CONSOLIDATED NET WORTH" means the amount which at any date of
determination, in conformity with GAAP consistently applied, would be set forth
under the caption "stockholders' equity" (or any like caption) on the
consolidated balance sheet of the Company and its Restricted Subsidiaries,
exclusive of amounts attributable to Redeemable Stock (at such time as no
Indebtedness is outstanding under the 1991 Indenture, excluding the effects of
foreign currency translation adjustments). If the Company has changed one or
more of the accounting principles used in the preparation of its financial
statements because of a change mandated by the Financial Accounting Standards
Board or its successor, then

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Consolidated Net Worth shall mean the Consolidated Net Worth the Company would
have had if the Company had continued to use those generally accepted accounting
principles employed on November 1, 1991.

"CONTINENTAL GUARANTY" means the Guaranty dated as of October 7, 1983
between The Continental Group, Inc. and the Company, as amended from time to
time.

"CONTINUING DIRECTOR" means any member of the Board of Directors, while such
person is a member of such Board of Directors, who is not an Acquiring Person,
or an Affiliate or associate of an Acquiring Person or a representative of an
Acquiring Person or of any such Affiliate or associate and who (a) was a member
of the Board of Directors prior to November 1, 1991, or (b) subsequently became
or becomes a member of such Board of Directors and whose nomination for election
or election to such Board of Directors was or is recommended or approved by
resolution of a majority of the Continuing Directors or who was or is included
as a nominee in a proxy statement of the Company distributed when a majority of
such Board of Directors consists of Continuing Directors.

"CREDIT AGREEMENTS" means (i) the credit agreement, dated as of March 1,
1989, by and among the Company, the financial institutions signatory thereto,
Bankers Trust Company, as agent for such financial institutions, and Citibank,
N.A., Chemical Bank (as successor by merger to Manufacturers Hanover Trust
Company) and The First National Bank of Chicago, as co-agents for such financial
institutions, as amended, modified, refinanced (including, without limitation,
by the New Credit Agreement) or extended from time to time, (ii) the credit
agreement, dated as of March 1, 1989, by and among Stone Canada, the financial
institutions signatory thereto, and Bankers Trust Company, as agent for such
financial institutions, and Citibank, N.A., Chemical Bank (as successor by
merger to Manufacturers Hanover Trust Company) and The First National Bank of
Chicago, as co-agents for such financial institutions, as amended, modified,
refinanced (including, without limitation, by the New Credit Agreement) or
extended from time to time and (iii) the revolving credit agreement, dated as of
March 1, 1989, by and among Stone Canada, the financial institutions signatory
thereto, BT Bank of Canada, as administrative agent, The Bank of Nova Scotia, as
payment agent, and Bankers Trust Company, as collateral agent, as amended,
modified, refinanced (including, without limitation, by the New Credit
Agreement) or extended from time to time.

"GAAP" means generally accepted accounting principles, as in effect as of
November 1, 1991 in the United States of America, set forth in the opinions and
pronouncements of the Accounting Principles Board of the American Institute of
Certified Public Accountants and statements and pronouncements of the Financial
Accounting Standards Board or in such other statements by such other entity as
is approved by a significant segment of the accounting profession.

"INDEBTEDNESS" means (without duplication), with respect to any Person, (i)
any obligation of such Person to pay the principal of, premium, if any, interest
on, penalties, reimbursement or indemnification amounts, fees, expenses or other
amounts relating to any indebtedness, and any other liability, contingent or
otherwise, of such Person (A) for borrowed money or the deferred purchase price
of property or services (excluding trade payables and payables, indebtedness,
obligations and other liabilities of the Company to any Restricted Subsidiary or
of any Restricted Subsidiary to the Company or to any other Restricted
Subsidiary), whether or not the recourse of the lender is to the whole of the
assets of such Person or only to a portion thereof; (B) for any letter of credit
for the account of such Person supporting other obligations of such Person
described in this definition; or (C) for the payment of money relating to a
Capitalized Lease Obligation; (ii) the unrecovered investment of a purchaser
(other than the Company or any of its Restricted Subsidiaries) of such Person's
Receivables pursuant to a Receivables purchase facility or otherwise (whether or
not characterized as a sale of such Receivables or a secured loan, but excluding
any disposition of Receivables in connection with a disposition of fixed assets
or a business of such Person and any disposition of defaulted Receivables for
collection), together with any obligation of such Person to pay any discount,
interest, fees, indemnification amounts, penalties, recourse on account of the
uncollectability of Receivables, expenses or other amounts in connection
therewith; (iii) any obligation of another Person (other than a Restricted
Subsidiary of such Person) of the kind described in

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the preceding clause (i) or (ii), which the Person has guaranteed or which is
otherwise its legal liability; (iv) any obligation of another Person (other than
a Restricted Subsidiary of such Person) of the kind described in the preceding
clause (i) or (ii) secured by a Lien to which the property or assets of such
Person are subject, whether or not the obligation secured thereby shall have
been assumed by or shall otherwise be such Person's legal liability; and (v) any
renewals, extensions or refundings of any of the foregoing described in any of
the preceding clauses (i), (ii), (iii) and (iv). The "amount" or "principal
amount" of Indebtedness of any Person at any date, as used herein, shall be the
outstanding principal amount at such date of all unconditional Indebtedness, the
maximum principal amount of any contingent Indebtedness or the unrecovered
purchaser's investment in a sale of Receivables, in each case at such date and
without taking into account any premium, interest, penalties, reimbursement or
indemnification amounts, fees, expenses or other amounts (other than principal
or unrecovered purchaser's investment) in respect thereof; PROVIDED, HOWEVER,
that (y) with respect to Indebtedness described in clause (iv) above, the amount
of Indebtedness shall be the lesser of (a) the amount of the Indebtedness of
such other Person that is secured by the property or assets of such Person and
(b) the fair market value of the property or assets securing such Indebtedness,
and (z) with respect to revolving credit, revolving Receivables purchases or
other similar arrangements, the amount of Indebtedness thereunder shall be the
amounts of such commitments as of the date of determination.

"INSURANCE PROCEEDS" means any payment, proceeds or other amounts received
at any time by the Company or any of its Restricted Subsidiaries under any
insurance policy as compensation in respect of a Casualty, PROVIDED that
proceeds received by the Company from business interruption insurance shall not
constitute Insurance Proceeds.

"ISSUE DATE" means October , 1994.

"LIEN" means any mortgage, pledge, security interest, adverse claim (as
defined in Section 8.302(2) of the New York Uniform Commercial Code),
encumbrance, lien or charge of any kind (including any conditional sale or other
title retention agreement or lease in the nature thereof, any filing or
agreement to file a financing statement as debtor under the Uniform Commercial
Code or any similar statute other than to reflect ownership by a third party of
property leased to the Company or any of its Subsidiaries under a lease which is
not in the nature of a conditional sale or title retention agreement).

"NEW CREDIT AGREEMENT" means the credit agreement, dated as of October ,
1994, by and among the Company, the financial institutions signatory thereto and
Bankers Trust Company, as agent for such financial institutions, as amended,
modified, refinanced or extended from time to time.

"ORDINARY COURSE OF BUSINESS LIENS" means, with respect to any Person,

(i) Liens for taxes, assessments, governmental charges, levies or claims
not yet delinquent or being contested in good faith;

(ii) statutory Liens of landlords, carriers, warehousemen, mechanics,
suppliers, materialmen, repairmen or other like Liens arising in the ordinary
course of business (including the construction of facilities) or deposits to
obtain the release of such Liens;

(iii) Liens in connection with workers' compensation, unemployment insurance
and other similar legislation;

(iv) zoning restrictions, licenses, easements, rights-of-way and other
similar charges or encumbrances or restrictions not interfering in any material
respect with the business of such Person or any of its Subsidiaries;

(v) Liens securing such Person's obligations with respect to commercial
letters of credit;

(vi) Liens to secure public or statutory obligations of such Person;

(vii) judgment and attachment Liens against such Person not giving rise to a
Default under the Notes or Liens created by or existing from any litigation or
legal proceeding against such Person which is currently being contested in good
faith by such Person in appropriate proceedings;

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(viii) leases or subleases granted to other Persons or existing on property
acquired by such Persons;

(ix) Liens encumbering property or assets of such Person under construction
arising from progress or partial payments;

(x) Liens encumbering customary initial deposits and margin accounts and
other Liens securing obligations arising out of Interest Swap Obligations,
Currency Agreements and Commodities Agreements, in each case of the type
typically securing such obligations; PROVIDED, HOWEVER, that if such Interest
Swap Obligations, Currency Agreements and Commodities Agreements relate to
Indebtedness not incurred in violation of the Indenture, such Lien may also
cover the property and assets securing the Indebtedness to which such Interest
Swap Obligations, Currency Agreements and Commodities Agreements relate;

(xi) Liens encumbering deposits made to secure obligations arising from
public, statutory, regulatory, contractual or warranty requirements or
obligations of such Person or its Subsidiaries (not constituting Indebtedness);

(xii) Liens arising from filing UCC financing statements regarding leases or
consignments;

(xiii) purchase money Liens securing payables (not constituting Indebtedness)
arising from the purchase by such Person or any of its Affiliates of any
equipment or goods in the ordinary course of business;

(xiv) Liens arising out of consignment or similar arrangement for the sale of
goods entered into by such Person or any of its Subsidiaries in the ordinary
course of business;

(xv) Liens in the ordinary course of business granted by such Person to
secure the performance of tenders, statutory obligations, surety and appeal
bonds, bids, leases, government contracts, or progress payments, performance and
return-of-money bonds and other similar obligations (not constituting
Indebtedness);

(xvi) Liens in favor of collecting banks constituting a right of set-off,
revocation, refund or chargeback with respect to money or instruments of the
Company or any Subsidiary on deposit with or in the possession of such bank; and

(xvii) Liens in favor of customs and revenue authorities.

"PERMITTED EXISTING INDEBTEDNESS OF AN ACQUIRED PERSON" means Indebtedness
of any Person (which may be assumed or guaranteed by, or may otherwise become
the legal liability of, the Company or any Restricted Subsidiary with or into
which such Person is merged or consolidated) existing at the time such Person
becomes a Restricted Subsidiary, or is merged with or into or consolidated with
the Company or one of its Restricted Subsidiaries, so long as such Indebtedness
was not created in anticipation of or as a result of such Person becoming a
Restricted Subsidiary or of such merger or consolidation, and any Indebtedness
to the extent exchanged for, or the net proceeds of which are used to refinance,
redeem or defease, such Indebtedness (or any extension, renewal or refinancing
thereof), or to finance any costs incurred in connection with such exchange,
refinancing, redemption or defeasance; PROVIDED, HOWEVER, that the proceeds of
such Indebtedness shall be used to so refinance, redeem or defease the
Indebtedness within 12 months of the incurrence of such subsequent Indebtedness.

"PERMITTED INDEBTEDNESS" means (i)(a) any Indebtedness in a principal amount
not exceeding the principal amount outstanding or committed under the Credit
Agreements (including any letter of credit facility thereunder) as of November
1, 1991 PLUS $250 million, and LESS the sum of (x) the proceeds from the sale of
all Indebtedness under the 1991 Indenture issued from time to time that is
applied to repay Indebtedness under the Credit Agreements and (y) the proceeds
from the sale of the First Mortgage Notes and the Senior Notes; (b) any
Indebtedness in a principal amount not exceeding 80% of the aggregate face
amount of Receivables of the Company and its Restricted Subsidiaries (measured
as of

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the latest date as of which information regarding Receivables is available) and
constituting Indebtedness described in clause (ii) of the definition of
Indebtedness or outstanding pursuant to any other revolving credit facility; (c)
any Indebtedness under the 1991 Indenture issued prior to the date hereof, the
proceeds of which have been used to repay Indebtedness under the Credit
Agreements within five business days after such issuance (and any subsequent
Indebtedness the proceeds of which are used to refinance such Indebtedness) and
(d) the First Mortgage Notes and the Senior Notes (and any subsequent
Indebtedness the proceeds of which are used to refinance such Indebtedness);
PROVIDED, HOWEVER, that:

(1) the aggregate principal amount permitted to be outstanding under clause
(a) shall be reduced by the aggregate amount of any repayments or prepayments of
any Senior Indebtedness (other than the First Mortgage Notes, the Senior Notes
and Indebtedness issued under the 1991 Indenture) out of the proceeds of Asset
Dispositions as described in and required by "Limitation on Asset Dispositions"
above after November 1, 1991, and, thereafter, shall be increased if, at the end
of the fourth consecutive complete fiscal quarter after the initial reduction
pursuant to this clause (1) or at any anniversary of the end of such fourth
fiscal quarter, the Consolidated Free Cash Flow of the Company for the preceding
four quarters has been zero or greater, in which event the amount of the
increase shall be the amount by which the consolidated capital expenditures of
the Company and its Restricted Subsidiaries not financed by Indebtedness
referred to in clause (vi) of this definition during such four-quarter period
exceeds Consolidated Depreciation Expense for such period (provided any such
increase shall be made only to the extent all such reductions occurring prior to
the four fiscal quarters for which such calculation of Consolidated Free Cash
Flow has been made exceed all prior increases pursuant to this clause (1));

(2) (A) the aggregate amount permitted to be incurred under clause (a) shall
be reduced by the principal amount outstanding under the New Credit Agreement on
the Issue Date net of subsequent reductions thereof, and (B) the aggregate
amount permitted to be incurred under clause (b) shall be reduced by the
principal amounts outstanding under each of the Pledge and Administration
Agreement, dated as of August 15, 1991, between Stone Financial Corporation and
Castlewood Funding Corporation (the "Castlewood Agreement") and the Pledge and
Administrative Agreement, dated as of August 18, 1992, between Stone Fin II
Receivables Corporation and South Shore Funding Corporation on the Issue Date
net of subsequent reductions thereof;

(3) the Permitted Indebtedness contemplated by this clause (i) may be
incurred by the Company and, in the case of Permitted Indebtedness constituting
Indebtedness under clause (ii) of the definition of Indebtedness, by the Company
or any Restricted Subsidiary; and

(4) any Restricted Subsidiary in the Stone Canada Group may incur, assume or
guarantee any Indebtedness under clauses (i)(a) and (i)(b) above under any
revolving credit facilities of Restricted Subsidiaries in the Stone Canada Group
entered into pursuant to this clause (i), for which the aggregate amount
committed thereunder does not exceed an amount not exceeding $200 million, to
finance the working capital of Restricted Subsidiaries in the Stone Canada
Group;

(ii) Permitted Subordinated Indebtedness;

(iii) Permitted Refinancing Indebtedness;

(iv) Permitted Stone Canada Indebtedness;

(v) Permitted Existing Indebtedness of an Acquired Person;

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time of or within 270 days after the acquisition, construction or improvement of
such assets for the purpose of financing the purchase price of such Capital
Stock or assets or the cost of construction or improvement thereof (together
with any transaction costs relating to such purchase, construction or
improvement) and (c) is the direct or guaranteed obligation of any of (1) the
Company, (2) a Restricted Subsidiary formed for the purpose of acquiring such
Capital Stock or assets (and having no material assets other than assets to be
used for such acquisition), (3) any Person comprised within the acquired assets
or (4) in the case of the construction or improvement of fixed assets, the
Restricted Subsidiary which will own such assets, or any extension, renewal or
refinancing of such Indebtedness; PROVIDED, HOWEVER, that the amount so
extended, renewed or refinanced shall not exceed the principal amount
outstanding on the date of such extension, renewal or refinancing, PLUS costs
incurred in connection with any such extension, renewal or refinancing (it being
understood that any fixed assets included within capital expenditures which
increased Indebtedness permitted under clause (i) of the definition of Permitted
Indebtedness pursuant to clause (1) to the proviso to such clause may not be
financed pursuant to this clause (vi));

(vii) Indebtedness in an aggregate principal amount not to exceed $300
million at any one time outstanding; PROVIDED, HOWEVER, that no Restricted
Subsidiary may incur Indebtedness under this clause (vii) to the extent that
after the incurrence of such Indebtedness the sum (without duplication) of (x)
all Indebtedness of Restricted Subsidiaries incurred under this clause (vii),
PLUS (y) Indebtedness and other obligations then secured pursuant to clause
(xii) of the definition of Permitted Liens, PLUS (z) the amount of Indebtedness
that was not incurred pursuant to clause (i)(b) of this definition and is
secured pursuant to clause (vi) of the definition of Permitted Liens shall
exceed $300 million;

(viii) Indebtedness of the Company in an aggregate principal amount not to
exceed $250 million at any one time outstanding;

(ix) any Interest Swap Obligation, Currency Agreement or Commodities
Agreement relating to Indebtedness that was not incurred in violation of the
terms of the Indenture; and

(x) Indebtedness to finance an increase in the working capital of any Person
or Persons that (a) are organized under the laws of a jurisdiction other than
the United States or any subdivision thereof and (b) became Restricted
Subsidiaries after November 1, 1991; PROVIDED, HOWEVER, that Indebtedness
pursuant to this clause (x) is the obligation of the Company or such Person or
Persons.

"PERMITTED LIENS" means, with respect to any Person,

(i) Ordinary Course of Business Liens;

(ii) Liens upon property or assets acquired or constructed by such Person or
any Affiliate after November 1, 1991 or constituting improvements after November
1, 1991 to property or assets; PROVIDED, HOWEVER, that (a) any such Lien is
created solely for the purpose of securing Indebtedness representing, or
incurred to finance or refinance, the purchase price (such purpose price
including any Indebtedness assumed or repaid in connection with such purchase)
or cost of construction of the property or assets subject thereto or of such
improvement, (b) the principal amount of the Indebtedness secured by such Lien
does not exceed 100% of such purchase price or cost (together with any
transaction costs relating to such purchase, construction or improvement), (c)
such Lien does not extend to or cover any other property or assets other than
such property, assets, improvement and any other improvements thereon (or, in
the case of any construction or improvement, any substantially unimproved real
property on which the property is constructed or the improvement is located) and
(d) the occurrence of such Indebtedness is permitted by clause (vi) of the
definition of Permitted Indebtedness;

(iii) Liens securing obligations with respect to letters of credit (other
than commercial letters of credit) to the extent the obligations supported by
such letters of credit may be secured without violating the limitation on liens
described under "Limitation on Future Liens and Guaranties;"

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(iv) Liens covering property subject to any Capitalized Lease Obligation or
other lease which was not entered into in violation of the Indenture securing
the interest of the lessor or other Person under such Capitalized Lease
Obligation or other lease;

(v) Liens securing obligations to a trustee pursuant to the compensation and
indemnity provisions of any indenture (including the Indenture) and Liens
securing obligations to a trustee or agent with respect to collateral for any
Indebtedness;

(vi) Liens created in connection with a disposition of Receivables (whether
or not characterized as a sale of such Receivables or a secured loan) not
prohibited by the Indenture on (a) such Receivables, (b) collateral securing
such Receivables, (c) goods or services, the sale, lease or furnishing of which
gave rise to such Receivables, (d) books and records relating to such
Receivables, (e) agreements or arrangements supporting or securing such
Receivables and (f) incidental property and assets relating to any of the
foregoing; PROVIDED, HOWEVER, that the aggregate amount at any time of
Indebtedness that is secured pursuant to this clause (vi) and was not incurred
pursuant to clause (i)(b) of the definition of Permitted Indebtedness, shall at
no time exceed (x) $300 million LESS (y) the sum of Indebtedness and other
obligations then secured pursuant to clause (xii) of this definition PLUS the
then outstanding principal amount of Indebtedness of Restricted Subsidiaries
incurred under clause (vii) of the definition of Permitted Indebtedness (and not
secured pursuant to this clause (vi) or such clause (xii));

(vii) Liens upon property or assets of the Company created in substitution
and exchange for a Permitted Lien upon other property or assets of the Company
or any of its Subsidiaries and Liens upon property or assets of any Subsidiaries
of the Company created in substitution and exchange for a Permitted Lien upon
other property or assets of any Subsidiaries of the Company; PROVIDED, HOWEVER,
that (a) such Permitted Lien is released contemporaneously with the creation of
the Lien in substitution therefor, (b) the fair market value of the property or
assets with respect to the Lien so released is substantially the same as the
fair market value of the property or assets subject to the Lien created in
substitution therefor and (c) no Lien may be placed on property or assets of the
Company or a Restricted Subsidiary in substitution and exchange for a Lien upon
property or assets of an Unrestricted Subsidiary;

(viii) Liens upon property or assets of a Subsidiary of a Person securing
Indebtedness of such Person or of such Subsidiary, which Liens are created in
substitution and exchange for an outstanding pledge by such Person of a majority
of the Capital Stock of such Subsidiary for the purpose of securing such
Indebtedness (or a guaranty in respect thereof); PROVIDED, HOWEVER, that if the
property and assets of such Subsidiary to be subjected to such Liens have a fair
market value in excess of $25 million, such Subsidiary shall have guaranteed the
obligations of the Company in respect of the Notes and, if requested by the
Trustee, such Subsidiary shall have waived all its rights of subrogation and
reimbursement from the Company in connection with such guaranty;

(ix) Liens upon any property or assets (a) existing at the time of
acquisition thereof by the Company or any Subsidiary, (b) of a Person existing
at the time such Person is merged with or into or consolidated with the Company
or any Subsidiary of the Company or existing at the time of a sale or transfer
of any such property or assets of such Person to the Company or any Subsidiary
of the Company or (c) of a Person existing at the time such Person becomes a
Subsidiary of the Company; PROVIDED, HOWEVER, that such Liens shall not have
been created in contemplation of such sale, merger, consolidation, transfer or
acquisition;

(x) Liens existing at November 1, 1991;

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applied to repay Indebtedness under the Credit Agreements and PLUS (z) $250
million and (b) Liens securing Indebtedness permitted by clause (i) of the
definition of Permitted Indebtedness upon property or assets that as of November
1, 1991 secured the Credit Agreements or the Castlewood Agreement;

(xii) Liens securing Indebtedness or other obligations of the Company and its
Restricted Subsidiaries not to exceed an aggregate principal amount of $350
million LESS, at any time, the sum of (y) the then outstanding principal amount
of Indebtedness of Restricted Subsidiaries incurred under clause (vii) of the
definition of Permitted Indebtedness (and not secured pursuant to this clause
(xii) or clause (vi) of this definition) PLUS (z) the amount of Indebtedness
secured pursuant to clause (vi) of this definition and not incurred pursuant to
clause (i)(b) of the definition of Permitted Indebtedness;

(xiii) Liens upon property or assets of a Subsidiary securing Indebtedness or
other obligations owing to the Company;

(xiv) Liens on proceeds of any property or assets subject to a Lien permitted
by the other clauses of this definition;

(xv) any equal and ratable Lien that is granted pursuant to the Continental
Guaranty and that relates to a Lien that otherwise constitutes a Permitted Lien;

(xvi) Liens on property or assets used to defease Indebtedness that was not
incurred in violation of the Indenture;

(xvii) Liens on property or assets of any Restricted Subsidiary organized
under the laws of a jurisdiction other than the United States or any subdivision
thereof securing Indebtedness of such Restricted Subsidiary outstanding as of
November 1, 1991 (or any extension, renewal or refinancing thereof);

(xviii) any extension, renewal or replacement (or successive extensions,
renewals or replacements) in whole or in part of any Lien referred to in the
foregoing clauses (i) through (xviii) (covering the same property and assets as
such Lien); and

(xix) Permitted Collateral Liens;

PROVIDED, HOWEVER, that no Lien described in any of the foregoing clauses other
than clause (xi)(a) shall encumber the rights of the Company with respect to
Indebtedness, obligations and other liabilities owed to the Company by any
Restricted Subsidiary or to any Restricted Subsidiary by the Company or another
Restricted Subsidiary.

"PERMITTED REFINANCING INDEBTEDNESS" means Indebtedness of (i) the Company
to the extent exchanged for, or the net proceeds of which are used to refinance,
redeem or defease, Indebtedness of the Company or any Restricted Subsidiary (or
any extension, renewal or refinancing thereof) outstanding at the time of
incurrence of such subsequent Indebtedness, or to finance any costs incurred in
connection with any such exchange, refinancing, redemption or defeasance, (ii) a
Restricted Subsidiary to the extent exchanged for, or the net proceeds of which
are used to refinance, redeem or defease, Indebtedness of such Restricted
Subsidiary (or any extension, renewal or refinancing thereof) outstanding at the
time of incurrence of such subsequent Indebtedness, or to finance any costs
incurred in connection with any such exchange, refinancing, redemption or
defeasance, or (iii) the Company or a Restricted Subsidiary to the extent
exchanged for, or the net proceeds of which are used to refinance, redeem or
defease, any then outstanding industrial revenue or development bonds that were
outstanding at November 1, 1991 (or any extension, renewal or refinancing
thereof), or to finance any costs incurred in connection with such exchange,
refinancing or defeasance; PROVIDED, HOWEVER, that, in the case of (i) (ii) or
(iii), the proceeds of such Indebtedness shall be used to so refinance, redeem
or defease the Indebtedness within 12 months of the incurrence of such
subsequent Indebtedness; and PROVIDED, FURTHER, that the only Indebtedness which
may be subject to exchange, refinancing, redemption or defeasance pursuant to
clause (i), (ii) or (iii) of this definition shall be Indebtedness outstanding
as of November 1, 1991 (other than Indebtedness under the Credit Agreements,
Subordinated Indebtedness and Indebtedness under lines of credit) or any
extension, renewal or refinancing thereof, and

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Indebtedness that was incurred after November 1, 1991 and before the Issue Date
(other than solely as Permitted Indebtedness under the 1991 Indenture) or is
incurred after the Issue Date (other than solely as Permitted Indebtedness).

"PERMITTED STONE CANADA INDEBTEDNESS" means Indebtedness of the Company or a
Restricted Subsidiary in the Stone Canada Group outstanding pursuant to lines of
credit in an aggregate principal amount not to exceed U.S. $100 million (of
which not more than Cdn. $60 million may be owed by Restricted Subsidiaries in
the Stone Canada Group) at any one time outstanding or pursuant to any
extension, renewal or refinancing of such outstanding amount PLUS any costs
incurred in connection with any such extension, renewal or refinancing;
PROVIDED, HOWEVER, that the aggregate principal amount permitted to be incurred
under this definition shall be reduced by the principal amount under lines of
credit outstanding on the Issue Date net of subsequent repayments or reductions
thereof.

"PERMITTED SUBORDINATED INDEBTEDNESS" means (i) Subordinated Indebtedness of
the Company to the extent exchanged for, or the net proceeds of which are used
to refinance, redeem or defease, then outstanding Subordinated Indebtedness of
the Company that was outstanding at November 1, 1991 (or any extension, renewal
or refinancing thereof), or to finance any costs incurred in connection with any
such exchange, refinancing, redemption or defeasance; PROVIDED, HOWEVER, that
(a) such Subordinated Indebtedness does not have a shorter weighted average life
than that then remaining for, or a maturity earlier than that of, the
Indebtedness so exchanged, refinanced, redeemed or defeased, EXCEPT that in the
case of any exchange, such Subordinated Indebtedness may have a maturity that is
earlier (but not more than six months earlier) than that of the Indebtedness so
exchanged, PROVIDED that the Subordinated Indebtedness shall have the same or a
longer weighted average life than that then remaining for the Indebtedness so
exchanged and (b) in the case of refinancings, redemptions or defeasances, the
proceeds of such Subordinated Indebtedness shall be used to so refinance,
redeem, or defease the Indebtedness within 12 months of the incurrence of such
subsequent Subordinated Indebtedness; and (ii) Indebtedness of the Company in an
aggregate principal amount not to exceed $250 million at any one time
outstanding, so long as such Indebtedness (a) constitutes Subordinated
Indebtedness and (b) does not have (A) a weighted average life that is shorter
than that then remaining for the (x) the Company's 9 7/8% Senior Notes due 2000
then outstanding or (y) the First Mortgage Notes or the Senior Notes, as the
case may be, then Outstanding or (B) a maturity that is earlier than the latest
maturity of (x) the Company's 9 7/8% Senior Notes due 2000 then outstanding or
(y) the First Mortgage Notes or the Senior Notes, as the case may be, then
Outstanding.

"RECEIVABLES" means receivables, chattel paper, instruments, documents or
intangibles evidencing or relating to the right to payment of money.

"REDEEMABLE STOCK" means, with respect to any Person, any Capital Stock that
by its terms or otherwise is required to be redeemed or purchased by such Person
or any of its Subsidiaries prior to 30 days after the maturity date of the Notes
then Outstanding, or is redeemable or subject to mandatory purchase or similar
put rights at the option of the Holder thereof at any time prior to 30 days
after the latest maturity date of the First Mortgage Notes or the Senior Notes,
as the case may be, of any series then Outstanding, or any security which is
convertible or exchangeable into a security which has such provisions.

"RESTRICTED SUBSIDIARY" means any Subsidiary of the Company other than an
Unrestricted Subsidiary.

"SENIOR INDEBTEDNESS" means the principal of, interest on and other amounts
due on (i) Indebtedness of the Company, whether outstanding on the Issue Date or
thereafter created, incurred, assumed or guaranteed by the Company, on or prior
to the Issue Date in compliance with the 1991 Indenture and thereafter, in
compliance with the "Limitation on Future Incurrence of Indebtedness" covenant
(including, without limitation, the Senior Notes and the First Mortgage Notes),
(ii) obligations of the Company related to the termination of Interest Swap
Obligations, Currency Agreements or Commodities Agreements pertaining to
Indebtedness described under clause (i) above and (iii) principal of or interest
on the Notes. Notwithstanding anything to the contrary in the foregoing, Senior
Indebtedness

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shall not include: (a) Subordinated Indebtedness, (b) Indebtedness of or amounts
owed by the Company for compensation to employees, for goods or materials
purchased in the ordinary course of business or for services or (c) Indebtedness
of the Company to a Subsidiary of the Company.

"SPECIFIED BANK DEBT" means (i) all Indebtedness and other monetary
obligations owing under the New Credit Agreement or any credit facilities with
the banks signatory to the New Credit Agreement (or with banks affiliated with
such banks), so long as such facilities are related to the New Credit Agreement;
and (ii) Indebtedness owing as of the date of the Indenture or thereafter to
banks or other financial institutions under credit facilities which may in the
future refinance, refund, replace, supplement or succeed (regardless of any gaps
in time) the New Credit Agreement or the facilities referenced in clause (i)
hereof (including extensions and restructurings and the inclusion of additional
or different or substitute lenders), so long as (a) the aggregate principal
amount outstanding (including available amounts under committed revolving credit
or similar working capital facilities, letter of credit facilities and other
commitments to provide credit) of such Indebtedness is at least equal to the
principal of all publicly issued Senior Indebtedness (including, without
limitation, the First Mortgage Notes, the Senior Notes and Indebtedness under
the 1991 Indenture) then Outstanding (it being understood that Indebtedness
described in clause (i) above and issues of Indebtedness having a principal
amount lower than set forth in clause (b) below shall not be included in this
amount), (b) Indebtedness outstanding under each particular credit facility has
a principal amount outstanding (including available amounts under committed
revolving credit or similar working capital facilities, letter of credit
facilities and other commitments to provide credit) of at least $25 million and
(c) such Indebtedness constitutes Senior Indebtedness.

"STONE CANADA GROUP" means Stone Canada and its Restricted Subsidiaries
existing as of the date of the Indenture.

"SUBORDINATED CAPITAL BASE" means the sum of (i) the Consolidated Net Worth
and (ii) to the extent not included in clause (i) above, the amounts (without
duplication) relating to (a) the principal amount of Subordinated Indebtedness
incurred after November 1, 1991 which is unsecured and which does not have at
the time of incurrence of such Subordinated Indebtedness a weighted average life
that is shorter than the weighted average life remaining for the then
outstanding Indebtedness under the 1991 Indenture issued prior to the Issue
Date, or if less than $500,000,000, in the case of the First Mortgage Notes, or
$200,000,000, in the case of the Senior Notes of such Indebtedness is
outstanding, the First Mortgage Notes or the Senior Notes, as the case may be,
or a maturity that is earlier than the latest maturity of any of the then
outstanding Indebtedness under the 1991 Indenture, or if less than $500,000,000,
in the case of the First Mortgage Notes or $200,000,000, in the case of the
Senior Notes of such Indebtedness is outstanding, the First Mortgage Notes or
the Senior Notes, as the case may be, (b) redeemable stock of the Company that
does not constitute Redeemable Stock and (c) the principal amount of the 12 1/8%
Subordinated Debentures due September 15, 2001 of Stone Southwest, Inc. and the
11 1/2% Senior Subordinated Notes due September 1, 1999 of the Company or any
Subordinated Indebtedness exchanged for, or the net proceeds of which are used
to refinance, redeem or defease, such 11 1/2% Senior Subordinated Notes due
September 1, 1999 (or, at such time as no Indebtedness is outstanding under the
1991 Indenture, such 12 1/8% Subordinated Debentures due September 15, 2001)
pursuant to clause (ii) of the definition of "Permitted Indebtedness," that, in
the case of clauses (a), (b) and (c), as at the date of determination, in
conformity with GAAP consistently applied, would be set forth on the
consolidated balance sheet of the Company and its Restricted Subsidiaries.

"SUBORDINATED INDEBTEDNESS" means Indebtedness of the Company (whether
outstanding on the date of the Indenture or thereafter created, incurred,
assumed or guaranteed by the Company) which, pursuant to the terms of the
instrument creating or evidencing the same, is subordinate to the Notes in right
of payment or in rights upon liquidation.

"SUBSIDIARY" means, with respect to any Person, (i) any corporation of which
at least a majority in interest of the outstanding Capital Stock having by the
terms thereof voting power under ordinary circumstances to elect directors of
such corporation, irrespective of whether or not at the time stock of any other
class or classes of such corporation shall have or might have voting power by
reason of the

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<PAGE>
happening of any contingency, is at the time, directly or indirectly, owned or
controlled by such Person, or by one or more corporations a majority in interest
of such stock of which is similarly owned or controlled, or by such Person and
one or more other corporations a majority in interest of such stock of which is
similarly owned or controlled or (ii) any other Person (other than a
corporation) in which such Person, directly or indirectly, at the date of
determination thereof, has at least a majority equity ownership interest;
PROVIDED, HOWEVER, that, with respect to the Company, for purposes of the
Indenture (other than the covenant referred to in the second paragraph of
"Limitation on Future Liens and Guaranties" above), "Subsidiary" shall not
include Seminole.

"UNRESTRICTED SUBSIDIARY" means a Subsidiary of the Company which has been
designated as an "Unrestricted Subsidiary" for purposes of the Indenture by the
Company and (a) at least 20% of whose common stock is held by one or more
Persons (other than the Company and its Affiliates) which acquired such common
stock in a BONA FIDE transaction for fair value and (b) at least 10% of whose
total capitalization at the time of designation is in the form of common stock
or at least 15% of the fair market value of whose assets at such time shall have
been contributed by such Persons. An Unrestricted Subsidiary may be designated
to be a Restricted Subsidiary only if, at the time of such designation, all
Indebtedness and Liens of such Subsidiary could be incurred under the Indenture.
As of the date of the Indenture, the Company's Unrestricted Subsidiaries are
Stone-Consolidated Corporation and its Subsidiaries.

ADDITIONAL FIRST MORTGAGE NOTE INDENTURE DEFINITIONS

"CASH COLLATERAL ACCOUNT" means one or more accounts forming part of the
Collateral in the sole dominion and control of the First Mortgage Note Trustee
into which certain funds are required to be deposited by or on behalf of the
Company under the terms of the First Mortgage Note Indenture and the Security
Documents.

"COLLATERAL" means the Collateral Properties (and all additions and
improvements thereto and replacements thereof), Replacement Collateral, the Cash
Collateral Account and all other property that from time to time secures the
First Mortgage Notes pursuant to the First Mortgage Note Indenture and the
Security Documents.

"COLLATERAL ASSET DISPOSITION" means any direct or indirect, voluntary or
involuntary sale, conveyance, lease, sale-leaseback, transfer or other
disposition, including, without limitation, by means of a merger, consolidation
or similar transaction (each, a "Disposition"), or a series of related
Dispositions by the Company or any of its Restricted Subsidiaries involving the
Collateral (including, without limitation, a sale of, or receipt by the Company
of cash or Cash Equivalents in connection with the repayment, exchange,
redemption or retirement of, or an extraordinary dividend or return of capital
on, any Non-Cash Consideration), other than (a) the sale of machinery,
equipment, furniture, apparatus, tools or implements or other similar property
that may be defective or may have become worn out or obsolete or no longer used
or useful in the operation of the Collateral Properties, the aggregate fair
market value of which does not exceed U.S. $5 million in any year; (b) the sale
of equipment that has been replaced by equipment of substantially equal value in
an alteration or improvement made at one of the Collateral Properties; (c) the
use by the First Mortgage Note Trustee of amounts on deposit in the Cash
Collateral Account in accordance with the "Limitation on Asset Dispositions" or
"Limitation on Collateral Asset Dispositions" covenants; and (d) a Disposition
permitted pursuant to the "Restrictions on Mergers and Consolidations and Sales
of Assets" covenants. A Collateral Asset Disposition shall not include a
Condemnation (as defined) or Casualty (as defined) involving any Collateral.

"COLLATERAL LOSS EVENT" means a Condemnation or Casualty involving an actual
or constructive total loss or agreed or compromised actual or constructive total
loss of all or substantially all of any Collateral Property.

"COLLATERAL PROPERTIES" means the mills owned by the Company at Uncasville,
Connecticut, Ontonagon, Michigan, Missoula, Montana and York, Pennsylvania, as
more specifically described in the Security Documents, and all mills, plants and
related property constituting Replacement Collateral.

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<PAGE>

"EXCESS PROCEEDS" means, on any date, the aggregate amount of Net Proceeds
from Collateral Asset Dispositions and Collateral Loss Events consummated or
occurring after the Issue Date that have not been previously (a) used to
purchase or invest in Replacement Collateral or Restore Collateral in accordance
with the "Limitation on Collateral Asset Dispositions" covenant or (b) included
as part of a First Mortgage Note Offer, provided that no such Net Proceeds will
constitute Excess Proceeds until the later of six months from the date of
consummation of the relevant Collateral Asset Disposition or receipt of the Net
Proceeds from the relevant Collateral Loss Event and the expiration of any
longer period during which such Net Proceeds may be used to purchase or invest
in Replacement Collateral or Restore Collateral to the extent permitted by the
"Limitation on Collateral Asset Dispositions" covenant.

"INDEPENDENT APPRAISER" means an appraisal firm that is nationally
recognized in the United States that (i) does not have any direct financial
interest in the Company or any of its Subsidiaries, the First Mortgage Note
Trustee or in any Affiliate of any of them, and (ii) is not connected with the
Company or any of its Subsidiaries, the First Mortgage Note Trustee or any such
Affiliate as an employee, associate or Affiliate.

"INDEPENDENT DIRECTOR"means, in respect of any transaction involving the
Company, a director of the Company who is in fact independent of the transaction
other than (a) a director who is a party to such transaction, or (b) a director
who is an officer, employee, associate or Affiliate (or is related to any of
them by blood or marriage unless such director is, in fact, independent of such
relation) of a party to such transaction or who is an officer, employee,
director or associate of an Affiliate of the Company (other than the Company and
its Subsidiaries), or (c) a director who is an officer, employee or associate of
the Company or any of its Subsidiaries.

"INDEPENDENT FINANCIAL ADVISER" means an investment banking firm that is
nationally recognized in the United States that (i) does not have any direct
financial interest in the Company, any Subsidiary of the Company or the First
Mortgage Note Trustee or in any Affiliate of any of them, and (ii) is not
connected with the Company, a Subsidiary of the Company or the First Mortgage
Note Trustee or any such Affiliate as an employee, associate or Affiliate.

"NET PROCEEDS" means those proceeds received by the Company or any of its
Restricted Subsidiaries in connection with a Collateral Asset Disposition or
Collateral Loss Event consisting of (a) the sum of cash and Cash Equivalents
therefrom (including any amounts of Insurance Proceeds, Condemnation Proceeds or
other proceeds (other than proceeds from business interruption insurance)
received in connection therewith but excluding any other consideration received
in the form of assumption by the acquiring Person of Indebtedness or other
obligations relating to the relevant property), MINUS (b) all accounting, legal,
title, recording and tax expenses, commissions and other fees and expenses
incurred, and all federal, state, provincial, foreign and local taxes required
to be accrued as a liability under generally accepted accounting principles in
effect at the date of the relevant Collateral Asset Disposition or Collateral
Loss Event, directly as a consequence of such Collateral Asset Disposition or
Collateral Loss Event and net of all payments made on any Indebtedness which is
secured by a Permitted Collateral Lien on the Collateral Property subject to
such Collateral Asset Disposition or Collateral Loss Event, which must be paid
in accordance with the terms of such Permitted Collateral Lien or under
applicable law.

"PERMITTED COLLATERAL LIENS" means:

(i) Liens securing the First Mortgage Notes arising under the First
Mortgage Note Indenture or any Security Document;

(ii) Liens on a Collateral Property for taxes or governmental assessments,
charges, levies or claims not yet delinquent or for which a bond has been posted
in an amount equal to the contested amount (including potential interest and
penalties thereon) not interfering in any material respect with the ordinary
operation of such Collateral Property or materially and adversely affecting the
value thereof;

(iii) statutory Liens of landlords, carriers, warehousemen, mechanics,
suppliers, materialmen, repairmen or other like Liens arising in the ordinary
course of business of ownership and operation of a

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Collateral Property relating to obligations either (a) not yet delinquent or (b)
being contested in good faith by appropriate proceedings and to which
appropriate reserves or other provisions have been made in advance in accordance
with GAAP in each case, not interfering in any material respect with the
ordinary operation of such Collateral Property or materially and adversely
affecting the value thereof;

(iv) Liens on a Collateral Property in connection with workers'
compensation, unemployment insurance and other similar legislation, surety or
appeal bonds, performance bonds or other obligations of a like nature (in each
case not constituting Indebtedness) arising in the ordinary course of business
with respect to the ownership and operation of such Collateral Property not
interfering in any material respect with the ordinary operation of such
Collateral Property or materially and adversely affecting the value thereof;

(v) zoning restrictions, licenses, easements, servitudes, rights-of-way,
title defects, covenants running with the land and other similar charges or
encumbrances or restrictions affecting a Collateral Property not interfering in
any material respect with the ordinary operation of such Collateral Property or
materially and adversely affecting the value thereof; and

(vi) assignments, leases or subleases at a Collateral Property not
interfering in any material respect with the ordinary operation of such
Collateral Property or materially and adversely affecting the value thereof.

"REPLACEMENT COLLATERAL" means, at any relevant date in connection with a
Collateral Asset Disposition, Collateral Loss Event, or in certain circumstances
described in the First Mortgage Note Indenture where Restoration is not
required, Condemnation, assets located in North America to be used in the pulp
and paper business as conducted by the Company at such date other than the
Collateral, which on such date, (a) constitute similar assets to Collateral
disposed of or destroyed (and do not constitute Capital Stock of any Person
(except for Non-Cash Consideration to the extent permitted by the "Limitation on
Collateral Asset Dispositions" covenant)), (b) are acquired by the Company at a
purchase price which does not exceed the fair market value of such Replacement
Collateral (as determined, in the case of each of (a) and (b), in good faith by
a majority of the Board of Directors, including a majority of the Independent
Directors, on the basis of the written opinion of a qualified Independent
Appraiser or Independent Financial Adviser prepared contemporaneously with such
purchase) and made available to the First Mortgage Note Trustee, (c) are free
and clear of all Liens other than Permitted Collateral Liens and (d) satisfy the
requirements of the "Limitation on Collateral Asset Dispositions" covenant.

"RESTORATION" or "RESTORE" means the physical repair, restoration or
rebuilding of all or any portion of the Collateral following any Casualty or
Condemnation.

THE COLLATERAL UNDER THE FIRST MORTGAGE NOTE INDENTURE

THE COLLATERAL

The First Mortgage Notes will initially be secured by a first ranking lien
on the Company's mills located in Uncasville, Connecticut, in Ontonagon,
Michigan (the "Ontonagon Mill"), in Missoula, Montana, and in York, Pennsylvania
(collectively, the "Collateral Mills"). The following table sets forth certain
information with respect to the Collateral Mills:

<TABLE>
<CAPTION>
NUMBER OF PAPER
MILL LOCATION MACHINES TYPE OF MILL
- ----------------------------------------------- ANNUAL CAPACITY PRODUCTION ----------------- -------------
TONS IN 1993 TONS
--------------- ---------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
Missoula, Montana 702.9 654.3 3 Linerboard
Ontonagon, Michigan 262.8 248.4 2 Medium
Uncasville, Connecticut 165.1 158.5 1 Medium
York, Pennsylvania 110.2 110.0 2 Medium
</TABLE>

The products manufactured at the Collateral Mills are utilized by the
Company in its corrugated container facilities; such corrugated container
facilities will be pledged to secure the indebtedness under the Credit
Agreement.

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APPRAISAL

The Company engaged American Appraisal Associates, Inc. (the "Consultant"),
an independent valuation consulting firm specializing in the technology,
economics and strategies of the pulp and paper industry, to provide an estimate
of the fair market value of the Collateral Mills.

The fair market value of the Collateral Mills was estimated for the purpose
of the appraisal based upon the assumption that the assets comprising the
Collateral Mills would be used in an ongoing business and valued on a continued
use basis. When fair market value is established on the premise of continued
use, it is assumed that the buyer and the seller would be contemplating
retention of the Collateral Mills at their present locations as part of the
current operations. An estimate of fair market value arrived at on the premise
of continued use does not represent the amount that might be realized from
piecemeal disposition of the Collateral Mills in the marketplace or from an
alternative use of the properties. The Consultant's opinion of the fair market
value of the designated assets of the Collateral Mills as of September 1, 1994,
under the premise of continued use, is reasonably represented by an amount of
$695 million.

For purposes of the analysis, the Consultant appraised the designated assets
as part of an operating entity. Balance sheets, financial statistics, and
operating results furnished to the Consultant were accepted without
verification, were examined, and were assumed to properly represent business
operations and conditions. Given the trends indicated, it was concluded by the
Consultant that prospective profits, on a consolidated basis, were adequate to
justify ownership and arm's-length exchange of the Collateral Mills between a
willing buyer and a willing seller at the appraised fair market value. In the
Consultant's review, provisions were made for the value of assets not included
in the appraisal and for sufficient net working capital.

The appraisal methods employed by the Consultant included the cost, income,
and market techniques. The cost approach was the primary method for valuing the
underlying tangible assets of the Collateral Mills, while the income and market
methods were applied to analyze the economics and prospective earning power of
the Collateral Mills.

The Consultant notes in the appraisal that forecasts of pulp and paper
production economics, asset values, replacement costs, and economic performance
involve many significant variables that are subject to uncertainty, performance
and actions of competitive products and companies, and judgement. Therefore, the
Consultant notes that no representation can be or is made as to the accuracy or
attainability of the estimates contained in the appraisal.

The appraisal was prepared in accordance with the Uniform Standards of
Professional Appraisal Practice, as promulgated by the Appraisal Foundation. The
Consultant has stated in the appraisal that the realization of the multiple
assumptions underlying the appraisal, the agreed upon parameters, and the
Company's stated purpose, incorporated in the conclusions arrived at in the
appraisal are fundamental to the reliability of the conclusions set forth. No
assurance can be given that any assumption will, in fact, be so realized or that
a number of material assumptions that could have had a negative impact on the
conclusions reached in the appraisal have been considered by the Consultant or
that the Consultant's estimation of the impact or any negative assumption
otherwise so considered have been properly evaluated. Any such failure of an
assumption so to materialize or be accurately or adequately reflected in the
appraisal could be of a nature or degree that will materially and negatively
impact the actual value, if any, realized by the First Mortgage Note Trustee
upon a foreclosure or other disposition of the Collateral Mills.

An appraisal is an estimate or opinion of value as of the date stated and
cannot be relied upon as a precise measure of value or worth. The amount that
might be realized from the sale of portion of the Collateral Mills may be less
that its portion of the appraised value, and such difference may be material.
The Consultant did not solicit any offers or inquiries with respect to the
Collateral Mills from potential purchasers, and, therefore, the appraisal should
not be read to suggest that a buyer was, in fact, available, or if one were
available, that it would be willing or able to pay the appraised value. In
addition,

99
<PAGE>
the number of qualified buyers may be limited by regulatory, legal, financial
and other considerations. Accordingly, no assurance can be given as to the value
that could be obtained from the sale of the Collateral Mills. Additionally,
whatever the value of the Collateral Mills may be under the conditions assumed
in the appraisal, a sale under distress conditions would likely result in a
substantially lower price. (See "Risk Factors -- First Mortgage Note Holders May
Receive Less Than Their Investment Upon Liquidation.")

See Annex A for a summary valuation report prepared by the Consultant. The
foregoing description of the appraisal is qualified in its entirety by reference
to such summary valuation report.

SECURITY DOCUMENTS

Each Collateral Mill will be pledged to the First Mortgage Note Trustee for
the benefit of the Holders pursuant to a mortgage and a security agreement
securing the full amount payable with respect to the Notes. Each mortgage
together with the related security agreement will include all fee and leasehold
interests in the real property, fixtures, plant, machinery and equipment
constituting the Collateral Mill, and all proceeds thereof and additions,
improvements, alterations, replacements and repairs thereto, whether now owned
or hereafter acquired by the Company. Certain equipment used at the mills
constituting Collateral is pledged to third party lenders pursuant to equipment
leases. The Collateral also includes permits necessary to operate the Collateral
Mills to the extent assignable under applicable law.

The security interest granted to the First Mortgage Note Trustee in the
Collateral will be a first ranking security interest, subject to Permitted
Collateral Liens that, in the Company's judgment, do not materially and
adversely affect the normal operations or value of the Collateral Mills. Upon
issuance of the Notes, the First Mortgage Note Trustee will receive a
mortgagee's title insurance policy insuring each mortgage as a first ranking
mortgage lien on the relevant Collateral Mill, subject to standard exceptions
and Permitted Collateral Liens. The aggregate amount of the title insurance in
respect of the four Collateral Mills will equal 110% of their total appraised
value.

BANKRUPTCY CONSIDERATIONS

The right of the First Mortgage Note Trustee under the First Mortgage Note
Indenture to repossess and dispose of the Collateral upon the occurrence of an
Event of Default (as defined herein in "Description of the Notes -- Certain
Definitions") under the First Mortgage Note Indenture is likely to be
significantly impaired by applicable bankruptcy law if a bankruptcy case were to
be commenced by or against the Company prior to the First Mortgage Note
Trustee's having repossessed and disposed of the Collateral. Under the federal
bankruptcy laws, secured creditors, such as the First Mortgage Note Trustee, are
prohibited from foreclosing upon, realizing upon or repossessing security from a
debtor in a bankruptcy case, or from disposing of security repossessed from such
debtor, without bankruptcy court approval. Moreover, the federal bankruptcy laws
permit the debtor to continue to retain and to use collateral even though the
debtor is in default under the applicable debt instruments, provided that the
secured creditor is given "adequate protection." The meaning of the term
"adequate protection" may vary according to circumstances, but it is intended in
general to protect the value of the secured creditor's interest in the
Collateral and may include cash payments or the granting of additional security,
if and at such times as the court in its discretion determines (after request by
the creditor), for any diminution in the value of the creditor's interest in
Collateral as a result of the stay of repossession or disposition or any use of
the collateral by the debtor during the pendency of the bankruptcy case. In view
of the lack of a precise definition of the term "adequate protection" and the
broad discretionary powers of a bankruptcy court, it is impossible to predict
how long payments under the First Mortgage Notes could be delayed following
commencement of a bankruptcy case, whether or when the First Mortgage Note
Trustee could repossess or dispose of the Collateral or whether or to what
extent holders of the First Mortgage Notes would be compensated for any
diminution in value of the Collateral through the requirement of "adequate
protection." Furthermore, in the event that the bankruptcy court determines that
the value of the Collateral is not sufficient to repay all amounts due on the
First Mortgage Notes, the

100
<PAGE>
holders of the First Mortgage Notes would hold undersecured claims. Applicable
federal bankruptcy laws do not permit the payment and/or accrual of interest,
costs and attorney's fees for "undersecured claims" during the pendency of a
debtor's bankruptcy case.

In addition, if prior to or at the time of any bankruptcy case being
commenced by or against the Company, the value of the Collateral is less than
the total amount remaining to be paid on the First Mortgage Notes, the issue of
whether payments on the First Mortgage Notes within ninety days (or one year
with respect to payments to "insiders" as defined under the federal bankruptcy
laws) of the commencement of such bankruptcy case are preferential and may be
recaptured may arise under the federal bankruptcy laws. To the extent that such
issue arises, there may be defenses applicable to the recapture of potentially
preferential payments under the federal bankruptcy laws, including INTER ALIA,
that such payments were made in the ordinary course of business or financial
affairs of the Company according to ordinary business terms.

A portion of the Ontonagon Mill (used for wastewater treatment) is leased
rather than owned by the Company. Although the law is not settled on this issue,
under the federal bankruptcy laws, a failure by the Company to assume such lease
in the case of a bankruptcy of the Company could have the effect of
extinguishing the First Mortgage Note Trustee's Lien in respect of such
leasehold interest.

ENVIRONMENTAL CONSIDERATIONS

The Collateral Properties are subject to extensive and increasingly
stringent environmental regulations. Although management believes that the
Collateral Properties are in substantial compliance with these regulations, the
failure of these mills to remain in compliance therewith or the presence of
hazardous substances at the Collateral Properties could adversely affect the
value of the mills. Furthermore, certain of the Collateral Properties will
require significant capital expenditures to remain in compliance with existing
and future environmental regulations. See "Risk Factors -- Environmental
Regulations and Significant Environmental Expenditures."

Under the federal laws of the United States and many state laws,
contamination of a property may give rise to a lien on the property to assure
the payment of the costs of clean-up. In Connecticut and Michigan, under certain
circumstances, such a lien may have priority over all existing liens (a
"superlien") including those of existing mortgages. In addition, a lender may be
exposed to unforeseen environmental liabilities when taking a security interest
in real property. Under the federal Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA") and similar state laws, a lender may
be liable in certain circumstances, as an "owner" or "operator", for
environmental clean-up costs on a mortgaged property. Although CERCLA excludes
from liability "a person who, without participating in the management of a . . .
facility, holds indicia of ownership primarily to protect his security
interest", court decisions have indicated that a lender may be subject to CERCLA
liability if it forecloses on or otherwise takes title to the property or if it
becomes involved in the borrower's operations to a degree that indicates
capacity to influence hazardous waste activities. Decisions interpreting the
meaning of "participating in management" have ranged from the decision in the
U.S. Court of Appeals for the Eleventh Circuit in UNITED STATES V. FLEET FACTORS
which suggested that a lender with enough control over a borrower's financial
affairs to have the capacity to influence the borrower's hazardous waste
decisions could be held liable under CERCLA, to a subsequent decision by the
U.S. Court of Appeals for the Ninth Circuit in IN RE BERGSOE METAL CORP. which
held that a secured lender had no liability absent "some actual management of
the facility" by the lender.

Under the First Mortgage Note Indenture, the First Mortgage Note Trustee,
prior to taking certain actions, may request that holders provide an
indemnification against its costs, expenses under CERCLA or similar laws, and
liabilities. It is possible that cleanup costs under CERCLA or similar laws
could become a liability of the First Mortgage Note Trustee and cause a loss to
any holder of First Mortgage Notes that provided an indemnification. In
addition, such holders may act directly rather than through the First Mortgage
Note Trustee, in specified circumstances, in order to pursue a remedy under the
Indenture. If holders exercise that right, they could be deemed to be lenders
who are subject to the risks discussed above.

101
<PAGE>
POSSESSION, USE, RELEASE AND SUBSTITUTION OF COLLATERAL

Unless an Event of Default shall have occurred and be continuing under the
First Mortgage Note Indenture, the Company will have the right to remain in
possession and retain exclusive control of the Collateral (other than any of the
Collateral on deposit in the Cash Collateral account and other than as set forth
in the Security Documents), to freely operate the Collateral Properties and to
collect, invest and dispose of any income thereon, subject to certain covenants
in the First Mortgage Note Indenture. All amounts on deposit in the Cash
Collateral Account will be invested in U.S. Government Obligations maturing
within 30 days from the date of acquisition thereof, or such longer period (not
exceeding one year) if the funds are set aside for Restoration in the event of a
Casualty or Condemnation.

So long as no Event of Default shall have occurred and be continuing, the
Company and its Restricted Subsidiaries may make a Collateral Asset Disposition
upon the satisfaction of certain procedures set forth in the First Mortgage Note
Indenture, and the First Mortgage Note Trustee will release the Lien under the
Security Documents with respect to the relevant Collateral. See "Limitation on
Collateral Asset Dispositions." Proceeds of insurance relating to the
destruction of all of the Collateral or an award relating to a taking of all or
any part of the Collateral by eminent domain or other seizure or forfeiture (in
excess of $2.5 million so long as no Event of Default has occurred and is
continuing) will be deposited and held in the Cash Collateral Account for the
benefit of the Holders of the First Mortgage Notes. The Company may withdraw
such proceeds or award from the Cash Collateral Account (other than proceeds or
an award relating to the destruction of all or substantially all of one or more
of the Collateral Properties) to reimburse the Company for expenditures made, or
to pay costs incurred, to Restore the Collateral destroyed or taken, subject to
compliance with certain conditions set forth in the First Mortgage Indenture,
including delivery to the First Mortgage Note Trustee of Opinions of Counsel
that the First Mortgage Note Trustee has a perfected Lien under the Security
Documents on such repairs, rebuildings and replacements. A taking, seizure,
forfeiture or casualty involving an actual or constructive total loss of one or
more of the Collateral Properties will be treated under the Indenture as a
Collateral Loss Event and any proceeds or award relating thereto will be applied
in accordance with the "Limitation on Collateral Asset Dispositions" covenant.

The First Mortgage Note Indenture contains certain legal requirements
relating to the release of the Lien on all or any part of the Collateral in
connection with a Collateral Asset Disposition or Collateral Loss Event. See
"Limitation on Collateral Asset Dispositions." Furthermore, all releases of
Collateral are required to comply with the certification requirements of the
Trust Indenture Act. In connection with the acquisition of any Replacement
Collateral pursuant to the "Limitation on Collateral Asset Dispositions"
covenant, the Company is required to comply with the requirements set forth
under such covenant. The Company shall have the right to sell worn out or
obsolete equipment and machinery of up to $5 million per year and sell equipment
to the extent it is replaced with equipment of substantially equal value in an
alteration or improvement of a Collateral Property without complying with the
"Limitation on Collateral Asset Dispositions" covenant.

102
<PAGE>
UNDERWRITING

Subject to the terms and conditions set forth in an underwriting agreement
(the "Underwriting Agreement") among the Company and Salomon Brothers Inc, BT
Securities Corporation, Morgan Stanley & Co. Incorporated, Kidder, Peabody & Co.
Incorporated and Bear, Stearns & Co. Inc. (the "Underwriters"), the Company has
agreed to sell to the Underwriters, and the Underwriters have severally agreed
to purchase, the respective principal amounts of the First Mortgage Notes and
Senior Notes set forth opposite their names below. The Underwriting Agreement
provides that the obligations of the Underwriters are subject to certain
conditions precedent and that the Underwriters will be obligated to purchase all
of the Notes if any are purchased.

<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
----------------------------------------------------
FIRST MORTGAGE
UNDERWRITER NOTES SENIOR NOTES TOTAL
- -------------------------------------------------- ---------------- ---------------- ----------------
<S> <C> <C> <C>
Salomon Brothers Inc.............................. $ $ $
BT Securities Corporation.........................
Morgan Stanley & Co. Incorporated.................
Kidder, Peabody & Co. Incorporated................
Bear, Stearns & Co. Inc...........................
---------------- ---------------- ----------------
Total......................................... $ 500,000,000 $ 200,000,000 $ 700,000,000
---------------- ---------------- ----------------
---------------- ---------------- ----------------
</TABLE>

The Underwriters have advised the Company that they propose initially to
offer the First Mortgage Notes and Senior Notes directly to the public at the
public offering price set forth on the cover page of this Prospectus and to
certain dealers at such price less a concession of 0. % and 0. %,
respectively, of the principal amount of the First Mortgage Notes and Senior
Notes. The Underwriters may allow and such dealers may reallow a concession not
in excess of 0. % and 0. %, respectively, of the principal amount of the First
Mortgage Notes and Senior Notes on sales to certain other dealers. After the
initial offering, the public offering prices and concessions to dealers may be
changed.

The Company has agreed to indemnify the Underwriters against certain civil
liabilities, including certain liabilities under the Securities Act of 1933, as
amended (the "Act").

The Notes are new issues of securities with no established trading market.
The Company has been advised by certain of the Underwriters that they intend to
make a market in the First Mortgage Notes and/ or Senior Notes, but none of such
Underwriters is obligated to do so and may discontinue such market making at any
time without notice. No assurance can be given as to the development or
liquidity of any trading market for the First Mortgage Notes and/or Senior
Notes.

The Company has agreed that, for a period of thirty days from the date of
the issuance of the Notes, without the consent of Salomon Brothers Inc, acting
on behalf of the Underwriters, neither the Company nor any subsidiary of the
Company (except in limited circumstances) will (i) file with the Securities and
Exchange Commission (the "Commission") or publicly announce its intent to file
any registration statement under the Act or pre-effective amendment to any
registration statement under the Act relating to debt securities (other than
industrial development bonds and the Stone Financial Corporation offering) or
(ii) enter into any agreement for or consummate the sale of, or publicly
announce its intent to sell, any debt securities (other than the Notes, the
industrial development bonds and the Stone Financial Corporation offering).

Certain of the Underwriters from time to time perform investment banking and
other financial advisory services for the Company for which they receive
customary compensation.

Bankers Trust Company ("Bankers Trust"), an affiliate of BT Securities
Corporation, is the agent and a lender under the 1989 Credit Agreement and is
expected to be the agent and a lender under the Credit Agreement. In its
capacity as lender under the 1989 Credit Agreement, Bankers Trust will receive
its pro rata share of the net proceeds of the sale of the Notes hereunder used
to repay indebtedness under the 1989 Credit Agreement. See "Use of Proceeds."
Bankers Trust is also the indenture trustee for the Company's 11 1/2% Senior
Subordinated Notes due September 1, 1999.

103
<PAGE>
An affiliate of Kidder, Peabody & Co. Incorporated is a lender under the
1989 Credit Agreement and will receive its pro rata share of the net sale
proceeds from the sale of the Notes hereunder used to repay indebtedness under
the 1989 Credit Agreement. Another affiliate of Kidder, Peabody & Co.
Incorporated is a lender to Stone-Consolidated pursuant to a revolving credit
facility.

EXPERTS

The financial statements as of December 31, 1993 and 1992 and for each of
the three years in the period ended December 31, 1993 included in this
Prospectus have been so included in reliance on the report (which contains an
explanatory paragraph referring to certain liquidity matters discussed in Notes
11 and 18 to the Company's financial statements) of Price Waterhouse LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.

The information contained in this Prospectus under "The Collateral Under the
First Mortgage Notes -- Appraisal" and the summary valuation report in Annex A
hereto have been included on the authority of American Appraisal Associates,
Inc. as an expert regarding the valuation matters contained therein.

LEGAL MATTERS

The validity of the Notes offered hereby will be passed upon for the Company
by Leslie T. Lederer, Vice President, Secretary and Counsel of the Company (who
owns 13,256 shares of Common Stock) and by Sidley & Austin, Chicago, Illinois.
Certain legal matters will be passed upon for the Underwriters by Cleary,
Gottlieb, Steen & Hamilton, New York, New York.

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the following regional offices of the Commission: Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 13th Floor,
Seven World Trade Center, New York, New York 10048. Copies of such materials may
be obtained from the Public Reference Branch of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. In addition, such
reports, proxy statements and other information can be inspected at the New York
Stock Exchange, Inc., 20 Broad Street, New York, New York 10005, on which
exchange the Common Stock of the Company is listed.

The Company has filed with the Commission in Washington, D.C. a Registration
Statement on Form S-1 under the Act with respect to the Securities offered
hereby. This Prospectus does not contain all of the information set forth in the
Registration Statement, as permitted by the rules and regulations of the
Commission. For further information pertaining to the Company and the Securities
offered hereby, reference is made to the Registration Statement and the exhibits
thereto, which may be examined without charge at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
and copies thereof may be obtained from the Public Reference Branch of the
Commission upon payment at prescribed rates.

The Company will provide without charge to each person to whom a copy of
this Prospectus has been delivered, on the written or oral request of such
person made to the Company, a copy of any and all of the documents referred to
above which have been or may be incorporated in this Prospectus by reference,
other than exhibits to such documents unless such exhibits are specifically
incorporated by reference therein. Requests for such copies should be directed
to: Investor Relations Department, Stone Container Corporation, 150 North
Michigan Avenue, Chicago, Illinois 60601; telephone number (312) 346-6600.

104
<PAGE>
[LOGO]

ANNEX A

SEPTEMBER 23, 1994

STONE CONTAINER CORPORATION
CHICAGO, ILLINOIS

We completed an appraisal of certain property exhibited to us as that of
STONE CONTAINER CORPORATION ("Stone"), located in (1) Missoula, Montana, (2)
Ontonagon, Michigan, (3) York, Pennsylvania and (4) Uncasville, Connecticut and
submitted our findings in a report dated September 23, 1994.

This letter summarizes the appraisal report. By reference herein, all terms,
conditions, definitions, and limitations contained in the appraisal report shall
apply equally to this summary letter.

Our appraisal expressed an opinion, as of September 1, 1994, of the fair
market value of the property on the premise of continued use. It was understood
that our opinion would provide a basis for effecting financing arrangements.

Fair Market Value is defined as the estimated amount at which a property
might be expected to exchange between a willing buyer and a willing seller,
neither being under compulsion, each having reasonable knowledge of all relevant
facts, with equity to both.

When fair market value is established on the premise of continued use, it is
assumed that the buyer and the seller would be contemplating retention of the
property at its present location as part of the current operations. An estimate
of fair market value arrived at on the premise of continued use does not
represent the amount that might be realized from piecemeal disposition of the
property in the marketplace or from an alternative use of the property. The
premise of continued use is generally appropriate when:

- The property is fulfilling an economic demand for the service it provides
or which it houses.

- The property has a significant remaining useful live expectancy.

- There are responsible ownership and competent management.

- Diversion of the property to an alternative use would not be economically
feasible or legally permitted.

- Continuation of the existing use by present or similar users is practical.

- Due consideration is given to the property's functional utility for its
present use.

- Due consideration is given to the property's economic utility.

In our investigation, we appraised the designated assets as part of an
operating entity. Balance sheets, financial statistics, and operating results
furnished to us were accepted without verification, were examined, and were
assumed to properly represent business operations and conditions. Given the
trends indicated, it was concluded that prospective profits from appraised
business operations, on a consolidated basis, were adequate to justify ownership
and arm's-length exchange of the designated assets between a willing buyer and a
willing seller at the appraised fair market value. In the review, provisions
were made for the value of assets not included in the appraisal and for
sufficient net-working capital.

The property appraised comprises the tangible assets of the linerboard and
corrugating medium paperboard mill operations of Stone located at Missoula,
Montana; Ontonagon, Michigan; York, Pennsylvania; and Uncasville, Connecticut.

A-1
<PAGE>

No consideration was given to the impact of any environmental concerns which
are associated with the subject property. Our appraisers are not qualified as
experts in the detection of hazardous substances. Quantification of the cost to
remedy environmentally related problems would have to be identified by experts
in that field.

Our investigation dealt with real estate comprising land, buildings, and
improvements; machinery and equipment; office furniture and equipment; mobile
equipment; and licensed vehicles. Excluded from the investigation were supplies,
materials on hand, inventories, company records, and any current or intangible
assets that might exist.

For the real estate, except for the ground lease described in the mortgage
with respect to the mill located in Ontonagon, Michigan in which Stone has a
valid leasehold interest, we appraised the fee simple interest which is defined
as an absolute fee, free of limitations to any particular class of heirs or
restrictions, but subject to the limitations of eminent domain, escheat, police
power and taxation. Before arriving at an opinion of value, we personally
inspected the designated property and studied market conditions.

For the real estate, we considered:

- Location, size, and utility of the land

- Size, condition, and utility of the improvements compared with
new facilities

- Highest and best use of the land and of the property as
improved

- Cost of replacement new of the improvements and that cost less
depreciation arising from all causes

- Sales and asking prices of vacant sites to the vicinity and
general area

For the personal property, we considered:

- The estimated cost to acquire new or construct, or acquire used
if comparable property was available

- A deduction for depreciation, or loss of value, arising from
condition, utility, age, wear and tear, and obsolescence

- For the cost of comparable used property, used property selling
prices and a positive or a negative adjustment to the market
price to reflect the difference in condition and utility
between the item being appraised and its normal comparative

- Dealers' prices for machinery and equipment in operative
condition, plus allowances for freight and installation

Accordingly, based on the promise of continued use, it is our opinion that,
as of September 1, 1994, the Fair Market Value of the designated assets is
reasonably represented in the amount of SIX HUNDRED NINETY-FIVE MILLION FIVE
HUNDRED THOUSAND U.S. DOLLARS (U.S. $695,500,000), distributed as follows:

<TABLE>
<S> <C>
Land................................................. $ 5,700,000
Building & Land Improvements......................... 136,970,000
Machinery and Equipment.............................. 550,330,000
Office Furniture and Equipment....................... 675,000
Licensed Vehicles and Aircraft....................... 1,825,000
-------------
Grand Total...................................... $ 695,500,000
-------------
-------------
</TABLE>

A-2
<PAGE>

The above fair market value does not represent the amount that might be
realized from the assets' piecemeal disposition in the open market or from their
use for an alternative purpose.

We did not investigate the title to or any liabilities against the property
appraised.

Respectfully submitted,
AMERICAN APPRAISAL ASSOCIATES, INC.
/s/ William K. Domoe
--------------------

A-3
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

<TABLE>
<CAPTION>
ITEM: PAGE
- ----------------------------------------------------------------------------------------------------------- ---------
<S> <C>
Financial Statements -- Three Months and Six Months Ended June 30, 1994 and June 30, 1993
(unaudited):
Consolidated Statements of Operations and Retained Earnings (Accumulated Deficit)........................ F-2
Consolidated Balance Sheets.............................................................................. F-3
Consolidated Statements of Cash Flows.................................................................... F-4
Notes to the Consolidated Financial Statements........................................................... F-5

Financial Statements -- Years Ended December 31, 1993, December 31, 1992 and December 31, 1991:
Report of Independent Accountants........................................................................ F-15
Consolidated Statements of Operations.................................................................... F-16
Consolidated Balance Sheets.............................................................................. F-17
Consolidated Statements of Cash Flows.................................................................... F-18
Consolidated Statements of Stockholders' Equity.......................................................... F-19
Notes to the Consolidated Financial Statements........................................................... F-20

Pro Forma Condensed Consolidated Statement of Operations
Six Months Ended June 30, 1994 (unaudited)................................................................ F-55
Pro Forma Condensed Consolidated Statement of Operations
Year Ended December 31, 1993 (unaudited).................................................................. F-56
Pro Forma Condensed Consolidated Balance Sheet
June 30, 1994 (unaudited)................................................................................. F-58
</TABLE>

F-1
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AND RETAINED EARNINGS (ACCUMULATED DEFICIT)

<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
(IN MILLIONS, EXCEPT PER SHARE) 1994 1993 1994 1993
- ---------------------------------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales....................................................... $ 1,354.3 $ 1,267.6 $ 2,645.1 $ 2,573.9
Operating costs and expenses:
Cost of products sold........................................... 1,116.9 1,050.3 2,184.0 2,120.5
Selling, general and administrative expenses.................... 136.9 131.3 270.5 267.3
Depreciation and amortization................................... 88.5 88.8 177.7 175.9
Equity loss from affiliates..................................... 1.5 1.7 5.7 3.6
Other net operating (income) expense............................ (28.5) 2.3 (33.4) 2.9
---------- ---------- ---------- ----------
1,315.3 1,274.4 2,604.5 2,570.2
---------- ---------- ---------- ----------
Income (loss) from operations................................... 39.0 (6.8) 40.6 3.7
Interest expense................................................ (110.7) (101.8) (224.3) (204.1)
Other, net...................................................... 1.0 .3 (8.1) 3.1
---------- ---------- ---------- ----------
Loss before income taxes, minority interest, extraordinary loss
and cumulative effects of accounting changes................... (70.7) (108.3) (191.8) (197.3)
Credit for income taxes......................................... (20.0) (37.7) (60.0) (64.6)
Minority interest............................................... (.1) (1.0) 2.1 (1.6)
---------- ---------- ---------- ----------
Loss before extraordinary loss and cumulative effects of
accounting changes............................................. (50.8) (71.6) (129.7) (134.3)
Extraordinary loss from early extinguishment of debt (net of
$9.8 income tax benefit)....................................... -- -- (16.8) --
Cumulative effect of change in accounting for postemployment
benefits (net of $9.5 income tax benefit)...................... -- -- (14.2)
Cumulative effect of change in accounting for postretirement
benefits (net of $23.3 income tax benefit)..................... -- -- -- (39.5)
---------- ---------- ---------- ----------
Net loss........................................................ (50.8) (71.6) (160.7) (173.8)
Preferred stock dividends....................................... (2.0) (2.0) (4.0) (4.0)
---------- ---------- ---------- ----------
Net loss applicable to common shares............................ (52.8) (73.6) (164.7) (177.8)
---------- ---------- ---------- ----------
Retained earnings (accumulated deficit), beginning of period.... (17.3) 391.8 101.6 496.0
Net loss........................................................ (50.8) (71.6) (160.7) (173.8)
Cash dividends on preferred stock............................... (8.0) (2.0) (8.0) (4.0)
Unrealized gain (loss) on marketable equity security (net of
income tax benefit)............................................ 3.3 -- (5.7) --
---------- ---------- ---------- ----------
Retained earnings (accumulated deficit), end of period.......... $ (72.8) $ 318.2 $ (72.8) $ 318.2
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Per share of common stock:
Loss before extraordinary loss and cumulative effects of
accounting changes........................................... $ (.58) $ (1.03) $ (1.55) $ (1.94)
Extraordinary loss from early extinguishment of debt.......... -- -- (.20) --
Cumulative effect of change in accounting for postemployment
benefits..................................................... -- -- (.17)
Cumulative effect of change in accounting for postretirement
benefits -- -- -- (.56)
---------- ---------- ---------- ----------
Net loss........................................................ $ (.58) $ (1.03) $ (1.92) $ (2.50)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Cash dividends.................................................. -- -- -- --
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Common shares and common share equivalents outstanding (weighted
average, in millions).......................................... 90.4 71.2 86.0 71.2
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
<FN>
- --------------------------
Unaudited; subject to year-end audit
</TABLE>

The accompanying notes are an integral part of these statements.

F-2
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS

<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1994* 1993
---------- --------------
(IN MILLIONS)
<S> <C> <C>
Current assets:
Cash and cash equivalents........................................................... $ 150.1 $ 247.4
Accounts and notes receivable (less allowances of $20.2 and $19.3).................. 709.3 622.3
Inventories......................................................................... 656.5 719.4
Other............................................................................... 246.0 164.1
---------- --------------
Total current assets.......................................................... 1,761.9 1,753.2
---------- --------------
Property, plant and equipment....................................................... 5,251.9 5,240.7
Accumulated depreciation and amortization........................................... (1,970.0) (1,854.3)
---------- --------------
Property, plant and equipment -- net.......................................... 3,281.9 3,386.4
Timberlands......................................................................... 88.9 83.9
Goodwill............................................................................ 875.9 910.5
Other............................................................................... 679.8 702.7
---------- --------------
Total assets.................................................................. $ 6,688.4 $ 6,836.7
---------- --------------
---------- --------------

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of senior and subordinated long-term debt........................ $ 18.1 $ 22.6
Current maturities of non-recourse debt of consolidated affiliates.................. 271.3 290.5
Accounts payable.................................................................... 288.8 297.1
Income taxes........................................................................ 46.0 47.6
Accrued and other current liabilities............................................... 313.9 285.7
---------- --------------
Total current liabilities..................................................... 938.1 943.5
---------- --------------
Senior long-term debt............................................................... 2,277.6 2,338.0
Subordinated debt................................................................... 1,159.6 1,257.8
Non-recourse debt of consolidated affiliates........................................ 657.0 672.6
Other long-term liabilities......................................................... 315.6 270.3
Deferred taxes...................................................................... 382.9 470.6
Redeemable preferred stock of consolidated affiliate................................ 42.3 42.3
Minority interest................................................................... 223.3 234.5
Commitments and contingencies.......................................................
Stockholders' equity:
Series E preferred stock............................................................ 115.0 115.0
Common stock (90.4 and 71.2 shares outstanding)..................................... 853.1 574.3
Retained earnings (accumulated deficit)............................................. (72.8) 101.6
Foreign currency translation adjustment............................................. (197.4) (179.0)
Unamortized expense of restricted stock plan........................................ (5.9) (4.8)
---------- --------------
Total stockholders' equity.................................................... 692.0 607.1
---------- --------------
Total liabilities and stockholders' equity.................................... $ 6,688.4 $ 6,836.7
---------- --------------
---------- --------------
<FN>
- ------------------------
* Unaudited; subject to year-end audit
</TABLE>

The accompanying notes are an integral part of these statements.

F-3
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
1994 1993 1994 1993
--------- --------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................................. $ (50.8) $ (71.6) $ (160.7) $ (173.8)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Extraordinary loss from early extinguishment of debt............... -- -- 16.8 --
Cumulative effect of change in accounting for postemployment
benefits.......................................................... -- -- 14.2 --
Cumulative effect of change in accounting for postretirement
benefits.......................................................... -- -- -- 39.5
Depreciation and amortization...................................... 88.5 88.8 177.7 175.9
Deferred taxes..................................................... (21.0) (30.7) (64.2) (59.6)
Foreign currency transaction losses................................ .7 3.7 15.9 5.2
Other -- net....................................................... (31.8) (13.5) (57.7) (5.6)
Changes in current assets and liabilities -- net of adjustments for
dispositions:
Decrease (increase) in accounts and notes receivable -- net...... (19.1) 37.6 (81.4) (2.7)
Decrease in inventories.......................................... 41.1 2.8 56.8 2.5
Decrease (increase) in other current assets...................... (18.0) 8.8 (36.8) (9.4)
Increase in accounts payable and other current liabilities....... 26.3 6.9 21.1 26.0
--------- --------- --------- ---------
Net cash provided by (used in) operating activities.................. 15.9 32.8 (98.3) (2.0)
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings........................................................... 30.2 39.5 751.4 133.6
Payments made on debt................................................ (19.8) (37.9) (916.9) (49.5)
Payments by consolidated affiliates on non-recourse debt............. (11.6) (10.7) (30.8) (10.7)
Proceeds from issuance of common stock, net.......................... -- -- 276.3 --
Refund (funding) of letter of credit................................. 1.7 -- (20.6) --
Cash dividends....................................................... (8.0) (2.0) (8.0) (4.0)
--------- --------- --------- ---------
Net cash provided by (used in) financing activities.................. (7.5) (11.1) 51.4 69.4
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures................................................. (48.5) (34.1) (66.2) (63.5)
Proceeds from sales of assets........................................ 12.4 1.2 19.9 3.2
Other -- net......................................................... (4.9) (16.3) (6.2) (27.7)
--------- --------- --------- ---------
Net cash used in investing activities................................ (41.0) (49.2) (52.5) (88.0)
--------- --------- --------- ---------
Effect of exchange rate changes on cash.............................. 3.6 (.5) 2.1 (.5)
--------- --------- --------- ---------
Net decrease in cash and cash equivalents............................ (29.0) (28.0) (97.3) (21.1)
Cash and cash equivalents, beginning of period....................... 179.1 65.8 247.4 58.9
--------- --------- --------- ---------
Cash and cash equivalents, end of period............................. $ 150.1 $ 37.8 $ 150.1 $ 37.8
--------- --------- --------- ---------
--------- --------- --------- ---------
<FN>
- ------------------------
See Note 12 regarding non-cash investing and financing activities and
supplemental cash flow information.
Unaudited; subject to year-end audit
</TABLE>

The accompanying notes are an integral part of these statements.

F-4
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1: BASIS OF PRESENTATION
Pursuant to the rules and regulations of the Securities and Exchange
Commission ("SEC") for Form 10-Q, the financial statements, footnote disclosures
and other information normally included in the financial statements prepared in
accordance with generally accepted accounting principles have been condensed.
These financial statements, footnote disclosures and other information should be
read in conjunction with the financial statements and the notes thereto included
in Stone Container Corporation's (the "Company's") consolidated financial
statements for the year ended December 31, 1993 included herein. In the opinion
of the Company, the accompanying unaudited consolidated financial statements
contain all adjustments necessary to fairly present the Company's financial
position as of June 30, 1994 and the results of operations and cash flows for
the three and six month periods ended June 30, 1994 and 1993.

NOTE 2: RESTATEMENTS
Certain prior year amounts in the Company's Consolidated Statements of
Operations and Retained Earnings (Accumulated Deficit) and Consolidated
Statements of Cash Flows have been restated to conform with the current year
presentation.

NOTE 3: ADOPTION OF NEW ACCOUNTING STANDARDS
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Postemployment
Benefits" ("SFAS 112"), which requires accrual accounting for the estimated
costs of providing certain benefits to former or inactive employees and the
employees' beneficiaries and dependents after employment but before retirement.
Upon adoption of SFAS 112, the Company recorded its catch-up obligation
(approximately $24 million) by recognizing a one-time, non-cash charge of $14.2
million, net of income tax benefit, as a cumulative effect of an accounting
change in its 1994 first quarter Consolidated Statement of Operations and
Retained Earnings (Accumulated Deficit).

In accordance with the provisions of Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" ("SFAS 115"), the Company, at June 30, 1994 recorded a $5.7 million
charge directly to stockholders' equity to reflect an unrealized loss on an
investment in an equity security, net of income tax benefit. The aggregate fair
value and carrying value of the investment in the equity security at June 30,
1994 was approximately $12 million and $20 million (exclusive of the unrealized
loss), respectively.

NOTE 4: SUBSEQUENT EVENT

The Company originally filed on July 27, 1994 and subsequently amended on
August 4, 1994, a registration statement with the SEC registering $550 million
principal amount of First Mortgage Notes and $150 million principal amount of
Senior Notes (the "Offering"). If the Offering is completed, the Company would
(i) enter into a new credit agreement (the "Credit Agreement") consisting of a
$400 million senior secured term loan and a $450 million senior secured
revolving credit facility commitment (with the borrowing availability thereunder
being reduced by letter of credit commitments, of which approximately $61
million will be outstanding at closing ), (ii) repay all of the outstanding
indebtedness under and terminate its current bank credit agreements (the "1989
Credit Agreement") and (iii) merge the Company's 93 percent owned subsidiary
Stone Savannah River Pulp & Paper Corporation ("Savannah River") into a wholly
owned subsidiary of the Company and, as described below, repay or acquire
Savannah River's outstanding indebtedness, preferred stock and common stock;
each of the foregoing transactions is expected to be conditioned upon the
successful completion of the other transactions (collectively, the "Related
Transactions"). In connection with the Savannah River merger, the Company would
(i) repay all of the indebtedness outstanding under and terminate Savannah
River's bank credit agreement ($249.5 million as of June 30, 1994), (ii) call
for redemption the $130 million principal amount

F-5
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 4: SUBSEQUENT EVENT (CONTINUED)
of Savannah River's 14 1/8 percent Senior Subordinated Notes due 2000 at a
redemption price equal to the applicable premium percentage of the principal
amount, (iii) call for redemption or otherwise acquire the outstanding shares of
Series A Cumulative Redeemable Exchangeable Preferred Stock of Savannah River
not owned by the Company at a redemption price equal to the applicable premium
percentage of the principal amount plus accrued and unpaid dividends and (iv)
purchase the outstanding shares of common stock of Savannah River not owned by
the Company. The completion of the Offering, together with the Related
Transactions, is expected to improve the Company's financial flexibility by
extending the scheduled amortization obligations and final maturities of more
than $1 billion of the Company's indebtedness and improve the Company's
liquidity by replacing its current $166 million revolving credit facility
commitments with a $450 million of revolving credit commitment. While the
Company currently anticipates that the Offering and Related Transactions will be
completed during the fourth quarter of 1994, no assurance can be given that they
will be completed.

The Company will incur a charge for the write-off of previously incurred
unamortized debt issuance costs, related to the debt being repaid, currently
estimated to be in the range of $45 to $49 million, net of income tax benefit
upon the completion of the Offering and Related Transactions. This non-cash
charge would be recorded as an extraordinary loss from the early extinguishment
of debt in the Company's Consolidated Statements of Operations and Retained
Earnings (Accumulated Deficit).

NOTE 5: INVOLUNTARY CONVERSION
On April 13, 1994 a digester vessel ruptured at the Company's pulp and
paperboard mill in Panama City, Florida causing extensive damage to certain of
the facility's assets. As a result of this occurrence, the Company's second
quarter 1994 results include a $22 million pretax involuntary conversion gain
(approximately $13.7 million after taxes) which reflects the expected net
proceeds from the property damage insurance claim in excess of the carrying
value of the assets damaged or destroyed.

The Company currently estimates that the mill's linerboard production
facilities will have been shut down for a total of approximately 23 weeks and
bleached market pulp production facilities will have been shut down for a total
of approximately 18 weeks. These shutdowns will result in production outages of
approximately 138,000 tons of linerboard and 107,000 tons of bleached market
pulp. After deductibles, the Company expects insurance proceeds to cover both
property damage and business interruption claims.

NOTE 6: FINANCING ACTIVITIES
On February 3, 1994, the Company, under its $1 billion shelf registration,
sold $710 million principal amount of 9 7/8 percent Senior Notes due February 1,
2001 and 16.5 million shares of common stock for an additional $251.6 million at
$15.25 per common share. On February 17, 1994, the underwriters elected to
exercise their option to purchase an additional 2.47 million shares of common
stock for an additional $37.7 million, also at $15.25 per common share
(collectively, with the February 3, 1994 offering, the "February 1994
Offerings"). The net proceeds from the February 1994 Offerings of approximately
$962 million were used to (i) prepay all of the 1995 and portions of the 1996
and 1997 scheduled amortization under the Company's bank credit agreements
(aggregating approximately $652 million) which includes two term loan
facilities, two revolving credit facilities and an additional term loan (the
"1989 Credit Agreement"), (including the ratable amortization payment under the
revolving credit facilities of the 1989 Credit Agreement which had the effect of
reducing the total commitments thereunder to approximately $168 million); (ii)
redeem the Company's 13 5/8 percent Subordinated Notes due 1995 at a price equal
to par, approximately $98 million principal amount, plus accrued interest to the

F-6
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 6: FINANCING ACTIVITIES (CONTINUED)
redemption date; (iii) repay approximately $136 million of the outstanding
borrowings under the Company's revolving credit facilities without reducing the
commitments thereunder; and (iv) provide incremental liquidity in the form of
cash. The 9 7/8 percent Senior Notes are redeemable by the Company on or after
February 1, 1999. Interest is payable semi-annually commencing August 1, 1994
and continuing each February 1 and August 1, until maturity.

In the first quarter of 1994, the Company wrote-off $16.8 million of
unamortized debt issuance costs, net of income tax benefit, as a result of the
debt prepayments mentioned above. Such non-cash charge is reflected as an
extraordinary loss from the early extinguishment of debt in the Company's
Consolidated Statement of Operations and Retained Earnings (Accumulated Deficit)
for the six months ended June 30, 1994.

NOTE 7: CREDIT AGREEMENT AMENDMENTS/LIQUIDITY MATTERS
The Company and its bank group have amended the Company's 1989 Credit
Agreement several times during the past three years. Such amendments provided,
among other things, greater financial flexibility and/or relief from certain
financial covenants. In some instances, certain restrictions and limitations
applicable to the 1989 Credit Agreement were tightened. There can be no
assurance that future covenant relief will not be required or, if such relief is
requested by the Company, that it will be obtained from the Company's bank
lenders.

As described in Note 4, the Offering and the Related Transactions, if
completed, would fully repay the 1989 Credit Agreement, which would then be
terminated.

The most recent amendment, which was executed in February of 1994 and became
effective upon the completion of the February 1994 Offerings, as discussed in
Note 6, provided, among other things, for the following:

(i) Enabled the Company to apply up to $200 million of net proceeds
from the February 1994 Offerings, which increased liquidity, as repayment of
borrowings under the revolving credit facilities of the 1989 Credit
Agreement without reducing the commitments thereunder and, to the extent no
balance was outstanding under the revolving credit facilities, permitted the
Company to retain the balance of such $200 million of proceeds in cash.

(ii) Enabled the Company to redeem the Company's 13 5/8 percent
Subordinated Notes maturing on June 1, 1995 from the proceeds received from
the February 1994 Offerings at a price equal to par, approximately $98
million principal amount, plus accrued interest to the redemption date.

(iii) Amended the required levels of EBITDA (as defined in the 1989
Credit Agreement) for certain specified periods to the following:

<TABLE>
<CAPTION>
PERIODS EBITDA
- -------------------------------------------------------------------- --------------
<S> <C>
For the six months ended June 30, 1994.............................. $ 55 million
For the nine months ended September 30, 1994........................ $111 million
For the twelve months ended December 31, 1994....................... $180 million
For the twelve months ended March 31, 1995.......................... $226 million
</TABLE>

The required level of EBITDA is scheduled to increase for each rolling four
quarter period thereafter until December 31, 1996, when the EBITDA for the
twelve months ended December 31, 1996 is required to be $822 million.

F-7
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 7: CREDIT AGREEMENT AMENDMENTS/LIQUIDITY MATTERS (CONTINUED)
payments on the Company's common stock and on certain preferred stock issues
cannot exceed the sum of (i) 75 percent of the consolidated net income (as
defined in the 1989 Credit Agreement) of the Company from January 1, 1994 to
the date of payment of such dividends, minus (ii) 100 percent of the
consolidated net loss (as defined in the 1989 Credit Agreement), of the
Company from January 1, 1994 to the date of payment of such dividends, plus
(iii) 100 percent of any net cash proceeds from sales of common stock or
certain preferred stock of the Company from January 1, 1994 to any date of
payment of such dividends (excluding the proceeds from the February 1994
Offerings for which no dividend credit was received by the Company).
Additionally, the restriction in the 1989 Credit Agreement with respect to
dividends on Series E Cumulative Convertible Exchangeable Preferred Stock
(the "Series E Cumulative Preferred Stock") now mirrors the dividend
restriction in the Company's Senior Subordinated Indenture dated as of March
15, 1992.

(v) Replaced the existing cross-default provisions relating to
obligations of $10 million or more of the Company's separately financed
subsidiaries, Seminole and Savannah River, with cross-acceleration
provisions.

(vi) Replaced the current prohibition of investments in Stone Venepal
Consolidated Pulp Inc. with restrictions substantially similar to the
restrictions applicable to the Company's subsidiaries, Savannah River and
Seminole.

(vii) Maintains the monthly indebtedness ratio requirement, as defined in
the 1989 Credit Agreement, at no higher than: 81.5 percent as of the end of
each month from December 31, 1993 and ending prior to March 31, 1995 and 81
percent as of the end of each month from March 31, 1995 and ending prior to
June 30, 1995. The indebtedness ratio requirement is scheduled to
periodically decrease thereafter (from 80 percent on June 30, 1995) until
February 28, 1997, when the ratio limitation is required to be 68 percent.

(viii) Maintains the Consolidated Tangible Net Worth requirement
("CTNW"), (as defined in the 1989 Credit Agreement), at equal to or greater
than 50 percent of the highest CTNW for any quarter since the inception of
the 1989 Credit Agreement.

There can be no assurance that the Company will be able to achieve and
maintain compliance with the prescribed financial ratio tests or other
requirements of its 1989 Credit Agreement. Failure to achieve or maintain
compliance with such financial ratio tests or other requirements under the 1989
Credit Agreement, in the absence of a waiver or amendment, would result in an
event of default and could lead to the acceleration of the obligations under the
1989 Credit Agreement. The Company has successfully sought and received waivers
and amendments to its 1989 Credit Agreement on various occasions since entering
into the 1989 Credit Agreement. If further waivers or amendments are requested
by the Company, there can be no assurance that the Company's bank lenders will
again grant such requests. The failure to obtain any such waivers or amendments
would reduce the Company's flexibility to respond to adverse industry conditions
and could have a material adverse effect on the Company.

Pursuant to an output purchase agreement entered into in 1986 with Seminole,
the Company is obligated to purchase and Seminole is obligated to sell all of
Seminole's linerboard production. Seminole produces 100 percent recycled
linerboard and is dependent upon an adequate supply of recycled fiber, in
particular old corrugated containers ("OCC"). Under the agreement, the Company
paid fixed prices for linerboard, which generally exceeded market prices, until
June 3, 1994. Thereafter, the Company is only obligated to pay market prices for
the remainder of the agreement. Because market prices for linerboard are
currently less than the fixed prices previously in effect under the output
purchase agreement and due to recent significant increases in the cost of
recycled fiber, it is anticipated that Seminole will not comply with certain
financial covenants at September 30, 1994. Accordingly,

F-8
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 7: CREDIT AGREEMENT AMENDMENTS/LIQUIDITY MATTERS (CONTINUED)
Seminole's lenders under its credit agreement have agreed to grant waivers and
amendments with respect to such covenants for periods up to and including June
30, 1995. There can be no assurance that the lenders will grant such waivers or
that Seminole will not require additional waivers in the future. Depending upon
the level of market prices and the cost and supply of recycled fiber, Seminole
may need to undertake additional measures to meet its debt service requirements
(including covenants), including obtaining additional sources of funds or
liquidity, postponing or restructuring of debt service payments or refinancing
the indebtedness. In the event that such measures are required and are not
successful, and such indebtedness is accelerated by the respective lenders to
Seminole, the lenders to the Company under the 1989 Credit Agreement and various
other of its debt instruments would be entitled to accelerate the indebtedness
owed by the Company.

Pursuant to an output purchase agreement entered into in 1988 with Savannah
River, the Company is obligated to purchase and Savannah River is obligated to
sell all of Savannah River's linerboard and market pulp production at fixed
prices until December 1994 and November 1995, respectively, and thereafter at
market prices for the remainder of the agreement. While the fixed prices in
effect at June 30, 1994 for Savannah River were higher than market prices at
such date, the price differentials have not had, nor are they expected to have,
a significant impact on the Company's results of operations or financial
position. Notwithstanding the fixed price provisions of the output purchase
agreement, due to the relatively high cost of raw materials (primarily wood and
recycled fiber), and its highly leveraged capital structure, Savannah River has
required a waiver from its bank lenders of its fixed-charges-coverage ratio for
each fiscal quarter end since December 31, 1993. Management has prepared
projections that indicate that Savannah River will require another waiver from
its bank lenders through at least December 31, 1994. Furthermore, Savannah River
may need to undertake additional measures to meet its debt service requirements
(including covenants), including obtaining additional sources of funds or
liquidity, postponing or restructuring of debt service payments or refinancing
the indebtedness. In the event that such measures are required and are not
successful, and such indebtedness is accelerated by the respective lenders to
Savannah River, the lenders to the Company under the 1989 Credit Agreement and
various other of its debt instruments would be entitled to accelerate the
indebtedness owed by the Company. As described in Note 4, the Offering and
Related Transactions, if completed, would repay the Savannah River indebtedness,
including borrowings outstanding under its credit agreement, and would result in
the termination of the output purchase agreement. The Company will seek
additional waivers from Savannah River's lenders if the Offering and Related
Transactions, as described in Note 4, are not completed as of September 29,
1994.

As a result of the February 1994 Offerings, the "dividend pool" established
by the restrictions on payment of dividends under the Senior Subordinated
Indenture dated March 15, 1992 relating to the Company's 10-3/4 percent Senior
Subordinated Notes due June 15, 1997, its 11 percent Senior Subordinated Notes
due August 15, 1999 and its 10-3/4 percent Senior Subordinated Debenture due
April 1, 2002 was replenished from the sale of the common shares. On May 16,
1994, the Company paid both a regular quarterly cash dividend of $.4375 per
share and a cumulative cash dividend of $1.3125 per share on the Company's $1.75
Series E Cumulative Convertible Exchangeable Preferred Stock ("Series E
Cumulative Preferred Stock"), to stockholders of record on April 15, 1994. The
cumulative cash dividend fully satisfied all accumulated dividends in arrears on
the Series E Cumulative Preferred Stock at that time. As a result of net losses,
the dividend pool has been subsequently depleted and, accordingly, the Company's
Board of Directors did not declare the scheduled August 15, 1994 quarterly
dividend on the Series E Cumulative Preferred Stock. In the event the Company
does not pay a dividend on the Series E Cumulative Preferred Stock for six
quarters, the holders of the Series E Cumulative Preferred Stock

F-9
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 7: CREDIT AGREEMENT AMENDMENTS/LIQUIDITY MATTERS (CONTINUED)
would have the right to elect two members to the Company's Board of Directors
until the accumulated dividends on such Series E Cumulative Preferred Stock have
been declared and paid or set apart for payment.

Due to industry conditions during the past few years and due principally to
depressed product prices and significant interest costs attributable to the
Company's highly leveraged capital structure, the Company incurred net losses in
each of the last three years and for the first half of 1994 and expects to incur
a net loss for the 1994 fiscal year. While market conditions have improved since
October 1993, permitting the Company to implement price increases for most of
its products, such prices remain below the historical high prices which were
achieved during the peak of the last industry cycle, particularly prices for
newsprint and market pulp. Additionally, while product prices have increased
since October 1993, the Company's production costs (including labor, fiber and
energy), as well as its interest expense, have increased since the last pricing
peak in the industry, increasing pressure on the Company's net margins for its
products. The successive net losses have significantly impaired the Company's
liquidity and available sources of liquidity.

The Company improved its liquidity and financial flexibility through the
completion of the February 1994 Offerings. Notwithstanding these improvements in
the Company's liquidity and financial flexibility, unless the Company achieves
and maintains increased selling prices beyond current levels, the Company will
continue to incur net losses and would not generate sufficient cash flows to
meet fully the Company's debt service requirements in the future. Without such
price increases, the Company may exhaust all or substantially all of its cash
resources and borrowing availability under the existing revolving credit
facilities. In such event, the Company would be required to pursue other
alternatives to improve liquidity, including further costs reductions,
additional sales of assets, the deferral of certain capital expenditures,
obtaining additional sources of funds or liquidity and/or pursuing the possible
restructuring of its indebtedness. There can be no assurance that such measures,
if required, would generate the liquidity required by the Company to operate its
business and service its indebtedness. As currently scheduled, beginning in 1996
and continuing thereafter, the Company will be required to make significant
amortization payments on its existing indebtedness which would require the
Company to raise sufficient funds from operations and/or other sources or
refinance and/or restructure maturing indebtedness. No assurance can be given
that the Company will be successful in doing so. As discussed in Note 4, the
Offering, together with the Related Transactions, if completed, is expected to
improve the Company's financial flexibility by extending the scheduled
amortization obligations and final maturities of more than $1 billion of the
Company's indebtedness and improve the Company's liquidity by replacing its
current $166 million revolving credit facility commitments with a $450 million
of revolving credit commitment.

F-10
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 8: INVENTORIES
Inventories are summarized as follows:

<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1994 1993
----------- --------------
(IN MILLIONS)
<S> <C> <C>
Raw materials and supplies......................................... $ 296.8 $ 333.8
Paperstock*........................................................ 240.3 284.2
Work in process.................................................... 20.2 16.8
Finished products -- converting facilities......................... 114.0 99.5
----------- -------
671.3 734.3
Excess of current cost over LIFO inventory value................... (14.8) (14.9)
----------- -------
Total inventories.................................................. $ 656.5 $ 719.4
----------- -------
----------- -------
<FN>
- ------------------------
* Includes linerboard, corrugating medium, kraft paper, newsprint, market pulp
and groundwood paper.
</TABLE>

At June 30, 1994 and December 31, 1993, the percentage of total inventories
costed by the LIFO, FIFO and average cost methods were as follows:

<TABLE>
<CAPTION>
JUNE 30, 1994 DECEMBER 31, 1993
------------- -------------------
<S> <C> <C>
LIFO............................................................... 43% 44%
FIFO............................................................... 8% 6%
Average Cost....................................................... 49% 50%
</TABLE>

NOTE 9: CURRENT MATURITIES OF LONG-TERM DEBT
Current maturities of long-term debt at June 30, 1994 and December 31, 1993
consisted of the following components:

<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1994 1993
----------- --------------
(IN MILLIONS)
<S> <C> <C>
Senior debt........................................................ $ 18.1 $ 17.7
Subordinated debt.................................................. -- 4.9
Non-recourse debt of consolidated affiliates....................... 271.3 290.5
----------- -------
Total current maturities of long-term debt......................... $ 289.4 $ 313.1
----------- -------
----------- -------
</TABLE>

As described in Note 4, the Offering and the Related Transactions, if
completed, would repay the Savannah River indebtedness, including borrowings
outstanding under its credit agreement, which would then be terminated.

The 1989 Credit Agreement limits in certain specific circumstances any
further investments by the Company in Stone-Consolidated, Seminole and Savannah
River. Savannah River has substantial indebtedness which had been incurred in
connection with project financing and is significantly leveraged. As of June 30,
1994, Savannah River had $383.1 million in outstanding indebtedness (including
$249.5 million in secured indebtedness owed to bank lenders). Emerging Issues
Task Force Issue No. 86-30, "Classification of Obligations When a Violation is
Waived by the Creditor," requires a company to reclassify long-term debt as
current when a covenant violation has occurred at the balance sheet date or
would have occurred absent a loan modification and it is probable that the
borrower will not be able to comply with the same covenant at measurement dates
that are within the next twelve months. In May 1994, Savannah River received a
waiver of its fixed-charges-coverage covenant requirement as of June 30, 1994.
Management has prepared projections that indicate that Savannah River will not
be in compliance with

F-11
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 9: CURRENT MATURITIES OF LONG-TERM DEBT (CONTINUED)
this covenant as of September 30, 1994. Consequently, approximately $215.8
million and $237.9 million of Savannah River debt that otherwise would have been
classified as long-term has been classified as current in the June 30, 1994 and
December 31, 1993 consolidated balance sheets, respectively. Savannah River has
received from its lenders waivers of the appropriate financial covenants through
September 29, 1994. Savannah River will seek additional waivers from its lenders
if the Offering and Related Transactions, as described in Note 4, are not
completed as of September 29, 1994. Failure to obtain covenant relief beyond
September 29, 1994 would result in a default under Savannah River's credit
agreement and other indebtedness and, if any such indebtedness was accelerated
by the holders thereof, the lenders to the Company under the 1989 Credit
Agreement and various other of the Company's debt instruments would be entitled
to accelerate the indebtedness owed by the Company.

The following table provides, as of June 30, 1994, the actual amounts of
long-term debt maturing through 2000 and thereafter.

<TABLE>
<S> <C>
Remainder of 1994......................................... $ 269.3
1995...................................................... 270.1
1996...................................................... 216.1
1997...................................................... 748.7
1998...................................................... 524.8
1999...................................................... 323.0
2000...................................................... 566.5
Thereafter................................................ 1,457.3
</TABLE>

NOTE 10: SUMMARY FINANCIAL INFORMATION FOR STONE SOUTHWEST CORPORATION
Shown below is consolidated, summarized financial information for Stone
Southwest, Inc. (formerly known as Southwest Forest Industries, Inc.). The
summarized financial information for Stone Southwest, Inc. does not include
purchase accounting adjustments or the impact of the debt incurred to finance
the acquisition of Stone Southwest, Inc.:

<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
1994 1993 1994 1993
--------- --------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Net sales............................................................... $ 402.7 $ 409.6 $ 827.9 847.3
Cost of products sold and depreciation.................................. 343.9 343.1 713.5 698.4
Income (loss) before cumulative effects of accounting changes........... 10.4 (3.2) 6.9 2.4
Cumulative effect of change in accounting for postemployment benefits
(net of $2.5 income tax benefit)....................................... -- -- (3.9) --
Cumulative effect of change in accounting for postretirement benefits
(net of $5.2 income tax benefit)....................................... -- -- -- (8.3)
Net income (loss)....................................................... 10.4 (3.2) 3.0 (5.9)
</TABLE>

<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1994 1993
---------- --------------
(IN MILLIONS)
<S> <C> <C>
Current assets........................................................................ $ 340.7 $ 360.9
Noncurrent assets*.................................................................... 1,629.5 1,600.5
Current liabilities................................................................... 147.7 141.3
Noncurrent liabilities and obligations................................................ 395.1 395.8
<FN>
- ------------------------
* Includes $890.8 and $857.4 due from the Company at June 30, 1994 and December
31, 1993, respectively.
</TABLE>

F-12
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 11: SEGMENT INFORMATION
Financial information by business segment is summarized as follows:

<TABLE>
<CAPTION>
SIX MONTHS ENDED
-----------------------------------------------
THREE MONTHS ENDED JUNE 30, 1994
----------------------------------------------- ---------------------- JUNE 30, 1993
INCOME ----------------------
(LOSS) INCOME
BEFORE (LOSS)
INCOME BEFORE
TAXES, INCOME
JUNE 30, 1994 JUNE 30, 1993 MINORITY TAXES,
---------------------- ---------------------- INTEREST, MINORITY
INCOME INCOME EXTRAORDINARY INTEREST
(LOSS) (LOSS) LOSS AND AND
BEFORE BEFORE CUMULATIVE CUMULATIVE
INCOME INCOME EFFECT OF EFFECT OF
TAXES AND TAXES AND AN AN
TOTAL MINORITY TOTAL MINORITY TOTAL ACCOUNTING TOTAL ACCOUNTING
SALES INTEREST SALES INTEREST(A) SALES CHANGE SALES CHANGE(A)
---------- --------- ---------- --------- ---------- --------- ---------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Paperboard and paper
packaging.................... $ 992.4 $ 52.6 $ 960.2 $ 51.5 $ 1,946.4 $ 105.1 $ 1,933.2 $ 113.9
White paper and pulp.......... 275.8 (7.9) 238.7 (42.9) 536.5 (46.2) 492.7 (86.7)
Other......................... 90.7 14.7 80.5 5.9 179.3 26.4 173.2 19.5
Intersegment.................. (4.6) -- (11.8) -- (17.1) -- (25.2) --
---------- --------- ---------- --------- ---------- --------- ---------- ---------
1,354.3 59.4 1,267.6 14.5 2,645.1 85.3 2,573.9 46.7
Interest expense.............. (110.7) (101.8) (224.3) (204.1)
Foreign currency transaction
adjustments.................. (.7) (3.6) (15.9) (5.1)
General corporate and
miscellaneous (net).......... (18.7) (17.4) (36.9) (34.8)
---------- --------- ---------- --------- ---------- --------- ---------- ---------
Total......................... $ 1,354.3 $ (70.7) $ 1,267.6 $ (108.3) $ 2,645.1 $ (191.8) $ 2,573.9 $ (197.3)
---------- --------- ---------- --------- ---------- --------- ---------- ---------
---------- --------- ---------- --------- ---------- --------- ---------- ---------
</TABLE>

Financial information by geographic region is summarized as follows:

<TABLE>
<CAPTION>
SIX MONTHS ENDED
-----------------------------------------------
THREE MONTHS ENDED JUNE 30, 1994
----------------------------------------------- ---------------------- JUNE 30, 1993
INCOME ----------------------
(LOSS) INCOME
BEFORE (LOSS)
INCOME BEFORE
TAXES, INCOME
JUNE 30, 1994 JUNE 30, 1993 MINORITY TAXES,
---------------------- ---------------------- INTEREST, MINORITY
INCOME INCOME EXTRAORDINARY INTEREST
(LOSS) (LOSS) LOSS AND AND
BEFORE BEFORE CUMULATIVE CUMULATIVE
INCOME INCOME EFFECT OF EFFECT OF
TAXES AND TAXES AND AN AN
TOTAL MINORITY TOTAL MINORITY TOTAL ACCOUNTING TOTAL ACCOUNTING
SALES INTEREST SALES INTEREST(A) SALES CHANGE SALES CHANGE(A)
---------- --------- ---------- --------- ---------- --------- ---------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
United States................. $ 985.7 $ 61.0 $ 925.7 $ 24.7 $ 1,937.5 $ 100.4 $ 1,850.5 $ 70.0
Canada........................ 247.5 (2.6) 192.1 (9.4) 454.1 (17.3) 383.0 (26.3)
Europe........................ 141.0 1.0 160.8 (.8) 282.3 2.2 359.7 3.0
---------- --------- ---------- --------- ---------- --------- ---------- ---------
1,374.2 59.4 1,278.6 14.5 2,673.9 85.3 2,593.2 46.7
Interest expense.............. (110.7) (101.8) (224.3) (204.1)
Foreign currency transaction
adjustments.................. (.7) (3.6) (15.9) (5.1)
General corporate and
miscellaneous (net).......... (18.7) (17.4) (36.9) (34.8)
Inter-area eliminations....... (19.9) -- (11.0) -- (28.8) -- (19.3) --
---------- --------- ---------- --------- ---------- --------- ---------- ---------
Total......................... $ 1,354.3 $ (70.7) $ 1,267.6 $ (108.3) $ 2,645.1 $ (191.8) $ 2,573.9 $ (197.3)
---------- --------- ---------- --------- ---------- --------- ---------- ---------
---------- --------- ---------- --------- ---------- --------- ---------- ---------
<FN>
- ------------------------------
(a) Adjusted to conform to current financial statement presentation.
</TABLE>

F-13
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 12: ADDITIONAL CASH FLOW STATEMENT INFORMATION
The Company's non-cash investing and financing activities and cash payments
for interest and income taxes were as follows:

<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS ENDED
ENDED JUNE 30 JUNE 30
----------------- -------------------
1994 1993 1994 1993
------- ------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Non-cash investing and financing activities:
Unrealized (gain) loss on an investment in an equity
security (net of income tax benefit)....................... $ (3.3) $ -- $ 5.7 $ --
Note receivable received from sale of assets................ -- -- 1.3 --
Preferred stock dividends issued by a consolidated
affiliate.................................................. -- 1.5 -- 2.9
Capital lease obligations incurred.......................... -- -- -- .2
Cash paid during the periods for:
Interest (net of capitalization)............................ $ 91.9 $ 92.3 $ 190.7 $ 188.3
Income taxes (net of refunds)............................... (.4) 1.9 2.6 7.7
------- ------- -------- --------
------- ------- -------- --------
</TABLE>

F-14
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors
and Stockholders of
Stone Container Corporation

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of cash flows and of stockholders' equity
present fairly, in all material respects, the financial position of Stone
Container Corporation and its subsidiaries at December 31, 1993 and 1992, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1993, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.

As discussed in Note 11 to the consolidated financial statements, the Company's
liquidity has been adversely affected by the net losses incurred in the past
three years. Recent financings and other transactions have improved liquidity;
however, improvements in cash flows from operations eventually will be
necessary. In addition, as discussed in Note 18, two of the Company's
subsidiaries may need to undertake additional measures to meet their separate
debt service requirements.

As discussed in Note 1 to the consolidated financial statements, the Company
changed its methods of accounting for income taxes and for postretirement
benefits other than pensions effective January 1, 1992 and 1993, respectively.

PRICE WATERHOUSE LLP

Chicago, Illinois
March 23, 1994

F-15
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1993 1992 1991
---------- ---------- ----------
(IN MILLIONS EXCEPT PER SHARE)
<S> <C> <C> <C>
SALES
Net sales.................................................................. $ 5,059.6 $ 5,520.7 $ 5,384.3
---------- ---------- ----------
OPERATING COSTS AND EXPENSES
Cost of products sold...................................................... 4,223.5 4,473.7 4,287.2
Selling, general and administrative expenses............................... 512.2 543.5 522.8
Depreciation and amortization.............................................. 346.8 329.2 273.5
Equity (income) loss from affiliates....................................... 11.7 5.3 (1.1)
Other net operating (income) expense....................................... 4.7 12.8 (62.8)
---------- ---------- ----------
5,098.9 5,364.5 5,019.6
---------- ---------- ----------
Income (loss) from operations.............................................. (39.3) 156.2 364.7
Interest expense........................................................... (426.7) (386.1) (397.4)
Other, net................................................................. (.9) .6 14.7
---------- ---------- ----------
Loss before income taxes and cumulative effects of accounting changes...... (466.9) (229.3) (18.0)
Provision (credit) for income taxes........................................ (147.7) (59.4) 31.1
---------- ---------- ----------
NET LOSS
Loss before cumulative effects of accounting changes....................... (319.2) (169.9) (49.1)
Cumulative effect of change in accounting for postretirement benefits (net
of income taxes of $23.3)................................................. (39.5) -- --
Cumulative effect of change in accounting for income taxes................. -- (99.5) --
---------- ---------- ----------
Net loss..................................................................... (358.7) (269.4) (49.1)
Preferred stock dividends.................................................... (8.1) (6.9) --
---------- ---------- ----------
Net loss applicable to common shares......................................... $ (366.8) $ (276.3) $ (49.1)
---------- ---------- ----------
---------- ---------- ----------
NET LOSS PER COMMON SHARE*
Loss before cumulative effects of accounting changes....................... (4.59) (2.49) (.78)
Cumulative effect of change in accounting for postretirement benefits...... (.56) -- --
Cumulative effect of change in accounting for income taxes................. -- (1.40) --
---------- ---------- ----------
Net loss per common share.................................................... $ (5.15) $ (3.89) $ (.78)
---------- ---------- ----------
---------- ---------- ----------
<FN>
- ------------------------
* Amounts per common share have been adjusted for the 2 percent common stock
dividend issued September 15, 1992.
</TABLE>

The accompanying notes are an integral part of these statements.

F-16
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1993 1992
----------- -----------
(IN MILLIONS)
<S> <C> <C>
Current assets:
Cash and cash equivalents............................................................. $ 247.4 $ 58.9
Accounts and notes receivable (less allowances of $19.3).............................. 622.3 688.1
Inventories........................................................................... 719.4 785.3
Other................................................................................. 164.1 169.5
----------- -----------
Total current assets............................................................ 1,753.2 1,701.8
----------- -----------
Property, plant and equipment......................................................... 5,240.7 5,365.1
Accumulated depreciation and amortization............................................. (1,854.3) (1,661.9)
----------- -----------
Property, plant and equipment -- net............................................ 3,386.4 3,703.2
Timberlands........................................................................... 83.9 69.4
Goodwill.............................................................................. 910.5 983.5
Other................................................................................. 702.7 569.1
----------- -----------
Total assets.................................................................... $ 6,836.7 $ 7,027.0
----------- -----------
----------- -----------

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable......................................................................... $ -- $ 33.0
Current maturities of senior and subordinated long-term debt.......................... 22.6 144.7
Current maturities of non-recourse debt of consolidated affiliates.................... 290.5 40.1
Accounts payable...................................................................... 297.1 364.2
Income taxes.......................................................................... 47.6 62.2
Accrued and other current liabilities................................................. 285.7 300.6
----------- -----------
Total current liabilities....................................................... 943.5 944.8
----------- -----------
Senior long-term debt................................................................. 2,338.0 2,511.1
Subordinated debt..................................................................... 1,257.8 1,019.2
Non-recourse debt of consolidated affiliates.......................................... 672.6 574.8
Other long-term liabilities........................................................... 270.3 152.7
Deferred taxes........................................................................ 470.6 685.2
Redeemable preferred stock of consolidated affiliate.................................. 42.3 36.3
Minority interest..................................................................... 234.5 .2
Commitments and contingencies (Note 18)...............................................
Stockholders' equity:
Series E preferred stock.............................................................. 115.0 115.0
Common stock (71.2 and 71.0 shares outstanding)....................................... 574.3 645.7
Retained earnings..................................................................... 101.6 496.0
Foreign currency translation adjustment............................................... (179.0) (149.3)
Unamortized expense of restricted stock plan.......................................... (4.8) (4.7)
----------- -----------
Total stockholders' equity...................................................... 607.1 1,102.7
----------- -----------
Total liabilities and stockholders' equity...................................... $ 6,836.7 $ 7,027.0
----------- -----------
----------- -----------
</TABLE>

The accompanying notes are an integral part of these statements.

F-17
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1993 1992 1991
--------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss........................................................................ $ (358.7) $ (269.4) $ (49.1)
Adjustments to reconcile net loss to net cash provided by (used in) operating
activities:
Cumulative effect of change in accounting for postretirement benefits......... 39.5 -- --
Cumulative effect of change in accounting for income taxes.................... -- 99.5 --
Depreciation and amortization................................................. 346.8 329.2 273.5
Deferred taxes................................................................ (133.9) (67.5) 21.6
Foreign currency transaction losses (gains)................................... 11.8 15.0 (4.9)
Payment on settlement of interest rate swaps.................................. (33.0) -- --
Other -- net.................................................................. (89.3) 60.6 12.3
Changes in current assets and liabilities -- net of adjustments for divestitures
and an acquisition:
Decrease (increase) in accounts and notes receivable -- net................... 44.9 (66.6) 33.5
Decrease (increase) in inventories............................................ 28.9 10.5 (60.4)
Decrease (increase) in other current assets................................... (9.3) 9.2 (75.2)
Increase (decrease) in accounts payable and other current liabilities......... (60.4) (34.9) 59.2
--------- --------- ---------
Net cash provided by (used in) operating activities........................... (212.7) 85.6 210.5
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings...................................................................... 611.4 1,024.8 753.0
Payments made on debt........................................................... (698.1) (912.4) (795.9)
Non-recourse borrowings of consolidated affiliates.............................. 400.6 40.0 155.5
Payments by consolidated affiliates on non-recourse debt........................ (55.0) (10.4) (34.4)
Proceeds from issuance of preferred stock....................................... -- 111.0 --
Proceeds from issuance of common stock.......................................... -- .1 176.0
Proceeds from issuance of common stock of a consolidated subsidiary............. 161.8 -- --
Proceeds from the settlement of cross currency swaps............................ 67.9 -- --
Cash dividends.................................................................. (4.0) (30.7) (44.7)
--------- --------- ---------
Net cash provided by financing activities..................................... 484.6 222.4 209.5
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures:
Funded by project financings.................................................. (14.6) (79.1) (219.8)
Other......................................................................... (135.1) (202.3) (210.3)
--------- --------- ---------
Total capital expenditures.................................................. (149.7) (281.4) (430.1)
--------- --------- ---------
Payments made for businesses acquired........................................... (.1) (27.2) (18.8)
Proceeds from sales of assets................................................... 106.0 9.5 22.1
Other -- net.................................................................... (40.7) (10.7) 13.7
--------- --------- ---------
Net cash used in investing activities......................................... (84.5) (309.8) (413.1)
--------- --------- ---------
Effect of exchange rate changes on cash......................................... 1.1 (3.4) 3.3
--------- --------- ---------
NET CASH FLOWS
Net increase (decrease) in cash and cash equivalents............................ 188.5 (5.2) 10.2
Cash and cash equivalents, beginning of period.................................. 58.9 64.1 53.9
--------- --------- ---------
Cash and cash equivalents, end of period........................................ $ 247.4 $ 58.9 $ 64.1
--------- --------- ---------
--------- --------- ---------
<FN>
- ------------------------
See Note 5 regarding non-cash financing and investing activities and
supplemental cash flow
information.
</TABLE>

The accompanying notes are an integral part of these statements.

F-18
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
1993 1992 1991
---------------------- ----------------------- -----------------------
AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
--------- ----------- ---------- ----------- ---------- -----------
(IN MILLIONS EXCEPT PER SHARE)
<S> <C> <C> <C> <C> <C> <C>
PREFERRED STOCK
Balance at January 1............................. $ 115.0 4.6 $ -- -- $ -- --
Issuance of preferred stock:
Public offering................................ -- -- 115.0 4.6 -- --
--------- --- ---------- --- ---------- ---
Balance at December 31........................... 115.0 4.6 115.0 4.6 -- --
--------- --- ---------- --- ---------- ---
--- --- ---
COMMON STOCK
Balance at January 1............................. 645.7 71.0 613.2 69.5 435.7 60.0
Issuance of common stock:
Public offering................................ -- -- -- -- 174.7 9.2
Exercise of stock options...................... -- -- .1 -- .1 --
Restricted stock plan.......................... 2.9 .2 2.8 .1 2.7 .3
Preferred stock conversion..................... .1 -- -- -- -- --
2 percent common stock dividend................ -- -- 29.6 1.4 -- --
Public offering of subsidiary stock............ (74.4) -- -- -- -- --
--------- --- ---------- --- ---------- ---
Balance at December 31........................... 574.3 71.2 645.7 71.0 613.2 69.5
--------- --- ---------- --- ---------- ---
--- --- ---
RETAINED EARNINGS
Balance at January 1............................. 496.0 832.8 926.7
Net loss......................................... (358.7) (269.4) (49.1)
Cash dividends:
Common stock*.................................. -- (24.8) (44.7)
Preferred stock*............................... (4.0) (5.9) --
2 percent common stock dividend.................. -- (29.6) --
Minimum pension liability in excess of
unrecognized prior service cost................. (31.7) (7.1) (.1)
--------- ---------- ----------
Balance at December 31........................... 101.6 496.0 832.8
--------- ---------- ----------
FOREIGN CURRENCY TRANSLATION ADJUSTMENT
Balance at January 1............................. (149.3) 95.5 101.5
Aggregate adjustment from translation of foreign
currency statements............................. (29.7) (244.8) (6.0)
--------- ---------- ----------
Balance at December 31........................... (179.0) (149.3) 95.5
--------- ---------- ----------
UNAMORTIZED EXPENSE OF RESTRICTED STOCK PLAN
Balance at January 1............................. (4.7) (4.0) (3.4)
Issuance of shares............................... (2.9) (2.8) (2.7)
Amortization of expense.......................... 2.8 2.1 2.1
--------- ---------- ----------
Balance at December 31........................... (4.8) (4.7) (4.0)
--------- ---------- ----------
Total stockholders' equity at December 31........ $ 607.1 $ 1,102.7 $ 1,537.5
--------- ---------- ----------
--------- ---------- ----------
<FN>
- ------------------------
* Cash dividends paid on common stock, adjusted for the 2 percent stock dividend
issued September 15, 1992, were $.35 per share in 1992 and $.71 per share in
1991. No cash dividends on common stock were paid in 1993. Cash dividends paid
on preferred stock were $.875 per share in 1993 and $1.28 per share in 1992.
</TABLE>

The accompanying notes are an integral part of these statements.

F-19
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION:

The consolidated financial statements include the accounts of the Company
and all subsidiaries that are more than 50 percent owned. The Company's
subsidiary Cartomills, S.A. ("Cartomills") was also accounted for as a
consolidated subsidiary beginning October 31, 1990 upon the Company's
acquisition of 30 percent of the outstanding common stock of Cartomills. In
1992, the Company purchased the remaining 70 percent of the common stock of
Cartomills. All significant intercompany accounts and transactions have been
eliminated. Investments in non-consolidated affiliated companies are primarily
accounted for by the equity method.

PER SHARE DATA:

Net loss per common share is computed by dividing net loss applicable to
common shares by the weighted average number of common shares outstanding during
each year. The weighted average number of common shares outstanding was
71,162,646 in 1993, 70,986,564 in 1992 and 63,206,529 in 1991. Common stock
equivalent shares, issuable upon exercise of outstanding stock options, are
included in these calculations when they would have a dilutive effect on the per
share amounts. All amounts per common share and the weighted average number of
common shares outstanding have been adjusted for the 2 percent common stock
dividend issued September 15, 1992. Fully diluted earnings per share is not
disclosed because of the anti-dilutive effect of the Company's convertible
securities.

RECLASSIFICATIONS:

Certain prior year amounts have been restated to conform with the current
year presentation in the Consolidated Statements of Operations, the Consolidated
Balance Sheets and the Consolidated Statements of Cash Flows.

CASH AND CASH EQUIVALENTS:

The Company considers all highly liquid short-term investments with original
maturities of three months or less to be cash equivalents and, therefore,
includes such investments as cash and cash equivalents in its financial
statements.

INVENTORIES:

Inventories are stated at the lower of cost or market. The primary methods
used to determine inventory costs are the first-in-first-out ("FIFO") method,
the last-in-first-out ("LIFO") method and the average cost method.

PROPERTY, PLANT, EQUIPMENT AND DEPRECIATION:

Property, plant and equipment is stated at cost. Expenditures for
maintenance and repairs are charged to income as incurred. Additions,
improvements and major replacements are capitalized. The cost and accumulated
depreciation related to assets sold or retired are removed from the accounts and
any gain or loss is credited or charged to income.

For financial reporting purposes, depreciation and amortization is primarily
provided on the straight-line method over the estimated useful lives of
depreciable assets, or over the duration of the leases for capitalized leases,
based on the following annual rates:

<TABLE>
<CAPTION>
TYPE OF ASSET RATES
- ------------------------------------------------------------------------------- -------------
<S> <C>
Machinery and equipment........................................................ 5% to 33%
Buildings and leasehold improvements........................................... 2% to 10%
Land improvements.............................................................. 4% to 7%
</TABLE>

F-20
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
TIMBERLANDS:

Timberlands are stated at cost less accumulated cost of timber harvested.
The Company amortizes its private fee timber costs over the estimated total
fiber that will be available during the estimated growth cycle. Cost of non-fee
timber harvested is determined on the basis of timber removal rates and the
estimated volume of recoverable timber. The Company capitalizes interest costs
related to pre-merchantable timber.

INCOME TAXES:

Effective January 1, 1992, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"), which
required a change from the deferred method to the liability method of accounting
for income taxes. In connection with the adoption of SFAS 109, the Company
recorded a one-time, non-cash after-tax charge to its first quarter 1992
earnings of $99.5 million or $1.40 per share of common stock. This adjustment is
reported as a cumulative effect of a change in accounting principles in the
Company's Statements of Operations. Under the liability method, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. SFAS 109
requires that assets and liabilities acquired in a business combination
accounted for under the purchase method of accounting be recorded at their gross
fair values, with a separate deferred tax balance recorded for the related tax
effects. Accordingly, effective with the adoption of SFAS 109, the Company's
property, plant and equipment increased by $331 million, resulting in increased
annual depreciation expense of approximately $28 million which is offset by
comparable reductions in deferred income tax expense as the related taxable
temporary differences reverse. The impact of the adoption of SFAS 109 on the
deferred income tax accounts as of January 1, 1992 was an increase in the
deferred tax liability of approximately $500 million and an increase in the
current deferred tax asset of approximately $18 million. Financial statements
for years prior to 1992 have not been restated.

GOODWILL AND OTHER ASSETS:

Goodwill is amortized on a straight-line basis over 40 years, and is
recorded net of accumulated amortization of approximately $129 million and $107
million at December 31, 1993 and 1992, respectively. The Company assesses at
each balance sheet date whether there has been a permanent impairment in the
value of goodwill. This is accomplished by determining whether projected
undiscounted future cash flows from operations exceed the net book value of
goodwill as of the assessment date. Such projections reflect price, volume and
cost assumptions. Additional factors considered by management in the preparation
of the projections and in assessing the value of goodwill include the effects of
obsolescence, demand, competition and other pertinent economic factors and
trends and prospects that may have an impact on the value or remaining useful
life of goodwill. Deferred debt issuance costs are amortized over the expected
life of the related debt using the interest method. Start-up costs on major
projects were capitalized and amortized over a ten-year period prior to October
1, 1993. Effective October 1, 1993, the Company changed its estimate of the
useful life of deferred start-up costs to a five-year period. The effect of this
change in estimate was to increase depreciation and amortization expense by
approximately $3.1 million and decrease net income by $2.0 million or $.02 per
common share. Other long-term assets include $80 million and $73 million of
unamortized deferred start-up costs at December 31, 1993 and 1992, respectively.

F-21
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PUBLIC OFFERING OF SUBSIDIARY STOCK:

When the sale of subsidiary stock takes the form of a direct sale of its
unissued shares, the Company records the difference relating to the carrying
amount per share and the offering price per share as an adjustment to common
stock in those instances in which the Company has determined that the difference
does not represent a permanent impairment.

FOREIGN CURRENCY TRANSLATION:

The functional currency for the Company's foreign operations is the
applicable local currency. Accordingly, assets and liabilities are translated at
the exchange rate in effect at the balance sheet date and income and expenses
are translated at average exchange rates prevailing during the year. Translation
gains or losses are accumulated as a separate component of stockholders' equity
entitled Foreign Currency Translation Adjustment. Foreign currency transaction
gains or losses are credited or charged to income. These transaction gains or
losses arise primarily from the translation of monetary assets and liabilities
that are denominated in a currency other than the local currency.

FOREIGN CURRENCY AND INTEREST RATE HEDGES:

The Company utilizes various financial instruments to hedge its foreign
currency and interest rate exposures. Premiums received and fees paid on the
financial instruments are deferred and amortized over the period of the
agreements. Gains and losses on the instruments are used to offset the effects
of foreign exchange and interest rate fluctuations in the Statements of
Operations.

POSTRETIREMENT BENEFITS OTHER THAN PENSIONS:

Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits
Other than Pensions" ("SFAS 106"), which required the Company to change from the
pay-as-you-go (cash) method to the accrual method of accounting for such
postretirement benefits (primarily health care and life insurance). Upon
adoption of SFAS 106, the Company recorded its catch-up accumulated
postretirement benefit obligation (approximately $62.8 million) by recognizing a
one-time, non-cash charge of $39.5 million, net of income taxes, as a cumulative
effect of an accounting change in its 1993 first quarter Statement of
Operations.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:

In November 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits" ("SFAS 112"), which requires accrual accounting for the
estimated costs of providing certain benefits to former or inactive employees
and the employees' beneficiaries and dependents after employment but before
retirement. The Company intends to adopt SFAS 112 by recognizing the catch-up
obligation for its worldwide operations as a cumulative effect of an accounting
change effective January 1, 1994 in the 1994 first quarter Statement of
Operations. The one-time, non-cash charge will be approximately $14 million, net
of income taxes.

NOTE 2 -- SUBSEQUENT EVENTS
On February 3, 1994, under the Company's $1 billion shelf registration, the
Company sold $710 million principal amount of 9 7/8 percent Senior Notes due
February 1, 2001 and 16.5 million shares of common stock for an additional
$251.6 million at $15.25 per common share. On February 17, 1994, the
underwriters elected to exercise their option to sell an additional 2.47 million
shares of common stock for an additional $37.7 million, also at $15.25 per
common share in the February 1994 Offerings. The net proceeds from the February
1994 Offerings of approximately $962 million were used to (i) prepay
approximately $652 million of the 1995, 1996 and 1997 required amortization
under the 1989 Credit Agreement including the ratable amortization payment under
the revolving credit facilities which had the effect of reducing the total
commitments thereunder to approximately $168 million; (ii) redeem the

F-22
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2 -- SUBSEQUENT EVENTS (CONTINUED)
Company's 13 5/8 percent Subordinated Notes due 1995 at a price equal to par,
approximately $98 million principal amount, plus accrued interest to the
redemption date; (iii) repay approximately $136 million of the outstanding
borrowings under the Company's revolving credit facilities without reducing the
commitments thereunder; and (iv) provide liquidity in the form of cash. Had the
issuance of the common shares occurred on January 1, 1993, the Company's
weighted average number of common shares outstanding would have been 84,270,232
and the net loss per common share would have been $4.35 for the year ended
December 31, 1993.

NOTE 3 -- ACQUISITIONS/MERGERS/DISPOSITIONS
In December 1993, the Company sold two of its short-line railroads in a
transaction in which the Company has guaranteed to contract minimum railroad
services which will provide freight revenues to the railroads over a 10 year
period. The transaction has been accounted for as a financing and accordingly,
had no impact on the Company's 1993 net loss. The Company received proceeds of
approximately $28 million, of which approximately $19 million was used to repay
commitments under the 1989 Credit Agreement.

Also in December 1993, the Company sold its 49 percent equity interest in
Titan. The net proceeds were used to repay commitments under the 1989 Credit
Agreement and for repayment of borrowings under its revolving credit facilities
without reducing commitments thereunder. The sale resulted in a pre-tax gain of
approximately $35.4 million.

On May 6, 1993, the Company's wholly-owned German subsidiary, Europa Carton
A.G., ("Europa Carton"), completed a joint venture with Financiere Carton Papier
(FCP), a French company, to merge the folding carton operations of Europa Carton
with those of FCP ("FCP Group"). Under the joint venture, FCP Group is owned
equally by Europa Carton and the shareholders of FCP immediately prior to the
merger. The Company's investment in the joint venture is being accounted for
under the equity method of accounting.

During 1993, the Company increased its ownership in the common stock of
Savannah River from 90.2 percent to 92.8 percent through the purchase of an
additional 6,152 common shares and through the receipt of Series D Preferred
Stock as a dividend in kind on Savannah River's Series B Preferred Stock and the
election of its right to convert the Series D Preferred Stock into 198,438
common shares. The Company had previously increased its ownership in the common
stock of Savannah River from 50.0 percent to 90.2 percent by acquiring 321,502
shares during 1992 and 1991. Savannah River operates a linerboard and market
pulp mill in Port Wentworth, Georgia.

In October and November 1992, the Company purchased the remaining 70.0
percent of the common stock (12,600 shares) of Cartomills, a Belgian company
that operates two corrugated container plants.

In June 1992, the Company acquired an additional 45,666 shares of Seminole
common stock, thereby increasing its ownership in the common stock of Seminole
from 94.4 percent to 99.0 percent. The Company had previously increased its
ownership in the common stock of Seminole from 85.4 percent to 94.4 percent by
purchasing 90,000 shares during 1991. Seminole operates an unbleached recycled
linerboard and kraft paper mill in Jacksonville, Florida.

The Company also made a minor acquisition and a divestiture during the years
for which financial statements are presented which did not have a significant
impact on the Company's results of operations or financial condition.

F-23
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 4 -- PUBLIC OFFERING OF SUBSIDIARY STOCK
In December 1993, Stone-Consolidated, a newly created Canadian subsidiary,
acquired the newsprint and uncoated groundwood papers business of Stone Canada
and sold $346.5 million of units in an initial public offering comprised of both
common stock and convertible subordinated debentures (the "Units Offering").
Each unit was priced at $2,100 and consisted of 100 shares of common stock at
$10.50 per share and $1,050 principal amount of convertible debentures. The
convertible subordinated debentures mature December 31, 2003, bear interest at
an annual rate of 8 percent and are convertible beginning June 30, 1994, into
6.211 shares of common stock for each Canadian $100 principal amount,
representing a conversion price of $12.08 per share. Concurrent with the initial
public offering, Stone-Consolidated sold $225 million of senior secured notes in
a public offering in the United States. The senior secured notes mature December
15, 2000 and bear interest at an annual rate of 10.25 percent.

As a result of the Units Offering, 16.5 million shares of common stock,
representing 25.4 percent of the total shares outstanding of Stone-Consolidated,
were sold to the public, resulting in the recording in the Company's
Consolidated Balance Sheet of a minority interest liability of $236.7 million.

The Company used approximately $373 million of the net proceeds from the
sale of the Stone-Consolidated securities for repayment of commitments under its
1989 Credit Agreement and the remainder for general corporate purposes. As a
result of the Units Offering, the Company recorded a charge of $74.4 million to
common stock relating to the excess carrying value per common share over the
offering price per common share associated with the shares issued.

NOTE 5 -- ADDITIONAL CASH FLOW STATEMENT INFORMATION
The Company's non-cash investing and financing activities and cash payments
(receipts) for interest and income taxes were as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1993 1992 1991
--------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
Issuance of 2 percent common stock dividend.............................. $ -- $ 29.6 $ --
Conversion of notes receivable into investments in an affiliate.......... -- 7.3 --
Preferred stock dividends issued by a consolidated affiliate............. 6.0 5.1 4.4
Capital lease obligations incurred....................................... .3 4.3 --
Assumption of debt in connection with an acquisition..................... -- 3.8 --
Note payable issued in exchange for common shares of a consolidated
affiliate............................................................... -- 1.1 --
Exchange of non-recourse debt of consolidated affiliate.................. -- -- 12.5
Accrued liability converted to subordinated debt......................... -- -- 9.8
--------- --------- ---------
--------- --------- ---------
Cash paid (received) during the year for:
Interest (net of capitalization)....................................... $ 375.9 $ 355.6 $ 370.3
Income taxes (net of refunds).......................................... (11.7) (1.9) 14.3
--------- --------- ---------
--------- --------- ---------
</TABLE>

In 1993, the other-net component of net cash used in operating activities
included debt issuance costs of $84 million and an adjustment to remove the
effect of a $35 million gain from the sale of the Company's 49 percent equity
interest in Titan, partially offset by adjustments to remove the effects of
amortization of deferred debt issuance costs and a non-cash charge of $19
million pertaining to the writedown of certain decommissioned assets.

In 1992, the other-net component of net cash provided by operating
activities included $54 million of cash received from the sale of an energy
contract in October 1992.

F-24
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 6 -- INVENTORIES
Inventories are summarized as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1993 1992
--------- ---------
(IN MILLIONS)
<S> <C> <C>
Raw materials and supplies..................................... $ 333.8 $ 345.9
Paperstock..................................................... 284.2 316.6
Work in process................................................ 16.8 22.2
Finished products.............................................. 99.5 119.3
--------- ---------
734.3 804.0
Excess of current cost over LIFO inventory value............... (14.9) (18.7)
--------- ---------
Total inventories.............................................. $ 719.4 $ 785.3
--------- ---------
--------- ---------
</TABLE>

At December 31, 1993 and 1992, the percentages of total inventories costed
by the LIFO, FIFO and average cost methods were as follows:

<TABLE>
<CAPTION>
1993 1992
----------- -----------
<S> <C> <C>
LIFO.............................................................. 44% 42%
FIFO.............................................................. 6% 7%
Average Cost...................................................... 50% 51%
</TABLE>

NOTE 7 -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is summarized as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1993 1992
----------- -----------
(IN MILLIONS)
<S> <C> <C>
Machinery and equipment................................... $ 4,398.7 $ 4,381.4
Buildings and leasehold improvements...................... 675.0 668.4
Land and land improvements................................ 103.0 105.7
Construction in progress.................................. 64.0 209.6
----------- -----------
Total property, plant and equipment....................... 5,240.7 5,365.1
Accumulated depreciation and amortization................. (1,854.3) (1,661.9)
----------- -----------
Total property, plant and equipment -- net................ $ 3,386.4 $ 3,703.2
----------- -----------
----------- -----------
</TABLE>

Property, plant and equipment includes capitalized leases of $70.3 million
and $71.8 million and related accumulated amortization of $24.2 million and
$19.8 million at December 31, 1993 and 1992, respectively.

NOTE 8 -- INCOME TAXES
Effective January 1, 1992, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"), which
required a change from the deferred method to the liability method of accounting
for income taxes. In connection with the adoption of SFAS 109, the Company
recorded a one-time, non-cash after-tax charge to its first quarter 1992
earnings of $99.5 million or $1.40 per share of common stock. This adjustment is
reported as a cumulative effect of a change in accounting principles in the
Company's Statements of Operations. Under the liability method, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between financial statement carrying amounts of
existing assets and liabilities and their

F-25
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 8 -- INCOME TAXES (CONTINUED)
respective tax bases. SFAS 109 requires that assets and liabilities acquired in
a business combination accounted for under the purchase method of accounting be
recorded at their gross fair values, with a separate deferred tax balance
recorded for the related tax effects.

The provision (credit) for income taxes consists of the following:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1993 1992 1991
--------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
Currently payable (refundable):
Federal....................................................... $ (28.4) $ (24.7) $ (7.2)
State......................................................... 4.0 3.0 (3.1)
Foreign....................................................... 10.6 21.7 18.4
--------- --------- ---------
(13.8) -- 8.1
--------- --------- ---------
Deferred:
Federal....................................................... (45.4) 4.9 --
State......................................................... (31.3) (10.8) .9
Foreign....................................................... (57.2) (53.5) 22.1
--------- --------- ---------
(133.9) (59.4) 23.0
--------- --------- ---------
Total provision (credit) for income taxes....................... $ (147.7) $ (59.4) $ 31.1
--------- --------- ---------
--------- --------- ---------
</TABLE>

The income tax (credit) at the federal statutory rate is reconciled to the
provision (credit) for income taxes as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1993 1992 1991
--------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
Federal income tax (credit) at federal statutory rate........... $ (163.4) $ (78.0) $ (6.1)
Additional taxes (credits) resulting from:
Non-deductible depreciation and amortization of intangibles... 9.5 9.5 27.2
Foreign statutory rate decreases.............................. (11.2) -- --
U.S. statutory rate increase.................................. 8.7 -- --
State income taxes, net of federal income tax effect.......... (17.7) (5.1) (1.4)
Foreign income taxed at rates in excess of U.S. statutory
rate......................................................... 4.3 6.1 10.0
Minimum taxes -- foreign jurisdictions........................ 3.6 4.6 4.3
Other -- net.................................................. 18.5 3.5 (2.9)
--------- --------- ---------
Provision (credit) for income taxes............................. $ (147.7) $ (59.4) $ 31.1
--------- --------- ---------
--------- --------- ---------
</TABLE>

F-26
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 8 -- INCOME TAXES (CONTINUED)
The components of the net deferred tax liability as of December 31, 1993 and
1992 were as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1993 1992
--------- ---------
(IN MILLIONS)
<S> <C> <C>
Deferred tax assets:
Carryforwards............................................... $ 262.6 $ 125.9
Compensation-related accruals............................... 49.3 5.4
Reserves.................................................... 33.7 29.0
Deferred gain............................................... 26.2 20.3
Tax benefit transfers....................................... 8.8 12.7
Other....................................................... 11.6 18.4
--------- ---------
392.2 211.7
Valuation allowance........................................... (1.2) (1.2)
--------- ---------
Total deferred tax asset...................................... 391.0 210.5
Deferred tax liability:
Depreciation and amortization............................... (754.3) (779.5)
Start-up costs.............................................. (27.8) (27.9)
LIFO reserve................................................ (18.1) (8.1)
Pension..................................................... (12.5) (25.7)
Other....................................................... (35.2) (36.5)
--------- ---------
Total deferred tax liability.................................. (847.9) (877.7)
--------- ---------
Deferred tax liability -- net................................. $ (456.9) $ (667.2)
--------- ---------
--------- ---------
</TABLE>

During 1991, deferred taxes were provided for significant timing differences
between revenue and expenses for tax and financial statement purposes. Following
is a summary of the significant components of the deferred tax provision:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1991
---------------
(IN MILLIONS)
<S> <C>
Depreciation and amortization....................................... $ (2.4)
Acquisition related expenses........................................ (2.9)
Capitalized interest................................................ 12.4
Start-up costs...................................................... 7.2
Pension costs....................................................... (.2)
Other -- net........................................................ 8.9
-----
Deferred income tax provision..................................... $ 23.0
-----
-----
</TABLE>

The components of the loss before income taxes and cumulative effects of
accounting changes are:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1993 1992 1991
--------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
United States....................................... $ (315.1) $ (74.1) $ (39.0)
Foreign............................................. (151.8) (155.2) 21.0
--------- --------- ---------
Loss before income taxes and cumulative effects of
accounting changes................................. $ (466.9) $ (229.3) $ (18.0)
--------- --------- ---------
--------- --------- ---------
</TABLE>

F-27
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 8 -- INCOME TAXES (CONTINUED)
As a result of certain acquisitions, the Company had, at December 31, 1993,
approximately $27 million of pre-acquisition net operating loss carryforwards
and approximately $5 million of investment tax credit carryforwards for federal
income tax purposes. To the extent not utilized, the carryforwards will expire
in the period commencing in the year 1996 and ending in the year 2004.

At December 31, 1993, Bridgewater Paper Company Ltd., which was acquired in
the 1989 Stone-Canada acquisition, had approximately $92 million of net
operating loss carryforwards for United Kingdom income tax purposes. These
losses are available indefinitely.

At December 31, 1993, the Company had approximately $252 million of net
operating loss carryforwards for U.S. tax purposes and, additionally,
approximately $236 million of net operating loss carryforwards for Canadian tax
purposes. To the extent not utilized, the U.S. net operating losses will expire
in 2007 and 2008 and the Canadian net operating losses will expire in 1998, 1999
and 2000. The Company also had approximately $11 million of alternative minimum
tax credit carryforwards for U.S. tax purposes which are available indefinitely.

NOTE 9 -- PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS
The Company has contributory and noncontributory pension plans for the
benefit of most salaried and certain hourly employees. The funding policy for
the plans, with the exception of the Company's salaried supplemental unfunded
plans and the Company's German subsidiary's unfunded plan, is to annually
contribute the statutory required minimum. The salaried pension plans provide
benefits based on a formula which takes into account each participant's
estimated final average earnings. The hourly pension plans provide benefits
under a flat benefit formula. The salaried and hourly plans provide reduced
benefits for early retirement. The salaried plans take into account offsets for
governmental benefits.

Net pension expense for the combined pension plans includes the following
components:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1993 1992 1991
--------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
Service cost -- benefits earned during the period......................... $ 17.4 $ 17.2 $ 15.6
Interest cost on projected benefit obligations............................ 63.7 64.0 61.7
Actual return on plan assets.............................................. (91.9) (32.8) (86.5)
Net amortization and deferral............................................. 40.4 (26.6) 30.2
--------- --------- ---------
Net pension expense....................................................... $ 29.6 $ 21.8 $ 21.0
--------- --------- ---------
--------- --------- ---------
</TABLE>

F-28
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 9 -- PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS (CONTINUED)
The following table sets forth the funded status of the Company's pension
plans and the amounts recorded in the Consolidated Balance Sheets:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------------------------
1993 1992
-------------------------------------- --------------------------------------
ACCUMULATED ACCUMULATED
ASSETS EXCEED BENEFITS EXCEED ASSETS EXCEED BENEFITS EXCEED
ACCUMULATED BENEFITS ASSETS ACCUMULATED BENEFITS ASSETS
-------------------- --------------- -------------------- ---------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits................................. $(185.0) $(498.8) $(465.0) $(116.9)
Non-vested benefits............................. (11.4) (37.9) (34.4) (6.3)
------- ------- ------- -------
Accumulated benefit obligation.................. (196.4) (536.7) (499.4) (123.2)
Effect of increase in compensation levels....... (23.2) (76.6) (75.0) (14.1)
------- ------- ------- -------
Projected benefit obligation for service rendered
through December 31.............................. (219.6) (613.3) (574.4) (137.3)
Plan assets at fair value, primarily stocks,
bonds, guaranteed investment contracts, real
estate and mutual funds which invest in listed
stocks and bonds................................. 219.0 395.3 518.7 49.8
------- ------- ------- -------
Excess of projected benefit obligation over plan
assets........................................... (.6) (218.0) (55.7) (87.5)
Unrecognized prior service cost................... 4.6 29.4 14.5 6.8
Unrecognized net actuarial loss................... 39.4 127.3 96.1 5.6
Unrecognized net assets........................... -- -- (9.9) --
Adjustment required to recognize minimum
liability........................................ -- (92.4) -- (19.6)
------- ------- ------- -------
Net prepaid (accrual)............................. $ 43.4 $(153.7) $ 45.0 $ (94.7)
------- ------- ------- -------
------- ------- ------- -------
</TABLE>

In accordance with Statement of Financial Accounting Standards No. 87,
"Employer's Accounting for Pensions," the Company has recorded an additional
minimum liability for underfunded plans representing the excess of the unfunded
accumulated benefit obligation over previously recorded liabilities. The
additional minimum liability at December 31, 1993 of $92.4 million is recorded
as a long-term liability with an offsetting intangible asset of $29.4 million
and a charge to stockholders' equity of $39.6 million,

F-29
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 9 -- PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS (CONTINUED)
net of a tax benefit of $23.4 million. Of this additional minimum liability,
$19.6 million was recorded as a long-term liability at December 31, 1992 with an
offsetting intangible asset of $6.7 million and a charge to stockholders' equity
of $7.9 million, net of a tax benefit of $5.0 million.

The weighted average discount rate and the rate of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligations was 7.5 percent for all U.S. and German operations
and 8.0 percent for Canadian and United Kingdom operations and 4.0 percent,
respectively, for 1993 and 9.0 percent and 4.5 to 5.0 percent, respectively, for
1992. The expected long-term rate of return on assets was 11 percent for 1993
and 1992. The change in the weighted average discount rates during 1993 had the
effect of increasing the total projected benefit obligation at December 31, 1993
by $108.8 million and the change in the rate of increase in future compensation
levels in 1993 had the effect of decreasing the projected benefit obligation by
$19.3 million.

Certain domestic operations of the Company participate in various
multi-employer union-administered defined benefit pension plans that principally
cover production workers. Pension expense under these plans was $5.1 million for
1993 and 1992 and $4.7 million for 1991.

In addition to providing pension benefits, the Company provides certain
retiree health care and life insurance benefits covering substantially all U.S.
salaried and hourly employees and certain Canadian employees. Employees become
eligible for such benefits if they are fully vested in one of the Company's
pension plans when they retire from the Company and they begin to draw
retirement benefits upon termination of service. Such retiree health care costs
were expensed as the claims were paid through December 31, 1992. However, as
discussed in Note 1 -- "Summary of Significant Accounting Policies," effective
January 1, 1993, the Company adopted SFAS 106, which required the Company to
accrue for its obligation to pay such postretirement health care costs during
the employees' years of service, as opposed to when such costs are actually
paid. The effect of SFAS 106 on income from operations is not material.

In conjunction with the adoption, the Company, effective January 1, 1993,
implemented cost saving provisions designed to reduce certain postretirement
health care and life insurance costs. Among other things, these provisions
provide for a cap on the Company's share of certain health care costs. Such
provisions do not apply to current retirees and those active employees age 55
and over who were eligible to retire as of December 31, 1992. Accordingly, the
Company is generally responsible for 50 percent of the claims of such
individuals.

Net worldwide periodic postretirement benefit cost for 1993 included the
following components:

<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C>
Service cost-benefits attributed to service during the period......... $ 1.0
Interest cost on accumulated postretirement benefit obligation........ 5.5
---
Net worldwide periodic postretirement benefit cost.................... $ 6.5
---
---
</TABLE>

Worldwide postretirement benefits costs for retired employees approximated
$4.7 million for 1992. Prior to 1992, the cost of providing such benefits for
retired employees was not readily separable from the cost of providing benefits
for active employees. On a combined basis, worldwide health care and life
insurance benefit cost for both active and retired employees approximated $76
million in 1991.

F-30
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 9 -- PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS (CONTINUED)
The following table sets forth the components of the Company's accumulated
postretirement benefit obligation and the amount recorded in the Consolidated
Balance Sheet at December 31, 1993:

<TABLE>
<CAPTION>
U.S. FOREIGN TOTAL
--------- ----------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
Accumulated postretirement benefit obligation:
Retirees................................................................ $ 19.0 $ 22.5 $ 41.5
Active employees -- fully eligible...................................... 15.3 3.0 18.3
Other active employees.................................................. 15.5 2.6 18.1
--------- ----- ---------
Total accumulated postretirement benefit obligation....................... 49.8 28.1 77.9
Unrecognized net loss..................................................... (12.6) (2.1) (14.7)
--------- ----- ---------
Postretirement benefit liability.......................................... $ 37.2 $ 26.0 $ 63.2
--------- ----- ---------
--------- ----- ---------
</TABLE>

The Company has not currently funded any of its accumulated postretirement
benefit obligation.

The discount rate used in determining the accumulated postretirement benefit
cost was 7.5 percent for U.S. and German operations and 8.0 percent for Canadian
and United Kingdom operations. The assumed health care cost trend rates for
substantially all employees used in measuring the accumulated postretirement
benefit obligation range from 7 percent to 15 percent decreasing to ultimate
rates of 5.5 percent to 8 percent. If the health care cost trend rate
assumptions were increased by 1 percent, the accumulated postretirement benefit
obligation at December 31, 1993 and the net periodic postretirement benefit cost
for the year ended December 31, 1993 would have increased by $6.5 million and
$0.6 million, respectively.

At December 31, 1993, the Company had approximately 8,300 retirees and
29,000 active employees of which approximately 3,000 and 21,100, respectively,
were employees of U.S. operations.

F-31
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 10 -- LONG-TERM DEBT
Long-term debt consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1993 1992
---------- ----------
(IN MILLIONS)
<S> <C> <C>
Senior debt:
Term loans (8.3% and 10.0% weighted average rates) payable $116.0 on March 31, 1995 and
in semi-annual installments of $116.7 on September 30, 1995, March 31 and September 30,
1996 and $411.6 on March 1, 1997........................................................ $ 877.7 $ 1,230.1
Additional term loan (6.3% and 7.0% weighted average rates) payable $38.7 on March 31,
1995 and in semi-annual installments of $39.0 on September 30, 1995 and March 31, 1996
and $38.9 on September 30, 1996 and $137.3 on March 1, 1997............................. 292.9 371.0
Revolving credit agreements (5.7% and 6.4% weighted average rates) due March 1, 1997..... 263.8 257.0
11.875% senior notes due December 1, 1998 (less unamortized discount of $1.1 and $1.3)... 238.9 238.7
12.625% senior notes due July 15, 1998................................................... 150.0 --
5.8% to 11.625% fixed rate utility systems and pollution control revenue bonds, payable
in varying annual sinking fund payments through the year 2010 and varying principal
payments through the year 2016 (less unamortized debt discount of $7.8 and $8.6)........ 203.5 206.2
Obligations under accounts receivable securitization programs (4.8% and 5.3% weighted
average rates) due September 15, 1995................................................... 232.4 261.8
4.0% to 7.96% term loans payable in varying amounts through 1999......................... 41.2 54.6
Obligations under capitalized leases..................................................... 11.2 23.1
Cartomills 8.50% to 10.75% loans payable in varying installments through the year 1997... 5.1 7.1
Cartomills (4.74% weighted average rate) loan payable in annual installments through the
year 1999............................................................................... 7.1 --
Floating rate revenue bonds (8.0% weighted average rates), payable in semi-annual
installments of $.12 through 1996....................................................... .7 .9
Other.................................................................................... 31.2 5.3
---------- ----------
2,355.7 2,655.8
Less: current maturities................................................................. (17.7) (144.7)
---------- ----------
Total senior long-term debt.............................................................. 2,338.0 2,511.1
---------- ----------
</TABLE>

F-32
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 10 -- LONG-TERM DEBT (CONTINUED)

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1993 1992
---------- ----------
(IN MILLIONS)
Subordinated debt:
<S> <C> <C>
11.5% senior subordinated notes, payable in two annual sinking fund payments of $57.5
commencing September 1, 1997 and maturing on September 1, 1999 with a lump sum payment
of $115.0............................................................................... 230.0 230.0
10.75% senior subordinated debentures maturing on April 1, 2002, (less unamortized debt
discount of $.9)........................................................................ 199.1 199.1
8.875% convertible senior subordinated notes maturing on July 15, 2000 (less $1.5)....... 248.5 --
10.75% senior subordinated notes maturing on June 15, 1997............................... 150.0 150.0
11.0% senior subordinated notes maturing on August 15, 1999.............................. 125.0 125.0
6.75% convertible subordinated debentures with annual sinking fund payments of $11.5
commencing on February 15, 2002 and maturing on February 15, 2007 with a lump sum
payment of $57.5........................................................................ 115.0 115.0
13.625% subordinated notes maturing on June 1, 1995 (less unamortized debt discount of
$.2 and $.3)............................................................................ 98.1 98.0
12.125% subordinated debentures with annual sinking fund payments of $14.0 commencing on
September 15, 1996 and maturing in the year 2001 with a lump sum payment of $70.0
(including unamortized debt premium of $2.2 and $2.4 and net of $50.1 repurchased by the
Company)................................................................................ 92.1 92.3
Subordinated note bearing an incremental borrowing rate adjusted annually (10.0% and
11.1% average rates) payable on January 18, 1994........................................ 4.9 9.8
---------- ----------
1,262.7 1,019.2
Less: current maturities................................................................. (4.9) --
---------- ----------
Total subordinated debt.................................................................. 1,257.8 1,019.2
---------- ----------
</TABLE>

F-33
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 10 -- LONG-TERM DEBT (CONTINUED)

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1993 1992
---------- ----------
(IN MILLIONS)
Non-recourse debt of consolidated affiliates:
<S> <C> <C>
Stone-Consolidated 10.25% senior secured notes due December 15, 2000..................... 225.0 --
Stone-Consolidated 8% convertible subordinated debentures maturing on December 31,
2003.................................................................................... 174.5 --
Savannah River obligation under a senior credit facility (8.4% and 8.8% weighted average
rates), payable in varying amounts through the year 1998................................ 268.9 297.0
Savannah River 5.375% to 10.25% fixed rate revenue bonds, payable in varying amounts
through the year 1997 and maturing in 2000 and 2010 (less unamortized debt discount of
$.2 and $.2)............................................................................ 4.7 4.9
Savannah River 14.125% senior subordinated notes due December 15, 2000 (less unamortized
debt discount of $1.0 and $1.1)......................................................... 129.0 128.9
Seminole obligation under a senior credit facility (6.4% and 6.8% weighted average
rates), payable in varying amounts from 1993 through the year 2000...................... 120.6 122.0
Seminole senior notes maturing on December 31, 1993 (interest rate of 14.0%)............. -- 15.0
Seminole obligation payable at 13.5% imputed interest rate (less unamortized debt
discount of $2.4 and $2.9).............................................................. 11.6 11.1
Seminole 13.5% subordinated notes due with annual sinking fund payments of $7.2 and
maturing on October 15, 1996 with a lump sum payment of $14.4........................... 28.8 36.0
---------- ----------
963.1 614.9
Less: current maturities................................................................. (290.5) (40.1)
---------- ----------
Total non-recourse debt of consolidated affiliates..................................... 672.6 574.8
---------- ----------
Total long-term debt..................................................................... $ 4,268.4 $ 4,105.1
---------- ----------
---------- ----------
</TABLE>

The 1989 Credit Agreement provided for a $400 million multiple-draw facility
(the "MDF") to supplement the revolving credit facility thereunder. The MDF had
substantially the same terms and conditions, including covenants, as the 1989
Credit Agreement. Proceeds of MDF borrowings (approximately $371 million) were
required to be used solely to repay regularly scheduled amortization of term
loans under the 1989 Credit Agreement. The Company cancelled the remaining
commitment under the MDF in 1991. On October 1, 1992, the $371 million
outstanding under the MDF was converted to an Additional Term Loan (the "ATL").
Borrowings under the ATL are collateralized by an equal and ratable lien on the
existing collateral under the 1989 Credit Agreement.

The 1989 Credit Agreement permits the Company to choose among various
interest rate options, to specify the portion of the borrowings to be covered by
specific interest rate options and to specify the interest rate period to which
the interest rate options are to apply, subject to certain parameters. As a
result of the February 1994 amendment, interest rate options available to the
Company under term loans, ATL and revolving credit borrowings under the 1989
Credit Agreement are (i) U.S. or Canadian prime rate plus a borrowing margin of
2 percent, (ii) CD rate plus a borrowing margin of 3 1/8 percent, (iii)
Eurodollar rate plus a borrowing margin of 3 percent and (iv) bankers'
acceptance rate plus a

F-34
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 10 -- LONG-TERM DEBT (CONTINUED)
borrowing margin of 3 percent. Upon achievement of specified indebtedness ratios
and interest coverage ratios, the borrowing margins will be reduced.
Additionally, the Company pays a 3/8 percent commitment fee on the unused
portions of the revolving credit facilities. The weighted average rates as
reflected in the table do not include the effects of the amortization of
deferred debt issuance costs.

The 1989 Credit Agreement requires that the Company hedge a portion of the
U.S. dollar-based borrowings to protect against increases in market interest
rates. Pursuant to that requirement, at December 31, 1993, the Company was a
party to an interest rate swap contract which had the effect of fixing the
interest rate at approximately 12.9 percent on $150 million of U.S. term loan
borrowings. The interest rate swap is scheduled to expire on March 22, 1994.
During 1993, the Company sold prior to their expiration date, certain of its
U.S. dollar denominated interest rate swaps and cross currency swaps associated
with the Credit Agreement borrowings of Stone-Canada. The net proceeds totaled
approximately $34.9 million, the substantial portion of which was used to repay
borrowings under the Company's revolving credit facilities.

At December 31, 1993, the $1.45 billion of borrowings and accrued interest
outstanding under the 1989 Credit Agreement and the ATL were secured by
property, plant and equipment with a net book value of $518.4 million and by
common stock of various subsidiaries of the Company representing net assets of
approximately $3.4 billion (including collateralized property, plant and
equipment with a net book value of $349.4 million) and by a lien on the
Company's inventories. Additionally, other loan agreements aggregating $646.0
million were collateralized by approximately $1.56 billion of property, plant
and equipment-net.

Emerging Issues Task Force Issue No. 86-30, "Classification of Obligations
When a Violation is Waived by the Creditor," requires a company to reclassify
long-term debt as current when a covenant violation has occurred at the balance
sheet date or would have occurred absent a loan modification and it is probable
that the borrower will not be able to comply with the same covenant at
measurement dates that are within the next twelve months. In November 1993,
Savannah River received a waiver of its fixed-charges-coverage covenant
requirement as of December 31, 1993 and March 31, 1994. Management has prepared
projections that indicate that upon the expiration of the waiver Savannah River
will not be in compliance with this covenant as of June 30, September 30, and
December 31, 1994. Consequently, approximately $237.9 million of Savannah River
debt that otherwise would have been classified as long-term has been classified
as current in the December 31, 1993 consolidated balance sheet. Savannah River
intends to seek, prior to June 10, 1994, appropriate financial covenant waivers
or amendments from its bank group, although no assurance can be given that such
waivers or amendments will be obtained. Any such failure to obtain covenant
relief would result in a default under Savannah River's credit agreement and
other indebtedness and, if any such indebtedness was accelerated by the holders
thereof, the lenders to the Company under the 1989 Credit Agreement and various
other of the Company's debt instruments will be entitled to accelerate the
indebtedness owed by the Company.

On July 6, 1993, the Company sold $150 million principal amount of 12 5/8
percent Senior Notes due July 15, 1998 (the "12 5/8 percent Senior Notes"). The
12 5/8 percent Senior Notes are not redeemable by the Company prior to maturity.
Interest is payable semi-annually on January 15 and July 15, commencing January
15, 1994.

Also on July 6, 1993, the Company sold, in a private transaction, $250
million principal amount of 8 7/8 percent Convertible Senior Subordinated Notes
due July 15, 2000 (the "8 7/8 percent Convertible Senior Subordinated Notes").
The Company filed a shelf registration statement registering the 8 7/8 percent
Convertible Senior Subordinated Notes for resale by the holders thereof, which
was declared effective August 13, 1993. The 8 7/8 percent Convertible Senior
Subordinated Notes are convertible, at the option of the holder, sixty days
following the date of original issuance and prior to maturity, into shares of

F-35
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 10 -- LONG-TERM DEBT (CONTINUED)
the Company's common stock at a conversion price of $11.55 per share of common
stock, subject to adjustment in certain events. Additionally, the 8 7/8 percent
Convertible Senior Subordinated Notes are redeemable, at the option of the
Company, in whole or in part, on and after July 15, 1998. Interest is payable
semi-annually on January 15 and July 15, commencing January 15, 1994.

The net proceeds of approximately $386 million received from the sales of
the 12 5/8 percent Senior Notes and the 8 7/8 percent Convertible Senior
Subordinated Notes were used by the Company to repay borrowings, without a
reduction of commitments under the revolving credit facilities of its 1989
Credit Agreement, thereby restoring borrowing availability thereunder.

In December 1993, Stone-Consolidated sold $173.3 million of 8 percent
convertible subordinated debentures as part of the Units Offering. Concurrent
with the Units Offering, Stone-Consolidated sold $225 million of 10 1/4 percent
Senior Secured Notes maturing on December 15, 2000 in a public offering in the
United States. See Note 4 -- "Public Offering of Subsidiary Stock," for further
details.

On February 20, 1992, the Company sold $115 million principal amount of
6 3/4 percent Convertible Subordinated Debentures due February 15, 2007 (the
"6 3/4 percent Subordinated Debentures"). The 6 3/4 percent Subordinated
Debentures are convertible, at the option of the holder, at any time prior to
maturity, into shares of the Company's common stock at a conversion price of
$33.94 per share of common stock (adjusted for the 2 percent common stock
dividend issued September 15, 1992), subject to adjustment in certain events.
Additionally, the 6 3/4 percent Subordinated Debentures are redeemable at the
option of the Company, in whole or from time to time in part, on and after
February 16, 1996. Interest is payable semi-annually on February 15 and August
15, commencing August 15, 1992. The net proceeds from the sale of the 6 3/4
percent Subordinated Debentures were used to fully prepay the $59.5 million
sinking fund obligation due June 1, 1992, including accrued interest due
thereon, and to prepay $47.5 million of the $59.5 million sinking fund
obligation due June 1, 1993, including accrued interest due thereon, on the
Company's 13 5/8 percent Subordinated Notes.

On March 18, 1992, the Company sold $200 million principal amount of 10 3/4
percent Senior Subordinated Debentures due April 1, 2002 (the "10 3/4 percent
Senior Subordinated Debentures"). The 10 3/4 percent Senior Subordinated
Debentures are redeemable at the option of the Company, in whole or from time to
time in part, on and after April 1, 1997. Interest is payable semi-annually on
April 1 and October 1, commencing October 1, 1992. The net proceeds from these
debentures were used to fund future capital expenditures by the Company.

On June 25, 1992, the Company sold $150 million principal amount of 10 3/4
percent Senior Subordinated Notes due June 15, 1997 (the "10 3/4 percent Senior
Subordinated Notes"). The 10 3/4 percent Senior Subordinated Notes are
redeemable at the option of the Company, in whole or from time to time in part,
on and after June 15, 1995. Interest is payable semi-annually on June 15 and
December 15, commencing December 15, 1992. The net proceeds of approximately
$147 million from the issuance of these notes were used to fund a partial
redemption of the Company's 13 5/8 percent Subordinated Notes including accrued
interest due thereon.

On August 11, 1992, the Company sold $125 million principal amount of 11
percent Senior Subordinated Notes due August 15, 1999 (the "11 percent Senior
Subordinated Notes"). The 11 percent Senior Subordinated Notes are redeemable at
the option of the Company, in whole or from time to time in part, on and after
August 15, 1997. Interest is payable semi-annually on February 15 and August 15,
commencing February 15, 1993. The Company entered into a three-year interest
rate swap arrangement that has the effect of converting, for the first three
years, the fixed rate of interest on $100 million of the 11 percent Senior
Subordinated Notes into a floating interest rate. As a result of this swap
arrangement, the effective rate of interest for 1993 was 9.95 percent. While the
Company is exposed to credit loss on its

F-36
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 10 -- LONG-TERM DEBT (CONTINUED)
interest rate swaps in the event of nonperformance by the counterparties to such
swaps, management believes that such nonperformance is unlikely to occur. The
Company used the net proceeds from the issuance of the 11 percent Senior
Subordinated Notes to partially repay approximately $102 million and $20
million, respectively, under its revolving credit facility and the March 1993
term loan amortization of its Credit Agreement.

In 1992, Stone Financial Corporation ("Stone Fin") extended the maturity
date of the $185 million three-year revolving credit facility used to purchase
the accounts receivable for the first tranche of the Company's accounts
receivable securitization program to September 15, 1995 from September 15, 1994.
Stone Fin has the option, subject to bank consent, to extend the maturity date
of its credit facility beyond September 15, 1995.

Various interest rate options (LIBOR plus 1 1/4 percent or Prime) are
available to Stone Fin under its credit facility. In accordance with the
provisions of this program, Stone Fin purchases (on an ongoing basis) certain of
the accounts receivable of Stone Delaware, Inc., Stone Corrugated, Inc., and
Stone Southwest, Inc., each of which is a wholly-owned subsidiary of the
Company. Such purchased accounts receivable are solely the assets of Stone Fin,
a wholly-owned but separate corporate entity of the Company, with its own
separate creditors. In the event of a liquidation of Stone Fin such creditors
would be entitled to satisfy their claims from Stone Fin's assets prior to any
distribution to the Company. At December 31, 1993 and 1992, the Company's
Consolidated Balance Sheets included $175.6 million and $160.3 million,
respectively of Stone Fin accounts receivable and $150.5 million and $146.3
million, respectively, of borrowings under the program.

On August 20, 1992, the Company completed the second tranche of its accounts
receivable securitization program through the sale of certain of its accounts
receivable to a newly formed wholly-owned subsidiary, Stone Fin II Receivables
Corporation ("Stone Fin II"). Stone Fin II purchased the accounts receivable
with proceeds from borrowings under a $180 million, three-year revolving credit
facility (due September 15, 1995) provided by South Shore Funding Corporation,
an unaffiliated financial organization. Stone Fin II has the option, subject to
bank consent, to extend the maturity date of its credit facility beyond
September 15, 1995.

Two interest rate options (LIBOR plus 1 1/4 percent or Prime) are available
to Stone Fin II under its credit facility. In accordance with the provisions of
this program, Stone Fin II purchases (on an ongoing basis) certain of the
accounts receivable of Stone Consolidated Newsprint, Inc., Stone Packaging
Corporation, Stone Southwest, Inc. and Stone Bag Corporation, each of which is a
wholly-owned subsidiary of the Company. Such purchased accounts receivable are
solely the assets of Stone Fin II, a wholly-owned but separate corporate entity
of the Company, with its own separate creditors. In the event of a liquidation
of Stone Fin II, such creditors would be entitled to satisfy their claims from
Stone Fin II's assets prior to any distribution to the Company. The initial net
proceeds of approximately $100 million from this transaction were used by the
Company to complete the prepayment of its March 31, 1993 term loan installment
and partially prepay approximately $57 million of its $175 million term loan
installment due September 30, 1993. Subsequent proceeds from this securitization
program were used for general corporate purposes. At December 31, 1993 and 1992,
the Company's Consolidated Balance Sheets included $124.4 million and $152.6
million, respectively, of Stone Fin II accounts receivable and $81.9 million and
$115.5 million, respectively, of borrowings under the program.

In August and October 1992, the Company refinanced, in two separate issues,
$30 million and $35 million of tax-exempt revenue bonds, respectively. The $30
million bonds bear interest at a rate of 7 7/8 percent and are due August 1,
2013. The $35 million bonds bear interest at a rate of 8 1/4 percent and are due
June 1, 2016.

F-37
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 10 -- LONG-TERM DEBT (CONTINUED)
The following table provides, as of December 31, 1993, the actual and pro
forma amounts of long-term debt maturing during the next five years. The
maturities on a pro forma basis reflect the impact of the 1994 Offerings
discussed in Note 2 and the application of the net proceeds received therefrom,
as if such transaction had occurred as of December 31, 1993.

<TABLE>
<CAPTION>
AS ADJUSTED FOR
ACTUAL THE 1994 OFFERINGS
---------- ------------------
(IN MILLIONS)
<S> <C> <C>
1994......................................................... $ 308.4 $ 308.4
1995......................................................... 710.5 270.2
1996......................................................... 437.9 219.1
1997......................................................... 946.4 732.2
1998......................................................... 523.9 523.9
Thereafter................................................... 1,643.2 2,353.2
</TABLE>

The 1995 maturities include $232.4 million outstanding under Stone Fin's and
Stone Fin II's revolving credit facilities. Stone Fin and Stone Fin II have the
option, subject to bank consents, to extend or refinance such obligations beyond
1995.

Amounts payable under capitalized lease agreements are excluded from the
above tabulation. See Note 13 for capitalized lease maturities.

The 1989 Credit Agreement contains covenants that include, among other
things, requirements to maintain certain financial tests and ratios (including a
minimum current ratio, an indebtedness ratio, a minimum earnings before
interest, taxes, depreciation and amortization test ("EBITDA") and a tangible
net worth test) and certain restrictions and limitations, including those on
capital expenditures, changes in control, payment of dividends, sales of assets,
lease payments, investments, additional borrowings, mergers and purchases of
stock and assets. The 1989 Credit Agreement also contains cross-default
provisions relating to the non-recourse debt of its consolidated affiliate,
Stone-Consolidated Corporation, and cross-acceleration provisions relating to
the non-recourse debt of the consolidated affiliates, including Seminole and
Savannah River (see Note 18). Additionally, the Company's 1989 Credit Agreement
provides for mandatory prepayments from sales of certain assets, debt and equity
financings and excess cash flows. These prepayments along with voluntary
prepayments are to be applied ratably to reduce loan commitments under the 1989
Credit Agreement. The indebtedness under the 1989 Credit Agreement is secured by
a substantial portion of the assets of the Company.

The Company and its bank group have amended the Company's 1989 Credit
Agreement several times during the past three years. Such amendments provided
among other things, greater financial flexibility and/or relief from certain
financial covenants. In some instances, certain restrictions and limitations
applicable to the 1989 Credit Agreement were tightened. There can be no
assurance that future covenant relief will not be required or, if such relief is
requested by the Company, that it will be obtained from the banks' lenders.

The most recent amendment, which was executed in February of 1994 and became
effective upon the completion of the February 1994 Offerings, as discussed in
Note 2 -- "Subsequent Events," provided, among other things, for the following:

(i) Permitted the Company to apply up to $200 million of net proceeds
from the 1994 Offerings, which increased liquidity, as repayment of
borrowings under the revolving credit facilities of the 1989 Credit
Agreement without reducing the commitments thereunder and to the extent no
balance was outstanding under the revolving credit facilities, permitted the
Company to retain the balance of such $200 million of proceeds in cash.

F-38
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 10 -- LONG-TERM DEBT (CONTINUED)
(ii) Permitted the Company to redeem the Company's 13 5/8 percent
Subordinated Notes maturing on June 1, 1995 from the proceeds received from
the February 1994 Offerings at a price equal to par, approximately $98
million principal amount, plus accrued interest to the redemption date.

(iii) Amended the required levels of EBITDA (as defined in the 1989
Credit Agreement) for certain specified periods to the following:

<TABLE>
<S> <C>
For the three months ended March 31, 1994..................... $20 million
For the six months ended June 30, 1994........................ $55 million
For the nine months ended September 30, 1994.................. $111 million
For the twelve months ended December 31, 1994................. $180 million
For the twelve months ended March 31, 1995.................... $226 million
</TABLE>

The required level of EBITDA is scheduled to increase for each rolling
four quarter period thereafter until December 31, 1996, when the EBITDA for
the twelve months ended December 31, 1996 is required to be $822 million.

(iv) Reset to zero as of January 1, 1994 the dividend pool under the
1989 Credit Agreement which permits payment of dividends on the Company's
capital stock and modifies the components used in calculating the ongoing
balance in the dividend pool. Effective January 1, 1994, dividend payments
on the Company's common stock and on certain preferred stock issues cannot
exceed the sum of (i) 75 percent of the consolidated net income (as defined
in the 1989 Credit Agreement) of the Company from January 1, 1994 to the
date of payment of such dividends, minus (ii) 100 percent of the
consolidated net loss, (as defined in the 1989 Credit Agreement), of the
Company from January 1, 1994 to the date of payment of such dividends, plus
(iii) 100 percent of any net cash proceeds from sales of common stock or
certain preferred stock of the Company from January 1, 1994 to any date of
payment of such dividends (excluding the proceeds from the 1994 Offerings
for which no dividend credit was received by the Company). Additionally, the
restriction with respect to dividends on Series E Cumulative Convertible
Exchangeable Preferred Stock (the "Series E Cumulative Preferred Stock") was
amended to mirror the dividend restriction in the Company's Senior
Subordinated Indenture dated as of March 15, 1992.

(vii) Maintains the monthly indebtedness ratio requirement, as defined in
the 1989 Credit Agreement, to be no higher than: 81.5 percent as of the end
of each month from December 31, 1993 and ending prior to March 31, 1995 and
81 percent as of the end of each month from March 31, 1995 and ending prior
to June 30, 1995. The indebtedness ratio requirement is scheduled to
periodically decrease thereafter (from 80 percent on June 30, 1995) until
February 28, 1997, when the ratio limitation is required to be 68 percent.

(viii) Maintains the Consolidated Tangible Net Worth requirement (CTNW)
(as defined in the 1989 Credit Agreement) to be equal to or greater than 50
percent of the highest CTNW for any quarter since the inception of the 1989
Credit Agreement.

F-39
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 10 -- LONG-TERM DEBT (CONTINUED)
Additionally, at various times during the year, the Company amended and
restated its 1989 Credit Agreement which provided, among other things to, (i)
extend the maturity of the revolving credit facilities from March 1, 1994 to
March 1, 1997 and reduce over a three-year period the revolving loan
commitments; (ii) revise various financial covenants to provide greater
financial flexibility to the Company; (iii) permit the Company to retain 25
percent of the net proceeds from future sales of equity securities (which could
be used to reduce revolving credit borrowings without reducing the commitments
thereunder); and (iv) permit the Company to retain 50 percent (maximum $100
million in the aggregate) of the net proceeds from any sale or disposition of
its investment in certain joint ventures or unconsolidated subsidiaries (which
could be used to reduce revolving credit borrowings without reducing the
commitments thereunder). As part of these amendments, the Company agreed (i) to
pay certain fees and higher interest rate margins and (ii) mortgage or pledge
additional collateral including a pledge of the Stone-Consolidated common stock
owned by the Company.

NOTE 11 -- LIQUIDITY MATTERS
The Company's liquidity and financial flexibility is adversely affected by
the net losses incurred during the past three years. Recently, the Company has
improved its liquidity and financial flexibility through the completion of the
February 1994 Offerings as discussed in Note 2 -- "Subsequent Events." At March
14, 1994 the Company had borrowing availability of $168.2 million under its
revolving credit facilities. Notwithstanding these improvements in the Company's
liquidity and financial flexibility, unless the Company achieves substantial
price increases beyond year-end levels, the Company will continue to incur net
losses and negative cash flows from operating activities. Without such sustained
substantial price increases, the Company may exhaust all or substantially all of
its cash resources and borrowing availability under the revolving credit
facilities. In such event, the Company would be required to pursue other
alternatives to improve liquidity, including further cost reductions, sales of
assets, the deferral of certain capital expenditures, obtaining additional
sources of funds or pursuing the possible restructuring of its indebtedness.
There can be no assurance that such measures, if required, would generate the
liquidity required by the Company to operate its business and service its
indebtedness. As currently scheduled, beginning in 1996 and continuing
thereafter, the Company will be required to make significant amortization
payments on its indebtedness which will require the Company to raise sufficient
cash from operations or other sources or refinance or restructure maturing
indebtedness. No assurance can be given that the Company will be able to
generate or raise such funds.

The Company, as part of its financial plan, had intended to sell an energy
supply agreement related to its Florence, South Carolina mill. Even though a
sale is still being investigated by the Company, the Company is no longer
pursuing the original transaction; however, the Company is currently
investigating alternative transactions.

F-40
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 12 -- DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
At December 31, 1993 and 1992, the carrying values of the Company's
financial instruments approximate their fair values, except as noted below:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------
1993 1992
-------------------------- --------------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------------- ---------- -------------- ----------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Notes receivable and long-term investments......... $ 134.9 $ 118.1 $ 65.5 $ 51.1
Senior debt........................................ 2,344.5 2,362.8 2,623.5 2,635.3
Subordinated debt.................................. 1,262.6 1,189.5 1,019.2 949.5
Non-recourse debt of consolidated affiliates....... 963.1 1,002.3 627.3 627.3
Standby letters of credit.......................... -- 76.1 -- 68.9
Currency and interest rate hedges in payable
position.......................................... 2.6 4.2 6.5 4.4
</TABLE>

The fair values of notes receivable and certain investments are based on
discounted future cash flows or the applicable quoted market price. The fair
value of the Company's debt is estimated based on the quoted market prices for
the same or similar issues. The fair value of letters of credit represent the
face amount of the letters of credit adjusted for current rates. The fair value
of interest rate swap agreements are obtained from dealer quotes. These values
represent the estimated amount the Company would pay to terminate agreements,
taking into consideration the current interest rate and market conditions.

NOTE 13 -- LONG-TERM LEASES
The Company leases certain of its facilities and equipment under leases
expiring through the year 2023.

Future minimum lease payments under capitalized leases and their present
value at December 31, 1993, and future minimum rental commitments (net of
sublease rental income and exclusive of real estate taxes and other expenses)
under operating leases having initial or remaining non-cancellable terms in
excess of one year, are reflected below:

<TABLE>
<CAPTION>
CAPITALIZED OPERATING
LEASES LEASES
------------- -----------
(IN MILLIONS)
<S> <C> <C>
1994.................................................................. $ 5.6 $ 73.2
1995.................................................................. 2.7 64.0
1996.................................................................. 2.0 52.2
1997.................................................................. 1.2 45.3
1998.................................................................. .3 40.8
Thereafter............................................................ 2.0 148.6
----- -----------
Total minimum lease payments.......................................... 13.8 $ 424.1
-----------
-----------
Less: Imputed interest................................................ (2.6)
-----
Present value of future minimum lease payments........................ $ 11.2
-----
-----
</TABLE>

Approximately $2.8 million of the total present value of future minimum
capital lease payments relates to a Stone-Consolidated newsprint mill. Minimum
lease payments for capitalized leases have not been reduced by minimum sublease
rental income of $1.6 million due in the future under a non-cancellable lease.

F-41
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 13 -- LONG-TERM LEASES (CONTINUED)
Rent expense for operating leases, including leases having a duration of
less than one year, was approximately $83 million in 1993, $84 million in 1992
and $81 million in 1991.

NOTE 14 -- PREFERRED STOCK
The Company has authorized 10,000,000 shares of preferred stock, $.01 par
value, of which 4,600,000 shares are outstanding at December 31, 1993. Shares of
preferred stock can be issued in series with varying terms as determined by the
Board of Directors.

On February 20, 1992, the Company issued 4,600,000 shares of $1.75 Series E
Cumulative Preferred Stock at $25.00 per share. Dividends on the Series E
Cumulative Preferred Stock are payable quarterly when, as and if declared by the
Company's Board of Directors. The Series E Cumulative Preferred Stock is
convertible, at the option of the holder at any time, into shares of the
Company's common stock at a conversion price of $33.94 per share of common stock
(adjusted for the 2 percent common stock dividend issued September 15, 1992),
subject to adjustment under certain conditions. The Series E Cumulative
Preferred Stock may alternatively be exchanged, at the option of the Company, on
any dividend payment date commencing February 15, 1994, for the Company's 7
percent Convertible Subordinated Exchange Debentures due February 15, 2007 (the
"Exchange Debentures") in a principal amount equal to $25.00 per share of Series
E Cumulative Preferred Stock so exchanged. The Exchange Debentures would be
virtually identical to the 6 3/4 percent Subordinated Debentures, except that
the Exchange Debentures would bear interest at the rate of 7 percent per annum
and the interest payment dates would differ. Additionally, the Series E
Cumulative Preferred Stock is redeemable at the option of the Company, in whole
or from time to time in part, on and after February 16, 1996. The net proceeds
of $111 million from the sale of the Series E Cumulative Preferred Stock were
used to partially prepay the $175 million March 31, 1993 semi-annual term loan
amortization under the 1989 Credit Agreement.

The Company paid cash dividends during the first two quarters of 1993 on its
Series E Cumulative Preferred Stock. However, due to a restrictive provision in
the Senior Subordinated Indenture dated March 15, 1992 (the "Senior Subordinated
Indenture") relating to the Company's 10 3/4 percent Senior Subordinated Notes,
its 11 percent Senior Subordinated Notes and its 10 3/4 percent Senior
Subordinated Debentures, the Board of Directors did not declare the scheduled
August 15, 1993 or the November 15, 1993 quarterly dividend of $.4375 per share
on the Series E Cumulative Preferred Stock nor was it permitted to declare or
pay future dividends on the Series E Cumulative Preferred Stock until the
Company generated income, or effected certain sales of capital stock, to
replenish the dividend "pool" under various of its debt instruments. As of
December 31, 1993, accumulated dividends on the Series E Cumulative Preferred
Stock amounted to $4.0 million. As a result of the February 1994 Offerings, the
dividend pool under the Senior Subordinated Indenture was replenished from the
sale of the common shares. Pursuant to the most recent amendment to the
Company's 1989 Credit Agreement, the Company will be able, to the extent
declared by the Board of Directors, to pay dividends on the Series E Cumulative
Preferred Stock to the extent permitted under the Senior Subordinated Indenture.
In the event the Company does not pay a dividend on the Series E Cumulative
Preferred Stock for six quarters, the holders of the Series E Cumulative
Preferred Stock would have the right to elect two members to the Company's Board
of Directors until the accumulated dividends on such Series E Cumulative
Preferred Stock have been declared and paid or set apart for payment.

REDEEMABLE PREFERRED STOCK OF A CONSOLIDATED AFFILIATE:

The Company's Consolidated Balance Sheets include the Redeemable Series A
Preferred Stock (the "Series A Preferred Stock") of Savannah River. Savannah
River has authorized 650,000 shares of Series A Preferred Stock, of which
637,900 shares and 548,500 shares, having a total liquidation

F-42
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 14 -- PREFERRED STOCK (CONTINUED)
preference of $63.8 million and $54.9 million, were outstanding at December 31,
1993 and 1992, respectively. The Company owns one-third of the Series A
Preferred Stock and has eliminated such investment in consolidation.

The Series A Preferred Stock, $.01 par value, liquidation preference $100
per share, is cumulative with dividends of $15.375 per annum payable quarterly
when, as and if declared by Savannah River's Board of Directors. On or prior to
December 15, 1993, dividends are payable through the issuance of additional
shares of Series A Preferred Stock; thereafter, such dividends are payable in
cash. Stock dividends of approximately $6.0 million in 1993, $5.1 million in
1992 and $4.4 million in 1991, representing approximately 60,000 shares, 51,000
shares and 44,000 shares, respectively, have been distributed to shareholders
other than the Company. Commencing December 15, 2001, Savannah River is required
to redeem the Series A Preferred Stock at its liquidation preference in no less
than three annual installments. Additionally, upon the occurrence of certain
events, Savannah River may be required to redeem all of the Series A Preferred
Stock at prices declining annually to 100 percent of the liquidation preference
by December 15, 2001. The Series A Preferred Stock is solely the obligation of
Savannah River and is without recourse to the parent company.

SERIES F PREFERRED STOCK:

As a result of the agreement discussed in Note 18 between the Company and
Venezolana de Pulpa y Papel ("Venepal"), a Venezuelan pulp and paper company,
the Company has authorized 400,000 shares of 7 percent Series F Cumulative
Convertible Exchangeable Preferred Stock (the "Series F Preferred Stock"). The
Series F Preferred Stock, $.01 par value, liquidation preference $100 per share,
is cumulative with dividends of $7 per annum payable quarterly when, as and if
declared by the Company's Board of Directors and is convertible into shares of
the Company's common stock at a conversion price of $18.422, subject to
adjustment under certain conditions. The terms of the Series F Preferred Stock
are virtually identical to the Series E Preferred Stock, except for the
liquidation preference and the conversion rate. No shares of Series F Preferred
Stock have been issued to date.

NOTE 15 -- COMMON STOCK
The Company has authorized 200,000,000 shares of common stock, $.01 par
value, of which 71,174,587 shares were outstanding at December 31, 1993.

On September 15, 1992, the Company issued a 2 percent stock dividend to
common stockholders of record August 25, 1992. The stock dividend was effected
by the issuance of one share of common stock for every 50 shares of common stock
held. Accordingly, all amounts per common share and weighted average number of
common shares for all periods included in the consolidated financial statements
have been retroactively adjusted to reflect this stock dividend.

STOCK RIGHTS:

Each outstanding share of the Company's common stock carries a stock
purchase right ("Right"). Each Right entitles the holder to purchase from the
Company one one-hundredth of a share of Series D Junior Participating Preferred
Stock, par value $.01 per share, at a purchase price of $130 subject to
adjustment under certain circumstances. The Rights expire August 8, 1998 unless
extended or earlier redeemed by the Company.

The Rights will be exercisable only if a person or group, subject to certain
exceptions, acquires 15 percent or more of the Company's common stock or
announces a tender offer, the consummation of which would result in ownership by
such person or group of 15 percent or more of the Company's common stock. The
Company can redeem the Rights at the rate of $.01 per Right at any time before
the tenth business day (subject to extension) after a 15 percent position is
acquired.

F-43
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 15 -- COMMON STOCK (CONTINUED)
If the Company is acquired in a merger or other business combination
transaction, each Right will entitle its holder (other than the acquiring person
or group) to purchase, at the Right's then-current exercise price, a number of
the acquiring company's shares of common stock having a market value at that
time of twice the Right's then-current exercise price.

In addition, in the event that a 15 percent or greater stockholder acquires
the Company by means of a reverse merger in which the Company and its common
stock survive, or engages in self-dealing transactions with the Company, each
holder of a Right (other than the acquiring person or group) will be entitled to
purchase the number of shares of the Company's common stock having a market
value of twice the then-current exercise price of the Right.

STOCK OWNERSHIP AND OPTION PLANS:

In 1982, the Company adopted an Incentive Stock Option Plan under which
options are granted to key employees who are not participants in the Company's
Long-Term Incentive Program described below. This plan expired on March 21, 1992
and upon its expiration, the Board of Directors adopted a 1993 Plan, effective
January 1, 1993. The provisions under the 1993 Plan are similar to the 1982
Plan, with 1,530,000 shares of common stock authorized except that under the new
plan the Company may issue either incentive stock options or non-qualified stock
options. Options under these plans provide for the purchase of common shares at
prices not less than 100 percent of the market value of such shares on the date
of grant. The options are exercisable, in whole or in part, after one year but
no later than ten years from the date of the respective grant. No accounting
recognition is given to stock options until they are exercised, at which time
the option price received is credited to common stock.

F-44
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 15 -- COMMON STOCK (CONTINUED)
Transactions under the stock option plans are summarized as follows:

<TABLE>
<CAPTION>
OPTION PRICE
OPTION SHARES PER SHARE*
-------------- ---------------
<S> <C> <C>
Outstanding January 1, 1991................................... 574,833 $ 4.98-29.28
Granted..................................................... -- --
Exercised................................................... (9,998 ) 6.01-8.74
Cancelled................................................... -- --
-------------- ---------------
Outstanding December 31, 1991................................. 564,835 4.98-29.28
Granted..................................................... -- --
Exercised................................................... (22,950 ) 4.98-29.28
Adjustment for 2 percent stock dividend..................... 10,707 8.74-29.28
Cancelled................................................... (6,561 ) 6.01
-------------- ---------------
Outstanding December 31, 1992................................. 546,031 8.74-29.28
Granted..................................................... -- --
Exercised................................................... -- --
Cancelled................................................... -- --
-------------- ---------------
Outstanding December 31, 1993................................. 546,031 8.74-29.28
-------------- ---------------
Options exercisable at December 31,
1993........................................................ 546,031 8.74-29.29
1992........................................................ 546,031 8.74-29.28
Options available for grant at December 31,
1993........................................................ 1,530,000
1992........................................................ 1,530,000
<FN>
- ------------------------
*Adjusted for the 2 percent stock dividend issued September 15, 1992.
</TABLE>

Additionally, the Company's Long-Term Incentive Program provides for
contingent awards of restricted shares of common stock and cash to certain key
employees.The payment of the cash portion of the awards granted will depend on
the extent to which the Company has met certain long-term performance goals as
established by a committee of outside directors. The compensation related to
this program is amortized over the related five-year restricted periods. The
charge (credit) to compensation expense under this plan was $(1.2) million, $3.6
million and $4.7 million in 1993, 1992 and 1991, respectively. In 1993, prior
cash awards that were accrued have been deemed to be not payable due to the
financial results of the Company. Under this plan, 1,800,000 shares have been
reserved for issuance, of which 186,253, 120,834 and 238,546 shares were granted
in 1993, 1992 and 1991, respectively. At December 31, 1993, there were 951,761
shares available for grant.

NOTE 16 -- RELATED PARTY TRANSACTIONS
The Company sells linerboard and corrugating medium to MacMillan Bathurst, a
50 percent owned non-consolidated affiliate and to Titan, a 49 percent owned
non-consolidated affiliate. As discussed in Note 3, the Company sold its 49
percent interest in Titan in December 1993. Additionally, the Company purchases
market pulp from Stone Venepal Consolidated Pulp Inc. ("Stone Venepal
Consolidated"), a 50 percent owned non-consolidated affiliate of the Company.
Stone Venepal Consolidated owns 50 percent of the Celgar Pulp Company, which
operates a market pulp mill in British Columbia. The Company also sells boxboard
to FCP, a 50 percent owned non-consolidated affiliate. Transactions under all of
these agreements are primarily at market prices.

F-45
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 16 -- RELATED PARTY TRANSACTIONS (CONTINUED)
The following table summarizes the transactions between the Company and its
non-consolidated affiliates and the payable and receivable balances outstanding
at the end of each year.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1993 1992 1991
--------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
MacMillan Bathurst:
Sales to........................................................ $ 77.4 $ 67.3 $ 79.4
Net receivable from............................................. 9.9 9.8 6.1
Titan:
Sales to........................................................ $ 18.3 $ 13.4 $ 16.1
Net receivable from............................................. (a) 12.8 14.3
Management fee from............................................. 1.0 1.0 .8
FCP Group:
Sales to........................................................ $ 4.3 (b) (b)
Stone Venepal Consolidated:
Purchases from.................................................. $ 1.4 $ .5 $ 1.1
Net payable to.................................................. .7 .2 --
<FN>
- ------------------------
(a) Not applicable as equity investment in Titan was sold in December 1993.

(b) Not applicable for 1992 and 1991 as FCP Group was formed in 1993.
</TABLE>

NOTE 17 -- ADDITIONAL INFORMATION RELATING TO THE CONSOLIDATED FINANCIAL
STATEMENTS

OTHER NET OPERATING (INCOME) EXPENSE:

The major components of other net operating (income) expense are as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1993 1992 1991
--------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
Writedown of decommissioned assets............................. $ 19.2 $ 4.0 $ 4.0
Gain from an involuntary conversion at a paper mill............ -- -- (17.5)
Loss on writedown of investments............................... 3.4 8.8 --
Gains on sales of investments or assets........................ (40.7) -- (7.4)
Loss from sale of business..................................... -- -- 1.5
Gain from settlement and termination of Canadian supply
contract...................................................... -- -- (41.8)
Writedown of certain receivables to net realizable value....... 14.2 -- --
Other.......................................................... 8.6 -- (1.6)
--------- --------- ---------
Total other net operating (income) expense..................... $ 4.7 $ 12.8 $ (62.8)
--------- --------- ---------
--------- --------- ---------
</TABLE>

INTEREST EXPENSE:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1993 1992 1991
--------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
Total interest cost incurred.................................. $ 437.5 $ 433.5 $ 479.3
Interest capitalized.......................................... (10.8) (47.4) (81.9)
--------- --------- ---------
Interest expenses............................................. $ 426.7 $ 386.1 $ 397.4
--------- --------- ---------
--------- --------- ---------
</TABLE>

F-46
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 17 -- ADDITIONAL INFORMATION RELATING TO THE CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
PROVISION FOR DOUBTFUL ACCOUNTS AND NOTES RECEIVABLE:

Selling, general and administrative expenses include provisions for doubtful
accounts and notes receivable of $12.2 million for 1993, $8.3 million for 1992
and $7.1 million for 1991.

OTHER, NET:

The major components of other, net are as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1993 1992 1991
--------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
Interest income................................................... $ 11.2 $ 11.5 $ 8.4
Dividend income................................................... .4 .8 1.0
Foreign currency transaction gains (losses)....................... (11.8) (15.0) 4.9
Minority interest expense......................................... (3.6) (5.3) (5.8)
Other............................................................. 2.9 8.6 6.2
--------- --------- ---------
Total other, net.................................................. $ (.9) $ .6 $ 14.7
--------- --------- ---------
--------- --------- ---------
</TABLE>

INVESTMENTS IN NON-CONSOLIDATED AFFILIATES:

The Company had investments in non-consolidated affiliates of $107.2 million
and $131.9 million at December 31, 1993 and 1992, respectively. These amounts
are included in other long-term assets in the Company's Consolidated Balance
Sheets. See Note 16 for discussion of the transactions between the Company and
its major non-consolidated affiliates.

ACCRUED AND OTHER CURRENT LIABILITIES:

The major components of accrued and other current liabilities are as
follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
--------------------
1993 1992
--------- ---------
(IN MILLIONS)
<S> <C> <C>
Accrued interest........................................................... $ 68.2 $ 60.4
Accrued payroll, related taxes and employee benefits....................... 85.8 105.5
Other...................................................................... 131.7 134.7
--------- ---------
Total accrued and other current liabilities................................ $ 285.7 $ 300.6
--------- ---------
--------- ---------
</TABLE>

OTHER LONG-TERM LIABILITIES:

Included in other long-term liabilities at December 31, 1993 and 1992 is
approximately $52.3 million and $57.8 million, respectively, of deferred income
relating to the October 1992 sale of an energy contract at the Company's
Hopewell mill. This amount is being amortized over a 12 year period.

NOTE 18 -- COMMITMENTS AND CONTINGENCIES
At December 31, 1993, the Company, excluding Savannah River and Seminole,
had commitments outstanding for capital expenditures under purchase orders and
contracts of approximately $20.3 million of which $8.3 million relates to
Stone-Consolidated. Savannah River and Seminole had, at December 31, 1993,
commitments outstanding for capital expenditures of approximately $4.9 million
in the aggregate.

The Company has a 50 percent equity interest in Stone Venepal Consolidated
which in turn has a 50 percent undivided interest in the assets and liabilities
of a joint venture which owns the Celgar pulp

F-47
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 18 -- COMMITMENTS AND CONTINGENCIES (CONTINUED)
mill located at Castlegar, British Columbia. Venepal owns the other 50 percent
equity interest in Stone Venepal Consolidated. On February 12, 1991, Stone
Venepal Consolidated entered into a $350 million (Canadian) bank credit
agreement for the purpose of financing its 50 percent share of a major
improvement and expansion project at the Castlegar mill. Additionally, the
Company entered into a Completion Financing Agreement for the purpose of funding
part of the project costs that were incurred in excess of the primary borrowing
facility, up to a maximum of $50 million (Canadian) in the aggregate. At
December 31, 1993, the Company has paid $37.5 million (Canadian) under the
Completion Financing Agreement which is the maximum amount the Company has
determined it will be required to contribute.

On October 30, 1992, the Company and Venepal entered into an agreement
whereby Venepal's investment in the Celgar pulp mill, represented by Venepal's
ownership of 50 percent of the outstanding common stock of Stone Venepal
Consolidated can be exchanged for the Company's Series F Preferred Stock (see
Note 14). The exchange would occur at Venepal's option as a result of certain
specific conditions relating to the operations of the Celgar pulp mill. None of
these conditions as of December 31, 1993 have occurred that would trigger the
exchange. The Company may, at its option, elect to honor the contingent exchange
obligation with a cash payment to Venepal. Based upon Venepal's initial
investment in Stone Venepal Consolidated, 212,903 shares of Series F Preferred
Stock, liquidation preference $100 per share, would be issued in the event
Venepal elected its exchange option. Further, if the Series F Preferred shares
were converted to the Company's common stock at the conversion price of $18.422,
an additional 1,155,703 shares of common stock would be issued. Venepal's
interest in Stone Venepal Consolidated replaces the equity ownership formerly
held by Power Corporation of Canada.

The 1989 Credit Agreement limits in certain specific circumstances any
further investments by the Company in Stone-Consolidated Corporation, Seminole
and Savannah River. Savannah River and Seminole have incurred substantial
indebtedness in connection with project financings and are significantly
leveraged. As of December 31, 1993, Savannah River had $402.6 million in
outstanding indebtedness (including $268.9 million in secured indebtedness owed
to bank lenders) and Seminole had $161.0 million in outstanding indebtedness
(including $120.6 million in secured indebtedness owed to bank lenders). The
Company has entered into separate output purchase agreements with each of these
subsidiaries which require the Company to purchase Seminole's linerboard
production at fixed prices until no later than September 1, 1994 and Savannah
River's linerboard and market pulp production at fixed prices until December
1994 and November 1995, respectively. After such dates, the Company is required
to purchase the respective production at market prices for the remaining terms
of these agreements. While the fixed prices in effect at December 31, 1993 were
higher than market prices at such date, the price differentials have not had,
nor are they expected to have, a significant impact on the Company's results of
operations or financial position. However, at the time that the fixed price
provisions of the output purchase agreements terminate, such subsidiaries may
need to undertake additional measures to meet their debt service requirements
(including covenants), including obtaining additional sources of funds,
postponing or restructuring of debt service payments or refinancing the
indebtedness. In the event that such measures are required and are not
successful, and such indebtedness is accelerated by the respective lenders to
Savannah River or Seminole, the lenders to the Company under the 1989 Credit
Agreement and various other of its debt instruments would be entitled to
accelerate the indebtedness owed by the Company.

Under certain timber contracts, title passes as the timber is cut. These are
considered to be commitments and are not recorded until the timber is removed.
At December 31, 1993 commitments on such contracts, which run through 1997, were
approximately $16.8 million.

F-48
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 18 -- COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company's operations are subject to extensive environmental regulation
by federal, state and local authorities in the United States and regulatory
authorities with jurisdiction over its foreign operations. The Company has in
the past made significant capital expenditures to comply with water, air and
solid and hazardous waste regulations and expects to make significant
expenditures in the future. Capital expenditures for environmental control
equipment and facilities were approximately $28 million in 1993 and the Company
anticipates that 1994 and 1995 environmental capital expenditures will
approximate $71 million and $96 million, respectively. Included in these amounts
are capital expenditures for Stone-Consolidated which were approximately $5
million in 1993 and are anticipated to approximate $36 million in 1994 and $64
million in 1995. Although capital expenditures for environmental control
equipment and facilities and compliance costs in future years will depend on
legislative and technological developments which cannot be predicted at this
time, the Company anticipates that these costs are likely to increase as
environmental regulations become more stringent. Environmental control
expenditures include projects which, in addition to meeting environmental
concerns, yield certain benefits to the Company in the form of increased
capacity and production cost savings. In addition to capital expenditures for
environmental control equipment and facilities, other expenditures incurred to
maintain environmental regulatory compliance (including any remediation)
represent ongoing costs to the Company. On December 17, 1993, the Environmental
Protection Agency proposed regulations under the Clean Air Act and the Clean
Water Act for the pulp and paper industry, which if and when implemented, would
affect directly a number of the Company's facilities. Since the regulations have
only recently been proposed, the Company is currently unable to estimate the
nature or level of future expenditures that may be required to comply with such
regulations if the proposed regulations become final in some form. In addition,
the Company is from time to time subject to litigation and governmental
proceedings regarding environmental matters in which injunctive and/or monetary
relief is sought.

The Company has been named as a potentially responsible party ("PRP") at a
number of sites which are the subject of remedial activity under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA" or "Superfund") or comparable state laws. Although the Company is
subject to joint and several liability imposed under Superfund, at most of the
multi-PRP sites there are organized groups of PRPs and costs are being shared
among PRPs. Future environmental regulations, including the December 17, 1993
regulations, may have an unpredictable adverse effect on the Company's
operations and earnings, but they are not expected to adversely affect the
Company's competitive position.

The Company has entered into a purchase agreement with a certain party in
which the Company has agreed to purchase annually 90,000 tons of linerboard at
specified prices over a ten year period. Commencement of this agreement is
contingent upon the completion of a manufacturing facility by the other party.

Refer to Notes 10 and 13 for further discussion of the Company's debt,
hedging and lease commitments.

Additionally, the Company is involved in certain litigation primarily
arising in the normal course of business. In the opinion of management, the
Company's liability under any pending litigation would not materially affect its
financial condition or results of operations.

NOTE 19 -- SEGMENT INFORMATION

BUSINESS SEGMENTS:

The Company operates principally in two business segments. The paperboard
and paper packaging segment is comprised primarily of facilities that produce
containerboard, kraft paper, boxboard, corrugated containers and paper bags and
sacks. The white paper and pulp segment consists of

F-49
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 19 -- SEGMENT INFORMATION (CONTINUED)
facilities that manufacture and sell newsprint, groundwood paper and market
pulp. The Company has other operations, primarily consisting of wood products
operations, flexible packaging operations and railroad operations. Intersegment
sales are accounted for at transfer prices which approximate market prices.

Operating profit includes all costs and expenses directly related to the
segment involved. The corporate portion of operating profit includes corporate
general and administrative expenses and equity income (loss) of non-consolidated
affiliates.

Assets are assigned to segments based on use. Corporate assets primarily
consist of cash and cash equivalents, fixed assets, certain deferred charges and
investments in non-consolidated affiliates.

Financial information by business segment is summarized as follows:

<TABLE>
<CAPTION>
1993 1992 1991
-------------- -------------- --------------
(IN MILLIONS)
<S> <C> <C> <C>
Sales:
Paperboard and paper packaging......................... $ 3,810.1 $ 4,185.7 $ 4,037.7
White paper and pulp................................... 965.0 1,078.3 1,115.8
Other.................................................. 330.6 303.0 275.3
Intersegment........................................... (46.1) (46.3) (44.5)
-------------- -------------- --------------
Total sales........................................ $ 5,059.6 $ 5,520.7 $ 5,384.3
-------------- -------------- --------------
-------------- -------------- --------------
Income (loss) before income taxes and cumulative
effects of accounting changes:
Paperboard and paper packaging......................... $ 206.4 $ 322.1 $ 355.8
White paper and pulp................................... (194.2) (87.0) 84.1
Other.................................................. 36.4 12.0 (6.0)
-------------- -------------- --------------
48.6 247.1 433.9
Interest expense....................................... (426.7) (386.1) (397.4)
Foreign currency transaction gains (losses)............ (11.8) (15.0) 4.9
General corporate...................................... (77.0)(1) (75.3)(1) (59.4)(1)
-------------- -------------- --------------
Loss before income taxes and cumulative effects of
accounting changes................................ $ (466.9) $ (229.3) $ (18.0)
-------------- -------------- --------------
-------------- -------------- --------------
Depreciation and amortization:
Paperboard and paper packaging......................... $ 179.5 $ 173.3 $ 154.5
White paper and pulp................................... 135.8 123.6 88.8
Other.................................................. 20.9 24.3 23.0
General corporate...................................... 10.6 8.0 7.2
-------------- -------------- --------------
Total depreciation and amortization................ $ 346.8 $ 329.2 $ 273.5
-------------- -------------- --------------
-------------- -------------- --------------
Assets:
Paperboard and paper packaging......................... $ 3,436.5 $ 3,516.3 $ 3,728.5
White paper and pulp................................... 2,632.8 2,763.4 2,459.9
Other.................................................. 344.6 379.6 383.4
General corporate...................................... 422.8(2) 367.7(2) 331.1(2)
-------------- -------------- --------------
Total assets....................................... $ 6,836.7 $ 7,027.0 $ 6,902.9
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>

F-50
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 19 -- SEGMENT INFORMATION (CONTINUED)

<TABLE>
<CAPTION>
1993 1992 1991
-------------- -------------- --------------
(IN MILLIONS)
Capital expenditures:
<S> <C> <C> <C>
Paperboard and paper packaging......................... $ 100.7 $ 177.1 $ 322.6
White paper and pulp................................... 44.2 98.6 100.6
Other.................................................. 1.5 4.8 4.4
General corporate...................................... 3.3 .9 2.5
-------------- -------------- --------------
Total capital expenditures......................... $ 149.7 $ 281.4 $ 430.1
-------------- -------------- --------------
-------------- -------------- --------------
<FN>
- ------------------------
(1) Includes equity in net income (loss) of non-consolidated vertically
integrated affiliates as follows: Paperboard and paper packaging segment --
$(5.2) in 1993, $(3.3) in 1992 and $2.4 in 1991; White paper and pulp
segment -- $(2.5) in 1993, $(2.7) in 1992 and $(1.5) in 1991; and other --
$(4.0) in 1993, $.7 in 1992 and $.2 in 1991.

(2) Includes investments in non-consolidated vertically integrated affiliates
as follows: Paperboard and paper packaging segment -- $33.6 in 1993, $42.2
in 1992 and $38.6 in 1991; White paper and pulp segment -- $27.8 in 1993,
$29.4 in 1992 and $26.2 in 1991; and other -- $45.8 in 1993, $2.2 in 1992
and $1.3 in 1991.
</TABLE>

GEOGRAPHIC SEGMENTS:

The chart below provides financial information for the Company's operations
based on the region in which the operations are located.

F-51
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 19 -- SEGMENT INFORMATION (CONTINUED)

<TABLE>
<CAPTION>
INCOME (LOSS)
BEFORE INCOME
TAXES AND
CUMULATIVE
EFFECT OF AN
INTER-AREA ACCOUNTING
TRADE SALES SALES TOTAL SALES CHANGE ASSETS
----------- ---------- ----------- ------------- ------------
(IN MILLIONS)
1992
<S> <C> <C> <C> <C> <C>
United States............................................... $3,908.5 $ 28.9 $3,937.4 $ 300.3 $3,406.0
Canada...................................................... 770.4 20.0 790.4 (97.3) 2,375.6
Europe...................................................... 841.8 5.1 846.9 44.1 877.7
----------- ---------- ----------- ------------- ------------
5,520.7 54.0 5,574.7 247.1 6,659.3
Interest expense............................................ (386.1)
Foreign currency transaction losses......................... (15.0)
General corporate........................................... (75.3)(1) 367.7(2)
Inter-area eliminations..................................... (54.0) (54.0) --
----------- ---------- ----------- ------------- ------------
Total....................................................... $5,520.7 $ -- $5,520.7 $(229.3) $7,027.0
----------- ---------- ----------- ------------- ------------
----------- ---------- ----------- ------------- ------------
1991
United States............................................... $3,700.0 $ 29.8 $3,729.8 $ 335.2 $3,277.5
Canada...................................................... 870.6 24.6 895.2 13.8 2,389.8
Europe...................................................... 813.7 -- 813.7 84.9 904.5
----------- ---------- ----------- ------------- ------------
5,384.3 54.4 5,438.7 433.9 6,571.8
Interest expense............................................ (397.4)
Foreign currency transaction gains.......................... 4.9
General corporate........................................... (59.4)(1) 331.1(2)
Inter-area eliminations..................................... (54.4) (54.4) --
----------- ---------- ----------- ------------- ------------
Total....................................................... $5,384.3 $ -- $5,384.3 $ (18.0) $6,902.9
----------- ---------- ----------- ------------- ------------
----------- ---------- ----------- ------------- ------------
<FN>
- ------------------------
(1) Includes equity in net income (loss) of non-consolidated vertically
integrated affiliates as follows: United States -- $(1.0) in 1993, $(1.2)
in 1992 and $(.1) in 1991; Canada -- $(3.0) in 1993, $(3.0) in 1992 and
$(.6) in 1991; and other -- $(7.7) in 1993, $(1.1) in 1992 and $1.8 in
1991.

(2) Includes investments in non-consolidated vertically integrated affiliates
as follows: United States -- $ -- in 1993, $4.7 in 1992 and $1.2 in 1991;
Canada -- $63.0 in 1993, $68.7 in 1992 and $64.9 in 1991; and other --
$44.2 in 1993, $.4 in 1992 and $ -- in 1991.
</TABLE>

The Company's export sales from the United States were $341 million, $428
million and $330 million for 1993, 1992 and 1991, respectively.

F-52
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 20 -- SUMMARY OF QUARTERLY DATA (UNAUDITED)
The following table summarizes quarterly financial data for 1993 and 1992:

<TABLE>
<CAPTION>
QUARTER
----------------------------------------------
FIRST(2) SECOND THIRD FOURTH(1) YEAR
---------- ---------- ---------- ---------- ----------
(IN MILLIONS EXCEPT PER SHARE)
<S> <C> <C> <C> <C> <C>
1993
Net sales.......................................... $ 1,306.3 $ 1,267.6 $ 1,242.6 $ 1,243.1 $ 5,059.6
Cost of products sold.............................. 1,070.3 1,050.3 1,058.9 1,044.1 4,223.5
Depreciation and amortization...................... 87.1 88.8 81.2 89.7 346.8
Loss before cumulative effect of an accounting
change............................................ (62.7) (71.6) (99.2) (85.8) (319.2)
Cumulative effect of change in accounting for
postretirement benefits........................... (39.5) -- -- -- (39.5)
Net loss........................................... (102.2) (71.6) (99.2) (85.8) (358.7)
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Per share of common stock:
Loss before cumulative effect of an accounting
change.......................................... (.91) (1.03) (1.42) (1.23) (4.59)
Cumulative effect of change in accounting for
postretirement benefits......................... (.56) -- -- -- (.56)
---------- ---------- ---------- ---------- ----------
Net loss......................................... (1.47) (1.03) (1.42) (1.23) (5.15)
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Cash dividends per common share.................... -- -- -- -- --
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
1992
Net sales.......................................... $ 1,354.3 $ 1,371.1 $ 1,464.6 $ 1,330.7 $ 5,520.7
Cost of products sold.............................. 1,084.2 1,107.8 1,193.3 1,088.4 4,473.7
Depreciation and amortization...................... 77.8 82.4 87.1 81.9 329.2
Loss before cumulative effect of an accounting
change............................................ (9.3) (40.7) (43.2) (76.7) (169.9)
Cumulative effect of change in accounting for
income taxes...................................... (99.5) -- -- -- (99.5)
Net loss........................................... (108.8) (40.7) (43.2) (76.7) (269.4)
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Per share of common stock:
Loss before cumulative effect of an accounting
change.......................................... (.15) (.60) (.64) (1.10) (2.49)
Cumulative effect of change in accounting for
income taxes.................................... (1.40) -- -- -- (1.40)
---------- ---------- ---------- ---------- ----------
Net loss......................................... (1.55) (.60) (.64) (1.10) (3.89)
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Cash dividends per common share.................... .17 .18 -- -- .35
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
<FN>
- ------------------------
(1) The fourth quarter of 1993 includes a pre-tax gain of approximately $35.4
million from the sale of the Company's 49 percent equity interest in Titan
and a reduction in an accrual resulting from a change in the Company's
vacation pay policy which were partially offset by the writedown of the
carrying values of certain Company assets. The fourth quarter of 1992 was
unfavorably impacted by a roll-back of linerboard price increases which
resulted in the issuance of customer credits in the fourth quarter
pertaining to third quarter 1992 billings. Price increases are invoiced for
shipments on or after the effective date of the price increase. In certain
circumstances the Company, as a result of
</TABLE>

F-53
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 20 -- SUMMARY OF QUARTERLY DATA (UNAUDITED) (CONTINUED)
<TABLE>
<S> <C>
competitive pressures, may issue credits for the previously billed price
increases. When it becomes probable that a price increase will not be
successful or will be delayed, the Company accrues for possible credits to
be issued.

(2) The Company adopted SFAS 106 effective January 1, 1993 and SFAS 109
effective January 1, 1992.

(3) Amounts per common share have been adjusted for the 2 percent common stock
dividend issued September 15, 1992.
</TABLE>

F-54
<PAGE>
STONE CONTAINER CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1994
(UNAUDITED)

Set forth below is the unaudited Pro Forma Condensed Consolidated Statement
of Operations of the Company for the six months ended June 30, 1994. The
unaudited Pro Forma Condensed Consolidated Statement of Operations includes the
historical results of the Company and gives effect to the 1994 sale of $710
million principal amount of 9 7/8% Senior Notes due February 1, 2001, the
concurrent issuance of 18.97 million shares of common stock for $287.8 million
at $15.25 per common share, the Offering and the application of the net proceeds
therefrom, and the Related Transactions (collectively, the "1994 Financings") as
if they had occurred as of January 1, 1994. The pro forma financial data do not
purport to be indicative of the Company's results of operations that would
actually have been obtained had the 1994 Financings been completed as of the
beginning of the period presented, or to project the Company's results of
operations at any future date or for any future period. The unaudited pro forma
adjustments are based upon available information and upon certain assumptions
that the Company believes are reasonable. The unaudited pro forma financial data
and accompanying notes should be read in conjunction with the historical
financial information of the Company, including the notes thereto, included
elsewhere in this Prospectus.

<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
SIX SIX
MONTHS PRO FORMA MONTHS
ENDED ADJUSTMENTS ENDED
JUNE 30, 1994 JUNE 30,
1994(1) FINANCINGS(2) 1994
--------- ---------- ---------
(IN MILLIONS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Net sales......................................... $2,645.1 $ $2,645.1
Operating costs and expenses:
Cost of products sold............................. 2,184.0 2,184.0
Selling, general and administrative............... 270.5 270.5
Depreciation and amortization..................... 177.7 177.7
Equity loss from affiliates....................... 5.7 5.7
Other net operating income........................ (33.4) (33.4)
--------- ---------- ---------
2,604.5 2,604.5
--------- ---------- ---------
Income from operations............................ 40.6 40.6
Interest expense.................................. (224.3) 64.7(a) (227.6)
(68.0)(b)
Other, net........................................ (8.1) 11.0(c) 2.9
--------- ---------- ---------
Loss before income taxes, minority interest,
extraordinary loss and cumulative effect of an
accounting change................................ (191.8) 7.7 (184.1)
Credit for income taxes........................... (60.0) 1.9(e) (58.1)
Minority interest................................. 2.1 3.1(d) 5.2
--------- ---------- ---------
Loss before extraordinary loss and cumulative
effect of an accounting change................... $ (129.7) $ 8.9 $ (120.8)
--------- ---------- ---------
--------- ---------- ---------
Loss per share of common stock before
extraordinary loss and cumulative effect of an
accounting change................................ $ (1.55) $ (1.38)
--------- ---------
--------- ---------
Weighted average common shares outstanding (in
millions)........................................ 86.0 90.3
--------- ---------
--------- ---------
<FN>
- ------------------------------
(1) Basis of preparation:
The unaudited Pro Forma Condensed Consolidated Statement of Operations has
been prepared from and should be read in conjunction with the historical
consolidated financial statements of the Company included elsewhere in this
Prospectus.
(2) Pro forma adjustments relating to the 1994 Financings:
(a) To record a reduction of historical interest expense and amortization
of deferred debt issuance costs of $64.7 million as a result of (i)
the assumed repayment of 1989 Credit Agreement indebtedness; (ii) the
assumed repayment of borrowings under the Savannah River Credit
Agreement; (iii) the assumed repayment of the 13 5/8% Subordinated
Notes due June 1, 1995 and (iv) the assumed redemption of the Savannah
River Notes at a redemption price equal to 107.0625% of the principal
amount. In the first quarter of 1994, the Company wrote-off $16.8
million of unamortized deferred debt issuance costs, net of income tax
benefit, as a result of debt repayments. Assuming that the Offering
and the Related Transactions are completed as planned, the Company
will incur a charge of approximately $45 million, net of income tax
benefit, pertaining to the write-off of unamortized deferred debt
issuance costs related to the debt being repaid and costs associated
with the redemption of the Savannah River Notes. These write-offs are
not included in the unaudited Pro Forma Condensed Consolidated
Statement of Operations.
(b) To record pro forma interest expense and amortization of debt fees of
$68.0 million related to the 9 7/8% Senior Notes due February 1, 2001,
the % First Mortgage Notes due 2002, the % Senior Notes due
2004, the % term loan under the Credit Agreement and the revolving
credit facility under the Credit Agreement. For purposes of the
unaudited Pro Forma Condensed Consolidated Statement of Operations,
management has assumed weighted average interest rates of 11.5%, 12%
and 7.1% for the First Mortgage Notes, the Senior Notes and the term
loan under the Credit Agreement, respectively.
(c) To decrease the foreign exchange transaction losses by $11.0 million
to reflect the effects of the reversal of the historical foreign
exchange transaction losses associated with a foreign subsidiary's
U.S. dollar denominated debt that was repaid.
(d) To reverse minority interest expense of $3.1 million as a result of
the purchase of the 72,346 outstanding shares of common stock of
Savannah River not owned by the Company and the redemption of the
425,243 outstanding shares of the Savannah River Preferred not owned
by the Company.
(e) To record an adjustment to income taxes of $1.9 million pertaining to
the interest expense adjustments described in Notes 2(a) and 2(b) and
the foreign exchange transaction loss adjustment described in Note
2(c) using the estimated U.S. and Canadian statutory income tax rates
of 39 percent and 35 percent, respectively. The U.S. tax rate includes
the effects of state income taxes.
</TABLE>

F-55
<PAGE>
STONE CONTAINER CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1993
(UNAUDITED)

Set forth below is the unaudited Pro Forma Condensed Consolidated Statement
of Operations of the Company for the year ended December 31, 1993. The unaudited
Pro Forma Condensed Consolidated Statement of Operations includes the historical
results of the Company and gives effect to the public offerings in December 1993
by Stone-Consolidated of Cdn. $231 million of its common stock, Cdn. $231
million of its 8% Convertible Unsecured Subordinated Debentures due 2003 and
$225 million of its 10.25% Senior Secured Notes due 2000 (the "Stone-
Consolidated Transaction") as if they had occurred as of January 1, 1993. The
historical results are further adjusted for the 1994 sale of $710 million
principal amount of 9 7/8% Senior Notes due February 1, 2001, for the concurrent
issuance of 18.97 million shares of common stock for $287.8 million at $15.25
per common share, for the Offering and the application of the net proceeds
therefrom, and for the Related Transactions (collectively, the "1994
Financings") as if they had occurred as of January 1, 1993. The pro forma
financial data do not purport to be indicative of the Company's results of
operations that would actually have been obtained had the Stone-Consolidated
Transaction and the 1994 Financings been completed as of the beginning of the
period presented, or to project the Company's results of operations at any
future date or for any future period. The unaudited pro forma adjustments are
based upon available information and upon certain assumptions that the Company
believes are reasonable. The unaudited pro forma financial data and accompanying
notes should be read in conjunction with the historical financial information of
the Company, including the notes thereto, included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
YEAR YEAR
ENDED PRO FORMA PRO FORMA ENDED
DECEMBER ADJUSTMENTS ADJUSTMENTS DECEMBER
31, STONE-CONSOLIDATED 1994 31,
1993(1) TRANSACTIONS(2) FINANCINGS(3) 1993
--------- ---------- ---------- ---------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales............................... $5,059.6 $ $ $5,059.6
Operating costs and expenses:
Cost of products sold................... 4,223.5 4,223.5
Selling, general and administrative
expenses............................... 512.2 512.2
Depreciation and amortization........... 346.8 346.8
Equity loss from affiliates............. 11.7 11.7
Other net operating expense............. 4.7 4.7
--------- ---------- ---------- ---------
5,098.9 5,098.9
--------- ---------- ---------- ---------
Loss from operations.................... (39.3) (39.3)
Interest expense........................ (426.7) 21.7(a) 201.6(f) (435.7)
(43.8)(b) (188.5)(g)
Other, net.............................. 2.7 (10.9)(c) 4.0(h) (4.2)
--------- ---------- ---------- ---------
Loss before income taxes and cumulative
effect of an accounting change......... (463.3) (33.0) 17.1 (479.2)
Credit for income taxes................. (147.7) (11.1)(e) 3.9(j) (154.9)
Minority interest....................... (3.6) 9.3(d) 4.3(i) 10.0
--------- ---------- ---------- ---------
Loss before cumulative effect of an
accounting change...................... $ (319.2) $(12.6) $ 17.5 $ (314.3)
--------- ---------- ---------- ---------
--------- ---------- ---------- ---------
Loss per share of common stock before
cumulative effect of an accounting
change................................. $ (4.59) $ (3.58)
--------- ---------
--------- ---------
Weighted average common shares
outstanding (in millions).............. 71.2 90.1
--------- ---------
--------- ---------
<FN>
- ------------------------------

(1) Basis of preparation:
The unaudited Pro Forma Condensed Consolidated Statement of Operations has
been prepared from and should be read in conjunction with the historical
consolidated financial statements of the Company included elsewhere in this
Prospectus.
(2) Pro forma adjustments relating to the Stone-Consolidated Transaction:
(a) To record a reduction of historical interest expense and amortization
of deferred debt issuance costs of $21.7 million as a result of the
assumed repayment of certain 1989 Credit Agreement indebtedness.
(b) To record pro forma interest expense and amortization of debt fees of
$38.7 million related to Stone-Consolidated's 10.25% Senior Secured
Notes due 2000 and 8% Convertible Unsecured Subordinated Debentures
due 2003 and to record amortization of the amendment fees of $5.1
million related to the Company's 1989 Credit Agreement.
(c) To increase the foreign exchange transaction losses by $10.9 million
to reflect the effects of foreign currency remeasurement pertaining to
Stone-Consolidated's U.S. dollar denominated 10.25% Senior Secured
Notes due 2000, partially offset by the reversal of the historical
foreign exchange transaction losses associated with the U.S. dollar
denominated debt that was repaid.
(d) To record the minority interest share of the net losses of
Stone-Consolidated of $9.3 million for the year ended December 31,
1993 based on the pro forma statement of operations of
Stone-Consolidated.
(e) To record the adjustment to income taxes of $11.1 million pertaining
to the interest expense adjustments described in Notes 2(a) and 2(b)
and for the foreign exchange transaction loss adjustment described in
Note 2(c) using the applicable U.S. and Canadian statutory income tax
rates of 39 percent and 35 percent, respectively. The U.S. tax rates
include the effects of state income tax rates.
</TABLE>

F-56
<PAGE>

<TABLE>
<S> <C>
(3) Pro forma adjustments relating to the 1994 Financings:
(f) To record a reduction of historical interest expense and amortization
of deferred debt issuance costs of $201.6 million as a result of (i)
the assumed repayment of 1989 Credit Agreement indebtedness; (ii) the
assumed repayment of borrowings under the Savannah River Credit
Agreement; (iii) the assumed repayment of the 13 5/8% Subordinated
Notes due June 1, 1995 and (iv) the assumed redemption of the Savannah
River Notes at a redemption price equal to 107.0625% of the principal
amount. In the first quarter of 1994, the Company wrote-off $16.8
million of unamortized deferred debt issuance costs, net of income tax
benefit, as a result of debt repayments. Assuming that the Offering
and the Related Transactions are completed as planned, the Company
will incur a charge of approximately $45 million, net of income tax
benefit, pertaining to the write-off of unamortized deferred debt
issuance costs related to the debt being repaid and costs associated
with the redemption of the Savannah River Notes. These write-offs are
not included in the unaudited Pro Forma Condensed Consolidated
Statement of Operations.
(g) To record pro forma interest expense and amortization of debt fees of
$188.5 million related to the 9 7/8% Senior Notes due February 1,
2001, the % First Mortgage Notes due 2002, the % Senior Notes
due 2004, the % term loan under the Credit Agreement and the
revolving credit facility under the Credit Agreement. For purposes of
the unaudited Pro Forma Condensed Consolidated Statement of
Operations, management has assumed weighted average interest rates of
11.5%, 12%, 6.5% and 6.0% for the First Mortgage Notes, the Senior
Notes, the term loan under the Credit Agreement and the revolving
credit facility under the Credit Agreement, respectively.
(h) To decrease the foreign exchange transaction losses by $4.0 million to
reflect the effects of the reversal of the historical foreign exchange
transaction losses associated with a foreign subsidiary's U.S. dollar
denominated debt that was repaid.
(i) To reverse minority interest expense of $4.3 million as a result of
the purchase of the 72,346 outstanding shares of common stock of
Savannah River not owned by the Company and the redemption of the
425,243 outstanding shares of the Savannah River Preferred not owned
by the Company.
(j) To record an adjustment to income taxes of $3.9 million pertaining to
the interest expense adjustments described in Notes 3(f) and 3(g) and
the foreign exchange transaction loss adjustment described in Note
3(h) using the estimated U.S. and Canadian statutory income tax rates
of 39 percent and 35 percent, respectively. The U.S. tax rate includes
the effects of state income taxes.
</TABLE>

F-57
<PAGE>
STONE CONTAINER CORPORATION
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1994
(UNAUDITED)

Set forth below is the unaudited Pro Forma Condensed Consolidated Balance
Sheet of the Company as of June 30, 1994. The unaudited Pro Forma Condensed
Consolidated Balance Sheet includes the historical financial position of the
Company and gives effect to the Offering and the Related Transactions as if they
had occurred as of June 30, 1994. The pro forma financial data do not purport to
be indicative of the Company's financial position that would actually have been
obtained had the Offering and the application of net proceeds therefrom, and
Related Transactions been completed as of the date presented, or to project the
Company's financial position at any future date. The unaudited pro forma
adjustments are based upon available information and upon certain assumptions
that the Company believes are reasonable. The unaudited pro forma financial data
and accompanying notes should be read in conjunction with the historical
financial information of the Company, including the notes thereto, included
elsewhere in this Prospectus.

<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
FOR
HISTORICAL THE OFFERING PRO FORMA
JUNE 30, AND RELATED JUNE 30,
1994(1) TRANSACTIONS(2) 1994
--------- ------------ ---------
(IN MILLIONS)
<S> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents............... $ 150.1 $1,104.7(a) $ 142.4
(1,051.2)(b)
(61.2)(c)
Accounts and notes receivable (less
allowance of $20.2).................... 709.3 709.3
Inventories............................. 656.5 656.5
Other................................... 246.0 (34.1)(a) 211.9
--------- ------------ ---------
Total current assets................ 1,761.9 (41.8) 1,720.1
--------- ------------ ---------
Property, plant and equipment........... 5,251.9 5.6(c) 5,257.5
Accumulated depreciation and
amortization........................... (1,970.0) (1,970.0)
--------- ------------ ---------
Property, plant and equipment --
net................................ 3,281.9 5.6 3,287.5
Timberlands............................. 88.9 88.9
Goodwill................................ 875.9 875.9
Other................................... 679.8 50.0(a) 663.0
(66.8)(c)
--------- ------------ ---------
Total assets............................ $6,688.4 $ (53.0) $6,635.4
--------- ------------ ---------
--------- ------------ ---------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Current maturities of senior and
subordinated long-term debt............ $ 18.1 $ 4.0(a) $ 22.1
Current maturities of non-recourse debt
of consolidated affiliates............. 271.3 (249.5)(b) 21.8
Accounts payable........................ 288.8 288.8
Income taxes............................ 46.0 46.0
Accrued and other current liabilities... 313.9 (1.0)(b) 312.9
--------- ------------ ---------
Total current liabilities........... 938.1 (246.5) 691.6
--------- ------------ ---------
Senior long-term debt................... 2,277.6 1,116.6(a) 2,723.5
(670.7)(b)
Subordinated debt....................... 1,159.6 1,159.6
Non-recourse debt of consolidated
affiliates............................. 657.0 (129.1)(b) 527.9
Other long-term liabilities............. 315.6 315.6
Deferred taxes.......................... 382.9 (28.4)(c) 354.1
(.4)(b)
Redeemable preferred stock of
consolidated affiliate................. 42.3 (42.3)(c) --
Minority interest....................... 223.3 (.1)(c) 223.2
Commitments and contingencies
STOCKHOLDERS' EQUITY:
Series E preferred stock.............. 115.0 115.0
Common stock (90.4 shares
outstanding)......................... 853.1 (4.0)(c) 849.1
Accumulated deficit................... (72.8) (47.6)(c) (120.9)
(.5)(b)
Foreign currency translation
adjustment........................... (197.4) (197.4)
Unamortized expense of restricted
stock plan........................... (5.9) (5.9)
--------- ------------ ---------
Total stockholders' equity.......... 692.0 (52.1) 639.9
--------- ------------ ---------
Total liabilities and stockholders'
equity................................. $6,688.4 $ (53.0) $6,635.4
--------- ------------ ---------
--------- ------------ ---------
<FN>
- ------------------------------

(1) Basis of preparation:
The unaudited Pro Forma Condensed Consolidated Balance Sheet has been
prepared from and should be read in conjunction with the historical
consolidated financial statements of the Company included elsewhere in this
Prospectus.
</TABLE>

F-58
<PAGE>

<TABLE>
<S> <C>
(2) Pro forma adjustments relating to the Offering and Related Transactions:
(a) To record gross proceeds of $1.160 billion, less estimated deferred debt
issuance costs of $50 million, from (i) the issuance of $500 million
principal amount of % First Mortgage Notes due 2002; (ii) the issuance
of $200 principal amount of % Senior Notes due 2004; (iii) $400 million
of borrowings under a % term loan under the Credit Agreement; and (iv)
initial borrowings of $20.0 million under a $450 million revolving credit
facility under the Credit Agreement (these initial borrowings are net of
$34.1 million of cash escrow released due to the repayment of the 1989
Credit Agreement and $7.7 million of Savannah River's cash balance at June
30, 1994). The net proceeds from these borrowings are assumed to have been
used as described in Notes 2(b) and 2(c).
(b) To record (i) the assumed repayment of $670.7 million of indebtedness
under the 1989 Credit Agreement; (ii) the assumed repayment of $249.5
million of borrowings outstanding under the Savannah River Credit
Agreement; (iii) the assumed redemption of $129.1 million (net of
unamortized debt discount of $.9 million) of the Savannah River Notes;
(iv) an extraordinary loss of $.5 million, net of income tax benefit
of $.4 million, related to the write-off of $.9 million of unamortized
debt discounts; and (v) the assumed payment of $1.0 million of accrued
interest.
(c) To record (i) the purchase of the 72,346 outstanding shares of common
stock of Savannah River not owned by the Company for $2.2 million;
(ii) the redemption of the 425,243 outstanding shares of the Savannah
River Preferred not owned by the Company, along with accrued and
unpaid dividends thereunder for $45.8 million; (iii) the elimination
of the $.1 million minority interest liability pertaining to Savannah
River; (iv) an extraordinary loss of $47.6 million, net of income tax
benefit of $28.4 million, relating to the write-off of $66.8 million
of unamortized deferred debt issuance costs pertaining to the debt
being repaid in Note (b) and $9.2 million of other costs associated
with the redemption of the Savannah River Notes; and (v) a charge to
common stock of $4.0 million associated with the redemption of the
Savannah River Preferred not owned by the Company.
</TABLE>

F-59
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS, IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS, AND, IF
GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE OF THIS PROSPECTUS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY STATE IN WHICH SUCH
OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER
OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 13
Company Profile................................ 21
Use of Proceeds................................ 22
Capitalization................................. 23
Selected Consolidated Financial Data........... 25
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 26
Business....................................... 42
Properties..................................... 52
Management..................................... 55
Security Ownership By Certain Beneficial Owners
and Management................................ 59
Credit Agreement............................... 64
Description of Notes........................... 68
The Collateral Under the First Mortgage Note
Indenture..................................... 98
Underwriting................................... 103
Experts........................................ 104
Legal Matters.................................. 104
Available Information.......................... 104
Annex A -- Summary Appraisal................... A-1
Index to Financial Statements.................. F-1
</TABLE>

$700,000,000

[LOGO] STONE
CONTAINER

$500,000,000
% FIRST MORTGAGE NOTES
DUE 2002

$200,000,000
% SENIOR NOTES DUE 2004

SALOMON BROTHERS INC
BT SECURITIES CORPORATION
MORGAN STANLEY & CO.
INCORPORATED

KIDDER, PEABODY & CO. INCORPORATED

BEAR, STEARNS & CO. INC.

PROSPECTUS

DATED , 1994
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth expenses in connection with the distribution
of the securities being registered, other than underwriting discounts and
commissions. All amounts are estimated, except for the SEC Filing Fee.

<TABLE>
<S> <C>
SEC Filing Fee......................................... $ 310,320
NASD Filing Fee........................................ $ 30,500
Trustees' charges...................................... 40,000*
Printing and engraving................................. 200,000*
Accounting Fees........................................ 75,000*
Legal Fees and Expense................................. 200,000*
Blue Sky Fees and Expenses............................. 15,000*
Miscellaneous.......................................... 14,180*
----------
Total........................................ $ 885,000*
----------
----------
<FN>
- ------------------------
*Estimated
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Reference is made to Section 145 ("Section 145") of the Delaware General
Corporation Law of the State of Delaware (the "Delaware GCL") which provides for
indemnification of directors and officers in certain circumstances.

In accordance with Section 102(b)(7) of the Delaware GCL, the Company's
Restated Certificate of Incorporation provides that directors shall not be
personally liable for monetary damages for breaches of their fiduciary duty as
directors except for (i) breaches of their duty of loyalty to the Company or its
stockholders, (ii) acts or omissions not in good faith or which involve
intentional misconduct or knowing violations of law, (iii) under Section 174 of
the Delaware GCL (unlawful payment of dividends) or (iv) transactions from which
a director derives an improper personal benefit.

The Restated Certificate of Incorporation of the Company provides for
indemnification of directors and officers to the full extent provided by the
Delaware GCL, as amended from time to time. It states that the indemnification
provided therein shall not be deemed exclusive. The Company may maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Company, or another corporation, partnership, joint venture, trust
or other enterprise against any expense, liability or loss, whether or not the
Company would have the power to indemnify him against such expense, liability or
loss, under the provisions of the Delaware GCL.

The Underwriting Agreements, forms of which have been filed as Exhibits 1(a)
and 1(b) to this Registration Statement, provide for indemnification of
directors and officers of the Company against certain liabilities. Similar
indemnification provisions were contained in underwriting agreements executed in
connection with prior offerings and sales of securities by the Company.

Pursuant to Section 145 and the Restated Certificate of Incorporation, the
Company maintains directors' and officers' liability insurance coverage.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

On July 6, 1993, the Company sold $250 million principal amount of its
8 7/8% Convertible Senior Subordinated Notes due July 15, 2000 (the "Convertible
Notes"). The Company sold the Convertible Notes to Salomon Brothers Inc and BT
Securities Corporation (the "Initial Purchasers") pursuant to a Purchase
Agreement (the "Purchase Agreement") dated June 24, 1993. The sale of the
Convertible Notes was not registered under the Securities Act of 1933, as
amended (the "Act"), in reliance upon representations from the Initial
Purchasers and the exemption from registration under Section 4(2) of the

II-1
<PAGE>
Act. The Company sold the Convertible Notes to the Initial Purchasers at a price
equal to 99.355% of principal amount ($248,387,500) LESS a discount of 3.5%
($8,750,000), yielding net proceeds to the Company of $239,637,500 (95.855% of
principal amount).

The Initial Purchasers agreed in the Purchase Agreement to only offer the
Convertible Notes to purchasers who made appropriate representations that such
purchasers were Qualified Institutional Buyers in compliance with Rule 144A
under the Act in a sale exempt from the registration requirements of the Act.
The Company subsequently filed a registration statement on Form S-3 registering
the Convertible Notes (and the shares of Common Stock and Preferred Stock
Purchase Rights into which the Convertible Notes are convertible) for resale by
the holders thereof.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Exhibits

<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
- -------------- ---------------------------------------------------------------------------------------------------
<C> <S>
1 Form of Underwriting Agreement**
2 Asset Acquisition Agreement dated December 17, 1993 between Stone-Consolidated Inc. (now Stone
Container (Canada) Inc.) and Stone-Consolidated Corporation and intervened to by the Company, filed
as Exhibit 2 to the Company's Current Report on Form 8-K dated January 3, 1994, is hereby
incorporated by reference.
3(a) Restated Certificate of Incorporation of the Company.*
3(b) By-laws of the Company, as amended, March 28, 1994.*
4(a) Specimen certificate representing Common Stock, $.01 par value, filed as Exhibit 4(a) to the
Company's Annual Report on Form 10-K for the year ended December 31, 1987, is hereby incorporated
by reference.
4(b) Specimen certificate representing the $1.75 Series E Cumulative Convertible Exchangeable Preferred
Stock, filed as Exhibit 4(g) to the Company's Registration Statement on Form S-3, Registration
Number 33-45374, filed February 6, 1992, is hereby incorporated by reference.
4(c) Rights Agreement, dated as of July 25, 1988, between the Company and The First National Bank of
Chicago, filed as Exhibit 1 to the Company's Registration Statement on Form 8-A dated July 27,
1988, is hereby incorporated by reference.
4(d) Amendment to Rights Agreement, dated as of July 23, 1990, between the Company and The First
National Bank of Chicago, filed as Exhibit 1A to the Company's Form 8 dated August 2, 1990 amending
the Company's Registration Statement on Form 8-A dated July 27, 1988, is hereby incorporated by
reference.
4(e) Credit Agreement, dated as of March 1, 1989 (the "Canadian Term Loan Agreement"), among Stone
Container Corporation of Canada (now Stone Container (Canada) Inc.), the Banks named therein,
Bankers Trust Company, as agent for such Banks, and Citibank, N.A., Manufacturers Hanover Trust
Company (now Chemical Bank) and The First National Bank of Chicago, as co-agents for such Banks,
filed as Exhibit 28(b) to the Company's Current Report on Form 8-K dated March 2, 1989, filed on
March 17, 1989, is hereby incorporated by reference.
4(f) Revolving Credit Agreement, dated as of March 1, 1989 (the "Canadian Revolver"), among Stone
Container Acquisition Corporation (now Stone Container (Canada) Inc.), the Banks named therein, BT
Bank of Canada, as administrative agent for such Banks, The Bank of Nova Scotia, as payment agent
for such Banks, and Bankers Trust Company, as collateral agent for such Banks, filed as Exhibit
28(d) to the Company's Current Report on Form 8-K dated March 2, 1989, filed on March 17, 1989, is
hereby incorporated by reference.
<FN>
- ------------------------
* Previously filed
** Filed herewith
</TABLE>

II-2
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
- -------------- ---------------------------------------------------------------------------------------------------
<C> <S>
4(g) Third Amended and Restated U.S. Credit Agreement, dated as of March 1, 1989 and re-executed as of
October 5, 1993 (the "U.S. Credit Agreement"), among the Company, the Banks named therein, Bankers
Trust Company, as agent for the Banks under the U.S. Credit Agreement, and Citibank, N.A.,
Manufacturers Hanover Trust Company (now Chemical Bank) and The First National Bank of Chicago, as
co-agents for the Banks under the U.S. Credit Agreement, filed as Exhibit 4(a) to the Company's
Current Report on Form 8-K, dated January 3, 1994, is hereby incorporated by reference.
4(h) First Amendment, Waiver and Consent dated as of December 29, 1993, among the Company, the financial
institutions named therein, Bankers Trust Company, as agent under the U.S. Credit Agreement,
Citibank, N.A., Chemical Bank (as successor to Manufacturers Hanover Trust Company) and The First
National Bank of Chicago, as co-agents under the U.S. Credit Agreement, filed as Exhibit 4(b) to
the Company's Current Report on Form 8-K, dated January 3, 1993, is hereby incorporated by
reference.
4(i) Second Amendment and Waiver dated as of January 24, 1994, among the Company, the financial
institutions named therein, Bankers Trust Company, as agent for the Banks under the U.S. Credit
Agreement, Citibank, N.A., Chemical Bank (as successor to Manufacturers Hanover Trust Company) and
The First National Bank of Chicago, as co-agents for the Banks under the U.S. Credit Agreement,
filed as Exhibit 4.1 to the Company's Current Report on Form 8-K, dated January 24, 1994, is hereby
incorporated by reference.
4(j) Indenture, dated as of September 15, 1986, relating to the 12 1/8% Subordinated Debentures due
September 15, 2001 of Stone Southwest Corporation (now Stone Southwest, Inc.), between Southwest
Forest Industries, Inc. and Bankers Trust Company, as Trustee, together with the First Supplemental
Indenture, dated as of September 1, 1987, among Stone Container Corporation, a Nevada corporation,
the Company and National Westminster Bank USA, as Trustee (which has been succeeded by Shawmut
Bank, N.A., as Trustee), and the Second Supplemental Indenture, dated as of December 14, 1987,
among Stone Southwest Corporation, the Company and National Westminster Bank USA, as Trustee (which
has been succeeded by Shawmut Bank, N.A., as Trustee), filed as Exhibit 4(i) to the Company's
Registration Statement on Form S-3, Registration Number 33-36218, filed on November 1, 1991, is
hereby incorporated by reference.
4(k) Indenture, dated as of September 1, 1989, between the Company and Bankers Trust Company, as
Trustee, relating to the Company's 11 1/2% Senior Subordinated Notes due September 1, 1999, filed
as Exhibit 4(n) to the Company's Registration Statement on Form S-3, Registration Number 33-46764,
filed March 27, 1992, is hereby incorporated by reference.
4(l) Indenture, dated as of February 15, 1992, between the Company and The Bank of New York, as Trustee,
relating to the Company's 6 3/4% Convertible Subordinated Debentures due February 15, 2007, filed
as Exhibit 4(p) to the Company's Registration Statement on Form S-3, Registration Number 33-45978,
filed on March 4, 1992, is hereby incorporated by reference.
4(m) Senior Subordinated Indenture, dated as of March 15, 1992, between the Company, and The Bank of New
York, as Trustee, filed as Exhibit 4(a) to the Company's Registration Statement Form S-3,
Registration Number 33-46764, filed on March 27, 1992, is hereby incorporated by reference.
</TABLE>

II-3
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
- -------------- ---------------------------------------------------------------------------------------------------
<C> <S>
4(n) Indenture dated as of June 15, 1993 between the Company and Norwest Bank Minnesota, National
Association, as Trustee, relating to the Company's 8 7/8% Convertible Senior Subordinated Notes due
2000, filed as Exhibit 4(a) to the Company's Registration Statement on Form S-3, Registration
Number 33-66026, filed on July 15, 1993, is hereby incorporated by reference.
4(o) Indenture, dated as of November 1, 1991, between the Company and The Bank of New York, as Trustee,
relating to the Company's Senior Debt Securities, filed as Exhibit 4(u) to the Company's
Registration Statement on Form S-3, Registration Number 33-45374, filed on January 29, 1992, is
hereby incorporated by reference.
4(p) First Supplemental Indenture dated as of June 23, 1993 between the Company and The Bank of New
York, as Trustee, relating to the Indenture, dated as of November 1, 1991, between the Company and
The Bank of New York, as Trustee, filed as Exhibit 4(aa) to the Company's Registration Statement on
Form S-3, Registration Number 33-66026, filed on July 15, 1993, is hereby incorporated by
reference.
4(q) Second Supplemental Indenture dated as of February 1, 1994 between the Company and the Bank of New
York, as Trustee, relating to the Indenture, dated as of November 1, 1991, as amended, filed as
Exhibit 4.2 to the Company's Current Report on Form 8-K, dated January 24, 1994, is hereby
incorporated herein by reference.
4(r) Indenture dated as of August 1, 1993 between the Company and Norwest Bank Minnesota, National
Association, as Trustee, relating to the Company's Senior Subordinated Debt Securities, filed as
Exhibit 4(a) to the Company's Form S-3 Registration Statement, Registration Number 33-49857, filed
July 30, 1993, is hereby incorporated by reference.
4(s) Form of Indenture relating to the First Mortgage Notes.**
4(t) Form of Indenture relating to the Senior Notes.**
4(u) Form of Credit Agreement dated October , 1994, among the Company, the financial institutions
signatory thereto and Bankers Trust Company, as agent for such financial institutions.**
</TABLE>

Indentures with respect to other long-term debt, none of which exceeds 10%
of the total assets of the Company and its subsidiaries on a consolidated basis,
are not attached. (The Company agrees to furnish a copy of such documents to the
Commission upon request.)

<TABLE>
<C> <S>
4(v) Guaranty, dated October 7, 1983, between the Company and The Continental Group,
Inc., filed as Exhibit 4(h) to the Company's Registration Statement on Form
S-3, Registration Number 33-36218, filed on November 1, 1991, is hereby
incorporated by reference.
5 Opinion of Leslie T. Lederer, Vice President, Secretary and Counsel of the
Company.**
10(a) Management Incentive Plan, incorporated by reference to Exhibit 10(b) to the
Company's Annual Report on Form 10-K for the year ended December 31, 1980.
10(b) Unfunded Deferred Director Fee Plan, incorporated by reference to Exhibit 10(d)
to the Company's Annual Report on Form 10-K for the year ended December 31,
1981.
10(c) Form of "Stone Container Corporation Compensation Agreement" between the
Company and its directors that elect to participate, incorporated by reference
to Exhibit 10(e) to the Company's Annual Report on Form 10-K for the year ended
December 31, 1988.
10(d) Stone Container Corporation 1982 Incentive Stock Option Plan, incorporated by
reference to Appendix A to the Prospectus included in the Company's Form S-8
Registration Statement, Registration Number 2-79221, effective September 27,
1982.
<FN>
- ------------------------
* Previously filed
** Filed herewith
</TABLE>

II-4
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
- -------------- ---------------------------------------------------------------------------------------------------
<C> <S>
10(e) Stone Container Corporation 1993 Stock Option Plan, incorporated by reference to Appendix A to the
Company's Proxy Statement dated as of April 10, 1992.
10(f) Stone Container Corporation Deferred Income Savings Plan, conformed to reflect amendment effective
as of January 1, 1990, incorporated by reference to Exhibit 4(i) to Company's Form S-8 Registration
Statement, Registration Number 33-33784, filed March 9, 1990.
10(g) Form of "Employee Continuity Agreement in the Event of a Change of Control" entered into with all
officers with 5 or more years of service with the Company, incorporated by reference to Exhibit
10(j) to the Company's Annual Report on Form 10-K for the year ended December 31, 1988.
10(h) Stone Container Corporation 1986 Long-Term Incentive Program, incorporated by reference to Exhibit
A to the Company's Proxy Statement dated as of April 5, 1985.
10(i) Stone Container Corporation 1992 Long-Term Incentive Program, incorporated by reference to Exhibit
A to the Company's Proxy Statement dated as of April 11, 1991.
10(j) Supplemental Retirement Income Agreement between Company and James Doughan dated as of February 10,
1989, incorporated by reference to Exhibit 10(q) to the Company's Annual Report on Form 10-K for
the year ended December 31, 1988.
12 Computation of Ratios of Earnings to Fixed Charges.*
21 Subsidiaries of the Company incorporated by reference to Exhibit 12 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1993.
23(a) Consent of Price Waterhouse LLP**
23(b) Consent of American Appraisal Associates, Inc.*
23(c) The consent of Leslie T. Lederer is contained in his opinion filed as Exhibit 5 to the Registration
Statement.
24 Powers of Attorney*
25(a) T-1 Statement of Eligibility under the Trust Indenture Act of 1939 of The Bank of New York relating
to the Senior Notes.**
25(b) T-1 Statement of Eligibility under the Trust Indenture Act of 1939 of Norwest Bank Minnesota, N.A.
relating to the First Mortgage Notes.**
99(a) Summary Valuation Report Prepared With Respect to the Collateral**
<FN>
- ------------------------
* Previously filed
** Filed herewith
</TABLE>

(b) Schedules

The following financial statement schedules which are not included in the
Prospectus appear on the following pages of the Registration Statement:

<TABLE>
<CAPTION>
PAGE SCHEDULE
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
S-1 Schedule V -- Property, Plant and Equipment
S-2 Schedule VI -- Accumulated Depreciation and Amortization of Property, Plant and Equipment
S-3 Schedule VIII -- Valuation and Qualifying Accounts and Reserves
S-3 Schedule IX -- Short-term Borrowings
S-3 Schedule X -- Supplementary Income Statement Information
S-4 Summarized Financial Information -- Stone Southwest, Inc.
</TABLE>

II-5
<PAGE>
ITEM 17. UNDERTAKINGS

The Company hereby undertakes:

(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 shall be deemed to be part of this
registration statement as of the time it was declared effective; and

(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.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registration pursuant to the provisions described under Item 15 above or
otherwise, the Company has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Company of expenses incurred or paid by a director, officer or
controlling person of the Company or 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 Company 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.

II-6
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has duly caused this Amendment No. 3 to Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Chicago and the State of Illinois on the 27th day of September, 1994.

STONE CONTAINER CORPORATION

By: _______/s/_LESLIE T. LEDERER______
Leslie T. Lederer
VICE PRESIDENT, SECRETARY AND
COUNSEL

Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to Registration Statement has been signed below on September 27, 1994 by
the following persons in the capacities indicated:

<TABLE>
<C> <S>
Chairman of the Board, President and Chief
* Executive Officer and Director of (Principal
Roger W. Stone Executive Officer)

Executive Vice President -- Chief Financial
* and Planning Officer (Principal Financial
Arnold F. Brookstone Officer)

* Senior Vice President and Corporate Controller
Thomas P. Cutilletta (Principal Accounting Officer)

*
Richard A. Giesen Director

*
James J. Glasser Director

*
George D. Kennedy Director

*
Howard C. Miller, Jr. Director

*
John D. Nichols Director
</TABLE>

II-7
<PAGE>
<TABLE>
<C> <S>
*
Jerry K. Pearlman Director

*
Richard J. Raskin Director

*
Alan Stone Director

*
Avery Stone Director

*
Ira N. Stone Director

*
James H. Stone Director

By: /s/LESLIE T. LEDERER
Leslie T. Lederer
(ATTORNEY-IN-FACT)
</TABLE>

II-8
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
SCHEDULE V -- PROPERTY, PLANT AND EQUIPMENT (A)
(IN MILLIONS)

<TABLE>
<CAPTION>
COLUMN B COLUMN F
---------- COLUMN C COLUMN E ----------
COLUMN A BALANCE AT -------- COLUMN D ----------- BALANCE AT
- ------------------------------------------------------------------- BEGINNING ADDITIONS ----------- OTHER END OF
CLASSIFICATION OF PERIOD AT COST RETIREMENTS CHANGES PERIOD
- ------------------------------------------------------------------- ---------- -------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
For the year ended December 31, 1993:
Machinery and equipment.......................................... $4,381.4 $257.4 $31.7 $(208.4) $4,398.7
Building and leasehold improvements.............................. 668.4 28.0 4.8 (16.6) 675.0
Land and land improvements....................................... 105.7 5.8 .8 (7.7) 103.0
Construction in progress......................................... 209.6 (141.5) .2 (3.9) 64.0
---------- -------- ----- ----------- ----------
Total.......................................................... $5,365.1 $149.7 $37.5 $(236.6)(B) $5,240.7
Timberlands...................................................... 72.5 24.5 6.9 (2.5)(D) 87.6
---------- -------- ----- ----------- ----------
Total.......................................................... $5,437.6 $174.2 $44.4 $(239.1) $5,328.3
---------- -------- ----- ----------- ----------
---------- -------- ----- ----------- ----------
For the year ended December 31, 1992:
Machinery and equipment.......................................... $3,548.8 $577.4 $13.0 $ 268.2 $4,381.4
Building and leasehold improvements.............................. 579.5 111.6 .4 (22.3) 668.4
Land and land improvements....................................... 67.3 9.9 .2 28.7 105.7
Construction in progress......................................... 631.0 (417.5) -- (3.9) 209.6
---------- -------- ----- ----------- ----------
Total.......................................................... $4,826.6 $281.4 $13.6 $ 270.7 (C) $5,365.1
Timberlands...................................................... 52.2 22.0 9.9 8.2 (E) 72.5
---------- -------- ----- ----------- ----------
Total.......................................................... $4,878.8 $303.4 $23.5 $ 278.9 $5,437.6
---------- -------- ----- ----------- ----------
---------- -------- ----- ----------- ----------
For the year ended December 31, 1991:
Machinery and equipment.......................................... $3,083.6 $523.0 $43.1 $ (14.7) $3,548.8
Building and leasehold improvements.............................. 549.3 44.8 7.1 (7.5) 579.5
Land and land improvements....................................... 65.3 1.3 2.1 2.8 67.3
Construction in progress......................................... 756.9 (139.0) .3 13.4 631.0
---------- -------- ----- ----------- ----------
Total.......................................................... $4,455.1 $430.1 $52.6 $ (6.0)(D) $4,826.6
Timberlands...................................................... 49.2 13.2 10.4 .2 (D) 52.2
---------- -------- ----- ----------- ----------
Total.......................................................... $4,504.3 $443.3 $63.0 $ (5.8) $4,878.8
---------- -------- ----- ----------- ----------
---------- -------- ----- ----------- ----------
<FN>
- ------------------------
(A) Information relating to the rates used in computing annual depreciation and
amortization is incorporated by reference to the Notes to the Financial
Statements, included in this report, under Notes to the Consolidated
Financial Statements, "Note 1 -- Summary of Significant Accounting
Policies", pages F-20 -- F-22.
(B) Primarily represents the effects of foreign currency translation, the
write-off of certain decommissioned assets and the transfer of assets for
the Company's European folding carton operations which in the early part of
1993 was merged into a joint venture and accordingly is now accounted for
under the equity method.
(C) Primarily represents the effects of foreign currency translation, assets
purchased in the acquisition of Societe Emballages des Cevennes, S.A.,
write-up adjustments as a result of the adoption of Statement of Financial
Accounting Standards No. 109 "Accounting for Income Taxes," ("SFAS 109") as
of January 1, 1992 and reclassifications among property categories.
(D) Primarily represents the effects of foreign currency translation.
(E) Represents the effects of foreign currency translation and the adjustment
as a result of the adoption of SFAS 109.
</TABLE>

S-1
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
SCHEDULE VI -- ACCUMULATED DEPRECIATION AND AMORTIZATION
OF PROPERTY, PLANT AND EQUIPMENT

<TABLE>
<CAPTION>
COLUMN C
COLUMN B ----------- COLUMN F
----------- ADDITIONS COLUMN E -----------
COLUMN A BALANCE AT CHARGED TO COLUMN D ------------- BALANCE AT
- ---------------------------------------------- BEGINNING COSTS AND ------------- OTHER END OF
CLASSIFICATION OF PERIOD EXPENSES RETIREMENTS CHANGES PERIOD
- ---------------------------------------------- ----------- ----------- ------------- ------------- -----------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
For the year ended December 31, 1993:
Machinery and equipment..................... $ 1,488.0 $ 267.3 $ 22.3 $ (80.1) $ 1,652.9
Building and leasehold improvements......... 160.3 31.6 3.0 (3.8) 185.1
Land and land improvements.................. 13.6 2.9 .2 -- 16.3
----------- ----------- ----- ------ -----------
Total..................................... 1,661.9 301.8 25.5 (83.9)(A) 1,854.3
Timberlands................................. 3.1 .6 -- -- 3.7
----------- ----------- ----- ------ -----------
Total..................................... $ 1,665.0 $ 302.4 $ 25.5 $ (83.9) $ 1,858.0
----------- ----------- ----- ------ -----------
----------- ----------- ----- ------ -----------

For the year ended December 31, 1992:
Machinery and equipment..................... $ 1,171.4 $ 263.3 $ 7.4 $ 60.7 $ 1,488.0
Building and leasehold improvements......... 126.4 33.0 .1 1.0 160.3
Land and land improvements.................. 8.6 2.4 .1 2.7 13.6
----------- ----------- ----- ------ -----------
Total..................................... 1,306.4 298.7 7.6 64.4(B) 1,661.9
Timberlands................................. 1.3 .7 -- 1.1(D) 3.1
----------- ----------- ----- ------ -----------
Total..................................... $ 1,307.7 $ 299.4 $ 7.6 $ 65.5 $ 1,665.0
----------- ----------- ----- ------ -----------
----------- ----------- ----- ------ -----------

For the year ended December 31, 1991:
Machinery and equipment..................... $ 988.5 $ 208.7 $ 19.0 $ (6.8) $ 1,171.4
Building and leasehold improvements......... 96.6 27.4 4.6 7.0 126.4
Land and land improvements.................. 6.0 2.1 .7 1.2 8.6
----------- ----------- ----- ------ -----------
Total..................................... 1,091.1 238.2 24.3 1.4(C) 1,306.4
Timberlands................................. .8 .5 -- -- 1.3
----------- ----------- ----- ------ -----------
Total..................................... $ 1,091.9 $ 238.7 $ 24.3 $ 1.4 $ 1,307.7
----------- ----------- ----- ------ -----------
----------- ----------- ----- ------ -----------
<FN>
- ------------------------
(A) Primarily represents the effects of foreign currency translation, the
write-off of certain decommissioned assets and the transfer of assets for
the Company's European folding carton operations which in the early part of
1993 was merged into a joint venture and accordingly is now accounted for
under the equity method.
(B) Primarily represents the effects of foreign currency translation, write-up
adjustments as a result of the adoption of Statement of Financial
Accounting Standards No. 109 "Accounting for Income Taxes," ("SFAS 109") as
of January 1, 1992 and reclassifications among property categories.
(C) Primarily represents the effects of foreign currency translation and
reclassifications among property categories.
(D) Represents the adjustment as a result of the adoption of SFAS 109.
</TABLE>

S-2
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

<TABLE>
<CAPTION>
COLUMN C
COLUMN B ------------- COLUMN E
----------- ADDITIONS -----------
COLUMN A BALANCE AT CHARGED TO COLUMN D BALANCE AT
- ------------------------------------------------------------ BEGINNING COSTS AND ------------- END OF
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS PERIOD
- ------------------------------------------------------------ ----------- ------------- ------------- -----------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Allowance for doubtful accounts and notes and sales returns
and allowances:
Year ended December 31, 1993.............................. $ 19.3 $ 29.2 $ 29.2 $ 19.3
Year ended December 31, 1992.............................. $ 15.6 $ 14.3 $ 10.6 $ 19.3
Year ended December 31, 1991.............................. $ 13.5 $ 13.0 $ 10.9 $ 15.6
</TABLE>

SCHEDULE IX -- SHORT-TERM BORROWINGS

<TABLE>
<CAPTION>
COLUMN F
COLUMN D COLUMN E -------------
COLUMN C ------------- ------------- WEIGHTED
COLUMN B ------------- MAXIMUM AVERAGE AVERAGE
COLUMN A ----------- WEIGHTED AMOUNT AMOUNT INTEREST
- ----------------------------------------------- BALANCE AT AVERAGE OUTSTANDING OUTSTANDING RATE
CATEGORY OF AGGREGATE END INTEREST DURING THE DURING THE DURING THE
SHORT-TERM BORROWINGS OF PERIOD RATE PERIOD PERIOD PERIOD (A)
- ----------------------------------------------- ----------- ------------- ------------- ------------- -------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Notes payable to banks:
Year ended December 31, 1993................. $ -- --% $ 34.0 $ 19.8 6.5%
Year ended December 31, 1992................. $ 33.0 8.1% $ 50.1 $ 37.1 8.0%
Year ended December 31, 1991................. $ 19.1 10.3% $ 19.3 $ 16.4 10.2%
<FN>
- ------------------------
(A) Weighted average interest rate for the year is determined by dividing the
average daily interest expense by the total average borrowings for the
year.
</TABLE>

SCHEDULE X -- SUPPLEMENTARY INCOME STATEMENT INFORMATION

<TABLE>
<CAPTION>
COLUMN B
-------------------------------
CHARGED TO COSTS AND EXPENSES,
YEAR ENDED DECEMBER 31,
-------------------------------
COLUMN A 1993 1992 1991
- ----------------------------------------------------------------------------------- --------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
Maintenance and repairs............................................................ $ 385.5 $ 428.5 $ 399.8
</TABLE>

S-3
<PAGE>
STONE CONTAINER CORPORATE AND SUBSIDIARIES
SUMMARIZED FINANCIAL INFORMATION -- STONE SOUTHWEST, INC.

Shown below is consolidated, summarized financial information for Stone
Southwest, Inc. (formerly known as Southwest Forest Industries, Inc.). The
summarized financial information for Stone Southwest, Inc. ("Stone Southwest")
does not include purchase accounting adjustments or the impact of the debt
incurred to finance the acquisition of Stone Southwest:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1993 1992 1991
---------- ---------- ----------
(IN MILLIONS)
<S> <C> <C> <C>
Net sales.................................................................... $ 1,660.1 $ 1,755.9 $ 1,860.9
Cost of products sold and depreciation....................................... 1,396.6 1,390.7 1,488.8
Income (loss) before cumulative effects of accounting changes................ (12.6) 57.7 46.8
Cumulative effect of change in accounting for postretirement benefits........ (8.3) -- --
Cumulative effect of change in accounting for income taxes................... -- (27.2) --

Net income (loss)............................................................ (20.8) 30.5 46.8

DECEMBER 31,
----------------------
1993 1992
---------- ----------
<S> <C> <C> <C>
Current assets............................................................... $ 360.9 $ 357.1
Noncurrent assets*........................................................... 1,600.5 1,674.6
Current liabilities.......................................................... 141.3 212.7
Noncurrent liabilities and obligations....................................... 395.8 369.2
<FN>
- ------------------------
* Includes $857.4 and $915.8 due from the Company at December 31, 1993 and 1992,
respectively.
</TABLE>

S-4
<PAGE>
INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBITS PAGE
- -------------- ---------
<C> <S> <C>
1 Form of Underwriting Agreement**
2 Asset Acquisition Agreement dated December 17, 1993 between Stone-Consolidated Inc. (now
Stone Container (Canada) Inc.) and Stone-Consolidated Corporation and intervened to by
the Company, filed as Exhibit 2 to the Company's Current Report on Form 8-K dated January
3, 1994, is hereby incorporated by reference.
3(a) Restated Certificate of Incorporation of the Company.*
3(b) By-laws of the Company, as amended, March 28, 1994.*
4(a) Specimen certificate representing Common Stock, $.01 par value, filed as Exhibit 4(a) to
the Company's Annual Report on Form 10-K for the year ended December 31, 1987, is hereby
incorporated by reference.
4(b) Specimen certificate representing the $1.75 Series E Cumulative Convertible Exchangeable
Preferred Stock, filed as Exhibit 4(g) to the Company's Registration Statement on Form
S-3, Registration Number 33-45374, filed February 6, 1992, is hereby incorporated by
reference.
4(c) Rights Agreement, dated as of July 25, 1988, between the Company and The First National
Bank of Chicago, filed as Exhibit 1 to the Company's Registration Statement on Form 8-A
dated July 27, 1988, is hereby incorporated by reference.
4(d) Amendment to Rights Agreement, dated as of July 23, 1990, between the Company and The
First National Bank of Chicago, filed as Exhibit 1A to the Company's Form 8 dated August
2, 1990 amending the Company's Registration Statement on Form 8-A dated July 27, 1988, is
hereby incorporated by reference.
4(e) Credit Agreement, dated as of March 1, 1989 (the "Canadian Term Loan Agreement"), among
Stone Container Corporation of Canada (now Stone Container (Canada) Inc.), the Banks
named therein, Bankers Trust Company, as agent for such Banks, and Citibank, N.A.,
Manufacturers Hanover Trust Company (now Chemical Bank) and The First National Bank of
Chicago, as co-agents for such Banks, filed as Exhibit 28(b) to the Company's Current
Report on Form 8-K dated March 2, 1989, filed on March 17, 1989, is hereby incorporated
by reference.
4(f) Revolving Credit Agreement, dated as of March 1, 1989 (the "Canadian Revolver"), among
Stone Container Acquisition Corporation (now Stone Container (Canada) Inc.), the Banks
named therein, BT Bank of Canada, as administrative agent for such Banks, The Bank of
Nova Scotia, as payment agent for such Banks, and Bankers Trust Company, as collateral
agent for such Banks, filed as Exhibit 28(d) to the Company's Current Report on Form 8-K
dated March 2, 1989, filed on March 17, 1989, is hereby incorporated by reference.
</TABLE>

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

* Previously filed
** Filed herewith

<PAGE>

<TABLE>
<CAPTION>
EXHIBITS PAGE
- -------------- ---------
<C> <S> <C>
4(g) Third Amended and Restated U.S. Credit Agreement, dated as of March 1, 1989 and
re-executed as of October 5, 1993 (the "U.S. Credit Agreement"), among the Company, the
Banks named therein, Bankers Trust Company, as agent for the Banks under the U.S. Credit
Agreement, and Citibank, N.A., Manufacturers Hanover Trust Company (now Chemical Bank)
and The First National Bank of Chicago, as co-agents for the Banks under the U.S. Credit
Agreement, filed as Exhibit 4(a) to the Company's Current Report on Form 8-K, dated
January 3, 1994, is hereby incorporated by reference.
4(h) First Amendment, Waiver and Consent dated as of December 29, 1993, among the Company, the
financial institutions named therein, Bankers Trust Company, as agent under the U.S.
Credit Agreement, Citibank, N.A., Chemical Bank (as successor to Manufacturers Hanover
Trust Company) and The First National Bank of Chicago, as co-agents under the U.S. Credit
Agreement, filed as Exhibit 4(b) to the Company's Current Report on Form 8-K, dated
January 3, 1993, is hereby incorporated by reference.
4(i) Second Amendment and Waiver dated as of January 24, 1994, among the Company, the financial
institutions named therein, Bankers Trust Company, as agent for the Banks under the U.S.
Credit Agreement, Citibank, N.A., Chemical Bank (as successor to Manufacturers Hanover
Trust Company) and The First National Bank of Chicago, as co-agents for the Banks under
the U.S. Credit Agreement, filed as Exhibit 4.1 to the Company's Current Report on Form
8-K, dated January 24, 1994, is hereby incorporated by reference.
4(j) Indenture, dated as of September 15, 1986, relating to the 12 1/8% Subordinated Debentures
due September 15, 2001 of Stone Southwest Corporation (now Stone Southwest, Inc.),
between Southwest Forest Industries, Inc. and Bankers Trust Company, as Trustee, together
with the First Supplemental Indenture, dated as of September 1, 1987, among Stone
Container Corporation, a Nevada corporation, the Company and National Westminster Bank
USA, as Trustee (which has been succeeded by Shawmut Bank, N.A., as Trustee), and the
Second Supplemental Indenture, dated as of December 14, 1987, among Stone Southwest
Corporation, the Company and National Westminster Bank USA, as Trustee (which has been
succeeded by Shawmut Bank, N.A., as Trustee), filed as Exhibit 4(i) to the Company's
Registration Statement on Form S-3, Registration Number 33-36218, filed on November 1,
1991, is hereby incorporated by reference.
4(k) Indenture, dated as of September 1, 1989, between the Company and Bankers Trust Company,
as Trustee, relating to the Company's 11 1/2% Senior Subordinated Notes due September 1,
1999, filed as Exhibit 4(n) to the Company's Registration Statement on Form S-3,
Registration Number 33-46764, filed March 27, 1992, is hereby incorporated by reference.
4(l) Indenture, dated as of February 15, 1992, between the Company and The Bank of New York, as
Trustee, relating to the Company's 6 3/4% Convertible Subordinated Debentures due
February 15, 2007, filed as Exhibit 4(p) to the Company's Registration Statement on Form
S-3, Registration Number 33-45978, filed on March 4, 1992, is hereby incorporated by
reference.
4(m) Senior Subordinated Indenture, dated as of March 15, 1992, between the Company, and The
Bank of New York, as Trustee, filed as Exhibit 4(a) to the Company's Registration
Statement Form S-3, Registration Number 33-46764, filed on March 27, 1992, is hereby
incorporated by reference.
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
EXHIBITS PAGE
- -------------- ---------
<C> <S> <C>
4(n) Indenture dated as of June 15, 1993 between the Company and Norwest Bank Minnesota,
National Association, as Trustee, relating to the Company's 8 7/8% Convertible Senior
Subordinated Notes due 2000, filed as Exhibit 4(a) to the Company's Registration
Statement on Form S-3, Registration Number 33-66026, filed on July 15, 1993, is hereby
incorporated by reference.
4(o) Indenture, dated as of November 1, 1991, between the Company and The Bank of New York, as
Trustee, relating to the Company's Senior Debt Securities, filed as Exhibit 4(u) to the
Company's Registration Statement on Form S-3, Registration Number 33-45374, filed on
January 29, 1992, is hereby incorporated by reference.
4(p) First Supplemental Indenture dated as of June 23, 1993 between the Company and The Bank of
New York, as Trustee, relating to the Indenture, dated as of November 1, 1991, between
the Company and The Bank of New York, as Trustee, filed as Exhibit 4(aa) to the Company's
Registration Statement on Form S-3, Registration Number 33-66026, filed on July 15, 1993,
is hereby incorporated by reference.
4(q) Second Supplemental Indenture dated as of February 1, 1994 between the Company and the
Bank of New York, as Trustee, relating to the Indenture, dated as of November 1, 1991, as
amended, filed as Exhibit 4.2 to the Company's Current Report on Form 8-K, dated January
24, 1994, is hereby incorporated herein by reference.
4(r) Indenture dated as of August 1, 1993 between the Company and Norwest Bank Minnesota,
National Association, as Trustee, relating to the Company's Senior Subordinated Debt
Securities, filed as Exhibit 4(a) to the Company's Form S-3 Registration Statement,
Registration Number 33-49857, filed July 30, 1993, is hereby incorporated by reference.
4(s) Form of Indenture relating to the First Mortgage Notes.**
4(t) Form of Indenture relating to the Senior Notes.**
4(u) Form of Credit Agreement dated October , 1994, among the Company, the financial
institutions signatory thereto and Bankers Trust Company, as agent for such financial
institutions.**
</TABLE>

<TABLE>
<C> <S> <C>
4(v) Guaranty, dated October 7, 1983, between the Company and The Continental
Group, Inc., filed as Exhibit 4(h) to the Company's Registration
Statement on Form S-3, Registration Number 33-36218, filed on November
1, 1991, is hereby incorporated by reference.
5 Opinion of Leslie T. Lederer, Vice President, Secretary and Counsel of
the Company.**
10(a) Management Incentive Plan, incorporated by reference to Exhibit 10(b) to
the Company's Annual Report on Form 10-K for the year ended December
31, 1980.
10(b) Unfunded Deferred Director Fee Plan, incorporated by reference to
Exhibit 10(d) to the Company's Annual Report on Form 10-K for the year
ended December 31, 1981.
</TABLE>

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

** Filed herewith

<PAGE>

<TABLE>
<CAPTION>
EXHIBITS PAGE
- ------------- ---------
<C> <S> <C>
10(c) Form of "Stone Container Corporation Compensation Agreement" between the
Company and its directors that elect to participate, incorporated by
reference to Exhibit 10(e) to the Company's Annual Report on Form 10-K
for the year ended December 31, 1988.
10(d) Stone Container Corporation 1982 Incentive Stock Option Plan,
incorporated by reference to Appendix A to the Prospectus included in
the Company's Form S-8 Registration Statement, Registration Number
2-79221, effective September 27, 1982.
10(e) Stone Container Corporation 1993 Stock Option Plan, incorporated by
reference to Appendix A to the Company's Proxy Statement dated as of
April 10, 1992.
10(f) Stone Container Corporation Deferred Income Savings Plan, conformed to
reflect amendment effective as of January 1, 1990, incorporated by
reference to Exhibit 4(i) to Company's Form S-8 Registration Statement,
Registration Number 33-33784, filed March 9, 1990.
10(g) Form of "Employee Continuity Agreement in the Event of a Change of
Control" entered into with all officers with 5 or more years of service
with the Company, incorporated by reference to Exhibit 10(j) to the
Company's Annual Report on Form 10-K for the year ended December 31,
1988.
10(h) Stone Container Corporation 1986 Long-Term Incentive Program,
incorporated by reference to Exhibit A to the Company's Proxy Statement
dated as of April 5, 1985.
10(i) Stone Container Corporation 1992 Long-Term Incentive Program,
incorporated by reference to Exhibit A to the Company's Proxy Statement
dated as of April 11, 1991.
10(j) Supplemental Retirement Income Agreement between Company and James
Doughan dated as of February 10, 1989, incorporated by reference to
Exhibit 10(q) to the Company's Annual Report on Form 10-K for the year
ended December 31, 1988.
12 Computation of Ratios of Earnings to Fixed Charges.*
21 Subsidiaries of the Company incorporated by reference to Exhibit 12 to
the Company's Annual Report on Form 10-K for the year ended December
31, 1993.
23(a) Consent of Price Waterhouse LLP**
23(b) Consent of American Appraisal Associates, Inc.*
23(c) The consent of Leslie T. Lederer is contained in his opinion filed as
Exhibit 5 to the Registration Statement.
24 Powers of Attorney*
25(a) T-1 Statement of Eligibility under the Trust Indenture Act of 1939 of
The Bank of New York relating to the Senior Notes.**
25(b) T-1 Statement of Eligibility under the Trust Indenture Act of 1939 of
Norwest Bank Minnesota, N.A. relating to the First Mortgage Notes.**
99(a) Summary Valuation Report Prepared With Respect to the Collateral**
</TABLE>

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

* Previously filed

** Filed herewith

<PAGE>

Draft, 9/27/94

STONE CONTAINER CORPORATION

$500,000,000
__% First Mortgage Notes due 2002

$200,000,000
__% Senior Notes due 2004

UNDERWRITING AGREEMENT

New York, New York
_________ __, 1994

Salomon Brothers Inc
BT Securities Corporation
Morgan Stanley & Co.
Incorporated
Kidder, Peabody & Co.
Incorporated
Bear, Stearns & Co. Inc.

c/o Salomon Brothers Inc
Seven World Trade Center
New York, New York 10048

Ladies and Gentlemen:

Stone Container Corporation, a Delaware corporation (the "COMPANY"),
proposes to sell to you (the "UNDERWRITERS") (A) $500 million principal amount
of its __% First Mortgage Notes due 2002 (the "FIRST MORTGAGE NOTES") to be
issued under an indenture (the "FIRST MORTGAGE NOTE INDENTURE") to be dated as
of October __, 1994, between the Company and Norwest Bank Minnesota, N.A., as
trustee (the "FIRST MORTGAGE NOTE TRUSTEE"), and (B) $200 million principal
amount of its __% Senior Notes due 2004 (the "SENIOR NOTES") to be issued under
an indenture (the "SENIOR NOTE INDENTURE") to be dated as of October __, 1994,
between the Company and The Bank of New York, as trustee (the "SENIOR NOTE
TRUSTEE"). The First Mortgage Notes and the Senior Notes are together referred
to herein as the "SECURITIES", the First Mortgage Note Indenture and the Senior
Note Indenture are together referred to herein as the "INDENTURES", and the
First Mortgage Note Trustee and the Senior Note Trustee are together referred to
herein as the "TRUSTEES".

The First Mortgage Notes will be secured by first ranking Liens in
favor of the First Mortgage Note Trustee on certain real property, fixtures and
equipment of the Company, whether now owned or hereafter acquired by the
Company, and certain other related collateral (the "MORTGAGED PROPERTY"), as
more fully described in and pursuant to the Security Documents.

<PAGE>

The terms which follow, when used in this Agreement, shall have the
meanings indicated. Terms not otherwise defined in this Agreement are used as
defined in the applicable Indenture or Indentures.

"1989 CREDIT AGREEMENT" shall mean collectively the bank credit
agreements between the Company and certain lenders, substantially in the form of
Exhibits 4(e) - 4(i) to the Registration Statement, which agreements shall be
terminated on the Closing Date.

"CLOSING DATE" shall have the meaning set forth in Section 3 hereof.

"COMMISSION" shall have the meaning set forth in Section 1(a) below.

"CREDIT AGREEMENT" shall mean the Credit Agreement to be entered into
on the Closing Date by the Company and certain lenders, substantially in the
form of Exhibit ___ to the Registration Statement, consisting of a $400 million
senior secured term loan and a $450 million senior secured revolving credit
facility.

"EFFECTIVE DATE" shall mean each date that the Registration Statement
and any post-effective amendment or amendments thereto became effective.

"EXECUTION TIME" shall mean the date and time that this Agreement is
executed and delivered by the parties hereto.

"FEDERAL FUNDS INTEREST RATE" shall mean the then applicable
fluctuating interest rate per annum equal to the rate on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers, as published for the Closing Date by the Federal Reserve Bank of
New York.

"MATERIAL SUBSIDIARIES" shall mean, on the Execution Date, Stone
Canada, Stone-Consolidated, Stone Mill, Stone Hopewell, Inc., Stone Savannah,
Seminole and Stone Southwest, Inc., and, as of the Closing Date, Stone Canada,
Stone-Consolidated, Stone Savannah (or any successor corporations thereof),
Seminole and Stone Southwest, Inc.

"MORTGAGE" shall have the meaning set forth in the definition of
Security Documents.

"PRELIMINARY PROSPECTUS" shall mean any preliminary prospectus
referred to in Section 1(a) below and any preliminary prospectus included in the
Registration Statement at the Effective Date that omits Rule 430A Information.

"PROSPECTUS" shall mean the prospectus relating to the Securities that
is first filed pursuant to Rule 424(b) after the Execution Time or, if no filing
pursuant to Rule 424(b) is required, shall mean the form of final prospectus
relating to the

- 2 -
<PAGE>

Securities included in the Registration Statement at the Effective Date.

"REGISTRATION STATEMENT" shall mean the registration statement
referred to in Section 1(a) below, including exhibits and financial statements,
as amended at the Execution Time (or, if not effective at the Execution Time, in
the form in which it shall become effective) and, in the event any
post-effective amendment thereto becomes effective prior to the Closing Date,
shall also mean such registration statement as so amended. Such term shall
include any Rule 430A Information deemed to be included therein at the Effective
Date as provided by Rule 430A.

"RELATED TRANSACTIONS" shall mean, collectively, the following
transactions which will occur prior to or concurrently with the closing of the
sale of the Securities, and the execution and delivery of the Indentures and the
Security Documents on the Closing Date: (i) repayment of all of the outstanding
indebtedness under, and termination of, the 1989 Credit Agreement (including the
release of collateral secured thereunder) as described in the Prospectus; (ii)
execution and delivery of the Credit Agreement and the disbursement to the
Company of the $400 million term loan and a portion of the available borrowings
under the revolving credit facility thereunder; (iii) repayment of all
outstanding indebtedness under, and termination of, the Stone Savannah Credit
Agreement as described in the Prospectus; (iv) notice of redemption of the Stone
Savannah Notes, given to the trustee in respect of the Stone Savannah Notes as
described in the Prospectus; (v) purchase by the Company of the Stone Savannah
Common pursuant to a merger as described in the Prospectus; (vi) on or prior to
December 30, 1994, the redemption or reacquisition of the Stone Savannah
Preferred as described in the Prospectus; and (vii) the merger of Stone
Mill Operating Corporation and Stone Connecticut Paper Board into the Company
on or prior to the Closing Date as consummated in accordance with the documents
delivered to the Underwriters which shall be in form and substance satisfactory
to the Underwriters and the title insurers in respect of the Mortgaged Property.

"RELATED TRANSACTION DOCUMENTS" shall mean the following, each to be
dated on or prior to the Closing Date: (i) cross receipts regarding repayment
on the Closing Date of all outstanding amounts under the 1989 Credit Agreement
and the Stone Savannah Credit Agreement (and certificates evidencing termination
thereof on the Closing Date); (ii) the Credit Agreement; (iii) redemption
notices regarding the Stone Savannah Notes; and (iv) all documents relating to
the merger transactions involving Stone Savannah, Stone Mill Operating
Corporation and Stone Connecticut Paper Board and necessary to consummate such
transactions in the manner contemplated by the documents delivered to the
Underwriters.

"RULE 424" and "RULE 430A" refer to such rules under the 1933 Act.

"RULE 430A INFORMATION" means information with respect to the
Securities and the offering thereof permitted to be omitted from the
Registration Statement when it becomes effective pursuant to Rule 430A.

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<PAGE>

"SECURITY DOCUMENTS" shall mean the following security documents, each
dated the Closing Date, between the Company, as mortgagor, and the First
Mortgage Note Trustee, as mortgagee, with respect to the Company's mills located
in Uncasville, Connecticut, Ontonagon, Michigan, York, Pennsylvania, and
Missoula, Montana: (i) the First Mortgage Note Indenture, (ii) the First
Mortgage Notes, (iii) for each such mill, the Mortgage, Assignment of Leases and
Rents, (each a "MORTGAGE" and collectively the "MORTGAGES"), (iv) Security
Agreements (each, a "Security Agreement" and collectively, the "Security
Agreements") and (v) the related UCC-1 financing statements in form and
substance reasonably satisfactory to the Underwriters and their counsel.

"SEMINOLE" shall mean Seminole Kraft Corporation, a Delaware
corporation.

"STONE CANADA" shall mean Stone Container (Canada) Inc, a Canadian
corporation.

"STONE CONNECTICUT PAPER BOARD" shall mean the Stone Connecticut Paper
Board Corporation, a Delaware corporation, 100% of the common stock of which is
owned by the Company on the date of this Agreement and immediately prior to its
merger into the Company on or before the Closing Date.

"STONE-CONSOLIDATED" shall mean Stone-Consolidated Corporation, a
Canadian corporation.

"STONE MILL OPERATING CORPORATION" shall mean the Stone Mill Operating
Corporation, a Delaware corporation, 100% of the common stock of which is owned
by the Company on the date of this Agreement and immediately prior to its merger
into the Company on or before the Closing Date.

"STONE SAVANNAH" shall mean the Stone Savannah River Pulp & Paper
Corporation, a Delaware corporation, 92.75% of the common stock of which is
owned, on the date of this Agreement, by the Company, and 100% of the common
stock of which will be owned as of the Closing Date (or any successor thereto).

"STONE SAVANNAH COMMON" shall mean the 6.25% outstanding shares of
common stock of Stone Savannah not owned by the Company on the date hereof, but
which, upon the purchase thereof by the Company pursuant to a merger, will be
owned by the Company on the Closing Date.

"STONE SAVANNAH CREDIT AGREEMENT" shall mean the bank credit agreement
dated as of December 9, 1988, between Stone Savannah and Citibank, N.A., as
agent, and the lenders signatory thereto, as amended, which agreement shall be
terminated on the Closing Date.

"STONE SAVANNAH PREFERRED" shall mean the 425,243 outstanding shares
of Stone Savannah's Series A Cumulative Redeemable Exchangeable Preferred Stock
not owned by the Company

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<PAGE>

on the date hereof, to be redeemed by Stone Savannah on the terms described in
the Registration Statement and Prospectus.

"STONE SAVANNAH NOTES" shall mean the $130 million principal amount of
Stone Savannah's 14 1/8% Senior Subordinated Notes due 2000 outstanding on the
date hereof, to be redeemed by Stone Savannah on terms described in the
Registration Statement and Prospectus.

Section 1. Representations and Warranties. The Company represents
and warrants to, and agrees with, the Underwriters as set forth below in this
Section 1.

(a) The Company has filed with the Securities and Exchange Commission
(the "COMMISSION") a registration statement (file number 33-54769) on Form
S-1, including a related preliminary prospectus, for the registration under
the Securities Act of 1933 (the "1933 ACT") of the offering and sale of the
Securities. The Company may have filed one or more amendments thereto,
including the related preliminary prospectus, each of which has previously
been furnished to you. The Company will next file with the Commission
either (i) prior to effectiveness of such registration statement, a further
amendment to such registration statement (including the form of final
prospectus) or (ii) after effectiveness of such registration statement, a
final prospectus in accordance with Rules 430A and 424(b)(1) or (4). In
the case of clause (ii), the Company has included in such registration
statement, as amended at the Effective Date, all information (other than
Rule 430A Information) required by the 1933 Act and the rules thereunder to
be included in the Prospectus with respect to the Securities and the
offering thereof. As filed, such amendment and form of final prospectus,
or such final prospectus, shall include all Rule 430A Information, together
with all other such required information, with respect to the Securities
and the offering thereof and, except to the extent you shall agree in
writing to a modification, shall be in all substantive respects in the form
furnished to you prior to the Execution Time or, to the extent not
completed at the Execution Time, shall contain only such specific
additional information and other changes (beyond that contained in the
latest Preliminary Prospectus) as the Company has advised you, prior to the
Execution Time, will be included or made therein.

(b) On the Effective Date, the Registration Statement did or will,
and when the Prospectus is first filed (if required) in accordance with
Rule 424(b) and on the Closing Date (as hereinafter defined), the
Prospectus (and any supplements thereto) will, comply in all material
respects with the applicable requirements of the 1933 Act and the Trust
Indenture Act of 1939, as amended (the "1939 ACT"), and the respective
rules thereunder; on the Effective Date,

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<PAGE>

the Registration Statement did not or will not contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein not
misleading; on the Effective Date and on the Closing Date each of the
Indentures did or will comply in all material respects with the applicable
requirements of the 1939 Act and the respective rules thereunder; and, on
the Effective Date, the Prospectus, if not filed pursuant to Rule 424(b),
did not or will not, and on the date of any filing pursuant to Rule 424(b)
and on the Closing Date, the Prospectus (together with any supplement
thereto) will not, include any untrue statement of a material fact or omit
to state a material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not
misleading; PROVIDED, HOWEVER, that the Company makes no representations or
warranties as to (i) that part of the Registration Statement which shall
constitute the Statement of Eligibility and Qualification (Form T-1) under
the 1939 Act of each of the Trustees or (ii) the information contained in
or omitted from the Registration Statement, or the Prospectus (or any
supplement thereto) in reliance upon and in conformity with information
furnished in writing to the Company by or on behalf of any of the
Underwriters specifically for inclusion in the Registration Statement or
the Prospectus (or any supplement thereto).

(c) The Company meets all conditions for the use of Form S-1
registration statement as promulgated by the Commission pursuant to the
1933 Act. The filing of the Registration Statement by the Company with the
Commission has been duly authorized by all necessary corporate action of
the Company.

(d) This Agreement has been duly authorized, executed and delivered
by the Company.

(e) Price Waterhouse, LLP, or any successor accountants, who are
reporting upon the audited financial statements of the Company and its
subsidiaries included in the Registration Statement and Prospectus, and who
have reviewed the unaudited and other financial statements of the Company
and its subsidiaries included in the Registration Statement and
Prospectus, are independent accountants with respect to the Company and its
subsidiaries within the meaning of the 1933 Act and the rules thereunder.

(f) The consolidated financial statements and schedules (including
the related notes and supporting schedules of the Company and its
subsidiaries included in the Registration Statement, any Preliminary
Prospectus and the Prospectus) present fairly the consolidated financial
condition, results of operations and cash flows of the entities purported
to be shown thereby as of the dates and

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<PAGE>

for the periods indicated, comply in all material respects with the
applicable accounting requirements of the 1933 Act and the rules and
regulations thereunder and have been prepared in accordance with generally
accepted accounting principles, applied on a consistent basis through the
periods indicated.

(g) The pro forma financial statements included in the Registration
Statement, any Preliminary Prospectus and the Prospectus comply in all
material respects with the applicable accounting requirements of the 1933
Act and the rules and regulations thereunder, and no other pro forma
financial statements or schedules are required by the 1933 Act or the rules
and regulations thereunder to be included in the Registration Statement at
the time it became effective and the Prospectus. The pro forma adjustments
have been properly applied to the historical amounts in the computation of
such pro forma statements and schedules and the assumptions described in
the notes to such pro forma financial information provide a reasonable
basis for presenting the significant direct effects of the transactions
reflected therein and the pro forma adjustments give appropriate effect to
those assumptions.

(h) The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Delaware with requisite
corporate power and authority under such laws to own, lease and operate its
properties and conduct its business as described in the Registration
Statement and in the Prospectus and to execute, deliver and perform its
obligations under the Credit Agreement. The Company is duly qualified to
transact business as a foreign corporation and is in good standing in each
other jurisdiction in which it owns or leases property of a nature, or
transacts business of a type, that would make such qualification necessary,
except to the extent that the failure to so qualify or be in good standing
would not, individually or in the aggregate, have a material adverse effect
on the Company and its subsidiaries taken as a whole. The Company possesses
all material rights, licenses, permits and authorizations, governmental or
otherwise, necessary for it to own, lease and operate each Mortgaged
Property and to conduct its business as described in the Registration
Statement and in the Prospectus.

(i) Each of the Company's subsidiaries other than Stone Canada and
Stone-Consolidated is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation with
corporate power and authority under such laws to own, lease and operate its
properties and conduct its business as described in the Registration
Statement and Prospectus, and in the case of each of Stone Savannah, Stone
Connecticut Paper Board and Stone Mill Operating Corporation, to execute,
deliver and perform its obligations under the relevant Related Transaction
Documents to which

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<PAGE>

it is a party. Each of Stone Canada and Stone-Consolidated is a
corporation validly existing and subsisting under the laws of Canada. Each
of the Company's subsidiaries (other than Stone Canada and Stone-
Consolidated, for which such representation is not relevant) is duly
qualified to transact business as a foreign corporation and is in good
standing in each other jurisdiction in which it owns or leases property of
a nature, or transacts business of a type, that would make such
qualification necessary, except to the extent that the failure to so
qualify or be in good standing would not, individually or in the aggregate,
have a material adverse effect on the Company and its subsidiaries taken as
a whole. Except as disclosed in or contemplated by the Prospectus, all of
the issued and outstanding shares of capital stock of each Material
Subsidiary have been duly authorized and validly issued and are fully paid
and non-assessable and free of preemptive rights and are owned directly or
indirectly by the Company (except for directors' qualifying shares and
other than Seminole, Stone-Consolidated and Stone Savannah) free and clear
of any pledge, Liens, security interest, charge, claim, restriction on
transfer (except in the case of Stone Canada for the restrictions on
transfers of its capital stock as set forth in its Articles of
Amalgamation, as amended), stockholders' agreement, voting trust or other
defect of title whatsoever or encumbrance of any kind. The Company owns
approximately 75% of the issued and outstanding common shares of Stone-
Consolidated; approximately 99% of the issued and outstanding shares of
common stock and 100% of the issued and outstanding shares of the Series A
Cumulative 8% Preferred Stock of Seminole; and approximately 93% of the
issued and outstanding shares of common stock, 33% of the issued and
outstanding shares of the Series A Cumulative Redeemable Exchangeable
Preferred Stock, 100% of the issued and outstanding shares of Series B
Cumulative Preferred Stock of Stone Savannah and 100% of the issued and
outstanding shares of Series C Cumulative Preferred Stock of Stone
Savannah. On or prior to the Closing Date, the Stone Savannah Common will
be purchased pursuant to a merger and, on or prior to December 30, 1994,
the Stone Savannah Preferred will be redeemed as described in the
Registration Statement and the Prospectus, and 100% of the issued and
outstanding shares of common stock of Stone Savannah (or any successor
corporations thereof) will then be owned by the Company.

(j) The Company has at the date indicated short-term debt, long-term
debt, subordinated debt, debt of consolidated subsidiaries (non-recourse
debt) and stockholders' equity as set forth in the Registration Statement
and the Prospectus under the caption "Capitalization". The Company's equity
capitalization is as set forth in the Registration Statement and
Prospectus.

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<PAGE>

(k) The Indentures and the Credit Agreement have been duly authorized
by all necessary corporate action of the Company and, when duly executed
and delivered by the Company and, as the case may be, by the relevant
Trustee or the financial institutions under the Credit Agreement,
will constitute valid and binding obligations of the Company, enforceable
against the Company in accordance with each of their terms, except to the
extent enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws of general applicability
relating to or affecting the enforcement of creditors' rights and by the
effect of general principles of equity (regardless of whether
enforceability is considered in a proceeding in equity or at law). The
descriptions contained in the Registration Statement and in the Prospectus
of each Indenture and of the Credit Agreement fairly and accurately
summarize each such document in all material respects. The Indentures have
been duly qualified under and comply with the 1939 Act.

(l) The Securities have been duly authorized by all necessary
corporate action for issuance and sale pursuant to this Agreement (or will
have been so authorized prior to the issuance of such Securities) and, when
executed, authenticated, issued and delivered in the manner provided for in
each applicable Indenture and sold and paid for as provided in this
Agreement, the Securities will constitute valid and binding obligations of
the Company entitled to the benefits of each applicable Indenture and
enforceable against the Company in accordance with its terms, except to the
extent enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws of general applicability
relating to or affecting the enforcement of creditors' rights and by the
effect of general principles of equity (regardless of whether
enforceability is considered in a proceeding in equity or at law). The
descriptions contained in the Registration Statement and in the Prospectus
of the Securities fairly and accurately summarize the First Mortgage Notes
and the Senior Notes in all material respects.

(m) (i) Each Security Document has been duly authorized by all
necessary corporate action of the Company, and, when duly executed and
delivered by the Company, will constitute a legal, valid and binding
obligation of the Company, enforceable against the Company in accordance
with its terms, except to the extent enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws of
general applicability relating to or affecting the enforcement of
creditors' rights and by the effect of general principles of equity
(regardless of whether enforceability is considered in a proceeding in
equity or at law); (ii) on the Closing Date, the Company will be the sole
owner of and have good and

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<PAGE>

indefeasible title in fee to the real property comprising part of each
Mortgaged Property, except for the portion of the Mortgaged Property
located in Ontonagan, Michigan, held by the Company pursuant to a ground
lease described in the relevant Mortgage, in which the Company has a valid
leasehold interest, and good title to the balance of each such Mortgaged
Property, in each case, after giving effect to the transactions
contemplated by the Security Documents, free and clear of all Liens,
subject only to Permitted Collateral Liens (as defined in the First
Mortgage Note Indenture), will have good right and lawful authority to
mortgage, pledge and assign the Mortgaged Property in accordance with the
terms of the relevant Security Document, and will create in favor of the
First Mortgage Note Trustee for the benefit of the Holders of First
Mortgage Notes a valid, perfected first ranking security interest in the
Mortgaged Property (as described therein), securing the payment of the
First Mortgage Notes in accordance with the terms thereof.

(n) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, except as otherwise stated
therein or contemplated thereby, there has not been any material adverse
change in the condition (financial or otherwise), earnings, operations or
prospects of the Company and its subsidiaries taken as a whole, whether or
not arising in the ordinary course of business, or any transaction entered
into by the Company or any subsidiary, other than in the ordinary course of
business, the Company has not declared, paid or otherwise made any
dividends or distributions of any kind on any class of its capital stock,
and since the date of the latest balance sheet included in the Registration
Statement and in the Prospectus, neither the Company nor any of its
subsidiaries has incurred or undertaken any liabilities or obligations,
direct or contingent, which are material to the Company and its
subsidiaries taken as a whole, except for liabilities or obligations which
were incurred or undertaken in the ordinary course of business or which
relate to matters that are reflected in the Registration Statement and the
Prospectus.

(o) Neither the Company nor any of its subsidiaries has distributed
and, prior to the later to occur of (i) the Closing Date and (ii)
completion of the distribution of the Securities, will distribute any
offering material in connection with the offering and sale of the
Securities other than any of the Preliminary Prospectuses, the Prospectus
or other materials, if any, that the Underwriters have approved for such
distribution; PROVIDED, HOWEVER, that it is understood that the Company
makes no representation or warranty herein with respect to any distribution
of materials by the Underwriters.

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<PAGE>

(p) Neither the Company nor any Material Subsidiary is in violation
of its respective charter or by-laws; neither the Company nor any material
subsidiary is in default in the performance or observance of any
obligation, agreement, covenant or condition contained in any contract,
indenture, mortgage, loan agreement, note, lease, permit, license,
franchise or other agreement or instrument to which it is a party or by
which it may be bound or to which any of its properties may be subject,
except for such defaults that would not have a material adverse effect on
the condition (financial or otherwise), earnings, operations or prospects
of the Company and its subsidiaries taken as a whole. (i) The execution
and delivery of this Agreement, the Indentures and the Security Documents,
the filing of the Registration Statement, the issuance, sale and delivery
of the Securities and the consummation of the transactions contemplated
herein and therein by the Company, and compliance by the Company with the
terms of this Agreement, the Indentures and the Security Documents, and
(ii) the execution, delivery and performance by each of the Company, Stone
Savannah, Stone Connecticut Paper Board or Stone Mill Operating Corporation
of each Related Transaction Document to which it is a party and the
consummation by the Company, Stone Savannah, Stone Connecticut Paper Board
or Stone Mill Operating Corporation of the Related Transactions do not and
will not conflict with, or result in a breach of, any of the terms or
provisions of, or constitute a default under, or result in the creation or
imposition of any Liens, charge or encumbrance (other than the Liens
created by the Security Documents, and the Credit Agreement and security
agreements and mortgages relating thereto) upon, any property or assets of
the Company or any subsidiary under (X) any indenture, mortgage, loan
agreement, note, lease, permit, license, franchise or other agreement
or instrument to which the Company or any subsidiary is a party or by which
it may be bound or to which any of its properties may be subject or (Y) any
existing applicable law, rule, regulation, judgment, order or decree of any
government, governmental instrumentality or court, domestic or foreign,
having jurisdiction over the Company or any subsidiary or any of their
respective properties or assets (except, in the case of (X) and (Y), for
such conflicts, breaches or defaults or Liens, charges or encumbrances that
would not have a material adverse effect on the condition (financial or
otherwise), earnings, operations or prospects of the Company and its
subsidiaries taken as a whole). As of the Closing Date, the stockholders
of Stone Savannah will have approved the merger of a wholly-owned
subsidiary of the Company with and into Stone Savannah on or prior to the
Closing Date.

(q) There is no litigation or governmental or other action, suit,
proceeding or investigation before any court or before or by any public,
regulatory or governmental agency or body pending or threatened against, or
involving the properties or business of the Company or any of its

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<PAGE>

subsidiaries which is of a character required to be disclosed in the
Registration Statement or the Prospectus which has not been properly
disclosed therein; and there is no contract or document concerning the
Company or any of its subsidiaries of a character required to be described
in the Registration Statement and the Prospectus or to be filed as an
exhibit to the Registration Statement, which is not so described or filed.

(r) No authorization, approval, consent or license of any government,
governmental instrumentality or court, domestic or foreign (other than
under the 1933 Act, the 1939 Act, the securities or blue sky laws of the
various states and filings with various states with respect to mergers of
certain subsidiaries of the Company) is required for the valid issuance,
sale and delivery of the Securities, or for the execution, delivery or
performance of this Agreement, the Indentures, the Security Documents or
the Credit Agreement by the Company, except as disclosed in the Prospectus
and except as such as may have been (or will on the Closing Date be)
obtained and are (or will on the Closing Date be) in full force and effect
and except where the failure to obtain such authorization, approval,
consent or license would not, individually or in the aggregate, have a
material adverse effect on the condition (financial or otherwise),
earnings, operations or prospects of the Company and its subsidiaries taken
as a whole or on the value of the Collateral therein and the First Mortgage
Note Trustee's interest therein, or for the enforceability against the
Company of any of the Securities, the Indentures, the Security Documents or
the Credit Agreement.

(s) The Company and its subsidiaries each owns, possesses or has
obtained all governmental licenses, permits, certificates, consents,
orders, approvals and other authorizations necessary to own or lease, as
the case may be, and to operate its properties and to carry on its business
as presently conducted (except where the failure to have such licenses,
permits, certificates, consents, orders, approvals and other authorizations
would not, individually or in the aggregate, have a material adverse effect
on the condition (financial or otherwise), earnings, operations or
prospects of the Company and its subsidiaries taken as a whole) and, except
as disclosed in the Prospectus, neither the Company nor any of its
subsidiaries has received any notice of proceedings relating to the
revocation or modification of any such license, permit, certificate,
consent, order, approval or authorization which, in the aggregate, are
reasonably expected, individually or in the aggregate, to have a material
adverse effect on the condition (financial or otherwise), earnings,
operations or prospects of the Company and its subsidiaries taken as a
whole.

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<PAGE>

(t) The Company is not now, and after sale of the Securities to be
sold by it hereunder and application of the net proceeds from such sale as
described in the Registration Statement and the Prospectus under the
caption "Use of Proceeds" will not be, or will not be "controlled" by, an
"investment company" within the meaning of the Investment Company Act of
1940.

(u) Neither the Company nor any of the Material Subsidiaries is a
"holding company", or a "subsidiary company" of a "holding company", or an
"affiliate" of a "holding company" or of a "subsidiary company" or a
"holding company", as such terms are defined in the Public Utilities
Holding Company Act of 1935, as amended, or is a "public utility", as such
term is defined in the Federal Power Act, as amended.

(v) The Company will, on or before the Closing Date, deliver to the
Underwriters true and correct copies of the Security Documents and Related
Transaction Documents in the form and substance satisfactory to the
Underwriters. The transactions contemplated by the Related Transaction
Documents to occur on or before the Closing Date have been consummated on
or prior to such date.

(w) There shall exist at and as of the Closing Date (after giving
effect to the Related Transactions) no conditions that would constitute, or
would constitute by the expiration of any notice or cure period, a Default
or Event of Default under the Indentures or the Credit Agreement. All
conditions to borrowing on and as of the Closing Date under the revolving
credit portion of the Credit Agreement will be satisfied as of the Closing
Date.

Any certificate signed by any officer of the Company and delivered to
the Underwriters or to counsel for the Underwriters shall be deemed a
representation and warranty by the Company to the Underwriters as to the
matters covered thereby.

Section 2. PURCHASE AND SALE. Subject to the terms and conditions
and in reliance upon the representations and warranties herein set forth, the
Company agrees to sell to each Underwriter, and each Underwriter agrees,
severally and not jointly, to purchase from the Company, (i) at a purchase price
of _____% of the principal amount thereof, plus accrued interest, if any, on the
First Mortgage Notes from the Issue Date (as defined in the Indentures) to the
Closing Date, on the principal amount of First Mortgage Notes set forth opposite
such Underwriter's name in Schedule I hereto, and (ii) at a purchase price of
_____% of the principal amount thereof, plus accrued interest, if any, on the
Senior Notes from the Issue Date (as defined in the Indentures)

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<PAGE>
to the Closing Date, on the principal amount of Senior Notes set forth opposite
such Underwriter's name in Schedule II hereto.

Section 3. DELIVERY AND PAYMENT. (a) Delivery of and payment for the
Securities shall be made at 10:00 A.M., New York City time, on October 12,
1994, or such later date (not later than __________ __, 1994) as the
Underwriters shall designate, which date and time may be postponed by agreement
between the Underwriters and the Company as provided in Section 10 hereof (such
date and time of delivery and payment for the Securities being herein called the
"CLOSING DATE"). Delivery of the Securities shall be made to the Underwriters
against payment by the several Underwriters of the purchase price thereof to or
upon the order of the Company in immediately available Federal Funds by wire
transfer and payable in immediately available funds. The Company shall pay to
the Underwriters an amount equal to (a) the product of $___________ multiplied
by (b) the rate of the Federal Funds Interest Rate plus 3/8% (the "Rate")
divided by (c) 360 by wire transfer in immediately available funds. The Payment
shall be received by 3:00 p.m. on the business day immediately following the
Closing Date. The Underwriters will advise the Company of the Rate and the
amount of the Payment by 11:00 a.m. on such date. The wire instructions
regarding the Payment are The First National Bank of Chicago, Credit of Stone
Container Corporation, Account Number 08-00260.

(b) Delivery of the Securities shall be made at such location as the
Underwriters shall reasonably designate at least one business day in advance of
the Closing Date and payment for the Securities shall be made in accordance with
Subsection 3(a) above. Certificates for the Securities shall be registered in
such names and in such denominations as the Underwriters may request not less
than three full business days in advance of the Closing Date.

Section 4. OFFERINGS BY UNDERWRITERS. It is understood that the
Underwriters propose to offer the Securities for sale to the public as set forth
in the Prospectus.

Section 5. CERTAIN COVENANTS OF THE COMPANY. The Company covenants
with the Underwriters as follows:

(a) The Company will use its best efforts to cause the Registration
Statement, if not effective at the Execution Time, and any amendment
thereof, to become effective. Prior to the termination of the offering of
the Securities, the Company will not file any amendment of the Registration
Statement or supplement to the Prospectus without your prior consent.
Subject to the foregoing sentence, if the Registration Statement has become
or becomes effective pursuant to Rule 430A, or filing of the Prospectus is
otherwise required under Rule 424(b), the Company will cause the
Prospectus, properly completed, and any supplement thereto to be filed with
the Commission pursuant to the

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<PAGE>

applicable paragraph of Rule 424(b) within the time period prescribed and
will provide evidence satisfactory to the Underwriters of such timely
filing. The Company will promptly advise the Underwriters (i) when the
Registration Statement, if not effective at the Execution Time, and any
amendment thereto, shall have become effective, (ii) when the Prospectus,
and any supplement thereto, shall have been filed (if required) with the
Commission pursuant to Rule 424(b), (iii) when, prior to termination of the
offering of the Securities, any amendment to the Registration Statement
shall have been filed or become effective, (iv) of any request by the
Commission for any amendment of the Registration Statement or supplement to
the Prospectus or for any additional information, (v) of the issuance by
the Commission of any stop order suspending the effectiveness of the
Registration Statement or the institution or threatening of any proceeding
for that purpose and (vi) of the receipt by the Company of any notification
with respect to the suspension of the qualification of the Securities for
sale in any jurisdiction or the initiation or threatening of any proceeding
for such purpose. The Company will use its best efforts to prevent the
issuance of any such stop order and, if issued, to obtain as soon as
possible the withdrawal thereof.

(b) Within the time during which a prospectus relating to the
Securities is required to be delivered under the 1933 Act, the Company
shall comply with all requirements imposed upon it by the 1933 Act and the
rules thereunder so far as is necessary to permit the continuance of sales
of or dealings in the Securities as contemplated by the provisions hereof
and by the Prospectus. If, during such period, any event occurs as a
result of which the Prospectus as then supplemented would include any
untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein in the light of the circumstances
under which they were made not misleading, or if it shall be necessary to
amend the Registration Statement or supplement the Prospectus to comply
with the 1933 Act or the rules thereunder, the Company promptly will
prepare and file with the Commission, subject to the second sentence of
paragraph (a) of this Section 5, an amendment or supplement which will
correct such statement or omission or effect such compliance.

(c) As soon as practicable, the Company will make generally available
to its security holders and to the Underwriters an earnings statement or
statements of the Company and its subsidiaries which will satisfy the
provisions of Section 11(a) of the 1933 Act and Rule 158 under the 1933
Act.

(d) The Company will furnish to the Underwriters and counsel for the
Underwriters, without charge, signed copies

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<PAGE>

of the Registration Statement (including exhibits thereto) and, so long as
delivery of a prospectus by the Underwriters or a dealer may be required by
the 1933 Act, as many copies of each Preliminary Prospectus and the
Prospectus and any supplement thereto as the Underwriters may reasonably
request. The Company will pay the expenses of printing or other production
of all documents relating to the offering.

(e) The Company will arrange for the qualification of the Securities
for sale under the laws of such jurisdictions as the Underwriters may
designate, will maintain such qualifications in effect so long as required
for the distribution of the Securities (PROVIDED, HOWEVER, that the Company
shall not be obligated to file any general consent to service of process or
to qualify as a foreign corporation or as a dealer in securities in any
jurisdiction in which it is not so qualified or to subject itself to
taxation in respect of doing business in any jurisdiction in which it is
not otherwise so subject), will arrange for the determination of the
legality of the Securities for purchase by institutional investors and will
pay the fee of the National Association of Securities Dealers, Inc. (the
"NASD") in connection with its review of the offering.

(f) Between the date of this Agreement and termination of trading
restrictions on the Securities or the expiration of thirty days from the
Closing Date, whichever is later, the Company will not offer, sell,
contract to sell or otherwise dispose of, directly or indirectly, or
announce the offering of, any debt securities issued or guaranteed by the
Company (other than the Securities, industrial revenue bonds and in
connection with the refinancing of existing receivables programs, as
disclosed in the Prospectus).

(g) The Company will use the net proceeds received by it from the
sale of the Securities in the manner specified in the Prospectus under the
caption "Use of Proceeds."

(h) For a period of two years after the Closing Date, the Company
will furnish to the Underwriters (A) copies of all annual reports,
quarterly reports and current reports filed with the Commission on Forms
10-K, 10-Q and 8-K, or such other similar forms as may be designated by the
Commission; and (B) such other documents, reports and information as shall
be furnished by the Company to its stockholders generally.

(i) The Company confirms as of the date hereof that it is in
compliance with all provisions of Section 1 of Laws of Florida, Chapter 92-
198, AN ACT RELATING TO DISCLOSURE OF DOING BUSINESS WITH CUBA, and the
Company further agrees that if it commences engaging in business with the
government of Cuba or with any person or affiliate located in Cuba after
the date the Registration Statement becomes or

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<PAGE>

has become effective with the Commission or with the Florida Department of
Banking and Finance (the "DEPARTMENT"), whichever date is later, or if the
information reported in the Prospectus, if any, concerning the Company's
business with Cuba or with any person or affiliate located in Cuba changes
in any material way, the Company will provide the Department notice of such
businesses or change, as appropriate, in a form acceptable to the
Department.

Section 6. PAYMENT OF EXPENSES. Whether or not the transactions
contemplated by this Agreement are consummated or this Agreement is terminated,
the Company will pay and bear all costs and expenses incident to the performance
of its obligations under this Agreement, including without limitation (a) the
preparation, printing and filing of the Registration Statement (including
financial statements and exhibits), as originally filed and as amended, the
Preliminary Prospectus and the Prospectus and any amendments or supplements
thereto, and the cost of furnishing copies thereof to the Underwriters, (b) the
printing and distribution of the Indentures, the Securities and the Security
Documents, (c) the issuance and delivery of the Securities to the Underwriters,
(d) the fees and the disbursements of the Company's counsel and accountants, (e)
the qualification of the Securities under the applicable securities laws in
accordance with Section 5(e), including filing fees and reasonable fees and
disbursements of counsel for the Underwriters in connection therewith and in
connection with the preparation, printing and mailing of the Blue Sky Survey and
the Legal Investment Survey, if any, (f) any filing for review of the offering
with the NASD, including any filing fees in connection therewith and the fees
and disbursements of counsel for the Underwriters in connection therewith, (g)
the rating of the Securities by one or more rating agencies, (h) the listing of
the Securities on the New York Stock Exchange, (i) the fees and expenses of the
Trustees, including the fees and disbursements of counsel for the Trustees in
connection with the Indentures, the Securities and the Security Documents, (j)
the actual costs and expenses of creating and perfecting security interests in
the Mortgaged Property in favor of the First Mortgage Note Trustee, as the
secured party for the Holders, pursuant to the Security Documents, including but
not limited to filing and recording fees and expenses, fees and expenses of
local counsel for the Company, and fees and expenses of the First Mortgage Note
Trustee, (k) all costs, premiums and expenses incurred in connection with the
purchase of title insurance policies or commitments in respect of the Mortgaged
Property, insuring the Liens of the Mortgage for the benefit of the First
Mortgage Note Trustee, as secured party for Holders of First Mortgage Notes, and
(l) all costs and expenses incurred in connection with the survey and appraisal
prepared in respect of each Mortgaged Property.

Section 7. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations
of the Underwriters to purchase and pay for Securities pursuant to this
Agreement are subject to the accuracy

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<PAGE>

of the representations and warranties of the Company contained herein and in
certificates of any officer of the Company or any subsidiary delivered pursuant
to the provisions hereof, to the performance by the Company of all of its
covenants and other obligations hereunder, and to the following further
conditions:

(a) If the Registration Statement has not become effective prior to
the Execution Time, unless the Underwriters agree in writing to a later
time, the Registration Statement will become effective not later than
(i) 6:00 PM New York City time on the date of determination of the public
offering price, if such determination occurred at or prior to 3:00 PM New
York City time on such date or (ii) 12:00 Noon on the business day
following the day on which the public offering price was determined, if
such determination occurred after 3:00 PM New York City time on such date;
if filing of the Prospectus, or any supplement thereto, is required
pursuant to Rule 424(b), the Prospectus, and any such supplement, will be
filed in the manner and within the time period required by Rule 424(b); no
stop order suspending the effectiveness of the Registration Statement shall
have been issued and no proceedings for that purpose shall have been
instituted or threatened.

(b) The Company shall have furnished to the Underwriters the opinion
of Leslie T. Lederer, Esq., in his capacity as counsel to the Company,
dated the Closing Date, addressed to the Underwriters, in form and
substance reasonably satisfactory to counsel for the Underwriters, to the
effect that:

(i) Each of the Company and the Material Subsidiaries (other than
Stone Canada and Stone-Consolidated) is duly incorporated, validly existing
and in good standing under the laws of its respective jurisdiction of
incorporation. Each of Stone Canada and Stone-Consolidated is a
corporation validly existing and subsisting under the laws of Canada. Each
of the Company and the Material Subsidiaries (other than Stone Canada and
Stone-Consolidated, for which such opinion is not relevant) is duly
qualified and in good standing as a foreign corporation in each
jurisdiction in which the character or location of its properties (owned,
leased or licensed) or the nature or conduct of its business makes such
qualification necessary, except for those failures to be so qualified or in
good standing which will not, individually or in the aggregate, have a
material adverse effect on the Company and its subsidiaries taken as a
whole. Each of the Company and the Material Subsidiaries has all requisite
corporate power and authority to (A) own, lease and license its respective
properties and the business in which it is engaged and as described in the
Registration Statement and the Prospectus, and, as applicable, to (B)
execute, deliver and perform its obligations under the

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<PAGE>

Related Transaction Documents. All of the issued and outstanding shares of
capital stock of each Material Subsidiary have been duly authorized and
validly issued and are fully paid and nonassessable and free of preemptive
rights and are owned directly or indirectly by the Company (except for
directors' qualifying shares and other than Seminole, Stone Consolidated
and Stone Savannah), free and clear of any pledge, Liens, encumbrance,
claim, security interest, restriction on transfer (except in the case of
Stone Canada for the restrictions on transfers of its capital stock as set
forth in its Articles of Amalgamation, as amended), stockholders'
agreement, voting trust or other defect of title whatsoever. The Company
owns approximately 75% of the issued and outstanding common shares of
Stone-Consolidated; approximately 99% of the issued and outstanding shares
of common stock and 100% of the issued and outstanding shares of Series A
Cumulative 8% Preferred Stock of Seminole Kraft Corporation, and
approximately 93% of the issued and outstanding shares of common stock,
approximately 33% of the issued and outstanding shares of Series A
Cumulative Redeemable Exchangeable Preferred Stock and 100% of the issued
and outstanding shares of Series B Cumulative Preferred Stock of Stone
Savannah. On the Closing Date, 100% of the issued and outstanding shares
of common stock of Stone Savannah (or any successor corporations thereof)
will be owned by the Company. The Company's authorized equity
capitalization is as set forth in the Registration Statement and in the
Prospectus.

(ii) The Indentures have been duly and validly authorized, and are
qualified under and comply in all material respects with the 1939 Act, have
been duly executed and delivered by the Company and, upon execution and
delivery by the Trustees, will constitute valid and binding instruments of
the Company, enforceable against the Company in accordance with their terms
(except to the extent enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws of
general applicability relating to or affecting the enforcement of
creditors' rights and by the effect of general principles of equity
(regardless of whether enforceability is considered in a proceeding in
equity or at law). No taxes are required to be paid with respect to the
execution and delivery of the Indentures by the Company and the issuance of
the Securities, except for mortgage, mortgage recording, intangibles and
similar taxes as contemplated by local counsel opinions delivered pursuant
to Section 7(d) below. The Securities to be delivered on the Closing Date
have been duly and validly authorized, executed and authenticated and,
when delivered against payment therefor in accordance with this Agreement,
will constitute valid and binding obligations of the Company, enforceable
against the Company in accordance with their terms (except to the extent
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other

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<PAGE>

similar laws of general applicability relating to or affecting the
enforcement of creditors' rights and by the effect of general principles of
equity (regardless of whether enforceability is considered in a proceeding
in equity or at law); the certificates for the Securities are in valid and
sufficient form; no holders of outstanding securities of the Company are
entitled to register such securities under the Registration Statement.
The Indentures and the Securities conform in all material respects to the
descriptions thereof contained in the Registration Statement and in the
Prospectus.

(iii) The Securities are duly authorized for listing on the New York
Stock Exchange, subject only to official notice of issuance.

(iv) The Security Documents and the mortgaging of and granting of
security interests in respect of the Mortgaged Property have been duly and
validly authorized by the Company, and the Security Documents have been
duly executed and delivered by the Company and will constitute valid and
binding instruments of the Company, enforceable against the Company in
accordance with their terms (except to the extent enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other similar laws of general applicability relating to or affecting
the enforcement of creditors' rights and by the effect of general
principles of equity (regardless of whether enforceability is considered
in a proceeding in equity or at law). No taxes are required to be paid
with respect to the mortgaging of and granting of security interests of
the Mortgaged Property or the execution and delivery of the Security
Documents by the Company, except for mortgage, mortgage recording,
intangibles and similar taxes as contemplated by local counsel opinion
delivered pursuant to subsection 7(d) below.

(v) This Agreement has been duly and validly authorized, executed and
delivered by the Company.

(vi) To such counsel's knowledge, there is no litigation or
governmental or other action, suit, proceeding or investigation before any
court or before or by any public, regulatory or governmental agency or body
pending or threatened against, or involving the properties or business of
the Company or any of its subsidiaries which is of a character required to
be disclosed in the Registration Statement or in the Prospectus which has
not been properly disclosed therein; and to such counsel's knowledge, there
is no contract or document concerning the Company or any of its
subsidiaries of a character required to be described in the Registration
Statement and in the Prospectus or to be filed as an exhibit to the
Registration Statement, which is not so described or filed.

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<PAGE>

(vii) (A) The execution, delivery and performance by the Company of this
Agreement, the Indentures, the Securities, the Security Documents, and the
consummation by the Company of the transactions contemplated hereby and
thereby, including, without limitation, the issuance, sale and delivery of
the Securities, and (B) the execution, delivery and performance by the
Company, Stone Savannah, Stone Connecticut Paper Board and Stone Mill
Operating Corporation of each Related Transaction Document to which
it is a party and the consummation by them of the Related Transactions, do
not and will not (X) conflict with or result in a breach of any of the
terms and provisions of, or constitute a default (or an event which with
notice or lapse of time, or both, would constitute a default) or require
consent under, or result in the creation or imposition of any Liens, charge
or encumbrance (other than the Liens created by the Security Documents, and
the Credit Agreement and security agreements and mortgages relating
thereto) upon any property or assets of the Company or any of its
subsidiaries pursuant to the terms of any agreement, instrument, franchise,
license or permit known to such counsel to which the Company or any of its
subsidiaries is a party or by which any of such corporations or their
respective properties or assets may be bound or (Y) violate or conflict
with any provision of the certificate of incorporation, by-laws or
equivalent instruments of the Company or any of its subsidiaries, or, to
the best knowledge of such counsel, any judgment, decree, order, statute,
rule or regulation of any court or any public, governmental or regulatory
agency or body having jurisdiction over the Company or any of its
subsidiaries or any of their respective properties or assets. To such
counsel's knowledge, no consent, approval, authorization, order,
registration, filing, qualification, license or permit of or with any court
or any public, governmental, or regulatory agency or body having
jurisdiction over the Company or any of its subsidiaries or any of their
respective properties or assets is required for (i) the valid issuance,
sale and delivery of the Securities, or for (ii) the execution, delivery
and performance of this Agreement, the Indentures, the Securities or the
Security Documents, and the consummation of the transactions contemplated
hereby and thereby, or for (iii) the execution, delivery and performance of
the Related Transaction Documents by the Company, Stone Savannah, Stone
Connecticut Paper Board and Stone Mill Operating Corporation or for
the consummation of the Related Transactions, or for (iv) the
enforceability against the Company of this Agreement, the Indentures, the
Securities or the Security Documents, except for (1) such as may be
required under state and foreign securities or Blue Sky laws in connection
with the purchase and distribution of the Securities by the Underwriters
(as to which such counsel need express no opinion), (2) such as have been
made with the New York Stock Exchange, (3) the qualification of the
Indentures under the 1939 Act, which qualification has been obtained,
(4) such as have been made or obtained under the 1933 Act, and (5) filings
with various

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<PAGE>

states with respect to mergers of subsidiaries of the Company.

(viii) The Registration Statement, at the time it became effective, and
the Prospectus and any amendments thereof or supplements thereto (other
than the financial statements, financial and statistical data and
supporting schedules included therein, each Form T-1 and the exhibits to
the Registration Statement, as to which such counsel need express no
opinion) comply as to form in all material respects with the requirements
of the 1933 Act, the 1939 Act and the respective rules thereunder.

(ix) The Registration Statement is effective under the 1933 Act; and,
to such counsel's knowledge, no stop order suspending the effectiveness of
the Registration Statement or any post-effective amendment thereto has been
issued and no proceedings for such purpose have been instituted or
threatened by the Commission.

(x) Neither the Company nor any of the Material Subsidiaries is in
violation of its respective charter or its respective by-laws and, to the
knowledge of such counsel, neither the Company nor any of the Material
Subsidiaries is in default (nor has an event occurred which with notice,
lapse of time or both would constitute a default) in the performance of any
obligation, agreement or condition contained in any loan agreement of the
Company or any such Material Subsidiary where such default would reasonably
be expected to have a material adverse effect on the Company and its
subsidiaries taken as a whole.

(xi) The Company is not now, and after sale of the Securities to be
sold by it hereunder and application of the net proceeds from such sale as
described in the Registration Statement and the Prospectus under the
caption "Use of Proceeds" will not be, an "investment company" within the
meaning of the Investment Company Act of 1940.

(xii) Neither the Company nor any of the Material Subsidiaries is a
"holding company", or a "subsidiary company" of a "holding company", or an
"affiliate" of a "holding company" or of a "subsidiary company" or a
"holding company", as such terms are defined in the Public Utilities
Holding Company Act of 1935, as amended, or is a "public utility", as such
term is defined in the Federal Power Act, as amended.

(xiii) The execution, delivery and performance by each of the Company,
Stone Savannah, Stone Connecticut Paper Board and Stone Mill Operating
Corporation of each Related Transaction Document to which it is a party,
and the consummation by them of the Related Transactions, have been duly
authorized by all necessary corporate action of the Company, Stone
Savannah, Stone Connecticut Paper Board and Stone Mill Operating
Corporation, as the case may be, and each Related Transaction Document to
which the Company, Stone Savannah, Stone Connecticut Paper Board or Stone
Mill Operating Corporation is a party

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<PAGE>

has been duly executed and delivered by such party. The Credit Agreement
conforms in all material respects to the description thereof contained in
the Registration Statement and the Prospectus.

In addition, such counsel shall state that he has participated in
conferences with officers and other representatives of the Company,
representatives of the independent certified public accountants of the
Company and representatives of the Underwriters at which the contents of
the Registration Statement, the Prospectus and any amendment thereof or
supplement thereto and related matters were discussed and, although such
counsel has not undertaken to investigate or verify independently, and does
not assume any responsibility for, the accuracy, completeness or fairness
of the statements contained in the Registration Statement or the Prospectus
or any amendment thereof or supplement thereto (except as to matters
referred to in the last sentence of clause (ii) above), on the basis of the
foregoing (relying to the extent appropriate in the exercise of such
counsel's professional responsibility), such counsel has no reason to
believe that either the Registration Statement (other than financial
statements, financial data, statistical data included in statistical tables
and supporting schedules included therein, as to which such counsel need
express no belief) at the time it became effective (or any amendment
thereof made prior to Closing Date as of the date of such amendment)
contained an untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading or that the Prospectus (other than
financial statements, financial data, statistical data included in
statistical tables and supporting schedules included therein, as to which
such counsel need express no belief) as of the date thereof and the date
hereof or of the opinion (or any amendment thereof or supplement thereto
made prior to Closing Date as of the date of such amendment or supplement
and as of the date of such opinion) contained an untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading (it being
understood that such counsel need express no belief or opinion with respect
to the financial statements and schedules and other financial and
statistical data included therein, each applicable Form T-1 and the
exhibits to the Registration Statement).

In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws other than the laws of the United States and
jurisdictions in which such counsel is admitted, to the extent such counsel
deems proper and to the extent specified in such opinion, if at all, upon an
opinion or

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<PAGE>

opinions (in form and substance reasonably satisfactory to counsel for the
Underwriters) of other counsel reasonably acceptable to counsel for the
Underwriters familiar with the applicable laws; and (B) as to matters of fact,
to the extent such counsel deems proper, on certificates of responsible officers
and other representatives of the Company, certificates of public officials, and
certificates or other written statements of officers of departments of various
jurisdictions having custody of documents respecting the corporate existence or
good standing of the Company and its subsidiaries, provided that copies of any
such opinions, statements or certificates shall be delivered to counsel for the
Underwriters.

(c) On the Closing Date, the Underwriters shall have received the
opinion of Sidley & Austin, special counsel for the Company, dated the Closing
Date, addressed to the Underwriters, and in form and substance reasonably
satisfactory to counsel for the Underwriters (i) to the effect set forth in
clauses (ii), (iii), (iv), (v), (vi) (other than the last clause thereof),
(vii) (but only as to the first sentence thereof), (viii), (ix), (xi), (xii)
and (xiii) of Section 7(b) hereof, and (ii) as to certain matters relating to
the First Mortgage Note Trustee's interest in the Cash Collateral Account.
The Underwriters shall also have received a statement from such counsel
substantially to the effect of the penultimate paragraph of Section 7(b) hereof.
In rendering such opinion, such counsel may state that their opinion is
limited to matters of Federal, Delaware corporate, Illinois and New York State
laws and such counsel may rely as to matters of fact, to the extent they deem
proper, on certificates of responsible officers of the Company or upon
certificates of public officials, provided that copies of any such certificates
shall be delivered to counsel for the Underwriters.

(d) On the Closing Date, the Underwriters shall have received
opinions from local counsel acceptable to the Underwriters in each jurisdiction
in which Mortgaged Property is located, acceptable to the Underwriters and their
counsel, dated as of the Closing Date, addressed to the Underwriters and the
First Mortgage Note Trustee, and covering the matters specified in Exhibit A
hereto and such other matters relating to the Mortgages, the other Security
Documents and the Mortgaged Property, as the Underwriters may reasonably
request, all in form and substance reasonably satisfactory to counsel for the
Underwriters. In rendering such opinions, each such counsel may state that its
opinion is limited to matters of the law of the jurisdiction in which the
Mortgaged Property is located and to matters of federal law, and such counsel
may rely as to matters of fact, to the extent they deem proper, on certificates
of responsible officers of the Company or upon certificates of public officials,
provided that copies of any such certificates shall be delivered to counsel for
the Underwriters.

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<PAGE>

(e) (i) The Company shall have furnished to the Underwriters a
certificate of the Company, signed by the Chairman of the Board or the President
and the principal financial or accounting officer of the Company, dated the
Closing Date, to the effect that the signers of such certificate have carefully
examined the Registration Statement, the Prospectus, any supplement to the
Prospectus and this Agreement and that:

(i) the representations and warranties of the Company in this
Agreement are true and correct in all material respects, and the Company is
in compliance with the covenants in this Agreement, and the Company has
satisfied all the conditions on its part to be satisfied at or prior to the
Closing Date;

(ii) no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that purpose
have been instituted or, to the Company's knowledge, threatened;

(iii) since the date of the most recent financial statements
included in the Prospectus (exclusive of any supplement thereto), there has
been no material adverse change in the condition (financial or other),
earnings, business or properties of the Company and its subsidiaries
(giving effect to the Related Transactions), whether or not arising from
transactions in the ordinary course of business, except as set forth in or
contemplated in the Prospectus (exclusive of any supplement thereto), and
neither the Company nor any of its subsidiaries has incurred or undertaken
any liabilities or obligations, direct or contingent, which are material to
the Company and its subsidiaries taken as a whole, except for liabilities
or obligations which were incurred or undertaken in the ordinary course of
business or which are disclosed in the Registration Statement and
Prospectus;

(iv) the Related Transactions have been consummated on or prior
to the Closing Date; and

(v) no event has occurred that would materially and adversely
affect the fair market value of the Mortgaged Property and that certain
other matters relating to the Mortgaged Property are correct.

(f) At the Execution Time and on the Closing Date, the Underwriters
shall have received a letter or letters from Price Waterhouse, LLP, independent
accountants for the Company, dated as of this Agreement and as of the Closing
Date, as the case may be, addressed to the Board of Directors of the Company and
the Underwriters and in form and substance satisfactory to the Underwriters, to
the effect that:

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<PAGE>

(i) they are independent accountants with respect to the Company
within the meaning of the 1933 Act and the applicable rules and regulations
thereunder;

(ii) in their opinion, the audited consolidated financial statements
included in the Registration Statement and the Prospectus and reported on by
them comply as to form in all material respects with the applicable accounting
requirements of the 1933 Act and the applicable published rules and regulations
of the Commission thereunder;

(iii) on the basis of procedures (but not an audit in accordance
with generally accepted auditing standards) extending to the date not more than
five days prior to the date of such letter consisting of a reading of the
minutes of the meetings of the board of directors of the Company and the audit
committee of such board subsequent to December 31, 1993, inquiries of officers
and other employees of the Company who have responsibility for financial and
accounting matters of the Company and its subsidiaries with respect to
transactions and events subsequent to December 31, 1993, and reading the
unaudited condensed consolidated interim financial statements of the Company
included in the Registration Statement and the Prospectus, nothing came to
their attention which caused them to believe that:

(A) any unaudited condensed consolidated interim financial
statements of the Company included in the Registration Statement and
in the Prospectus do not comply as to form in all material respects
with applicable accounting requirements of the 1933 Act and with the
applicable rules and regulations of the Commission thereunder or that
any material modifications should be made to such unaudited condensed
consolidated financial statements for them to be in conformity with
generally accepted accounting principles;

(B) with respect to the period subsequent to June 30, 1994, there
were, as of a specified date not more than five business days prior to
the date of the letter, any change greater than $ __ million in the
long term debt of the Company and its consolidated subsidiaries
(excluding Seminole) and total debt of the Company, or any change in
the Adjusted Capital Stock (defined as the sum of the outstanding
common stock and Series E Cumulative Convertible Exchangeable
Preferred Stock) of the Company, in each case as compared with the
amounts shown in the June 30, 1994 unaudited condensed consolidated
interim balance sheet of the Company, included in the Registration
Statement and in the Prospectus, except for changes or decreases
which the Prospectus discloses have occurred or may occur, and except
as indicated in their letter or letters;

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<PAGE>

(C) for the period from July 1, 1994, to the date of the most
recently available unaudited condensed consolidated financial data of
the Company and its subsidiaries, if any, there was any decrease, as
compared with the corresponding period in the prior fiscal year, in
consolidated net sales, or any increase in total or per share net loss
of the Company and its subsidiaries, except in all instances for any
decrease and increase which the Prospectus discloses have occurred or
may occur, and except as indicated in their letter or letters; and

(D) with respect to the unaudited pro forma condensed balance
sheet as of June 30, 1994, and the unaudited pro forma condensed
consolidated statements of operations for the year ended December 31,
1993, and for the six months ended June 30, 1994 (the "pro forma
financial statements") contained in the Registration Statement and the
Prospectus, the pro forma financial statements do not comply in form
in all material respects with the applicable accounting requirements
of Rule 11-02 of Regulation S-X or that the pro forma adjustments to
the historical amounts in such pro forma financial statements have not
been properly applied to the historical amounts in the compilation of
such statements.

(iv) they have performed certain other specified procedures as a result of
which they determined that certain information of an accounting, financial or
statistical nature (which is limited to accounting, financial or statistical
information derived from the general accounting records of the Company and its
subsidiaries) set forth in the Registration Statement and in the Prospectus
agrees with the accounting records of the Company and its subsidiaries,
schedules prepared by the Company from its accounting records or computations in
schedules prepared by the Company from accounting records, excluding any
questions of legal interpretation.

References to the Prospectus in this paragraph (7) include any supplement
thereto at the date of the letter.

(g) Subsequent to the Execution Time or, if earlier, the dates as of
which information is given in the Registration Statement (exclusive of any
amendment thereof) and the Prospectus (exclusive of any supplement thereto),
there shall not have been (i) any change or decrease specified in the letter or
letters referred to in paragraph (f) of this Section 7 or (ii) any change, or
any development involving a prospective change, in or affecting the business or
properties of the Company and its subsidiaries the effect of which, in any case
referred to in clause (i) or (ii) above, is, in the judgment of the
Underwriters, so material and adverse as to make it impractical or inadvisable
to proceed with the public offering or the

- 27 -
<PAGE>

delivery of the Securities as contemplated by the Registration Statement
(exclusive of any amendment thereof) and the Prospectus (exclusive of any
supplement thereto).

(h) On the Closing Date the Underwriters shall have received an
opinion from counsel to each of the Trustees, dated the Closing Date,
addressed to the Underwriters and in form and substance satisfactory to
counsel for the Underwriters, to the effect that:

(i) the Trustee is a national banking association or state chartered
bank or trust company and is validly existing in good standing under the
laws of the jurisdiction in which its incorporated;

(ii) the relevant Trustee has the power and authority to enter into the
applicable Indenture and authenticate the applicable Securities as Trustee
under such Indenture;

(iii) the applicable Indenture has been duly authorized, executed and
delivered by the relevant Trustee, as Trustee under such Indenture, and
such Indenture is valid and binding on such Trustee in accordance with its
terms, except as such enforceability may be limited by bankruptcy,
insolvency, reorganization or other similar laws affecting creditors'
rights generally or by equitable principles relating to the availability
of remedies; and

(iv) the applicable Securities have been duly authenticated and
delivered by the relevant Trustee, as Trustee, under the applicable
Indenture.

(i) All proceedings taken in connection with the sale of the
Securities as herein contemplated shall be reasonably satisfactory in form and
substance to the Underwriters and counsel for the Underwriters, and the
Underwriters shall have received from counsel for the Underwriters a favorable
opinion, dated as of the Closing Date, with respect to the issuance and sale of
the Securities as the Underwriters may reasonably require, and the Company shall
have furnished to counsel for the Underwriters such documents as they reasonably
request for the purpose of enabling them to pass upon such matters.

(j) The ratings of the debt securities of the Company as of the
Closing Date shall not have been downgraded by Standard & Poor's Corporation or
by Moody's Investors Service, Inc. below the publicly-announced ratings as of
the Execution Time and neither Standard & Poor's Corporation nor Moody's
Investors Service, Inc. shall have publicly announced that it has under
surveillance or review, with possible negative implications, its rating of the
senior secured or unsecured debt of the Company.

(k) At or before the Closing, the following shall have occurred or
shall occur:

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<PAGE>

(i) Each Related Transaction Document shall have been executed as
contemplated by this Agreement and the Prospectus, and Related Transactions
contemplated to occur on or before the Closing Date shall have occurred,
including, in the case of the Stone Savannah Notes, proper notice shall
have been given to the trustee thereof with respect to the redemption of
such securities on or prior to December 30, 1994;

(ii) no Default or Event of Default shall exist under either of the
Indentures or the Credit Agreement;

(iii) the Company shall have repaid all amounts outstanding under the
1989 Credit Agreement; the Company and the lenders thereunder shall have
terminated such Credit Agreement; all Liens on real property, fixtures,
equipment and other property securing indebtedness under such credit
agreement shall have been released; and the Company shall have delivered to
the Underwriters copies of documents evidencing the repayment and release
of such Liens; and

(iv) the Company shall have satisfied all conditions to borrowing
under the Credit Agreement (as evidenced by a certificate by the Agent
Bank (as defined in the Credit Agreement) thereunder addressed to the
Underwriters), the parties to the Credit Agreement shall have executed and
delivered such Credit Agreement and shall have closed all transactions
contemplated thereby, and the Company shall have delivered to the
Underwriters copies of such executed Credit Agreement.

(l) On or prior to the Closing Date, the Company shall have caused to
be delivered to the Underwriters the following documents and instruments with
regards to each Mortgaged Property;

(i) a Mortgage, duly executed and acknowledged by the Company and
otherwise in form for recording in the appropriate recording office of the
political subdivision where the related Mortgaged Property is located,
together with such certificates, affidavits, questionnaires or returns as
shall be required in connection with the recording or filing thereof, a
Security Agreement, duly executed and acknowledged by the Company and
such UCC-1 financing statements and other similar statements as are
contemplated in respect of such Mortgage and such Security Agreement by the
opinion set forth in paragraph 7(d) above, and any other instruments
necessary to grant the interests purported to be granted by such Mortgage
under the laws of the state in which the related Mortgaged Property is
located, which Mortgage, Security Agreement and financing statements and
other instruments shall be effective to create Liens on such Mortgaged
Property subject to no Liens other than Permitted Collateral Liens (as
defined in the First Mortgage Note Indenture);

- 29 -
<PAGE>

(ii) such consents, approvals, amendments, supplements or other
agreements as shall reasonably be deemed necessary by counsel for the
Underwriters in order for the Company to grant the Liens contemplated by
the Mortgage;

(iii) a policy of title insurance (or a commitment to issue such a
policy) insuring (or committing to insure) the Liens of such Mortgage as a
valid first mortgage Lien on the real property and fixtures described
therein in respect of the First Mortgage Notes in an amount not less than
110% of the appraised value, estimated by American Appraisal Associates
as of September 1, 1994, which policy (or commitment) shall (a) be issued
by one title company acceptable to the Underwriters, (b) include such
reinsurance arrangements (with provisions for direct access) as shall be
acceptable to the Underwriters, (c) have been supplemented by such
endorsements, or, where such endorsements are not available at commercially
reasonable premium costs, opinion letters of special counsel, architects or
other professionals, which counsel, architects or other professionals shall
be acceptable to the Underwriters, as shall be requested by the
Underwriters and (d) contain only such exceptions to title as shall be
agreed to by counsel for the Underwriters prior to the Closing Date:

(iv) a survey (as prepared in respect of each Mortgaged Property);

(v) certificates of insurance for the policies of insurance required
by the First Mortgage Note Indenture, which policies or certificates shall
bear mortgagee's endorsements naming the First Mortgage Note Trustee as an
additional insured thereunder and evidencing (a) the issuance of such
policies, (b) the payment of all premiums currently due and payable and
(c) coverage which meets all the requirements set forth in the Security
Documents;

(vi) UCC, tax Liens and judgment searches confirming that the property
comprising a part of such Mortgaged Property is subject to no Liens other
than Permitted Collateral Liens;

(vii) such affidavits, certificates and instruments of indemnification
as shall reasonably be required to induce the title companies to issue the
policy or policies (or the commitment) contemplated in subparagraph (iii)
above;

(viii) a certificate of an officer of the Company certifying that, as of
the date of delivery of such certificate, there has been issued and is in
effect a valid and proper certificate of occupancy or the local equivalent,
if required by the local codes or ordinances for use then being made of the
related Mortgaged Property, and there is not outstanding any citation,
violation or similar notice

- 30 -
<PAGE>

indicating that the related Mortgaged Property contains conditions which
are not in compliance with local codes or ordinances relating to building
or fire safety or structural soundness; and

(ix) a certificate of an officer of the Company certifying that, as of
the date of delivery of such certificate, there has not occurred any
Casualty or Condemnation of the related Mortgaged Property or any portion
thereof, and that the Company has no knowledge of any facts which have not
been disclosed to American Appraisal Associates or any other party and
which, if disclosed, would adversely affect the fair market value of the
related Mortgaged Property.

(x) a current environmental assessment and engineering report
regarding the related Mortgaged Property.

(xi) certified copies of all licenses, permits and authorizations,
governmental or otherwise, necessary for the Company to own, lease and
operate the related Mortgaged Property and to conduct its business with
respect thereto as described in the Registration Statement and in the
Prospectus, and as currently conducted; and

(xii) all documents the Underwriters may reasonably request relating to
the existence of the Company, the corporate authority for and the validity
of the Mortgage, the First Mortgage Note Indenture or any other Security
Document or, relating to any Mortgaged Property, the qualification of the
Company to do business in the state where the related Mortgaged Property is
located, evidence of compliance by the Company with all zoning and other
local laws, regulations and ordinances, and any other matters relevant in
connection with any Security Document.

(m) All filing fees and taxes in connection with all recordings or
filings of the Mortgages, and such other financing statements or security
documents as may be necessary or, in the opinion of counsel for the
Underwriters, desirable to perfect the Liens created, or intended to be created,
by the Mortgages and the First Mortgage Note Indenture shall have been paid
(or arrangements for the payment thereof satisfactory to the Underwriters shall
have been made) and the Underwriters shall have received evidence satisfactory
to them of such payments or shall have received evidence satisfactory to the
Underwriters of such arrangements for payment.

(n) Prior to the Closing Date, the Company shall have furnished to
the Underwriters such further information, certificates and documents as the
Underwriters may reasonably request.

If any of the conditions specified in this Section 7 shall not have
been fulfilled when and as required by this

- 31 -
<PAGE>

Agreement, or if any of the certificates, opinions, written statements or
letters furnished to the Underwriters or to counsel for the Underwriters
pursuant to this Section 7 shall not be in all material respects reasonably
satisfactory in form and substance to the Underwriters and to counsel for the
Underwriters, all of the obligations of the Underwriters hereunder may be
canceled by the Underwriters at, or at any time prior to, the Closing Date.
Notice of such cancellation shall be given to the Company in writing, or by
telephone, facsimile, telex or telegraph, confirmed in writing.

Section 8. INDEMNIFICATION.

(a) The Company agrees to indemnify and hold harmless each
Underwriter, the directors, officers, employees and agents of each Underwriter
and each person, if any, who controls each Underwriter within the meaning of
Section 15 of the 1933 Act or Section 20(a) of the Securities Exchange Act of
1934, as amended (the "1934 ACT"), against any and all losses, liabilities,
claims, damages and expenses whatsoever (including but not limited to attorneys'
fees and any and all expenses whatsoever incurred in investigating, preparing or
defending against any litigation, commenced or threatened, or any claim
whatsoever, and any and all amounts paid in settlement of any claim or
litigation), joint or several, to which they or any of them may become subject
under the 1933 Act, the 1934 Act or otherwise, insofar as such losses,
liabilities, claims, damages or expenses (or actions in respect thereof) arise
out of or are based upon any untrue statement or alleged untrue statement of a
material fact contained in the registration statement for the registration of
the Securities as originally filed or any amendment thereof, or in any
Preliminary Prospectus or the Prospectus, or in any supplement thereto or
amendment thereof, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading; PROVIDED, HOWEVER, that
the Company will not be liable in any such case to the extent, but only to the
extent, that any such loss, liability, claim, damage or expense arises out of or
is based upon any such untrue statement or alleged untrue statement or omission
or alleged omission made therein in reliance upon and in conformity with written
information furnished to the Company by or on behalf of the Underwriters
expressly for use therein; AND PROVIDED, FURTHER, that the Company shall not be
liable to any Underwriter (or any director, officer, employee or agent of any
Underwriter or person controlling any Underwriter) under the indemnity agreement
in this Section 8(a) with respect to any preliminary prospectus or prospectus,
to the extent that any such loss, liability, claim, damage or expense of such
Underwriter (or any person controlling any Underwriter) results from the fact
such Underwriter sold Securities to a person to whom there was not sent or
given, at or prior to the written confirmation of such sale, a copy of the
Prospectus or of the Prospectus as then amended or supplemented in any case
where such delivery is

- 32 -
<PAGE>

required by the 1933 Act if the Company has previously furnished copies thereof
to such Underwriter and the loss, liability, claim, damage or expense of such
Underwriter results from an untrue statement, alleged untrue statement, omission
or alleged omission of a material fact contained in the Preliminary Prospectus
which was corrected in the Prospectus (or the Prospectus as amended or
supplemented). This indemnity agreement will be in addition to any liability
which the Company may otherwise have, including under this Agreement.

(b) Each Underwriter severally, and not jointly, agrees to indemnify
and hold harmless the Company, each of the directors of the Company, each of the
officers of the Company who shall have signed the Registration Statement, and
each other person, if any, who controls the Company within the meaning of
Section 15 of the 1933 Act or Section 20(a) of the 1934 Act, against any losses,
liabilities, claims, damages and expenses whatsoever (including but not limited
to attorneys' fees and any and all expenses whatsoever incurred in
investigating, preparing or defending against any litigation, commenced or
threatened, or any claim whatsoever and any and all amounts paid in settlement
of any claim or litigation), joint or several, to which they or any of them may
become subject under the 1933 Act, the 1934 Act or otherwise, insofar as such
losses, liabilities, claims, damages or expenses (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of a material fact contained in the registration statement for the registration
of the Securities, as originally filed or any amendment thereof, or any
Preliminary Prospectus or the Prospectus, or in any amendment thereof or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that any such loss, liability, claim, damage or
expense arises out of or is based upon any untrue statement or alleged untrue
statement or omission or alleged omission made therein in reliance upon and in
conformity with written information furnished to the Company by or on behalf of
the Underwriters expressly for use therein. This indemnity will be in addition
to any liability which any Underwriter may otherwise have, including under this
Agreement.

(c) Promptly after receipt by an indemnified party under subsection
(a) or (b) of this Section 8 of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify each party against whom
indemnification is to be sought in writing of the commencement thereof (but the
failure so to notify an indemnifying party shall not relieve it from any
liability which it may have under this Section 8 except to the extent that it
has been prejudiced in any material respect by such failure or from any
liability which it may otherwise have). In case any such action is brought
against

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<PAGE>

any indemnified party, and it notifies an indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein, and to
the extent it may elect by written notice delivered to the indemnified party
promptly after receiving the aforesaid notice from such indemnified party, to
assume the defense thereof with counsel satisfactory to such indemnified party.
Notwithstanding the foregoing, the indemnified party or parties shall have the
right to employ its or their own counsel in any such case, but the fees and
expenses of such counsel shall be at the expense of such indemnified party or
parties unless (i) the employment of such counsel shall have been authorized in
writing by one of the indemnifying parties in connection with the defense of
such action, (ii) the indemnifying parties shall not have employed counsel to
take charge of the defense of such action within a reasonable time after notice
of commencement of the action, or (iii) such indemnified party or parties shall
have reasonably concluded that there may be defenses available to it or them
which are different from or additional to those available to one or all of the
indemnifying parties (in which case the indemnifying parties shall not have the
right to direct the defense of such action on behalf of the indemnified party or
parties), in any of which events such fees and expenses shall be borne by the
indemnifying parties. The indemnifying party under subsection (a) or (b) above
shall only be liable for the legal expenses of one counsel for all indemnified
parties in each jurisdiction in which any claim or action is brought; PROVIDED,
HOWEVER, that the indemnifying party shall be liable for separate counsel for
any indemnified party in a jurisdiction if counsel to the indemnified parties
shall have reasonably concluded that there may be defenses available to such
indemnified party that are different from or additional to those available to
one or more of the other indemnified parties and that separate counsel for such
indemnified party is prudent under the circumstances. Anything in this
subsection to the contrary notwithstanding, an indemnifying party shall not be
liable for any settlement of any claim or action effected without its written
consent; PROVIDED, HOWEVER, that such consent was not unreasonably withheld. An
indemnifying party will not, without the prior written consent of the
indemnified parties, which will not be unreasonably withheld, settle or
compromise or consent to the entry of any judgment with respect to any pending
or threatened claim, action, suit or proceeding in respect of which
indemnification or contribution may be sought hereunder unless such settlement,
compromise or consent includes an unconditional release of each indemnified
party from all liability arising out of such claim, action, suit or proceeding.
Attorneys' fees and other expenses incurred by an indemnified party in
investigating, preparing or defending against any litigation, commenced or
threatened, or any claim which are reimbursable by an indemnified party to such
indemnified party pursuant to this Section 8 shall be reimbursed as incurred.

Section 9. CONTRIBUTION. In order to provide for contribution in
circumstances in which the indemnification

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<PAGE>

provided for in Section 8 hereof is for any reason held to be unavailable to or
insufficient to hold harmless an indemnified party for any reason, the Company
and the Underwriters shall contribute to the aggregate losses, claims, damages,
liabilities and expenses of the nature contemplated by such indemnification
provision (including any investigation, legal and other expenses incurred in
connection with, and any amount paid in settlement of, any action, suit or
proceeding or any claims asserted, but after deducting in the case of losses,
claims, damages, liabilities and expenses suffered by the Company, any
contribution received by the Company from persons, other than the Underwriters,
who may also be liable for contribution, including persons who control the
Company within the meaning of Section 15 of the 1933 Act or Section 20(a) of the
1934 Act, officers of the Company who signed the Registration Statement and
directors of the Company) to which the Company and one or more of the
Underwriters may be subject in such proportion as is appropriate to reflect the
relative benefits received by the Company and the Underwriters from the offering
of the Securities or, if such allocation is not permitted by applicable law or
indemnification is not available as a result of the indemnifying party not
having received notice as provided in Section 8 hereof, in such proportion as is
appropriate to reflect not only the relative benefits referred to above but also
the relative fault of the Company and the Underwriters in connection with the
statements or omissions which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable considerations.
The relative benefits received by the Company and the Underwriters shall be
deemed to be in the same proportion as (x) the total proceeds from the offering
(net of underwriting discounts and commissions but before deducting expenses)
received by the Company and (y) the underwriting discounts and commissions
received by the Underwriters, respectively, in each case as set forth in the
table on the cover page of the Prospectus. Relative fault shall be determined
by reference to whether any alleged untrue statement or omission relates to
information provided by the Company or the Underwriters. The Company and the
Underwriters agree that it would not be just and equitable if contribution
pursuant to this Section 9 were determined by pro rata allocation or by any
other method of allocation which does not take into account the equitable
considerations referred to above. Notwithstanding the provisions of this
Section 9, (i) in no case shall an Underwriter be required to contribute any
amount in excess of the amount by which the underwriting discount applicable to
the Securities purchased by such Underwriter pursuant to this Agreement exceeds
the amount of any damages which such Underwriter has otherwise been required to
pay by reason of any untrue or alleged untrue statement, omission or alleged
omission, and (ii) no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. For
purposes of this Section 9, each person, if any, who controls an Underwriter
within the meaning of Section 15 of the 1933 Act or

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<PAGE>

Section 20(a) of the 1934 Act shall have the same rights to contribution as such
Underwriter, and each person, if any, who controls the Company within the
meaning of Section 15 of the 1933 Act or Section 20(a) of the 1934 Act, each
officer of the Company who shall have signed the Registration Statement and each
director of the Company shall have the same rights to contribution as the
Company, subject in each case to clauses (i) and (ii) of this Section 9. Any
party entitled to contribution will, promptly after receipt of notice of
commencement of any action, suit or proceeding against such party in respect of
which a claim for contribution may be made against another party or parties
under this Section 9, notify such party or parties from whom contribution may be
sought, but the omission to so notify such party or parties shall not relieve
the party or parties from whom contribution may be sought from any obligation it
or they may have under this Section 9 or otherwise.

Section 10. DEFAULT BY AN UNDERWRITER.

(a) If any Underwriter or Underwriters shall default in its or their
obligation to purchase Securities hereunder, the nondefaulting Underwriter or
Underwriters may in its or their discretion arrange for itself or themselves or
for another party or parties to purchase such Securities to which such default
relates on the terms contained herein. In the event that within five (5)
calendar days after such a default the nondefaulting Underwriter does, or the
nondefaulting Underwriters do, not arrange for the purchase of the Securities to
which such default relates as provided in this Section 10, this Agreement shall
thereupon terminate, without liability on the part of the Company with respect
thereto (except in each case as provided in Sections 5, 8(a) and 9 hereof) or
the nondefaulting Underwriter or Underwriters, but nothing in this Agreement
shall relieve a defaulting Underwriter or Underwriters of its or their
liability, if any, to the other nondefaulting Underwriter or Underwriters, as
the case may be, and the Company for damages occasioned by its or their default
hereunder.

(b) In the event that the Securities are to be purchased by the
nondefaulting Underwriter or Underwriters, or are to be purchased by another
party or parties as aforesaid, the nondefaulting Underwriter or Underwriters or
the Company shall have the right to postpone the Closing Date for a period not
exceeding five (5) business days, in order to effect whatever changes may
thereby be made necessary in the Registration Statement or the Prospectus or in
any other documents and arrangements, and the Company agrees to file promptly
any amendment or supplement to the Registration Statement or the Prospectus
which, in the opinion of counsel for the Underwriters, may thereby be made
necessary or advisable. The term "Underwriter" as used in this Agreement shall
include any party substituted under this Section 10 with like effect as if it
had originally been a party to this Agreement with respect to such Securities.

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<PAGE>

Section 11. UNDERWRITERS' INFORMATION. The Company acknowledges that
the statements with respect to the public offering of the Securities set forth
on the cover page of the Prospectus and the information with respect thereto and
with respect to the Underwriters under the caption "Underwriting" in the
Prospectus constitute the only information furnished in writing by or on behalf
of the Underwriters expressly for use in the Registration Statement, any
preliminary prospectus or the Prospectus, and the Underwriters confirm that such
statements are correct.

Section 12. SURVIVAL OF REPRESENTATIONS AND AGREEMENTS. All
representations and warranties, covenants and agreements of the Underwriters and
the Company contained in this Agreement, including without limitation the
agreements contained in Sections 6 and 13(b) hereof, the indemnity agreements
contained in Section 8 hereof and the contribution agreements contained in
Section 9 hereof, shall remain operative and in full force and effect regardless
of any investigation made by or on behalf of the Underwriters or any controlling
person thereof or by or on behalf of the Company, any of its officers and
directors or any controlling person thereof, and shall survive delivery of and
payment for the Securities to and by the Underwriters. The representations
contained in Section 1 hereof and the agreements contained in Sections 6, 8, 9
and 13(b) hereof shall survive the termination of this Agreement, including
pursuant to Section 13 hereof.

Section 13. TERMINATION OF AGREEMENT.

(a) This Agreement shall be subject to termination in the absolute
discretion of the Underwriters by notice given to the Company prior to delivery
of and payment for the Securities, if prior to such time (i) in the
Underwriters' reasonable opinion, any material adverse change shall have
occurred since the respective dates as of which information is given in the
Registration Statement or the Prospectus (as supplemented or amended prior to
the occurrence of such event) in the condition (financial or otherwise) of the
Company and its subsidiaries taken as a whole, whether or not arising in the
ordinary course of business other than as set forth in the Prospectus as
supplemented or amended prior to the occurrence of such event, or (ii) the
Company shall have failed, refused or been unable to perform in any material
respect any agreement on its part to be performed hereunder, (iii) any other
condition to the obligations of the Underwriters hereunder as provided in
Section 7 is not fulfilled when and as required in any material respect, (iv)
trading in securities generally on the New York Stock Exchange, American Stock
Exchange, NASD Automated Quotation System, Chicago Mercantile Exchange, and the
Chicago Board of Trade shall have been suspended or materially limited, or
minimum prices shall have been established on such exchange by the Commission or
by such exchange or other regulatory body or governmental authority having
jurisdiction, (v) a general banking moratorium shall have

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<PAGE>

been declared by Federal or New York State authorities, (vi) there is a material
outbreak or escalation of armed hostilities involving the United States on or
after the Execution Time, or if there has been a declaration by the United
States of a national emergency or war, the effect of which shall be, in the
Underwriters' reasonable judgment, to make it inadvisable or impracticable to
proceed with the public offering or delivery of the Securities on the terms and
in the manner contemplated in the Prospectus as supplemented or amended prior to
the occurrence of such event, or (vii) there shall have been such a material
adverse change in general economic, political or financial conditions or such a
material adverse change in the conditions of the market for securities traded in
the High Yeild Market or if the effect of international conditions on the
financial markets in the United States shall be such as, in the Underwriters'
reasonable judgment, makes it inadvisable or impracticable to proceed with the
delivery of the Securities as contemplated hereby.

(b) If this Agreement shall be terminated pursuant to any of the
provisions hereof (otherwise than pursuant to Section 10 and 13(a) hereof,
except for clauses (ii) and (iii) of Section 13(a)), or if the sale of the
Securities provided for herein is not consummated because any condition to the
obligations of the Underwriters set forth herein is not satisfied or because of
any refusal, inability or failure on the part of the Company to perform any
agreement herein or comply with any provision hereof, the Company will, subject
to demand by the Underwriters, reimburse the Underwriters for all reasonable
out-of-pocket expenses (including the reasonable fees and expenses of counsel
for the Underwriters), incurred by the Underwriters in connection herewith.

Section 14. NOTICES; PARTIES.

(a) All communications hereunder will be in writing and effective
only on receipt, and, if sent to the Underwriters, will be mailed, delivered or
telecopied and confirmed to them care of Salomon Brothers Inc, at Seven World
Trade Center, New York New York, 10004 (212-______); or, if sent to the Company,
will be mailed, delivered or telegraphed and confirmed to it at 150 North
Michigan Avenue, Chicago, Illinois 60601, attention of Leslie T. Lederer, Vice
President, Secretary and Counsel (312-580-4625), with a copy to Sidley & Austin
at One First National Plaza, Chicago, Illinois 60603, attention of Richard G.
Clemens (312-853-7036).

(b) This Agreement shall inure to the benefit of and be binding upon
the Underwriters and the Company, and their respective successors. Nothing
expressed or mentioned in this Agreement is intended or shall be construed to
give any person, firm or corporation, other than the parties hereto or thereto
and their respective successors and the controlling persons and officers and
directors referred to in Sections 8 and 9 and their heirs and legal
representatives, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any

- 38 -
<PAGE>

provision herein contained. This Agreement and all conditions and provisions
thereof and hereof are intended to be for the sole benefit of the parties and
their respective successors and said controlling persons and officers and
directors and their heirs and legal representatives, and for the benefit of no
other person, firm or corporation. No purchaser of Securities from any
Underwriter shall be deemed to be a successor by reason merely of such purchase.

Section 15. GOVERNING LAW AND TIME. This Agreement shall be governed
by the laws of the State of New York. Specified times of day refer to New York
City time.

Very truly yours,

STONE CONTAINER CORPORATION

By
--------------------------
Name:
Title:

The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.

SALOMON BROTHERS INC
BT SECURITIES CORPORATION
MORGAN STANLEY & CO.
Incorporated
KIDDER, PEABODY & CO.
Incorporated
BEAR, STEARNS & CO. INC.

By SALOMON BROTHERS INC

- ------------------------------
Name:
Title:

- 39 -
<PAGE>

SCHEDULE I

PRINCIPAL AMOUNT OF FIRST
MORTGAGE NOTES DUE 2002
UNDERWRITERS TO BE PURCHASED
- ------------ ---------------
SALOMON BROTHERS INC $
BT SECURITIES CORPORATION
MORGAN STANLEY & CO.
Incorporated
KIDDER, PEABODY & CO.
Incorporated
BEAR, STEARNS & CO. INC.

Total. . . . . .$500,000,000.00
<PAGE>

SCHEDULE II

PRINCIPAL AMOUNT OF
SENIOR NOTES DUE 2004
UNDERWRITERS TO BE PURCHASED
- ------------ ---------------
SALOMON BROTHERS INC $
BT SECURITIES CORPORATION
MORGAN STANLEY & CO.
Incorporated
KIDDER, PEABODY & CO.
Incorporated
BEAR, STEARNS & CO. INC.

Total . . . . . .$200,000,000.00
<PAGE>

EXHIBIT A

[FORM OF LOCAL COUNSEL OPINIONS]
<PAGE>

EXHIBIT B

[LIST OF JURISDICTIONS IN WHICH EACH
PART OF THE MORTGAGED PROPERTY IS LOCATED]

<PAGE>
Exhibit 4(s)
DRAFT
September 27, 1994

===============================================================================

STONE CONTAINER CORPORATION,
as Issuer

NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION,
as Trustee

_________

Indenture

Dated as of October ___, 1994

____________

up to $500,000,000

__% First Mortgage Notes due 2002

- -------------------------------------------------------------------------------
<PAGE>
STONE CONTAINER CORPORATION

Reconciliation and tie between Trust Indenture Act of 1939
and Indenture, dated as of October __, 1994

Trust Indenture Indenture Section
Act Section

Section 310(a)(1) . . . . . . . . . . . . . 609
(a)(2). . . . . . . . . . . . . . . . . . 609
(a)(3). . . . . . . . . . . . . . . . . . Not Applicable
(a)(4). . . . . . . . . . . . . . . . . . Not Applicable
(a)(5). . . . . . . . . . . . . . . . . . 609
(b) . . . . . . . . . . . . . . . . . . . 608, 610
(c) . . . . . . . . . . . . . . . . . . . Not Applicable
Section 311(a). . . . . . . . . . . . . . . 613
(b) . . . . . . . . . . . . . . . . . . . 613
(b)(2). . . . . . . . . . . . . . . . . . 703(a), 703(b)
Section 312(a). . . . . . . . . . . . . . . 701, 702(a)
(b) . . . . . . . . . . . . . . . . . . . 702(b)
(c) . . . . . . . . . . . . . . . . . . . 702(c)
Section 313(a) . . . . . . . . . . . . . . 703(a)
(b) . . . . . . . . . . . . . . . . . . . 703(b)
(c) . . . . . . . . . . . . . . . . . . . 703(a), 703(b)
(d) . . . . . . . . . . . . . . . . . . . 703(b
Section 314(a)(1) . . . . . . . . . . . . . 704
(a)(2). . . . . . . . . . . . . . . . . 704
(a)(3). . . . . . . . . . . . . . . . . 704
(a)(4). . . . . . . . . . . . . . . . . 1011
(b) . . . . . . . . . . . . . . . . . . 1302
(c)(1). . . . . . . . . . . . . . . . . . 102
(c)(2). . . . . . . . . . . . . . . . . . 102
(c)(3). . . . . . . . . . . . . . . . . . Not Applicable
(d) . . . . . . . . . . . . . . . . . . . 1009, 1015,
. . . . . . . . . . . . . . . . . . . 1305(b), 1610
(e) . . . . . . . . . . . . . . . . . . . 102
(f) . . . . . . . . . . . . . . . . . . . Not Applicable
Section 315(a). . . . . . . . . . . . . . . 601(a)
(b) . . . . . . . . . . . . . . . . . . . 602, 703(a)
(c) . . . . . . . . . . . . . . . . . . . 601(b)
(d) . . . . . . . . . . . . . . . . . . . 601(c)
(d)(1). . . . . . . . . . . . . . . . . . 601(a), 601(c)
(d)(2). . . . . . . . . . . . . . . . . . 601(c)
(d)(3). . . . . . . . . . . . . . . . . . 601(c)
(e) . . . . . . . . . . . . . . . . . . . 514
Section 316(a). . . . . . . . . . . . . . 101
(a)(1)(A) . . . . . . . . . . . . . . . . 512
(a)(1)(B) . . . . . . . . . . . . . . . . 502, 513
(a)(2). . . . . . . . . . . . . . . . . . Not Applicable
(b) . . . . . . . . . . . . . . . . . . . 508
____________________

NOTE: This reconciliation and tie shall not, for any purpose, be deemed to be a
part of this Indenture.
<PAGE>
Section 317(a)(1) . . . . . . . . . . . . . 503
(a)(2). . . . . . . . . . . . . . . . . . 504
(b) . . . . . . . . . . . . . . . . . . . 1003
(c) . . . . . . . . . . . . . . . . . . . 104(c)
Section 318(a). . . . . . . . . . . . . . . 107

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

NOTE: This reconciliation and tie shall not, for any purpose, be deemed to be a
part of this Indenture.

<PAGE>
TABLE OF CONTENTS

______________

Page

Parties. . . . . . . . . . . . . . . . . . . . . . . .
Recitals of the Company. . . . . . . . . . . . . . . .

ARTICLE ONE
Definitions and Other Provisions of General Application

Section 101. Definitions:

1991 Indenture . . . . . . . . . . . . .
Acquiring Person . . . . . . . . . . . .
Act. . . . . . . . . . . . . . . . . . .
Affiliate. . . . . . . . . . . . . . . .
Asset Disposition. . . . . . . . . . . .
Asset Disposition Offer. . . . . . . . .
Asset Disposition Offer Amount . . . . .
Asset Disposition Payment Date . . . . .
Authenticating Agent . . . . . . . . . .
Authority. . . . . . . . . . . . . . . .
Bankruptcy Law . . . . . . . . . . . . .
Board of Directors . . . . . . . . . . .
Board Resolution . . . . . . . . . . . .
Business Day . . . . . . . . . . . . . .
Capital Stock. . . . . . . . . . . . . .
Capitalized Lease Obligation . . . . . .
Cash Collateral Account. . . . . . . . .
Cash Equivalents . . . . . . . . . . . .
Castlewood Agreement . . . . . . . . . .
Casualty . . . . . . . . . . . . . . . .
Change of Control. . . . . . . . . . . .
Change of Control Date; Change of
Control Offer; Change of Control
Payment Date . . . . . . . . . . . . .
Collateral . . . . . . . . . . . . . . .
Collateral Asset Disposition . . . . . .
Collateral Loss Event. . . . . . . . . .
Collateral Properties. . . . . . . . . .
Commission . . . . . . . . . . . . . . .
Commodities Agreement. . . . . . . . . .
Company. . . . . . . . . . . . . . . . .

____________________

NOTE: This table of contents shall not, for any purpose, be deemed to be a part
of this Indenture.
Company Request; Company Order . . . . .
Condemnation . . . . . . . . . . . . . .

i
<PAGE>
Page

Condemnation Proceeds. . . . . . . . . .
Consolidated Amortization Expense. . . .
Consolidated Cash Flow Available for
Fixed Charges. . . . . . . . . . . . .
Consolidated Depreciation Expense. . . .
Consolidated Free Cash Flow. . . . . . .
Consolidated Income Tax Expense. . . . .
Consolidated Interest Coverage Ratio . .
Consolidated Interest Expense. . . . . .
Consolidated Net Income. . . . . . . . .
Consolidated Net Worth . . . . . . . . .
Contaminant. . . . . . . . . . . . . . .
Continental Guaranty . . . . . . . . . .
Continuing Director. . . . . . . . . . .
Corporate Trust Office . . . . . . . . .
corporation. . . . . . . . . . . . . . .
covenant defeasance. . . . . . . . . . .
Credit Agreements. . . . . . . . . . . .
Currency Agreement . . . . . . . . . . .
Custodian. . . . . . . . . . . . . . . .
Default. . . . . . . . . . . . . . . . .
Defaulted Interest . . . . . . . . . . .
defeasance . . . . . . . . . . . . . . .
Deficiency Amount. . . . . . . . . . . .
Deficiency Date. . . . . . . . . . . . .
Deficiency Offer . . . . . . . . . . . .
Deficiency Offer Amount. . . . . . . . .
Deficiency Payment Date. . . . . . . . .
dollars; $ . . . . . . . . . . . . . . .
Environment. . . . . . . . . . . . . . .
Environmental Laws . . . . . . . . . . .
Event of Default . . . . . . . . . . . .
Excess Proceeds. . . . . . . . . . . . .
Exchange Act . . . . . . . . . . . . . .
First Mortgage Notes . . . . . . . . . .
First Mortgage Note Offer. . . . . . . .
First Mortgage Note Offer Price. . . . .
First Mortgage Note Payment Date . . . .
Five Year Treasury Rate. . . . . . . . .
GAAP . . . . . . . . . . . . . . . . . .
Holder; Securityholder . . . . . . . . .
Improvements . . . . . . . . . . . . . .
Indebetnedness . . . . . . . . . . . . .
Indenture. . . . . . . . . . . . . . . .
Independent Appraiser. . . . . . . . . .
Independent Director . . . . . . . . . .
Independent Financial Adviser. . . . . .
Initial Interest Rate. . . . . . . . . .
Insurance Proceeds . . . . . . . . . . .
Interest Payment Date. . . . . . . . . .

ii
<PAGE>
Page

Interest Swap Obligations. . . . . . . .
Issue Date . . . . . . . . . . . . . . .
Land . . . . . . . . . . . . . . . . . .
Legal Requirements . . . . . . . . . . .
Lien . . . . . . . . . . . . . . . . . .
Maturity . . . . . . . . . . . . . . . .
Minimum Subordinated Capital Base. . . .
Net Proceeds . . . . . . . . . . . . . .
New Credit Agreement . . . . . . . . . .
Non-Cash Consideration . . . . . . . . .
Officer. . . . . . . . . . . . . . . . .
Officer's Certificate. . . . . . . . . .
Opinion of Counsel . . . . . . . . . . .
Ordinary Course of Business Liens. . . .
Outstanding. . . . . . . . . . . . . . .
Partial Collateral Loss Event. . . . . .
Paying Agent . . . . . . . . . . . . . .
Permitted Collateral Liens . . . . . . .
Permitted Existing Indebtedness of an
Acquired Person. . . . . . . . . . . .
Permitted Indebtedness . . . . . . . . .
Permitted Liens. . . . . . . . . . . . .
Permitted Refinancing Indebtedness . . .
Permitted Stone Canada
Indebtedness . . . . . . . . . . . . .
Permitted Subordinated Indebtedness. . .
Permits . . . . . . . . . . . . . . . .
Person . . . . . . . . . . . . . . . . .
Place of Payment . . . . . . . . . . . .
Predecessor First Mortgage Note. . . . .
Rate Determination Period. . . . . . . .
Receivables. . . . . . . . . . . . . . .
Record Date. . . . . . . . . . . . . . .
Redeemable Stock . . . . . . . . . . . .
Redemption Date. . . . . . . . . . . . .
Redemption Price . . . . . . . . . . . .
Register; Registrar. . . . . . . . . . .
Release. . . . . . . . . . . . . . . . .
Remedial Action. . . . . . . . . . . . .
Replacement Collateral . . . . . . . . .
Reset Date . . . . . . . . . . . . . . .
Reset Rate . . . . . . . . . . . . . . .
Responsible Officer. . . . . . . . . . .
Restoration; Restore . . . . . . . . . .
Restricted Payment . . . . . . . . . . .
Restricted Subsidiary. . . . . . . . . .
Security Documents . . . . . . . . . . .
Seminole . . . . . . . . . . . . . . . .
Senior Indebtedness. . . . . . . . . . .
Seven Year Treasury Rate . . . . . . . .
Southshore Agreement . . . . . . . . . .
Special Record Date. . . . . . . . . . .
Specified Bank Debt. . . . . . . . . . .

iii
<PAGE>
Page

Stated Maturity. . . . . . . . . . . . .
Stone Canada . . . . . . . . . . . . . .
Stone Canada Group . . . . . . . . . . .
Stone Southwest. . . . . . . . . . . . .
Subordinated Capital Base. . . . . . . .
Subordinated Indebtedness. . . . . . . .
Subsidiary . . . . . . . . . . . . . . .
Ten Year Treasury Rate . . . . . . . . .
Trustee. . . . . . . . . . . . . . . . .
Trust Indenture Act. . . . . . . . . . .
Two Year Treasury Rate . . . . . . . . .
U.S. Government Obligations. . . . . . .
Unrestricted Subsidiary. . . . . . . . .
Vice President . . . . . . . . . . . . .
Work . . . . . . . . . . . . . . . . . .

Section 102. Compliance Certificates and Opinions . .

Section 103. Form of Documents Delivered
to Trustee . . . . . . . . . . . . . .

Section 104. Acts of Holders. . . . . . . . . . . . .

Section 105 Notices, etc., to Trustee and Company. .

Section 106. Notice to Holders; Waiver. . . . . . . .

Section 107. Conflict with Trust Indenture Act. . . .

Section 108. Effect of Headings and
Table of Contents. . . . . . . . . . .

Section 109. Successors and Assigns . . . . . . . . .

Section 110. Separability Clause. . . . . . . . . . .

Section 111. Benefits of Indenture. . . . . . . . . .

Section 112. Governing Law. . . . . . . . . . . . . .

Section 113. Legal Holidays . . . . . . . . . . . . .

Section 114. No Recourse Against Others . . . . . . .

Section 115. Incorporation by Reference
to Trust Indenture Act . . . . . . . .

iv
<PAGE>
Page

ARTICLE TWO
First Mortgage Note Forms

Section 201. Forms Generally. . . . . . . . . . . . .

Section 202. Form of Face of First Mortgage Note. . .

Section 203. Form of Reverse of First Mortgage Note .

Section 204. Form of Trustee's Certificate of
Authentication . . . . . . . . . . . .

Section 205. CUSIP Number . . . . . . . . . . . . . .

ARTICLE THREE
The First Mortgage Notes

Section 301. Title and Terms. . . . . . . . . . . . .

Section 302. Denominations. . . . . . . . . . . . . .

Section 303. Execution, Authentication, Delivery
and Dating . . . . . . . . . . . . . .

Section 304. Temporary First Mortgage Notes . . . . .

Section 305. Registration, Registration of Transfer
and Exchange . . . . . . . . . . . . .

Section 306. Mutilated, Destroyed, Lost and Stolen
First Mortgage Notes . . . . . . . . .

Section 307. Payment of Interest; Interest Rights
Preserved. . . . . . . . . . . . . . .

Section 308. Persons Deemed Owners. . . . . . . . . .

Section 309. Cancellation . . . . . . . . . . . . . .

Section 310. Computation of Interest. . . . . . . . .

ARTICLE FOUR
Satisfaction and Discharge

Section 401. Satisfaction and Discharge of
Indenture. . . . . . . . . . . . . . .

v
<PAGE>
Page

Section 402. Application of Trust Money . . . . . . .

ARTICLE FIVE
Remedies

Section 501. Events of Default. . . . . . . . . . . .

Section 502. Acceleration of Maturity; Rescission
and Annulment. . . . . . . . . . . . .

Section 503. Collection of Indebtedness and Suits
for Enforcement by Trustee . . . . . .

Section 504. Trustee May File Proofs of Claim . . . .

Section 505. Trustee May Enforce Claims Without
Possession of First Mortgage Notes . .

Section 506. Application of Money Collected . . . . .

Section 507. Limitation on Suits. . . . . . . . . . .

Section 508. Unconditional Right of Holders to
Receive Principal, Premium and
Interest . . . . . . . . . . . . . . .

Section 509. Restoration of Rights and Remedies . . .

Section 510. Rights and Remedies Cumulative . . . . .

Section 511. Delay or Omission Not Waiver . . . . . .

Section 512. Control by Holders . . . . . . . . . . .

Section 513. Waiver of Past Defaults. . . . . . . . .

Section 514. Undertaking for Costs. . . . . . . . . .

Section 515. Waiver of Stay or Extension Laws . . . .

ARTICLE SIX
The Trustee

Section 601. Certain Duties and Responsibilities
of the Trustee . . . . . . . . . . . .

Section 602. Notice of Defaults . . . . . . . . . . .

vi
<PAGE>
Page

Section 603. Certain Rights of Trustee. . . . . . . .

Section 604. Not Responsible for Recitals or
Issuance of First Mortgage Notes . . .

Section 605. May Hold First Mortgage Notes. . . . . .

Section 606. Money Held in Trust. . . . . . . . . . .

Section 607. Compensation and Reimbursement . . . . .

Section 608. Disqualification; Conflicting
Interests. . . . . . . . . . . . . . .

Section 609. Corporate Trustee Required;
Eligibility. . . . . . . . . . . . . .

Section 610. Resignation and Removal; Appointment of
Successor. . . . . . . . . . . . . . .

Section 611. Acceptance of Appointment by
Successor. . . . . . . . . . . . . . .

Section 612. Merger, Conversion, Consolidation or
Succession to Business . . . . . . . .

Section 613. Preferential Collection of Claims
Against Company. . . . . . . . . . . .

Section 614. Appointment of Authenticating Agent. . .

ARTICLE SEVEN
Holders' Lists and Reports by Trustee and Company

Section 701. Company to Furnish Trustee Names and
Addresses of Holders . . . . . . . . .

Section 702. Preservation of Information;
Communications to Holders. . . . . . .

Section 703. Reports by Trustee . . . . . . . . . . .

Section 704. Reports by Company . . . . . . . . . . .

vii
<PAGE>
Page

ARTICLE EIGHT
Consolidation, Merger, Lease, Sale or Transfer

Section 801. When Company May Merge, etc. . . . . . .

Section 802. First Mortgage Notes to Be Secured in
Certain Events . . . . . . . . . . . .

Section 803. Officer's Certificate;
Opinion of Counsel . . . . . . . . . .

Section 804. Successor Corporation Substituted. . . .

ARTICLE NINE
Supplements and Amendments to the
Indenture and Security Documents

Section 901. Supplemental Indentures and Amendments to
Security Documents Without Consent of
Holders. . . . . . . . . . . . . . . .

Section 902. Supplemental Indentures and Amendments to
Security Documents with Consent of
Holders. . . . . . . . . . . . . . . .

Section 903. Execution of Supplemental Indentures and
Amendments to Security Documents . . .

Section 904. Effect of Supplemental Indentures
and Amendments . . . . . . . . . . . .

Section 905. Conformity with Trust Indenture Act. . .

Section 906. Reference in First Mortgage Notes to
Supplemental Indentures. . . . . . . . .

ARTICLE TEN
Covenants

Section 1001. Payment of Principal, Premium and
Interest . . . . . . . . . . . . . . .

Section 1002. Maintenance of Office or Agency. . . . .

Section 1003. Money for First Mortgage Notes Payments
to Be Held in Trust. . . . . . . . . . .

viii
<PAGE>
Page

Section 1004. Corporate Existence. . . . . . . . . . .

Section 1005. Payment of Taxes and Other Claims. . . .

Section 1006. Restriction on Dividends . . . . . . . .

Section 1007. Limitation on Future Liens and
Guaranties . . . . . . . . . . . . . .

Section 1008. Limitation on Future Incurrence of
Indebtedness . . . . . . . . . . . . .

Section 1009. Limitation on Asset Dispositions . . . .

Section 1010. Maintenance of Properties. . . . . . . .

Section 1011. Compliance Certificates. . . . . . . . .

Section 1012. Waiver of Stay, Extension or Usury
Laws . . . . . . . . . . . . . . . . .

Section 1013. Change of Control. . . . . . . . . . . .

Section 1014. Waiver of Certain Covenants. . . . . . .

Section 1015. Limitation on Collateral Asset Dispositions
and Collateral Loss Events . . . . . .

Section 1016. Procedures Concerning First Mortgage
Note Offers. . . . . . . . . . . . . .

ARTICLE ELEVEN
Maintenance of Subordinated Capital Base

Section 1101. Maintenance of Subordinated Capital
Base . . . . . . . . . . . . . . . . .

Section 1102. Alternative Interest Rate Adjustment . .

ARTICLE TWELVE
Redemption of First Mortgage Notes

Section 1201. Election to Redeem; Notice to Trustee. .

Section 1202. Selection by Trustee of the First
Mortgage Notes to Be Redeemed. . . . . .

Section 1203. Notice of Redemption . . . . . . . . . .

ix
<PAGE>
Page

Section 1204. Deposit of Redemption Price. . . . . . .

Section 1205. First Mortgage Notes Payable on
Redemption Date. . . . . . . . . . . .

Section 1206. First Mortgage Notes Redeemed in Part. .

ARTICLE THIRTEEN
Collateral and Security Documents

Section 1301. Security Documents . . . . . . . . . . .

Section 1302. Recording. . . . . . . . . . . . . . . .

Section 1303. Possession of the Collateral and
the Cash Collateral Account. . . . . .

Section 1304. Suits to Protect the Collateral. . . . .

Section 1305. Release upon Termination of the Company's
Obligations; Partial Release . . . . .

ARTICLE FOURTEEN
Cash Collateral Account

Section 1401. Cash Collateral Account. . . . . . . . .

Section 1402. Terms of Cash Collateral Account . . . .

Section 1403. Representations, Warranties and
Covenants Specific to the Cash
Collateral Account. . . . . . . . . .

ARTICLE FIFTEEN
Defeasance And Covenant Defeasance

Section 1501. Applicability of Article; Company's
Option to Effect Defeasance or
Covenant Defeasance. . . . . . . . . .

Section 1502. Defeasance and Discharge . . . . . . . .

Section 1503. Covenant Defeasance. . . . . . . . . . .

Section 1504. Conditions to Defeasance or Covenant
Defeasance . . . . . . . . . . . . . .

<PAGE>
Page

Section 1505. Deposited Money and Government
Obligations to be Held in Trust;
Other Miscellaneous Provisions . . . .

ARTICLE SIXTEEN
Covenants Specific To The Collateral Property

Section 1601. Good Title; Authority; Priority;
Maintenance of Title; Supplemental
Indentures; Registration, Recording
and Filing . . . . . . . . . . . . . .

Section 1602. Further Documentation to Assure Lien; Fees
and Expenses . . . . . . . . . . . . .

Section 1603. Impairment of Collateral . . . . . . . .

Section 1604. Obligations with Respect to Leases and
Material Contracts . . . . . . . . . .

Section 1605. Use and Configuration; Maintenance of
Collateral Properties. . . . . . . . .

Section 1606. Payment of Taxes, Assessments;
Compliance with Law. . . . . . . . . .

Section 1607. Environmental Matters. . . . . . . . . .

Section 1608. Condemnation and Expropriation . . . . .

Section 1609. Required Insurance Policies. . . . . . .

Section 1610. Withdrawals of Condemnation Proceeds
and Insurance Proceeds . . . . . . . .

Section 1611. Inspection . . . . . . . . . . . . . . .

Section 1612. Failure to Make Certain Payments . . . .

Signatures and Seals . . . . . . . . . . . . . . . . .
Acknowledgments. . . . . . . . . . . . . . . . . . . .

xi
<PAGE>

INDENTURE, dated as of October __, 1994, between STONE CONTAINER
CORPORATION, a corporation duly organized and existing under the laws of the
State of Delaware (herein called the "Company"), having its principal office at
Chicago, Illinois, and NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, a Minnesota
banking corporation, as Trustee (herein called the "Trustee") having its
Corporate Trust office at Sixth Street and Marquette Avenue, Minneapolis,
Minnesota 55479, United States of America.

RECITALS OF THE COMPANY

The Company has duly authorized the creation of an issue of its ___%
First Mortgage Notes due 2002 (the "First Mortgage Notes"), of substantially the
tenor and amount hereinafter set forth, and to provide therefor the Company has
duly authorized the execution and delivery of this Indenture.

All things necessary to make the First Mortgage Notes, when executed
by the Company and authenticated and delivered by the Trustee hereunder and duly
issued by the Company, the valid obligations of the Company, and to make this
Indenture a valid agreement of the Company, in accordance with its terms, have
been done.

NOW, THEREFORE, THIS INDENTURE WITNESSETH:

For and in consideration of the premises and the purchase of the First
Mortgage Notes by the Holders (as hereinafter defined) thereof, it is mutually
covenanted and agreed, for the equal and proportionate benefit of all Holders as
follows:

ARTICLE ONE

DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION

SECTION 101. DEFINITIONS.

For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:

(1) the terms defined in this Article have the meanings assigned to
them in this Article and include the plural as well as the singular;

(2) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein;

(3) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP;

<PAGE>
(4) the word "including" (and with correlative meaning "include")
means including, without limiting the generality of, any description
preceding such term; and

(5) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision.

Certain terms, used principally in Article Six, are defined in that
Article.

"1991 Indenture" means the indenture dated as of November 1, 1991
between the Company and The Bank of New York, as Trustee, as amended and
supplemented to the date hereof and, unless otherwise indicated, from time to
time after the date hereof. References herein to Indebtedness issued under the
1991 Indenture shall include any Indebtedness issued thereunder both before and
after the date hereof.

"Acquiring Person" means any Person or group (as defined in Section
13(d)(3) of the Exchange Act) who or which, together with all affiliates and
associates (as defined in Rule 12b-2 under the Exchange Act), becomes the
beneficial owner of shares of common stock of the Company having more than 50%
of the total number of votes that may be cast for the election of directors of
the Company; PROVIDED, HOWEVER, that an Acquiring Person shall not include (i)
the Company, (ii) any Subsidiary of the Company, (iii) any employee benefit plan
of the Company or any Subsidiary of the Company or any entity holding common
stock of the Company for or pursuant to the terms of any such plan, (iv) any
descendant of Joseph Stone or the spouse of any such descendant, the estate of
any such descendant or the spouse of any such descendant, any trust or other
arrangement for the benefit of any such descendant or the spouse of any such
descendant or any charitable organization established by any such descendant or
the spouse of any such descendant (collectively, the "Stone Family"), or (v) any
group which includes any member or members of the Stone Family and a majority of
the common stock of the Company held by such group is beneficially owned by such
member or members. Notwithstanding the foregoing, no Person shall become an
"Acquiring Person" as the result of an acquisition of common stock by the
Company which, by reducing the number of shares outstanding, increases the
proportionate number of shares beneficially owned by such Person to more than
50% or more of the common stock of the Company then outstanding; PROVIDED,
HOWEVER, that if a Person shall become the beneficial owner of more than 50% or
more of the common stock of the Company then outstanding by reason of share
purchases by the Company and shall, after such share purchases by the Company,
become the beneficial owner of any additional shares of common stock of the

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Company, then such Person shall be deemed to be an "Acquiring Person."

"Act", when used with respect to any Holder, has the meaning specified
in Section 104.

"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.

"Asset Disposition" means any sale, transfer, sale-leaseback or other
disposition of (i) shares of Capital Stock of a Restricted Subsidiary (other
than directors' qualifying shares) or (ii) property or assets of the Company or
any Restricted Subsidiary (other than a sale, transfer or other disposition of
Receivables and other assets or property described in clause (vi) of the
definition of Permitted Liens pursuant to a Receivables sale constituting
Indebtedness pursuant to clause (ii) of the definition thereof); PROVIDED,
HOWEVER, that an Asset Disposition shall not include any sale, transfer, sale-
leaseback or other disposition (a) of Collateral, (b) the shares, property or
assets referred to in clause (i) and (ii) by a Restricted Subsidiary to the
Company or to another Restricted Subsidiary or by the Company to a Restricted
Subsidiary, (c) of defaulted Receivables for collection or (d) in the ordinary
course of business, but shall include any sale, transfer, sale-leaseback or
other disposition by the Company or a Restricted Subsidiary to an Unrestricted
Subsidiary of the shares, property or assets referred to in clauses (i) and
(ii). The designation by the Company of a Subsidiary of the Company as an
"Unrestricted Subsidiary" shall constitute an Asset Disposition of such
Subsidiary's property and assets net of its liabilities, unless the transfer
of property and assets to such Subsidiary has previously constituted an Asset
Disposition.

"Asset Disposition Offer" shall have the meaning provided in
Section 1009(c).

"Asset Disposition Offer Amount" shall have the meaning provided in
Section 1009(a).

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"Asset Disposition Payment Date" shall have the meaning provided in
Section 1009(c).

"Authenticating Agent" means any Person authorized by the Trustee to
act on behalf of the Trustee to authenticate First Mortgage Notes.

"Authority" means any federal, state, municipal or local government or
quasi-governmental agency or authority.

"Bankruptcy Law" means Title 11, U.S. Code or any similar federal or
state law for the relief of debtors.

"Board of Directors" means the board of directors of the Company;
PROVIDED, HOWEVER, that when the context refers to actions or resolutions of the
Board of Directors, then the term "Board of Directors" shall also mean any duly
authorized committee of the Board of Directors of the Company or Officer
authorized to act with respect to any particular matter to exercise the power of
the Board of Directors of the Company.

"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.

"Business Day", when used with respect to any Place of Payment, means
each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which
banking institutions in that Place of Payment are authorized or obligated by law
or regulation to close.

"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations, warrants, rights, options or other equivalents
(however designated) of capital stock or any other equity interest of such
Person, including each class of common stock and preferred stock.

"Capitalized Lease Obligation" means, in respect of any Person, an
obligation to pay rent or other amounts under a lease that is required to be
capitalized for financial reporting purposes in accordance with GAAP, and the
amount of Indebtedness represented by such obligation shall be the capitalized
amount of such obligation determined in accordance with such principles.

"Cash Collateral Account" means one or more accounts forming part of
the Collateral in the sole dominion and control of the Trustee into which
certain funds are required to be deposited by or on behalf of the Company under
the terms of this Indenture and the Security Documents.

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"Cash Equivalents" means, at any time, (i) any evidence of
Indebtedness with a maturity of 180 days or less issued or directly and fully
guaranteed or insured by the government of the United States of America, or any
agency or instrumentality of such government (provided that the full faith and
credit of the United States of America is pledged in support thereof); (ii)
certificates of deposit or acceptances with a maturity of 180 days or less of
any financial institution that is a member of the Federal Reserve System of the
United States of America, having combined capital and surplus and undivided
profits of not less than $500,000,000.00 and, as applicable, rated at least "A-"
by Standard & Poor's Corporation or at least "A3" by Moody's Investors Service,
Inc.; (iii) commercial paper with a maturity of 180 days or less issued by a
corporation (except an Affiliate of the Company) organized under the laws of any
state of the United States or the District of Columbia, and, as applicable,
rated at least A-1 by Standard & Poor's Corporation or at least P-1 by Moody's
Investors Service, Inc.; and (iv) repurchase agreements and reverse repurchase
agreements relating to marketable direct obligations issued or unconditionally
guaranteed by the government of the United States of America, or issued by any
agency thereof, and backed by the full faith and credit of the United States,
maturing within one year from the date of acquisition; PROVIDED that the terms
of such agreements comply with the guidelines set forth in the Federal Financial
Agreements of Depository Institutions With Securities Dealers and Others, as
adopted by the Comptroller of the Currency on October 31, 1985.

"Castlewood Agreement" has the meaning specified in clause (2) of the
proviso to clause (i) of the definition of Permitted Indebtedness.

"Casualty", with respect to any Collateral, shall mean loss of, damage
to or destruction of all or any part of such Collateral.

"Change of Control" means any event by which (i) an Acquiring Person
has become such or (ii) Continuing Directors cease to comprise a majority of the
members of the Board of Directors of the Company.

"Change of Control Date", "Change of Control Offer" and "Change of
Control Payment Date" shall have the respective meanings provided in
Section 1013.

"Collateral" means the Collateral Properties (and all additions and
improvements thereto and replacements thereof), Replacement Collateral, the Cash
Collateral Account and all other property that from time to time secures the
First Mortgage Notes pursuant to this Indenture and the Security Documents.

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<PAGE>
"Collateral Asset Disposition" means any direct or indirect,
voluntary or involuntary sale, conveyance, lease, sale-leaseback, transfer or
other disposition, including, without limitation, by means of a merger,
consolidation or similar transaction (each, a "Disposition"), or a series of
related Dispositions by the Company or any of its Restricted Subsidiaries
involving the Collateral (including, without limitation, a sale of, or receipt
by the Company of cash or Cash Equivalents in connection with the repayment,
exchange, redemption or retirement of, or an extraordinary dividend or return
of capital on, any Non-Cash Consideration), other than (a) the sale of
machinery, equipment, furniture, apparatus, tools or implements or other similar
property that may be defective or may have become worn out or obsolete or no
longer used or useful in the operation of the Collateral Properties, the
aggregate fair market value of which does not exceed five million dollars
($5,000,000) in any year; (b) the sale of equipment that has been replaced by
equipment of substantially equal value in an alteration or improvement made at
one of the Collateral Properties; (c) the use by the Trustee of amounts on
deposit in the Cash Collateral Account in accordance with Section 1009(g) or
Section 1015; and (d) a Disposition permitted pursuant to Article Eight. A
Collateral Asset Disposition shall not include a Condemnation or Casualty
involving any Collateral.

"Collateral Loss Event" means a Condemnation or Casualty involving an
actual or constructive total loss or agreed or compromised actual or
constructive total loss of all or substantially all of any Collateral Property.

"Collateral Properties" means the mills owned by the Company at
Uncasville, Connecticut, Ontonogan, Michigan, Missoula, Montana and York,
Pennsylvania, as more specifically described in the Security Documents, and all
mills, plants and related property constituting Replacement Collateral.

"Commission" means the Securities and Exchange Commission, as from
time to time constituted, created under the Exchange Act, or, if at any time
after the execution of this Indenture such Commission is not existing and
performing the duties now assigned to it under the Trust Indenture Act, then the
body performing such duties at such time.

"Commodities Agreement" of any Person means any forward contract,
option or futures contract or similar agreement or arrangement designed to
protect such Person or any of its Subsidiaries from fluctuations in the price
of, or shortage of supply of, commodities.

"Company" means the Person named as the "Company" in the first
paragraph of this Indenture until a successor corporation shall have become such
pursuant to the applicable

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provisions of this Indenture, and thereafter "Company" shall mean such successor
corporation.

"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by its Chairman of the Board, its President or
a Vice President, and by its Treasurer, an Assistant Treasurer, its Controller,
an Assistant Controller, its Secretary or an Assistant Secretary, and delivered
to the Trustee.

"Condemnation" means any taking of the Collateral or any part thereof,
in or by condemnation, expropriation or similar proceeding, eminent domain
proceedings, seizure or forfeiture, pursuant to any law, general or special, or
by reason of the temporary requisition of the use or occupancy of the Collateral
or any part thereof, by any Authority.

"Condemnation Proceeds" means any award, proceeds, payment or other
compensation arising out of a Condemnation.

"Consolidated Amortization Expense" means, for any period, the
amortization expense of the Company and its Restricted Subsidiaries for such
period, determined on a consolidated basis in accordance with GAAP.

"Consolidated Cash Flow Available for Fixed Charges" means, for any
period, (a) the sum of the amounts for such period of (i) Consolidated Net
Income, (ii) Consolidated Interest Expense, (iii) Consolidated Income Tax
Expense, (iv) Consolidated Depreciation Expense, (v) Consolidated Amortization
Expense and (vi) other non-cash items reducing Consolidated Net Income, MINUS
(b) non-cash items increasing Consolidated Net Income, all as determined on a
consolidated basis for the Company and its Restricted Subsidiaries in accordance
with GAAP.

"Consolidated Depreciation Expense" means, for any period, the
depreciation expense of the Company and its Restricted Subsidiaries for such
period, determined on a consolidated basis in accordance with GAAP.

"Consolidated Free Cash Flow" means, for any period, (a) the sum of
the amounts for such period of (i) Consolidated Net Income, (ii) Consolidated
Depreciation Expense and (iii) Consolidated Amortization Expense, MINUS (b) the
sum of (i) Restricted Payments during such period, (ii) net reduction during
such period in Indebtedness of the Company and its Restricted Subsidiaries
(other than as a result of Asset Dispositions, Collateral Asset Dispositions or
Collateral Loss Events) and (iii) the excess (but not the deficit) of capital
expenditures of the Company and its Restricted Subsidiaries for such period
not financed pursuant to clause (vi) of the definition of Permitted
Indebtedness over Consolidated Depreciation Expense.

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"Consolidated Income Tax Expense" means, for any period, the aggregate
of the income tax expense of the Company and its Restricted Subsidiaries for
such period, determined on a consolidated basis in accordance with GAAP.

"Consolidated Interest Coverage Ratio" means, for any period, the
ratio of (i) Consolidated Cash Flow Available for Fixed Charges to (ii)
Consolidated Interest Expense.

"Consolidated Interest Expense" means, for any period, the interest
expense (including the interest component of all Capitalized Lease Obligations
and the earned discount or yield with respect to a Receivables sale constituting
Indebtedness) of the Company and its Restricted Subsidiaries for such period,
determined on a consolidated basis in accordance with GAAP; PROVIDED, HOWEVER,
that, with respect to revolving credit, revolving Receivables purchases or other
similar arrangements, the interest expense in respect thereof for any period
shall be the PRO FORMA interest expense attributable to all amounts committed
during such period under such revolving credit, revolving Receivables purchases
or other similar arrangements, whether or not such amounts were actually
outstanding during such period, in accordance with the terms thereof, in each
case on a consolidated basis in accordance with GAAP.

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<PAGE>
deficit), if any, of (x) any gain which must be treated as an extraordinary item
under GAAP or any gain realized upon the sale or other disposition of any asset
that is not sold in the ordinary course of business or of any Capital Stock of a
Restricted Subsidiary over (y) any loss which must be treated as an
extraordinary item under GAAP or any loss realized upon the sale or other
disposition of any asset that is not sold in the ordinary course of business or
of any Capital Stock of a Restricted Subsidiary; and (b) there shall be included
therein the amount of cash realized by the Company or any of its Restricted
Subsidiaries during such period on account of dividends or other distributions
theretofore paid in other than cash or tangible property or tangible assets by a
Person which is not a Restricted Subsidiary.

"Consolidated Net Worth" means the amount which at any date of
determination, in conformity with GAAP consistently applied, would be set forth
under the caption "stockholders' equity" (or any like caption) on a consolidated
balance sheet of the Company and its Restricted Subsidiaries, exclusive of
amounts attributable to Redeemable Stock (at such time as no Indebtedness is
outstanding under the 1991 Indenture, excluding the effects of
foreign currency translation adjustments). If the Company has changed one or
more of the accounting principles used in the preparation of its financial
statements because of a change mandated by the Financial Accounting Standards
Board or its successor, then Consolidated Net Worth shall mean the Consolidated
Net Worth the Company would have had if the Company had continued to use those
generally accepted accounting principles employed on November 1, 1991.

"Contaminant" means any pollutant, contaminant (as those terms are
defined in 42 U.S.C. Section 9601(33)), toxic pollutant (as that term is
defined in 33 U.S.C. Section 1362(13)), hazardous substance (as that term is
defined in 42 U.S.C. Section 9601(14)), hazardous chemical (as that term is
defined by 29 CFR Section 1910.1200(c)), hazardous waste (as that term is
defined in 42 U.S.C. Section 6903(5)), or any state or local equivalent of such
laws and regulations, including, without limitation, radioactive material,
polychlorinated biphenyls, asbestos, petroleum, including crude oil or any
petroleum-derived substance, waste, or breakdown or decomposition product
thereof, or any constituent of any such substance or waste.

"Continental Guaranty" means the Guaranty dated as of October 7, 1983
between The Continental Group, Inc. and the Company, as amended from time to
time.

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Acquiring Person or of any such Affiliate or associate and who (a) was a member
of the Board of Directors prior to November 1, 1991, or (b) subsequently became
or becomes a member of such Board of Directors and whose nomination for election
or election to such Board of Directors was or is recommended or approved by
resolution of a majority of the Continuing Directors or who was or is included
as a nominee in a proxy statement of the Company distributed when a majority of
such Board of Directors consists of Continuing Directors.

"Corporate Trust Office" means the office of the Trustee at which at
any particular time its corporate trust business shall be principally
administered, which office at the date hereof is located at Sixth Street and
Marquette Avenue, Minneapolis, Minnesota 55479, United States of America.

"corporation" includes corporations, associations, companies, business
trusts and limited partnerships.

"covenant defeasance" has the meaning specified in Section 1503.

"Credit Agreements" means (i) the credit agreement, dated as of March
1, 1989, by and among the Company, the financial institutions signatory thereto,
Bankers Trust Company, as agent for such financial institutions, and Citibank,
N.A., Chemical Bank (as successor by merger to Manufacturers Hanover Trust
Company) and The First National Bank of Chicago, as co-agents for such financial
institutions, as amended, modified, refinanced (including, without limitation,
by the New Credit Agreement) or extended from time to time, (ii) the credit
agreement, dated as of March 1, 1989, by and among Stone Canada, the financial
institutions signatory thereto, Bankers Trust Company, as agent for such
financial institutions, and Citibank, N.A., Chemical Bank (as successor by
merger to Manufacturers Hanover Trust Company) and The First National Bank of
Chicago, as co-agents for such financial institutions, as amended, modified,
refinanced (including, without limitation, by the New Credit Agreement) or
extended from time to time and (iii) the revolving credit agreement, dated as of
March 1, 1989, by and among Stone Canada, the financial institutions signatory
thereto, BT Bank of Canada, as administrative agent, The Bank of Nova Scotia, as
payment agent, and Bankers Trust Company, as collateral agent, as amended,
modified, refinanced (including, without limitation, by the New Credit
Agreement) or extended from time to time.

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

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"Custodian" means any receiver, trustee, assignee, liquidator,
sequestrator or similar official under any Bankruptcy Law.

"Default" means any event which is, or after notice or passage or time
or both would be, an Event of Default.

"Defaulted Interest" has the meaning specified in Section 307.

"defeasance" has the meaning specified in Section 1502.

"Deficiency Amount" shall have the meaning provided in Section
1009(b).

"Deficiency Date" shall have the meaning provided in Section 1101(a).

"Deficiency Offer" shall have the meaning provided in Section 1101(a).

"Deficiency Offer Amount" shall have the meaning provided in Section
1101(a).

"Deficiency Payment Date" shall have the meaning provided in Section
1101(c)(2).

"dollars" and "$" means lawful money of the United States of America.

"Environment" means all components of the earth, including, without
limitation, air (and all layers of the atmosphere), land (and all surface and
subsurface soil, underground spaces and cavities and all land submerged under
water) and water (and all surface and underground water), organic and inorganic
matter and living organisms, the interacting natural systems that include
components referred to above in this definition.

"Environmental Laws" means all Legal Requirements imposing liability
or standards of conduct for or relating to the protection of the environment,
including, without limitation, (i) any actual or potential Release of any
Contaminant into the environment; (ii) the required notification of same;
(iii) preventive or remedial measures in connection with any event or occurrence
referred to in clause (i) of this definition above; (iv) the manufacturing,
processing, use, handling, packaging, labeling, sale, storage, recycling,
disposal, destruction, incineration, or transportation of any Contaminant, or
any solicitation or offer to do any activity referred to in this clause (iv) in
connection with any Contaminant.

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"Event of Default" has the meaning specified in Section 501.

"Excess Proceeds" means, on any date, the aggregate amount of Net
Proceeds from Collateral Asset Dispositions and Collateral Loss Events
consummated or occurring after the date hereof that have not been previously (a)
used to purchase or invest in Replacement Collateral or Restore Collateral in
accordance with Section 1015 or (b) included as part of a First Mortgage Note
Offer, PROVIDED that no such Net Proceeds will constitute Excess Proceeds until
the later of six months from the date of consummation of the relevant
Collateral Asset Disposition or receipt of the Net Proceeds from the relevant
Collateral Loss Event and the expiration of any longer period during which such
Net Proceeds may be used to purchase or invest in Replacement Collateral or
Restore Collateral to the extent permitted by Section 1015.

"Exchange Act" means the Securities and Exchange Act of 1934, as
amended from time to time, and the rules and regulations promulgated thereunder.

"First Mortgage Notes" has the meaning stated in the first recital of
this Indenture and more particularly means any First Mortgage Note authenticated
and delivered under this Indenture.

"First Mortgage Note Offer" means an offer, made by the Company
pursuant to Section 1016, to repurchase, on a PRO RATA basis up to the amount of
Net Sale Proceeds included in such offer, any Outstanding First Mortgage Notes
tendered to the Company by any Holders thereof in response to such offer at a
purchase price payable in cash equal to the First Mortgage Note Offer Price.

"First Mortgage Note Offer Price" has the meaning specified in Section
1016(a).

"First Mortgage Note Payment Date" has the meaning specified in
Section 1016(b)(3).

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Constant Maturities-5 Year" or (ii) if said Statistical Release H.15(519) is not
then published, as published by the Federal Reserve Board in any release
comparable to its Statistical Release H.15(519) or (iii) if the Federal Reserve
Board shall not then be publishing a comparable release, as published in any
official publication or release of any other United States Government Department
or agency or (y) if the United States Treasury Department shall not then be
constructing such yield curves, then as constructed by the Federal Reserve Board
or any other United States Government Department or agency and published as set
forth in (x) above. However, if the Five Year Treasury Rate cannot be
determined as provided above, then the Five Year Treasury Rate shall mean the
arithmetic average (rounded to the nearest basis point) of the per annum yields
to maturity for each Business Day during the Rate Determination Period of all of
the issues of actively trading issues of non-interest bearing United States
Treasury fixed interest rate securities with a maturity of not less than 57
months nor more than 63 months from such Business Day (1) as published in THE
WALL STREET JOURNAL or (2) if THE WALL STREET JOURNAL shall cease such
publication, based on average asked prices (or yields) as quoted by each of
three United States Government securities dealers of recognized national
standing selected by the Company.

"GAAP" means generally accepted accounting principles, as in effect as
of November 1, 1991 in the United States of America, set forth in the opinions
and pronouncements of the Accounting Principles Board of the American Institute
of Certified Public Accountants and statements and pronouncements of the
Financial Accounting Standards Board or in such other statements by such other
entity as is approved by a significant segment of the accounting profession.

"Holder" or "Securityholder" means a Person in whose name a First
Mortgage Note is registered in the Register.

"Improvements" shall have the meaning provided in the applicable
Security Document.

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supporting other obligations of such Person described in this definition; or (C)
for the payment of money relating to a Capitalized Lease Obligation; (ii) the
unrecovered investment of a purchaser (other than the Company or any of its
Restricted Subsidiaries) of such Person's Receivables pursuant to a Receivables
purchase facility or otherwise (whether or not characterized as a sale of such
Receivables or a secured loan, but excluding any disposition of Receivables in
connection with a disposition of fixed assets or a business of such Person and
any disposition of defaulted Receivables for collection), together with any
obligation of such Person to pay any discount, interest, fees, indemnification
amounts, penalties, recourse on account of the uncollectability of Receivables,
expenses or other amounts in connection therewith; (iii) any obligation of
another Person (other than a Restricted Subsidiary of such Person) of the kind
described in the preceding clause (i) or (ii), which the Person has guaranteed
or which is otherwise its legal liability; (iv) any obligation of another
Person (other than a Restricted Subsidiary of such Person) of the kind described
in the preceding clause (i) or (ii) secured by a Lien to which the property or
assets of such Person are subject, whether or not the obligation secured thereby
shall have been assumed by or shall otherwise be such Person's legal liability;
and (v) any renewals, extensions or refundings of any of the foregoing described
in any of the preceding clauses (i), (ii), (iii) and (iv). The "amount" or
"principal amount" of Indebtedness of any Person at any date, as used herein,
shall be the outstanding principal amount at such date of all unconditional
Indebtedness, the maximum principal amount of any contingent Indebtedness or the
unrecovered purchaser's investment in a sale of Receivables, in each case at
such date and without taking into account any premium, interest, penalties,
reimbursement or indemnification amounts, fees, expenses or other amounts (other
than principal or unrecovered purchaser's investment) in respect thereof;
PROVIDED, HOWEVER, that (y) with respect to Indebtedness described in clause
(iv) above, the amount of Indebtedness shall be the lesser of (a) the amount of
the Indebtedness of such other Person that is secured by the property or assets
of such Person and (b) the fair market value of the property or assets securing
such Indebtedness, and (z) with respect to revolving credit, revolving
Receivables purchases or other similar arrangements, the amount of Indebtedness
thereunder shall be the amounts of such commitments as of the date of
determination.

"Indenture" means this instrument as originally executed or as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof.

"Independent Appraiser" means an appraisal firm that is nationally
recognized in the United States that (i) does not have any direct financial
interest in the Company or any of its

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Subsidiaries, the Trustee or in any Affiliate of any of them, and (ii) is not
connected with the Company or any of its Subsidiaries, the Trustee or any such
Affiliate as an employee, associate or Affiliate.

"Independent Director" means, in respect of any transaction involving
the Company, a director of the Company who is in fact independent of the
transaction other than (a) a director who is a party to such transaction, or (b)
a director who is an officer, employee, associate or Affiliate (or is related to
any of them by blood or marriage unless such director is, in fact, independent
of such relation) of a party to such transaction or who is an officer, employee,
director or associate of an Affiliate of the Company (other than the Company and
its Subsidiaries), or (c) a director who is an officer, employee or associate of
the Company or any of its Subsidiaries.

"Independent Financial Adviser" means an investment banking firm that
is nationally recognized in the United States that (i) does not have any direct
financial interest in the Company, any Subsidiary of the Company or the Trustee
or in any Affiliate of any of them, and (ii) is not connected with the Company,
a Subsidiary of the Company or the Trustee or any such Affiliate as an employee,
associate or Affiliate.

"Initial Interest Rate", when used with respect to any First Mortgage
Note, means the initial rate of interest to be borne by such First Mortgage Note
as stated on the face thereof.

"Insurance Proceeds" shall mean any payment, proceeds or other amounts
received at any time by the Company or any of its Restricted Subsidiaries under
any insurance policy as compensation in respect of a Casualty, PROVIDED that
proceeds received by the Company from business interruption insurance shall not
constitute Insurance Proceeds.

"Interest Payment Date" means the Stated Maturity of an installment of
interest on any First Mortgage Note.

"Interest Swap Obligations" of any Person means the obligations of
such Person pursuant to any interest rate swap agreement, interest rate collar
agreement, forward rate agreement, interest rate cap insurance, option or
futures contract or other similar agreement or arrangement, and any renewal or
extension thereof, designed to protect such Person or any of its Subsidiaries
against fluctuations in interest rates or to permit the exchange of fixed rate
obligations of such Person for floating rate obligations and entered into the
ordinary course of financial management of the Company and not for speculative
purposes.

"Issue Date" means October __, 1994.

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"Land" shall have the meaning provided in the Security Documents.

"Legal Requirements" means any and all present and future judicial and
administrative rulings or decisions, and any and all present and future federal,
state and local laws, ordinances, rules, regulations, permits and certificates,
of any governmental authority, in each case in any way applicable to the
Company or the Collateral (or the ownership or use thereof).

"Lien" means any mortgage, pledge, security interest, adverse claim
(as defined in Section 8.302(2) of the New York Uniform Commercial Code),
encumbrance, lien or charge of any kind (including any conditional sale or other
title retention agreement or lease in the nature thereof, any filing or
agreement to file a financing statement as debtor under the Uniform Commercial
Code or any similar statute other than to reflect ownership by a third party of
property leased to the Company or any of its Subsidiaries under a lease which is
not in the nature of a conditional sale or title retention agreement).

"Maturity", when used with respect to any First Mortgage Note, means
the date on which the principal of such First Mortgage Note or an installment of
the principal becomes due and payable as therein or herein provided, whether at
the Stated Maturity or by declaration of acceleration, call for redemption or
otherwise.

"Minimum Subordinated Capital Base" shall have the meaning provided in
Section 1101(a).

"Net Proceeds" means those proceeds received by the Company or any of
its Restricted Subsidiaries in connection with a Collateral Asset Disposition or
Collateral Loss Event consisting of (a) the sum of cash and Cash Equivalents
therefrom (including any amounts of Insurance Proceeds, Condemnation Proceeds or
other proceeds (other than proceeds from business interruption insurance)
received in connection therewith but excluding any other consideration received
in the form of assumption by the acquiring Person of Indebtedness or other
obligations relating to the relevant property) MINUS (b) all accounting, legal,
title, recording and tax expenses, commissions and other fees and expenses
incurred, and all federal, state, provincial, foreign and local taxes required
to be accrued as a liability under generally accepted accounting principles in
effect at the date of the relevant Collateral Asset Disposition or Collateral
Loss Event, directly as a consequence of such Collateral Asset Disposition or
Collateral Loss Event and net of

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all payments made on any Indebtedness which is secured by a Permitted Collateral
Lien on the Collateral Property subject to such Collateral Asset Disposition or
Collateral Loss Event, which must be paid in accordance with the terms of such
Permitted Collateral Lien or under applicable law.

"New Credit Agreement" means the credit agreement, dated as of October
__, 1994, by and among the Company, the financial institutions signatory thereto
and Bankers Trust Company, as agent for such financial institutions, as amended,
modified, refinanced or extended from time to time.

"Non-Cash Consideration" shall have the meaning provided in Section
1015(a)(v).

"Officer" means the Chairman of the Board, the President, any Vice
President, the Treasurer, any Assistant Treasurer or the Secretary of the
Company.

"Officer's Certificate" means a certificate signed by an Officer and
delivered to the Trustee that shall comply with Sections 102 and 103.

"Opinion of Counsel" means a written opinion of counsel, who may be an
employee of or counsel for the Company, and who shall be reasonably acceptable
to the Trustee.

"Ordinary Course of Business Liens" means, with respect to any Person,

(i) Liens for taxes, assessments, governmental charges, levies or
claims not yet delinquent or being contested in good faith;

(ii) statutory Liens of landlords, carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen or other like Liens arising in
the ordinary course of business (including the construction of facilities)
or deposits to obtain the release of such Liens;

(iii) Liens in connection with workers' compensation, unemployment
insurance and other similar legislation;

(iv) zoning restrictions, licenses, easements, rights-of-way and
other similar charges or encumbrances or restrictions not interfering in
any material respect with the business of such Person or any of its
Subsidiaries;

(v) Liens securing such Person's obligations with respect to
commercial letters of credit;

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(vi) Liens to secure public or statutory obligations of such Person;

(vii) judgment and attachment Liens against such Person not giving
rise to a Default under the First Mortgage Notes or Liens created by or
existing from any litigation or legal proceeding against such Person which
is currently being contested in good faith by such Person in appropriate
proceedings;

(viii) leases or subleases granted to other Persons or existing on
property acquired by such Persons;

(ix) Liens encumbering property or assets of such Person under
construction arising from progress or partial payments;

(x) Liens encumbering customary initial deposits and margin
accounts and other Liens securing obligations arising out of Interest Swap
Obligations, Currency Agreements and Commodities Agreements, in each case
of the type typically securing such obligations; PROVIDED, HOWEVER, that if
such Interest Swap Obligations, Currency Agreements and Commodities
Agreements relate to Indebtedness not incurred in violation of this
Indenture, such Lien may also cover the property and assets securing the
Indebtedness to which such Interest Swap Obligations, Currency Agreements
and Commodities Agreements relate;

(xi) Liens encumbering deposits made to secure obligations arising
from public, statutory, regulatory, contractual or warranty requirements or
obligations of such Person or its Subsidiaries (not constituting
Indebtedness);

(xii) Liens arising from filing UCC financing statements regarding
leases or consignments;

(xiii) purchase money Liens securing payables (not constituting
Indebtedness) arising from the purchase by such Person or any of its
Affiliates of any equipment or goods in the ordinary course of business;

(xiv) Liens arising out of consignment or similar arrangements for
the sale of goods entered into by such Person or any of its Subsidiaries in
the ordinary course of business;

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<PAGE>
performance and return-of-money bonds and other similar obligations (not
constituting Indebtedness);

(xvi) Liens in favor of collecting banks constituting a right of set-
off, revocation, refund or chargeback with respect to money or instruments
of the Company or any Subsidiary on deposit with or in the possession of
such bank; and

(xvii) Liens in favor of customs and revenue authorities.

"Outstanding" means, as of the date of determination, all First
Mortgage Notes theretofore authenticated and delivered under this Indenture,
EXCEPT:

(i) First Mortgage Notes theretofore cancelled by the Trustee or
delivered to the Trustee for cancellation;

(ii) First Mortgage Notes, or portions thereof, for whose payment
or redemption money in the necessary amount has been theretofore deposited
with the Trustee or any Paying Agent (other than the Company) in trust or
set aside and segregated in trust by the Company (if the Company shall act
as its own Paying Agent) for the Holders of such First Mortgage Notes;
PROVIDED that, if such First Mortgage Notes are to be redeemed, notice of
such redemption has been duly given pursuant to this Indenture or provision
therefor satisfactory to the Trustee has been made;

(iii) First Mortgage Notes which have been paid pursuant to Section
306 or in exchange for or in lieu of which other First Mortgage Notes have
been authenticated and delivered pursuant to this Indenture, other than any
such First Mortgage Notes in respect of which there shall have been
presented to the Trustee proof satisfactory to it that such First Mortgage
Notes are held by a BONA FIDE purchaser in whose hands such First Mortgage
Notes are valid obligations of the Company; and

(iv) First Mortgage Notes which have been defeased pursuant to
Section 1502;

PROVIDED, HOWEVER, that in determining whether the Holders of the requisite
principal amount of the Outstanding First Mortgage Notes have given any request,
demand, authorization, direction, notice, consent or waiver hereunder, First
Mortgage Notes owned by the Company or any other obligor upon the First Mortgage
Notes or any Affiliate of the Company or of such other obligor shall be
disregarded and deemed not to be Outstanding, except that, in determining
whether the Trustee shall be protected in relying upon any such request, demand,
authorization, direction, notice,

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<PAGE>
consent or waiver, only First Mortgage Notes which the Trustee knows to be so
owned shall be so disregarded. First Mortgage Notes so owned which have been
pledged in good faith may be regarded as Outstanding if the pledgee establishes
to the satisfaction of the Trustee the pledgee's right so to act with respect to
such First Mortgage Notes and that the pledgee is not the Company or any other
obligor upon the First Mortgage Notes or any Affiliate of the Company or of such
other obligor.

"Partial Collateral Loss" shall have the meaning provided in Section
1610(a).

"Paying Agent" means any Person authorized by the Company to pay the
principal of (and premium, if any) or interest on any First Mortgage Note on
behalf of the Company. The Company may act as Paying Agent with respect to any
First Mortgage Note issued hereunder.

"Permitted Collateral Liens" means:

(i) Liens securing the First Mortgage Notes arising under this
Indenture or any Security Document;

(ii) Liens on a Collateral Property for taxes or governmental
assessments, charges, levies or claims not yet delinquent or for which a
bond has been posted in an amount equal to the contested amount (including
potential interest and penalties thereon) not interfering in any material
respect with the ordinary operation of such Collateral Property or
materially and adversely affecting the value thereof;

(iii) statutory Liens of landlords, carriers, warehousemen, mechanics,
suppliers, materialmen, repairmen or other like Liens arising in the
ordinary course of business of ownership and operation of a Collateral
Property relating to obligations either (a) not yet delinquent or (b) being
contested in good faith by appropriate proceedings and to which appropriate
reserves or other provisions have been made in advance in accordance with
GAAP, in each case not interfering in any material respect with the
ordinary operation of such Collateral Property or materially and adversely
affecting the value thereof;

(iv) Liens on a Collateral Property in connection with workers'
compensation, unemployment insurance and other similar legislation, surety
or appeal bonds, performance bonds or other obligations of a like nature
(in each case, not constituting Indebtedness) arising in the ordinary
course of business with respect to the ownership and operation of such
Collateral Property not interfering in any material respect with the
ordinary operation of such

20
<PAGE>
Collateral Property or materially and adversely affecting the value
thereof;

(v) zoning restrictions, licenses, easements, servitudes, rights-of-
way, title defects, covenants running with the land and other similar
charges or encumbrances or restrictions affecting a Collateral Property not
interfering in any material respect with the ordinary operation of such
Collateral Property or materially and adversely affecting the value
thereof; and

"Permitted Existing Indebtedness of an Acquired Person" means
Indebtedness of any Person (which may be assumed or guaranteed by, or may
otherwise become the legal liability of, the Company or any Restricted
Subsidiary with or into which such Person is merged or consolidated) existing at
the time such Person becomes a Restricted Subsidiary, or is merged with or into
or consolidated with the Company or one of its Restricted Subsidiaries, so long
as such Indebtedness was not created in anticipation of or as a result of such
Person becoming a Restricted Subsidiary or of such merger or consolidation, and
any Indebtedness to the extent exchanged for, or the net proceeds of which are
used to refinance, redeem or defease, such Indebtedness (or any extension,
renewal or refinancing thereof), or to finance any costs incurred in connection
with such exchange, refinancing, redemption or defeasance; PROVIDED, HOWEVER,
that the proceeds of such Indebtedness shall be used to so refinance, redeem or
defease the Indebtedness within 12 months of the incurrence of such subsequent
Indebtedness.

"Permitted Indebtedness" means (i)(a) any Indebtedness in a principal
amount not exceeding the principal amount outstanding or committed under the
Credit Agreements (including any letter of credit facility thereunder) as of
November 1, 1991 PLUS two hundred fifty million dollars ($250,000,000), and
LESS the sum of (x) proceeds from the sale of all Indebtedness under the 1991
Indenture issued from time to time that is applied to repay Indebtedness under
the Credit Agreements and (y) the proceeds from the sale of the First Mortgage
Notes and the ____% Senior Notes due 2004 of the Company; (b) any Indebtedness
in a principal amount not exceeding 80% of the aggregate face amount of
Receivables of the Company and its Restricted Subsidiaries (measured as of the
latest date as of which information regarding Receivables is available) and
constituting Indebtedness described in clause (ii) of the definition of
Indebtedness or outstanding pursuant to any other revolving credit facility; (c)
any Indebtedness under the 1991 Indenture issued prior to the date

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<PAGE>
hereof the proceeds of which have been used to repay Indebtedness under the
Credit Agreements within five business days after such issuance (and any
subsequent Indebtedness the proceeds of which are used to refinance such
Indebtedness) and (d) the First Mortgage Notes and the __% Senior Notes due 2004
(and any subsequent Indebtedness the proceeds of which are used to refinance
such Indebtedness); PROVIDED, HOWEVER, that:

(1) the aggregate principal amount permitted to be outstanding under
clause (a) shall be reduced by the aggregate amount of any repayments or
prepayments of any Senior Indebtedness (other than the First Mortgage
Notes, the __% Senior Notes due 2004 of the Company and Indebtedness issued
under the 1991 Indenture) out of the proceeds of Asset Dispositions as
described in and required by Section 1009 hereof after November 1, 1991,
and, thereafter, shall be increased if, at the end of the fourth
consecutive complete fiscal quarter after the initial reduction pursuant to
this clause (1) or at any anniversary of the end of such fourth fiscal
quarter, the Consolidated Free Cash Flow of the Company for the preceding
four quarters has been zero or greater, in which event the amount of the
increase shall be the amount by which the consolidated capital expenditures
of the Company and its Restricted Subsidiaries not financed by Indebtedness
referred to in clause (vi) of this definition during such four-quarter
period exceeds Consolidated Depreciation Expense for such period (provided
any such increase shall be made only to the extent all such reductions
occurring prior to the four fiscal quarters for which such calculation of
Consolidated Free Cash Flow has been made exceed all prior increases
pursuant to this clause (1));

(2) (A) the aggregate amount permitted to be incurred under clause
(a) shall be reduced by the principal amount outstanding under the New
Credit Agreement on the date hereof net of subsequent reductions thereof,
and (B) the aggregate amount permitted to be incurred under clause (b)
shall be reduced by the principal amounts outstanding under each of the
Pledge and Administration Agreement, dated as of August 15, 1991, between
Stone Financial Corporation and Castlewood Funding Corporation (the
"Castlewood Agreement") and the Pledge and Administrative Agreement, dated
as of August 18, 1992, between Stone Fin II Receivables Corporation and
South Shore Funding Corporation (the "Southshore Agreement") on the date
hereof net of subsequent reductions thereof;

(3) the Permitted Indebtedness contemplated by this clause (i) may be
incurred by the Company and, in the case of Permitted Indebtedness
constituting Indebtedness under

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<PAGE>
clause (ii) of the definition of Indebtedness, by the Company or any Restricted
Subsidiary; and

(4) any Restricted Subsidiary in the Stone Canada Group may incur,
assume or guarantee any Indebtedness under clauses(i)(a) and (i)(b) above
under any revolving credit facilities of Restricted Subsidiaries in the
Stone Canada Group entered into pursuant to this clause (i), for which the
aggregate amount committed thereunder does not exceed two hundred million
dollars ($200,000,000), to finance the working capital of Restricted
Subsidiaries in the Stone Canada Group;

(ii) Permitted Subordinated Indebtedness;

(iii) Permitted Refinancing Indebtedness;

(iv) Permitted Stone Canada Indebtedness;

(v) Permitted Existing Indebtedness of an Acquired Person;

(vi) Indebtedness incurred for the purpose of acquiring Capital Stock
of another Person, or assets comprising a business or line of business or
intangible assets or acquiring, constructing or improving fixed assets, in each
case related primarily to, or used in connection with, the paper or forest
products businesses and which (a) constitutes all or a portion of (but not more
than) the purchase price of such Capital Stock or assets (such purchase price
including any Indebtedness assumed or repaid in connection with such purchase)
or the cost of construction or improvement of such assets (together with any
transaction costs relating to such purchase, construction or improvement), (b)
is incurred prior to, at the time of or within 270 days after the acquisition,
construction or improvement of such assets for the purpose of financing the
purchase price of such Capital Stock or assets or the cost of construction or
improvement thereof (together with any transaction costs relating to such
purchase, construction or improvement) and (c) is the direct or guaranteed
obligation of any of (1) the Company, (2) a Restricted Subsidiary formed for the
purpose of acquiring such Capital Stock or assets (and having no other material
assets other than assets to be used for such acquisition), (3) any Person
comprised within the acquired assets or (4) in the case of the construction or
improvement of fixed assets, the Restricted Subsidiary which will own such
assets, or any extension, renewal or refinancing of such Indebtedness; PROVIDED,
HOWEVER, that the amount so extended, renewed or refinanced shall not exceed the
principal amount outstanding on the date of such extension, renewal or
refinancing, PLUS costs incurred in connection with any such extension, renewal
or refinancing (it being understood that any fixed assets included within
capital expenditures which

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<PAGE>
increased Indebtedness permitted under clause (i) of the definition of Permitted
Indebtedness pursuant to clause (1) to the proviso to such clause may not be
financed pursuant to this clause (vi));

(vii) Indebtedness in an aggregate principal amount not to exceed three
hundred million dollars ($300,000,000) at any one time outstanding; PROVIDED,
HOWEVER, that no Restricted Subsidiary may incur Indebtedness under this clause
(vii) to the extent that after the incurrence of such Indebtedness the sum
(without duplication) of (x) all Indebtedness of Restricted Subsidiaries
incurred under this clause (vii), PLUS (y) Indebtedness and other obligations
then secured pursuant to clause (xii) of the definition of Permitted Liens, PLUS
(z) the amount of Indebtedness that was not incurred pursuant to clause (i)(b)
of this definition and is secured pursuant to clause (vi) of the definition of
Permitted Liens shall not exceed three hundred million dollars ($300,000,000);

(viii) Indebtedness of the Company in an aggregate principal amount not
to exceed two hundred fifty million dollars ($250,000,000) at any one time
outstanding;

(ix) any Interest Swap Obligations, Currency Agreements or Commodities
Agreements relating to Indebtedness that was not incurred in violation of the
terms of this Indenture; and

(x) Indebtedness to finance an increase in the working capital of any
Person or Persons that (a) are organized under the laws of a jurisdiction other
than the United States or any subdivision thereof and (b) became Restricted
Subsidiaries after November 1, 1991; PROVIDED, HOWEVER, that Indebtedness
pursuant to this clause (x) is the obligation of the Company or such Person or
Persons.

"Permitted Liens" means, with respect to any Person,

(i) Ordinary Course of Business Liens;

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<PAGE>
cover any other property or assets other than such property, assets, improvement
and any other improvements thereon (or, in the case of any construction or
improvement, any substantially unimproved real property on which the property is
constructed or the improvement is located) and (d) the occurrence of such
Indebtedness is permitted by clause (vi) of the definition of Permitted
Indebtedness;

(iii) Liens securing obligations with respect to letters of credit
(other than commercial letters of credit) to the extent the obligations
supported by such letters of credit may be secured without violating Section
1007 hereof;

(iv) Liens covering property subject to any Capitalized Lease
Obligation or other lease which was not entered into in violation of this
Indenture securing the interest of the lessor or other Person under such
Capitalized Lease Obligation or other lease;

(v) Liens securing obligations to a trustee pursuant to the
compensation and indemnity provisions of any indenture (including this
Indenture) and Liens securing obligations to a trustee or agent with respect to
collateral for any Indebtedness;

(vi) Liens created in connection with a disposition of Receivables
(whether or not characterized as a sale of such Receivables or a secured loan)
not prohibited by this Indenture on (a) such Receivables, (b) collateral
securing such Receivables, (c) goods or services, the sale, lease or furnishing
of which gave rise to such Receivables, (d) books and records relating to such
Receivables, (e) agreements or arrangements supporting or securing such
Receivables and (f) incidental property and assets relating to any of the
foregoing; PROVIDED, HOWEVER, that the aggregate amount at any time of
Indebtedness that is secured pursuant to this clause (vi) and was not incurred
pursuant to clause (i)(b) of the definition of Permitted Indebtedness, shall at
no time exceed (x) three hundred million dollars ($300,000,000) LESS (y) the sum
of Indebtedness and other obligations then secured pursuant to clause (xii) of
this definition PLUS the then outstanding principal amount of Indebtedness of
Restricted Subsidiaries incurred under clause (vii) of the definition of
Permitted Indebtedness (and not secured pursuant to this clause (vi) or such
clause (xii));

25
<PAGE>
the Lien in substitution therefor, (b) the fair market value of the property or
assets with respect to the Lien so released is substantially the same as the
fair market value of the property or assets subject to the Lien created in
substitution therefor and (c) no Lien may be placed on property or assets of the
Company or a Restricted Subsidiary in substitution and exchange for a Lien upon
property or assets of an Unrestricted Subsidiary;

(viii) Liens upon property or assets of a Subsidiary of a Person
securing Indebtedness of such Person or of such Subsidiary, which Liens are
created in substitution and exchange for an outstanding pledge by such Person of
a majority of the Capital Stock of such Subsidiary for the purpose of securing
such Indebtedness (or a guaranty in respect thereof); PROVIDED , HOWEVER, that
if the property and assets of such Subsidiary to be subjected to such Liens have
a fair market value in excess of twenty-five million dollars ($25,000,000), such
Subsidiary shall have guaranteed the obligations of the Company in respect of
the First Mortgage Notes and, if requested by the Trustee, such Subsidiary shall
have waived all its rights of subrogation and reimbursement from the Company in
connection with such guaranty;

(x) Liens existing at November 1, 1991;

(xi) (a) Liens upon any property or assets of the Company and its
Restricted Subsidiaries securing Indebtedness under the Credit Agreements in a
principal amount not exceeding the principal amount outstanding or committed
under the Credit Agreements (including any letter of credit facility, but
without duplication with respect to commitments for loans the use of proceeds of
which is restricted to repayment of other Indebtedness under the Credit
Agreements) as of November 1, 1991 LESS (y) the proceeds from the sale of all
Indebtedness under the 1991 Indenture issued from time to time that are or have
been applied to repay Indebtedness under the Credit Agreements and PLUS (z) two
hundred fifty million dollars ($250,000,000) and (b) Liens securing Indebtedness
permitted by clause (i) of the definition of Permitted Indebtedness upon
property or assets that as of November 1, 1991 secured the Credit Agreements or
the Castlewood Agreement;

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<PAGE>

(xii) Liens securing Indebtedness or other obligations of the Company
and its Restricted Subsidiaries not to exceed an aggregate principal amount of
three hundred fifty million dollars ($350,000,000) LESS, at any time, the sum of
(y) the then outstanding principal amount of Indebtedness of Restricted
Subsidiaries incurred under clause (vii) of the definition of Permitted
Indebtedness (and not secured pursuant to this clause (xii) or clause (vi) of
this definition) PLUS (z) the amount of Indebtedness secured pursuant to clause
(vi) of this definition and not incurred pursuant to clause (i)(b) of the
definition of Permitted Indebtedness;

(xiii) Liens upon property or assets of a Subsidiary securing
Indebtedness or other obligations owing to the Company;

(xiv) Liens on proceeds of any property or assets subject to a Lien
permitted by the other clauses of this definition;

(xv) any equal and ratable Lien that is granted pursuant to the
Continental Guaranty and that relates to a Lien that otherwise constitutes a
Permitted Lien;

(xvi) Liens on property or assets used to defease Indebtedness that was
not incurred in violation of this Indenture;

(xvii) Liens on property or assets of any Restricted Subsidiary
organized under the laws of a jurisdiction other than the United States or any
subdivision thereof securing Indebtedness of such Restricted Subsidiary
outstanding as of November 1, 1991 (or any extension, renewal or refinancing
thereof);

(xviii) any extension, renewal or replacement (or successive
extensions, renewals or replacements) in whole or in part of any Lien referred
to in the foregoing clauses (i) through (xvii) (covering the same property and
assets as such Lien); and

(xix) Permitted Collateral Liens;

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<PAGE>
extension, renewal or refinancing thereof) outstanding at the time of incurrence
of such subsequent Indebtedness, or to finance any costs incurred in connection
with any such exchange, refinancing, redemption or defeasance, (ii) a Restricted
Subsidiary to the extent exchanged for, or the net proceeds of which are used to
refinance, redeem or defease, Indebtedness of such Restricted Subsidiary (or any
extension, renewal or refinancing thereof) outstanding at the time of incurrence
of such subsequent Indebtedness, or to finance any costs incurred in connection
with any such exchange, refinancing, redemption or defeasance, or (iii) the
Company or a Restricted Subsidiary to the extent exchanged for, or the net
proceeds of which are used to refinance, redeem or defease, any then outstanding
industrial revenue or development bonds that were outstanding at November 1,
1991 (or any extension, renewal or refinancing thereof), or to finance any costs
incurred in connection with such exchange, refinancing or defeasance; PROVIDED,
HOWEVER, that, in the case of (i), (ii) or (iii), the proceeds of such
Indebtedness shall be used to so refinance, redeem or defease the Indebtedness
within 12 months of the incurrence of such subsequent Indebtedness; and
PROVIDED, FURTHER, that the only Indebtedness which may be subject to exchange,
refinancing, redemption, or defeasance pursuant to clause (i), (ii) or (iii) of
this definition shall be Indebtedness outstanding as of November 1, 1991 (other
than Indebtedness under the Credit Agreements, Subordinated Indebtedness and
Indebtedness under lines of credit) or any extension, renewal or refinancing
thereof, and Indebtedness that was incurred after November 1, 1991 and before
the date hereof (other than solely as Permitted Indebtedness under the 1991
Indenture) or is incurred after the date hereof (other than solely as Permitted
Indebtedness).

"Permitted Stone Canada Indebtedness" means Indebtedness of the
Company or a Restricted Subsidiary in the Stone Canada Group outstanding
pursuant to lines of credit in an aggregate principal amount not to exceed one
hundred million dollars ($100,000,000), (of which not more than Canadian sixty
million dollars (Cn.$60,000,000) may be owed by Restricted Subsidiaries in the
Stone Canada Group) at any one time outstanding or pursuant to any extension,
renewal or refinancing of such outstanding amount PLUS any costs incurred in
connection with any such extension, renewal or refinancing; PROVIDED, HOWEVER,
that the aggregate principal amount permitted to be incurred under this
definition shall be reduced by the principal amount under lines of credit
outstanding on the date hereof net of subsequent repayments or reductions
thereof.

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<PAGE>
extension, renewal or refinancing thereof), or to finance any costs incurred in
connection with any such exchange, refinancing, redemption or defeasance;
PROVIDED, HOWEVER, that (a) such Subordinated Indebtedness does not have a
shorter weighted average life than that then remaining for, or a maturity
earlier than that of, the Indebtedness so exchanged, refinanced, redeemed or
defeased, EXCEPT that in the case of any exchange, such Subordinated
Indebtedness may have a maturity that is earlier (but not more than six months
earlier) than that of the Indebtedness so exchanged, PROVIDED that the
Subordinated Indebtedness shall have the same or a longer weighted average life
than that then remaining for the Indebtedness so exchanged and (b) in the case
of refinancings, redemptions or defeasances, the proceeds of such Subordinated
Indebtedness shall be used to so refinance, redeem or defease the Indebtedness
within 12 months of the incurrence of such subsequent Subordinated Indebtedness;
and (ii) Indebtedness of the Company in an aggregate principal amount not to
exceed two hundred fifty million dollars ($250,000,000) at any one time
outstanding, so long as such Indebtedness (a) constitutes Subordinated
Indebtedness and (b) does not have (A) a weighted average life that is shorter
than that then remaining for the (x) the Company's 9 7/8% Senior Notes due 2000
then outstanding or (y) the First Mortgage Notes then Outstanding or (B) a
maturity that is earlier than the latest maturity of (x) the Company's 9 7/8%
Senior Notes due 2000 then outstanding or (y) the First Mortgage Notes then
Outstanding.

"Permits" shall have the meaning provided in the Security Documents.

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

"Place of Payment", means The City of New York or any other place or
places where the principal of (and premium, if any) and interest on the First
Mortgage Notes are payable.

"Predecessor First Mortgage Note" of any particular First Mortgage
Note means every previous First Mortgage Note evidencing all or a portion of the
same debt as that evidenced by such particular First Mortgage Note; and, for the
purposes of this definition, any First Mortgage Note authenticated and delivered
under Section 306 in exchange for or in lieu of a mutilated, destroyed, lost or
stolen First Mortgage Note shall be deemed to evidence the same debt as the
mutilated, destroyed, lost or stolen First Mortgage Note.

"Rate Determination Period" means the four full weeks ending on the
seventh Business Day prior to a Reset Date.

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<PAGE>
"Receivables" means receivables, chattel paper, instruments, documents
or intangibles evidencing or relating to the right to payment of money.

"Record Date" for the interest payable on any Interest Payment Date
means the close of business on the ________ __ or ________ __, as the case may
be, whether or not a Business Day, immediately preceding the Interest Payment
Date on which such interest is payable.

"Redeemable Stock" means, with respect to any Person, any Capital
Stock that by its terms or otherwise is required to be redeemed or purchased by
such Person or any of its Subsidiaries prior to 30 days after the maturity date
of the First Mortgage Notes then Outstanding, or is redeemable or subject to
mandatory purchase or similar put rights at the option of the Holder thereof at
any time prior to 30 days after the latest maturity date of the First Mortgage
Notes then Outstanding, or any security which is convertible or exchangeable
into a security which has such provisions.

"Redemption Date" means the date fixed for redemption of any First
Mortgage Note by or pursuant to this Indenture.

"Redemption Price" means the price at which any First Mortgage Note is
to be redeemed pursuant to this Indenture.

"Register" and "Registrar" have the respective meanings specified in
Section 305.

"Release" means any releasing, spilling, emitting, emptying, leaking,
pumping, pouring, injecting, depositing, disposing, dumping, discharge,
dispersing, leaching, escaping, emanating or migrating of any Contaminant in,
on, into or onto the environment, including without limitation the movement of
any Contaminant through or in the environment, the abandonment or discard of
barrels, containers, tanks or other receptacles containing any Contaminant, or
any release, emission or discharge other than permitted releases as those terms
are defined in any Environmental Laws.

"Remedial Action" means actions required to (i) clean up, remove,
treat or in any other way address Contaminants in the indoor or outdoor
environment; (ii) prevent or minimize the Release or threat of Release of
Contaminants; or (iii) perform pre-remedial studies and investigations and post-
remedial monitoring and care.

"Replacement Collateral" means, at any relevant date in connection
with a Collateral Asset Disposition, Collateral Loss Event or Condemnation (the
proceeds of which are to be used in accordance with the last sentence of Section
1610(d)), assets

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located in North America to be used in the pulp and paper business as conducted
by the Company at such date other than the Collateral, which on such date, (a)
constitute similar assets to Collateral disposed of or destroyed (and do not
constitute Capital Stock of any Person (except for Non-Cash Consideration to the
extent permitted by Section 1015(a) in connection with a Collateral Asset
Disposition)), (b) are acquired by the Company at a purchase price which does
not exceed the fair market value of such Replacement Collateral (as determined,
in the case of each of (a) and (b), in good faith by a majority of the Board of
Directors, including a majority of the Independent Directors, on the basis of
the written opinion of a qualified Independent Appraiser or Independent
Financial Adviser prepared contemporaneously with such purchase) and made
available to the Trustee, (c) are free and clear of all Liens other than
Permitted Collateral Liens and (d) satisfy the requirements of Section 1015(c).

"Reset Date" means a date on which the interest rate on the First
Mortgage Notes shall be reset pursuant to Section 1102(a).

"Reset Rate" shall have the meaning provided in Section 1102(a).

"Responsible Officer", when used with respect to the Trustee, means
the chairman or any vice-chairman of the board of directors, the chairman or any
vice-chairman of the executive committee of the board of directors, the chairman
of the trust committee, the president, any vice president, the secretary, any
assistant secretary, the treasurer, any assistant treasurer, the cashier, any
assistant cashier, any senior trust officer or assistant trust officer, the
controller or any assistant controller or any other officer of the Trustee
customarily performing functions similar to those performed by any of the above
designated officers and also means, with respect to a particular corporate trust
matter, any other officer to whom such matter is referred because of his
knowledge of and familiarity with the particular subject.

"Restoration" or "Restore" means the physical repair, restoration or
rebuilding of all or any portion of the Collateral following any Casualty or
Condemnation.

"Restricted Payment" shall have the meaning provided in Section 1006.

"Restricted Subsidiary" means any Subsidiary of the Company other than
an Unrestricted Subsidiary.

"Security Documents" means, collectively, the mortgages, security
agreements, financing statements and

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assignments of rents and each other agreement executed and delivered pursuant to
and in connection with any such documents or which otherwise grants a Lien to
secure the First Mortgage Notes.

"Seminole" means Seminole Kraft Corporation, a Delaware corporation.

"Senior Indebtedness" means the principal of, interest on and other
amounts due on (i) Indebtedness of the Company, whether outstanding on the date
hereof or thereafter created, incurred, assumed or guaranteed by the Company, on
or prior to the date hereof in compliance with the 1991 Indenture and
thereafter, in compliance with Section 1008 hereof (including, without
limitation, the Company's ____% Senior Notes due 2004 and the First Mortgage
Notes), (ii) obligations of the Company related to the termination of Interest
Swap Obligations, Currency Agreements or Commodities Agreements pertaining to
Indebtedness described under clause (i) above and (iii) principal of or interest
on the First Mortgage Notes. Notwithstanding anything to the contrary in the
foregoing, Senior Indebtedness shall not include: (a) Subordinated
Indebtedness, (b) Indebtedness of or amounts owed by the Company for
compensation to employees, for goods or materials purchased in the ordinary
course of business or for services or (c) Indebtedness of the Company to a
Subsidiary of the Company.

"Seven Year Treasury Rate" means the arithmetic average (rounded to
the nearest basis point) of the weekly average per annum yield to maturity
values adjusted to constant maturities of seven years, for the Rate
Determination Period as determined from the yield curves of the most actively
traded marketable United States Treasury fixed interest rate securities (x)
constructed daily by the United States Treasury Department (i) as published by
the Federal Reserve Board in its Statistical Release H.15 (519), "Selected
Interest Rates," which weekly average yield to maturity values currently are set
forth in such Statistical Release under the caption "U.S. Government
Securities--Treasury Constant Maturities--7 Year" or (ii) if said Statistical
Release H.15 (519) is not then published, as published by the Federal Reserve
Board in any release comparable to its Statistical Release H.15 (519) or (iii)
if the Federal Reserve Board shall not be publishing a comparable release, as
published in any official publication or release of any other United States
Government Department or agency, or (y) if the United States Treasury Department
shall not then be constructing such yield curves, then as constructed by the
Federal Reserve Board or any other United States Government Department or agency
and published as set forth in (x) above. However, if the Seven Year Treasury
Rate cannot be determined as provided above, then the Seven Year Treasury Rate
shall mean the arithmetic average (rounded to the nearest basis point) of the
per annum yields to maturity for each

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Business Day during the Rate Determination Period of all of the issues of
actively trading issues of non-interest bearing United States Treasury fixed
interest rate securities with a maturity of not less than 81 months nor more
than 87 months from such Business Day (1) as published in THE WALL STREET
JOURNAL or (2) if THE WALL STREET JOURNAL shall cease such publication, based on
average asked prices (or yields) as quoted by each of three United States
Government securities dealers of recognized national standing selected by the
Company.

"Southshore Agreement" has the meaning specified in subparagraph 2(A)
of the definition of "Permitted Indebtedness."

"Special Record Date" for the payment of any Defaulted Interest means
a date fixed by the Trustee pursuant to Section 307.

"Specified Bank Debt" means (i) all Indebtedness and other monetary
obligations owing under the New Credit Agreement or any credit facilities with
the banks signatory to the New Credit Agreement (or with banks affiliated with
such banks), so long as such facilities are related to the New Credit Agreement;
and (ii) Indebtedness owing as of the date hereof or hereafter to banks or other
financial institutions under credit facilities which may in the future
refinance, refund, replace, supplement or succeed (regardless of any gaps in
time) the New Credit Agreements or the facilities referenced in clause (i)
hereof (including extensions and restructurings and the inclusion of additional
or different or substitute lenders), so long as (a) the aggregate principal
amount outstanding (including available amounts under committed revolving credit
or similar working capital facilities, letter of credit facilities and other
commitments to provide credit) of such Indebtedness is at least equal to the
principal of all publicly issued Senior Indebtedness (including without
limitation, the First Mortgage Notes, the __% Senior Notes due 2004, and
Indebtedness under the 1991 Indenture) then Outstanding (it being understood
that Indebtedness described in clause (i) above and issues of Indebtedness
having a principal amount lower than set forth in clause (b) below shall not be
included in this amount), (b) Indebtedness outstanding under each particular
credit facility has a principal amount outstanding (including available amounts
under committed revolving credit or similar working capital facilities, letter
of credit facilities and other commitments to provide credit) of at least
twenty-five million dollars ($25,000,000) and (c) such Indebtedness constitutes
Senior Indebtedness.

"Stated Maturity," when used with respect to any First Mortgage Note
or any installment of principal thereof or interest thereon, means the date
specified in such First Mortgage Note as the fixed date on which the principal
of such First Mortgage Note or any installment of principal or interest is due
and payable.

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"Stone Canada" means Stone Container (Canada) Inc., a company
organized under the Canadian Business Corporations Act.

"Stone Canada Group" means Stone Canada and its Restricted
Subsidiaries existing as of the date hereof.

"Stone Southwest" means Stone Southwest, Inc., a Delaware corporation.

"Subordinated Capital Base" means the sum of (i) the Consolidated Net
Worth and (ii) to the extent not included in clause (i) above, the amounts
(without duplication) relating to (a) the principal amount of Subordinated
Indebtedness incurred after November 1, 1991 which is unsecured and which does
not have at the time of incurrence of such Subordinated Indebtedness a weighted
average life that is shorter than the weighted average life remaining for the
then outstanding Indebtedness under the 1991 Indenture issued prior to the date
hereof, or if less than $500,000,000 of such Indebtedness is outstanding, the
First Mortgage Notes or a maturity that is earlier than the maturity of any of
the then Outstanding Indebtedness under this Indenture, or if less than
$500,000,000 of such Indebtedness is outstanding, the First Mortgage Notes,
(b) redeemable stock of the Company that does not constitute Redeemable Stock
and (c) the principal amount of the 11-1/2% Senior Subordinated Notes due
September 1, 1999 of the Company and the 12-1/8% Subordinated Debentures
due September 15, 2001 of Stone Southwest or any Subordinated Indebtedness
exchanged for, or the net proceeds of which are used to refinance, redeem or
defease, such 11 1/2% Senior Subordinated Notes due September 1, 1999 (or, at
such time as no Indebtedness is outstanding under the 1991 Indenture, such
12 1/8% Subordinated Debentures due September 15, 2001) pursuant to clause
(ii) of the definition of "Permitted Indebtedness", that, in the case of clauses
(a), (b) and (c), as at the date of determination, in conformity with GAAP
consistently applied, would be set forth on the consolidated balance sheet of
the Company and its Restricted Subsidiaries.

"Subordinated Indebtedness" means Indebtedness of the Company (whether
outstanding on the date hereof or hereafter created, incurred, assumed or
guaranteed by the Company) which, pursuant to the terms of the instrument
creating or evidencing the same, is subordinate to the First Mortgage Notes in
right of payment or in rights upon liquidation.

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controlled by such Person, or by one or more other corporations a majority in
interest of such stock of which is similarly owned or controlled, or by such
Person and one or more other corporations a majority in interest of such stock
of which is similarly owned or controlled or (ii) any other Person (other than a
corporation) in which such Person, directly or indirectly, at the date of
determination thereof, has at least a majority equity ownership interest;
PROVIDED, HOWEVER, that, with respect to the Company, for purposes of this
Indenture (other than Section 1007(b)), "Subsidiary" shall not include Seminole.

"Ten Year Treasury Rate" means the arithmetic average (rounded to the
nearest basis point) of the weekly average per annum yield to maturity values
(adjusted to constant maturities of ten years, for the Rate Determination Period
as determined from the yield curves of the most actively traded marketable
United States Treasury fixed interest rate securities (x) constructed daily by
the United States Treasury Department (i) as published by the Federal Reserve
Board in its Statistical Release H.15 (519), "Selected Interest Rates." which
weekly average yield to maturity values currently are set forth in such
Statistical Release under the caption "U.S. Government Securities--Treasury
Constant Maturities-10 Year" or (ii) if said Statistical Release H.15 (519) is
not then published, as published by the Federal Reserve Board in any release
comparable to its Statistical Release H.15 or (iii) if the Federal Reserve Board
shall not be publishing a comparable release, as published in any official
publication or release of any other United States Government Department or
agency, or (y) if the United States Treasury Department shall not then be
constructing such yield curves, then as constructed by the Federal Reserve Board
or any other United States Government Department or agency and published as set
forth in (x) above. However, if the Ten Year Treasury Rate cannot be determined
as provided above, then the Ten Year Treasury Rate shall mean the arithmetic
average (rounded to the nearest basis point) of the per annum yields to maturity
for each Business Day during the Rate Determination Period of all of the issues
of actively trading issues of non-interest bearing United States Treasury fixed
interest rate securities with a maturity of not less then 117 months nor more
than 123 months from such Business Day (1) as published in THE WALL STREET
JOURNAL or (2) if THE WALL STREET JOURNAL shall cease such publication, based on
average asked prices (or yields) as quoted by each of three United States
Government securities dealers of recognized national standing selected by the
Company.

"Trustee" means the Person named as the "Trustee" in the first
paragraph of this instrument until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean or include each Person who is then a Trustee hereunder.

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"Trust Indenture Act" means the Trust Indenture Act of 1939, as
amended, as in force at the date as of which this Indenture was executed;
PROVIDED, HOWEVER, that in the event that such Act is amended after such date,
"Trust Indenture Act" means, to the extent required by any such amendment, the
Trust Indenture Act of 1939 as so amended.

"Two Year Treasury Rate" means the arithmetic average (rounded to the
nearest basis point) of the weekly average per annum yield to maturity values
adjusted to constant maturities of two years, for the Rate Determination Period
as determined from the yield curves of the most actively traded marketable
United States Treasury fixed interest rate securities (x) constructed daily by
the United States Treasury Department (i) as published by the Federal Reserve
Board in its Statistical Release H.15 (519), "Selected Interest Rates," which
weekly average yield to maturity values currently are set forth in such
Statistical Release under the caption "U.S. Government Securities -- Treasury
Constant Maturities -- 2 Years" or (ii) if said Statistical Release H.15 (519)
is not then published, as published by the Federal Reserve Board in any release
comparable to its Statistical Release H.15 (519) or (iii) if the Federal Reserve
Board shall not be publishing a comparable release, as published in any official
publication or release of any other United States Government Department or
agency, or (y) if the United States Treasury Department shall not then be
constructing such yield curves, then as constructed by the Federal Reserve Board
or any other United States Government Department or agency and published as set
forth in (x) above. However, if the Two Year Treasury Rate cannot be determined
as provided above, then the Two Year Treasury Rate shall mean the arithmetic
average (rounded to the nearest basis point) of the per annum yields to maturity
for each Business Day during the Rate Determination Period of all of the issues
of actively trading issues of non-interest bearing United States Treasury fixed
interest rate securities with a maturity of not less than 21 months nor more
than 27 months from such Business Day (1) as published in THE WALL STREET
JOURNAL or (2) if THE WALL STREET JOURNAL shall cease such publication, based on
average asked prices (or yields) as quoted by each of three United States
Government securities dealers of recognized national standing selected by the
Company.

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<PAGE>
House bank or trust company as custodian with respect to any such U.S.
Government Obligation or a specific payment of interest on or principal of any
such U.S. Government Obligation held by such custodian for the account of the
holder of a depository receipt, PROVIDED that (EXCEPT as required by law) such
custodian is not authorized to make any deduction from the amount payable to the
holder of such depository receipt or from any amount held by the custodian in
respect of the U.S. Government Obligation or the specific payment of interest on
or principal of the U.S. Government Obligation evidenced by such depository
receipt.

"Unrestricted Subsidiary" means a Subsidiary of the Company which has
been designated as an "Unrestricted Subsidiary" for purposes of this Indenture
by the Company and (i) at least 20% of whose common stock is held by one or more
Persons (other than the Company and its Affiliates) which acquired such common
stock in a BONA FIDE transaction for fair value and (b) at least 10% of whose
total capitalization at the time of designation is in the form of common stock
or at least 15% of the fair market value of whose assets at such time shall have
been contributed by such Persons. An Unrestricted Subsidiary may be designated
to be a Restricted Subsidiary only if, at the time of such designation, all
Indebtedness and Liens of such Subsidiary could be incurred under this
Indenture. As of the date of this Indenture, the Company's Unrestricted
Subsidiaries are Stone-Consolidated Corporation and its Subsidiaries.

"Vice President", when used with respect to the Company or the
Trustee, means any vice president, whether or not designated by a number or a
word or words added before or after the title "vice president".

"Work" shall have the meaning provided in Section 1610(b)(1).

SECTION 102. COMPLIANCE CERTIFICATES AND OPINIONS.

Upon any application or request by the Company to the Trustee to take
any action under any provision of this Indenture, the Company shall furnish to
the Trustee an Officer's Certificate stating that all conditions precedent, if
any, provided for in this Indenture relating to the proposed action have been
complied with and an Opinion of Counsel stating that in the opinion of such
counsel all such conditions precedent, if any, have been complied with, except
that in the case of any such application or request as to which the furnishing
of such documents is specifically required by any provision of this Indenture
relating to such particular application or request, no additional certificate or
opinion need be furnished.

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Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:

(1) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;

(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;

(3) a statement that, in the opinion of each such individual, he has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or condition
has been complied with; and

(4) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.

SECTION 103. FORM OF DOCUMENTS DELIVERED TO TRUSTEE.

In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.

Any certificate or opinion of an Officer may be based, insofar as it
relates to legal matters, upon a certificate or opinion of, or representations
by, counsel, unless such Officer knows, or in the exercise of reasonable care
should know, that the certificate or opinion or representations with respect to
the matters upon which his certificate or opinion is based are erroneous. Any
such certificate or Opinion of Counsel may be based, insofar as it relates to
factual matters, upon a certificate or opinion of, or representations by, an
Officer or Officers of the Company stating that the information with respect to
such factual matters is in the possession of the Company, unless such counsel
knows, or in the exercise of reasonable care should know, that the certificate
or opinion or representations with respect to such matters are erroneous.

Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates,

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statements, opinions or other instruments under this Indenture, they may, but
need not, be consolidated and form one instrument.

SECTION 104. ACTS OF HOLDERS.

(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by agents duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Indenture and (subject to Section 601) conclusive in favor of the Trustee and
the Company, if made in the manner provided in this Section.

(b) The fact and date of the execution by any Person or any such
instrument or writing may be proved by the affidavit or a witness of such
execution or by a certificate of a notary public or other Person authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where
such execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of his authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner which the Trustee deems sufficient.

(d) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Holder of any First Mortgage Note shall bind every
future Holder of the same First Mortgage Note and the Holder of every First
Mortgage Note issued upon the registration of transfer thereof or in exchange
therefor in lieu thereof in respect of anything done, omitted or suffered to be
done by the Trustee or the Company in reliance thereon, whether or not notation
of such action is made upon such First Mortgage Note.

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the determination of Holders entitled to give such request, demand,
authorization, direction, notice, consent, waiver or other Act, but the Company
shall have no obligation to do so. If such a record date is fixed, such
request, demand, authorization, direction, notice, consent, waiver or other Act
(including revocation thereof) may be given before or after such record date,
but only the Holders of record at the close of business on such record date
shall be deemed to be Holders for the purposes of determining whether Holders of
the requisite proportion of Outstanding First Mortgage Notes have authorized or
agreed or consented to such request, demand, authorization, direction, notice,
consent, waiver or other Act, and for that purpose the Outstanding First
Mortgage Notes shall be computed as of such record date; PROVIDED that no such
authorization, agreement or consent by the Holders on such record date shall be
deemed effective unless it shall become effective pursuant to the provisions of
this Indenture not later than six months after the record date.

SECTION 105. NOTICES, ETC., TO TRUSTEE AND COMPANY.

Any request, demand, authorization, direction, notice, consent, waiver
or Act of Holders or other document provided or permitted by this Indenture to
be made upon, given or furnished to, or filed with:

(1) the Trustee by any Holder or by the Company shall be sufficient
for every purpose hereunder if made, given, furnished or filed in writing
to or with the Trustee at its Corporate Trust Office, or

(2) the Company by the Trustee or by any Holder shall be sufficient
for every purpose hereunder (unless otherwise herein expressly provided) if
in writing and mailed, first-class postage prepaid, to the Company
addressed to it at the address of its principal office specified in the
first paragraph of this Indenture, attention: Secretary or at any other
address previously furnished in writing to the Trustee by the Company.

SECTION 106. NOTICE TO HOLDERS; WAIVER.

Where this Indenture or any First Mortgage Note provides for notice to
Holders of any event, such notice shall be deemed sufficiently given (unless
otherwise herein or in such First Mortgage Note expressly provided) if in
writing and mailed, first-class postage prepaid, to each Holder affected by such
event, at his address as it appears in the Register, not later than the latest
date, and not earlier than the earliest date, prescribed for the giving of such
notice. In any case where notice to Holders is given by mail, neither the
failure to mail such notice, nor any defect in any notice so mailed, to any

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<PAGE>
particular Holder shall affect the sufficiency of such notice with respect to
other Holders or the validity of the proceedings to which such notice relates.
Where this Indenture or any First Mortgage Note provides for notice in any
manner, such notice may be waived in writing by the Person entitled to receive
such notice, either before or after the event, and such waiver shall be the
equivalent of such notice. Waivers of notice by Holders shall be filed with the
Trustee, but such filing shall not be a condition precedent to the validity of
any action taken in reliance upon such waiver.

In case by reason of the suspension of regular mail service or by
reason of any other cause it shall be impracticable to give such notice by mail,
then such notification as shall be made with the approval of the Trustee shall
constitute a sufficient notification for every purpose hereunder.

Any request, demand, authorization, direction, notice, consent or
waiver required or permitted under this Indenture shall be in the English
language, except that any published notice may be in an official language of the
country of publication.

SECTION 107. CONFLICT WITH TRUST INDENTURE ACT.

If any provision hereof limits, qualifies or conflicts with another
provision hereof which is required to be included in this Indenture by any of
the provisions of the Trust Indenture Act (including, without limitation,
Sections 310 through 317, inclusive, of the Trust Indenture Act in accordance
with Section 318(c) thereof), such required provision shall control, provided
that, in cases where a provision of this Indenture requires that opinions or
certificates be given by an independent person, such requirement shall apply
notwithstanding that Section 314(d) of the Trust Indenture Act might otherwise
permit such certificate to be given by an officer or employee of the Company.
If any provision of this Indenture modifies or excludes any provision of the
Trust Indenture Act that may be so modified or excluded, the latter provision
shall be deemed to apply to this Indenture as so modified or shall be excluded,
as the case may be.

SECTION 108. EFFECT OF HEADINGS AND TABLE OF CONTENTS.

The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.

SECTION 109. SUCCESSORS AND ASSIGNS.

All covenants and agreements in this Indenture by the Company shall
bind its successors and assigns, whether so expressed or not.

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SECTION 110. SEPARABILITY CLAUSE.

In case any provision in this Indenture or in the First Mortgage Notes
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.

SECTION 111. BENEFITS OF INDENTURE.

Nothing in this Indenture, in the Security Documents or in the First
Mortgage Notes, express or implied, shall give to any Person, other than the
parties hereto or thereto and their successors hereunder and the Holders, any
benefit or any legal or equitable right, remedy or claim under this Indenture.

SECTION 112. GOVERNING LAW.

This Indenture and the First Mortgage Notes shall be governed by and
construed in accordance with the laws (other than the choice of law provisions)
of the State of New York.

SECTION 113. LEGAL HOLIDAYS.

In any case where any Interest Payment Date, Redemption Date or Stated
Maturity of any First Mortgage Note, or any other payment date, including,
without limitation, any Asset Disposition Payment Date, Change of Control
Payment Date or First Mortgage Note Payment Date, shall not be a Business Day,
then (notwithstanding any other provision of this Indenture or of the First
Mortgage Notes) payment of interest or principal (and premium, if any) need not
be made on such date, but may be made on the next succeeding Business Day with
the same force and effect as if made on the Interest Payment Date or Redemption
Date, or at the Stated Maturity or other payment date, PROVIDED that no interest
shall accrue for the period from and after such Interest Payment Date,
Redemption Date or Stated Maturity or other payment date, as the case may be.

SECTION 114. NO RECOURSE AGAINST OTHERS.

A director, officer, employee or stockholders, as such, of the Company
shall not have any liability for any obligations of the Company under the First
Mortgage Notes, this Indenture or any Security Document, or for any claim based
on, in respect of or by reason of such obligations or their creation. Each
Securityholder, by accepting a First Mortgage Note, waives and releases all such
liability. Such waivers and releases are part of the consideration for the
issuance of the First Mortgage Notes.

SECTION 115. INCORPORATION BY REFERENCE TO

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TRUST INDENTURE ACT.

Whenever this Indenture refers to a provision of the Trust Indenture
Act, the provision is incorporated by reference in and made a part of this
Indenture. The following Trust Indenture Act terms incorporated by reference in
this Indenture have the following meanings:

"indenture securities" means the First Mortgage Notes.

"indenture security holder" means a Holder or a Securityholder.

"indenture to be qualified" means this Indenture.

"indenture trustee" or "institutional trustee" means the Trustee.

"obligor" on the indenture securities means the Company or any other
obligor on the First Mortgage Notes, if any.

All other Trust Indenture Act terms used or incorporated by reference
in this Indenture that are defined by the Trust Indenture Act, defined by Trust
Indenture Act reference to another statute or defined by Commission rule have
the meanings assigned to them therein.

ARTICLE TWO

FIRST MORTGAGE NOTE FORMS

SECTION 201. FORMS GENERALLY.

The First Mortgage Notes shall be in substantially the form set forth
in this Article, with such appropriate insertions, omissions, substitutions and
other variations as are required or permitted by this Indenture, and may have
such letters, numbers or other marks of identification and such legends or
endorsements placed thereon as may be required to comply with the rules of any
securities exchange or as may, consistently herewith, be determined by the
Officers executing such First Mortgage Notes, as evidenced by their execution of
the First Mortgage Notes. The definitive First Mortgage Notes shall be printed,
lithographed or engraved on steel engraved borders or may be produced in any
other manner, all as determined by the officers executing such First Mortgage
Notes, as evidenced by their execution of such First Mortgage Notes.

SECTION 202. FORM OF FACE OF FIRST MORTGAGE NOTE.

Each First Mortgage Note shall be in substantially the following form:

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(Face of First Mortgage Note)

STONE CONTAINER CORPORATION

___% First Mortgage Notes due 2002

Number R__________ $_____________

STONE CONTAINER CORPORATION, a corporation duly organized and existing
under the laws of Delaware (herein called the "Company," which term includes any
successor corporation under the Indenture hereinafter referred to), for value
received, hereby promises to pay to ______________________ or registered
assigns, the principal sum of _____________ DOLLARS on _________ __, 2002, and
to pay interest thereon from the date hereof or from the most recent Interest
Payment Date to which interest has been paid or duly provided for, semi-annually
on ________ __ and ________ __ of each year (commencing ________ __, 1995), at
the rate of ___% per annum, until the principal hereof is paid or made available
for payment. The interest so payable, and punctually paid or duly provided for,
on any Interest Payment Date will, as provided in such Indenture, be paid to the
Person in whose name this First Mortgage Note (or one or more Predecessor First
Mortgage Notes) is registered at the close of business on the Record Date for
such interest, which shall be the ________ __ or ________ __ (whether or not a
Business Day), as the case may be, preceding such Interest Payment Date. Any
such interest not so punctually paid or duly provided for will forthwith cease
to be payable to the Holder on such Record Date and may either be paid to the
Person in whose name this First Mortgage Note (or one or more Predecessor First
Mortgage Notes) is registered at the close of business on a Special Record Date
for the payment of such Defaulted Interest to be fixed by the Trustee, notice
whereof shall be given to Holders of First Mortgage Notes not less than 10 days
prior to such Special Record Date, or be paid at any time in any other lawful
manner not inconsistent with the requirements of any securities exchange on
which the First Mortgage Notes may be listed, and upon such notice as may be
required by such exchange, all as more fully provided in the Indenture.

Payment of the principal of (and premium, if any) and interest on this
First Mortgage Note will be made at the office or agency of the Company
maintained for that purpose in the Borough of Manhattan, The City of New York in
dollars; PROVIDED, HOWEVER, that at the option of the Company, payment of
interest may be made by check mailed to the address of the Person entitled
thereto as such address shall appear in the Register.

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Reference is hereby made to the further provisions of this First
Mortgage Note set forth on the reverse hereof, which further provisions shall
for all purposes have the same effect as if set forth at this place.

Unless the certificate of authentication hereon has been executed by
the Trustee referred to on the reverse hereof by manual signature, this First
Mortgage Note shall not be entitled to any benefit under the Indenture or be
valid or obligatory for any purpose.

IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.

STONE CONTAINER CORPORATION

By:________________________

[CORPORATE SEAL]

Attest:

______________________

SECTION 203. FORM OF REVERSE OF FIRST MORTGAGE NOTE.

(Reverse of First Mortgage Note)

1. This First Mortgage Note is one of a duly authorized issue of
securities of the Company designated as its "_____% First Mortgage Notes due
2002" (herein called the "First Mortgage Notes") limited in aggregate principal
amount to $500,000,000.00, issued and to be issued in a single series under, and
equally and ratably secured by or pursuant to, an indenture dated as of October
__, 1994 (as amended or supplemented from time to time, the "Indenture") between
the Company and Norwest Bank Minnesota, National Association, as trustee (the
"Trustee," which term includes any successor Trustee under the Indenture), to
which Indenture reference is hereby made for a statement of the respective
rights, limitations of rights, duties and immunities thereunder of the Company,
the Trustee and each of the Holders and of the terms upon which the First
Mortgage Notes are, and are to be, authenticated and delivered. All terms used
in this First Mortgage Note which are not defined herein shall have the meanings
assigned to them in the Indenture.

2. As provided in the Indenture, the First Mortgage Notes are secured by
a pledge of the Collateral. The Trustee shall be entitled to the benefits of
the Liens on the Collateral under this Indenture and the Security Documents as
the same may be amended from time to time

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pursuant to the respective provisions thereof and of the Indenture, subject only
to Permitted Collateral Liens, for the benefit of each Holder accepting a First
Mortgage Note.

3. Interest on this First Mortgage Note will be computed on the basis of
a 360-day year of twelve, 30-day months. Each payment of interest in respect of
an Interest Payment Date will include interest accrued through the day before
such Interest Payment Date. If an Interest Payment Date falls on a day that is
not a Business Day, the interest payment to be made on such Interest Payment
Date will be made on the next succeeding Business Day with the same force and
effect as if made on such Interest Payment Date, and no additional interest will
accrue as a result of such delayed payment. If any payment of principal of
(premium, if any) or installment of interest on this First Mortgage Note is not
paid when due then, to the extent that payment of such interest shall be legally
enforceable, interest upon such overdue principal (and premium, if any) and
installment of interest, shall be paid at the rate set forth on the face of this
First Mortgage Note.

4. The First Mortgage Notes are subject to redemption upon not less than
30 days' notice nor more that 45 days' notice by mail, at any time on or after
_______, 1999, as a whole or from time to time in part, at the election of the
Company, at a Redemption Price equal to _____% of the principal amount thereof
if redeemed between ________, 1999, and _______ __, 2000 equal to __% of the
principal amount thereof if redeemed between ________, 2000 and ________, 2001
and at 100% of the principal amount thereof if redeemed on or after
_______ __, 2001 and prior to the Maturity Date, in each case, plus accrued
interest (if any) to the Redemption Date, but interest installments whose
Stated Maturity is on or prior to such Redemption Date will be payable to the
Holders of such First Mortgage Notes, or one or more Predecessor First Mortgage
Notes, of record at the close on the relevant Record Dates referred to on the
face hereof, all as provided in the Indenture.

5. Under certain circumstances following a Collateral Asset Disposition,
Collateral Loss Event or Asset Disposition, the Company may offer to repurchase
First Mortgage Notes at a repurchase price equal to 100% of the principal amount
thereof, plus accrued interest to the date of repurchase, from the Net Proceeds
(or Excess Proceeds, as appropriate) of such Collateral Asset Disposition or
Collateral Loss Event or proceeds of such Asset Disposition, as provided in, and
subject to the terms of, the Indenture. The Company is required to give Holders
notice of such right within the period specified in the Indenture. Holders may
tender their First Mortgage Notes for repurchase on or prior to the close of
business on the applicable payment date. If the aggregate principal amount of
First Mortgage Notes surrendered for repurchase exceeds the aggregate principal
amount of the applicable offer price, the selection of the First Mortgage Notes

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to be repurchased shall be made by the Trustee on a PRO RATA basis.

6. EXCEPT as set forth below, as provided in the Indenture, in the event
that the Company's Subordinated Capital Base is less than one billion dollars
($1,000,000,000) (the "Minimum Subordinated Capital Base") as at the end of each
of any two consecutive fiscal quarters (the last day of the second such fiscal
quarter, a "Deficiency Date"), then the Company shall no later than 60 days
after the Deficiency Date (105 days if a Deficiency Date is also the end of the
Company's fiscal year) make an offer to all Holders to purchase (a "Deficiency
Offer") 10% of the principal amount of the First Mortgage Notes originally
issued, or such lesser amount as may be Outstanding at the time such Deficiency
Offer is made (the "Deficiency Offer Amount"), at a purchase price equal to 100%
of principal amount, plus accrued and unpaid interest to the Deficiency Payment
Date. Thereafter, semi-annually the Company shall make like Deficiency Offers
for the then applicable Deficiency Offer Amount of First Mortgage Notes until
the Company's Subordinated Capital Base as at the end of any subsequent fiscal
quarter shall be equal to or greater than the Minimum Subordinated Capital Base.
Notwithstanding the foregoing, after any specified Deficiency Date, the last day
of any subsequent fiscal quarter shall not constitute a Deficiency Date (giving
rise to an additional obligation under the first sentence of this paragraph)
unless the Company's Subordinated Capital Base was equal to or greater than the
Minimum Subordinated Capital Base as at the end of a fiscal quarter that
followed such specified Deficiency Date and preceded such subsequent quarter.

7. Notwithstanding the foregoing, as provided in the Indenture, in the
event that (1) the making of a Deficiency Offer by the Company or (2) the
purchase of First Mortgage Notes by the Company in respect of a Deficiency Offer
would constitute a default (with the giving of notice, the passage of time or
both) with respect to any Specified Bank Debt at the time outstanding, then, in
lieu of the making of a Deficiency Offer in the circumstances set forth above,
(i) the interest rate on the First Mortgage Notes shall be reset as of the first
day of the second fiscal quarter following the Deficiency Date (the "Reset
Date") to a rate per annum (the "Reset Rate") equal to the greater of (x) the
Initial Interest Rate and (y) the sum of (A) ____ basis points and (B) the
higher of the [ Year Treasury Rate] and the [ Year Treasury Rate], (ii) on the
first Interest Payment Date following the Reset Date, the interest rate on the
First Mortgage Notes, as reset on the Reset Date, shall increase by fifty (50)
basis points, and (iii) the interest rate on the First Mortgage Notes shall
further increase by an additional fifty (50) basis points on each succeeding
Interest Payment Date, PROVIDED, HOWEVER, that notwithstanding clauses (i), (ii)
or (iii) above, in no event shall the interest rate to be borne by the First

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Mortgage Notes at any time exceed the Initial Interest Rate by more than two
hundred (200) basis points. Once the interest rate on the First Mortgage Notes
has been reset as set forth above, as provided in the Indenture, if the
Company's Subordinated Capital Base is equal to or greater than the Minimum
Subordinated Capital Base as of the last day of any fiscal quarter subsequent to
the Deficiency Date, interest on the First Mortgage Notes shall return to the
Initial Interest Rate effective as of the first day of the second following
fiscal quarter.

8. The Indenture also provides that upon the occurrence of a Change of
Control, subject to the satisfaction of certain substantial conditions precedent
set forth in the Indenture, each Holder shall have the right to require that the
Company repurchase such Holder's First Mortgage Notes in whole or in part at a
price equal to 101% of the aggregate principal amount thereof plus accrued and
unpaid interest, if any, to the date of such repurchase.

9. The Indenture contains provisions for (i) defeasance of certain of the
Company's obligations (including covenants) under the Indenture and (ii)
satisfaction and discharge of the Indenture upon compliance by the Company with
certain conditions set forth therein, which provisions apply to this First
Mortgage Note.

10. The Indenture imposes certain limitations on the ability of the
Company and its Restricted Subsidiaries to, among other things, make certain
Restricted Payments, create and incur Indebtedness, create or suffer to exist
certain Liens (other than Permitted Liens). The Indenture imposes limitations
on the ability of the Company to merge or consolidate with any other Person or
sell, assign, transfer or lease all or substantially all of its properties or
assets. All such covenants and limitations are subject to a number of important
qualifications and exceptions. The Company must report periodically to the
Trustee on compliance with the covenants in the Indenture.

11. The Indenture permits, with certain exceptions as therein provided,
the amendment thereof and of the Security Documents and the modification of the
rights and obligations of the Company and the rights of the Holders to be
affected under the Indenture and the Security Documents at any time by the
Company and the Trustee with the consent of the Holders representing at least
two-thirds in principal amount of the First Mortgage Notes at the time
Outstanding. The Indenture also contains provisions permitting the Holders of
at least two-thirds in principal amount of the First Mortgage Notes at the time
Outstanding, on behalf of the Holders of all First Mortgage Notes, to waive
compliance by the Company with certain provisions of the Indenture and the
Security Documents, and certain defaults under the Indenture and the Security
Documents, and their consequences.

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Any such consent or waiver by the Holder of this First Mortgage Note shall bind
such Holder and all future Holders of this First Mortgage Note and of any First
Mortgage Note issued upon the registration of transfer hereof or in exchange
hereof or in lieu hereof, whether or not notation of such consent or waiver is
made upon this First Mortgage Note.

12. No reference herein to the Indenture and no provision of this First
Mortgage Note or of the Indenture shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of (and
premium, if any) and interest on this First Mortgage Note at the times, place
and rate, and in the coin or currency, herein prescribed.

13. As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of this First Mortgage Note is registrable in
the Register, upon surrender of this First Mortgage Note for registration of
transfer at the office or agency of the Company in any place where the principal
of (and premium, if any) and interest on this First Mortgage Note are payable,
duly endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Company and the Registrar duly executed by the Holder
hereof, such Holder's attorney duly authorized in writing, and thereupon one or
more new First Mortgage Notes, of authorized denominations and for the same
Stated Maturity and aggregate principal amount, will be issued to the designated
transferee or transferees.

14. The First Mortgage Notes are issuable only in registered form without
coupons in denominations of $1,000 and any integral multiple thereof. As
provided in the Indenture and subject to certain limitations therein set forth,
First Mortgage Notes are exchangeable for a like aggregate principal amount of
First Mortgage Notes of a different authorized denomination, as requested by the
Holder surrendering the same. No service charge shall be made for any such
registration of transfer or exchange, but the Company may require payment by the
Holder of a sum sufficient to cover any tax or other governmental charge payable
in connection therewith.

15. Prior to due presentment of this First Mortgage Note for registration
of transfer, the Company, the Trustee and any agent of the Company or the
Trustee may treat the Person in whose name this First Mortgage Note is
registered as the owner hereof for all purposes, whether or not this First
Mortgage Note be overdue, and neither the Company, the Trustee nor any such
agent shall be affected by notice to the contrary.

16. A director, officer, employee or stockholder, as such, of the Company
shall not have any liability for any obligations of the Company under this First
Mortgage Note, the Indenture or any Security Document, or for any claim based
on, in respect of

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<PAGE>
or by reason of, such obligations or their creation. Each Holder, by accepting
a First Mortgage Note, waives and releases all such liability. The waiver and
release are part of the consideration for the issuance of this First Mortgage
Note.

17. Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures ("CUSIP"), the Company has caused CUSIP
numbers to be printed on the First Mortgage Notes as a convenience to the
Holders of the First Mortgage Notes. No representation is made as to the
correctness or accuracy of such numbers as printed on the First Mortgage Notes
and reliance may be placed only on the other identification numbers printed
hereon.

ASSIGNMENT FORM

To assign this First Mortgage Note, fill in the form below: (I) or (we)
assign and transfer this First Mortgage Note to

_______________________________________________________________________________
(Insert assignee's social security or tax I.D. number)

_______________________________________________________________________________

_______________________________________________________________________________
(Print or type assignee's name, address and zip code)

and irrevocably appoint _______________________________________________________
agent to transfer this First Mortgage Note on the books of the Company. The
agent may substitute another to act for him or her.

Dated: ____________ Your Signature:_________________________________________

(Sign exactly as your name appears on the
other side of this First Mortgage Note)

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Signature Guaranty: ___________________________________________________________
Signatures must be guaranteed by an "eligible guarantor
institution" meeting the requirements of the Registrar,
which requirements include membership or participation in
STAMP or such other "signature guarantee program" as may be
determined by the Registrar in addition to, or in
substitution for, STAMP, all in accordance with the
Securities Exchange Act of 1934, as amended.

OPTION OF HOLDER TO ELECT PURCHASE

If you wish to elect to have all or any portion of this First Mortgage
Note purchased by the Company pursuant to Section 1009 ("Asset Disposition
Offer"), Section 1013 ("Change of Control Offer"), Section 1016 ("First Mortgage
Note Offer") or Section 1101 ("Deficiency Offer") of the Indenture, check the
applicable boxes:

/ / Section 1009: / / Section 1013: / / Section 1016:
in whole / / in whole / / in whole / /
in part / / in part / / in part / /
amount to be amount to be amount to be
purchased: $______ purchased: $______ purchased: $______

/ / Section 1101:
in whole / /
in part / /
amount to be
purchased: $______

Dated:______________ Your Signature:_______________________________________
(Sign exactly as your name appears on the other
side of this First Mortgage Note)

Signature Guaranty: ___________________________________________________________
Signatures must be guaranteed by an "eligible guarantor
institution" meeting the requirements of the Registrar,
which requirements include membership or participation in
STAMP or such other "signature guarantee program" as may be
determined by the Registrar in addition to, or in
substitution for, STAMP, all in accordance with the
Securities Exchange Act of 1934, as amended.

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Social Security Number or Taxpayer Identification Number:_________

SECTION 204. FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION.

The Trustee's certificate of authentication on each First Mortgage
Note shall be in substantially the following form:

Dated:____________

TRUSTEE'S CERTIFICATE OF AUTHENTICATION

This is one of the ___% First Mortgage Notes due 200_ issued under the
Indenture referred to in the within-mentioned Indenture.

NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION

____________________,
AS TRUSTEE

By:_____________________
AUTHORIZED SIGNATORY

SECTION 205. CUSIP NUMBER.

The Company in issuing First Mortgage Notes may use a "CUSIP" number,
and if so, the Trustee may use the CUSIP number in notices of redemption or
exchange as a convenience to Holders; PROVIDED, that any such notice may state
that no representation is made as to the correctness or accuracy of the CUSIP
number printed on the notice or on the First Mortgage Notes, and that reliance
may be placed only on the other identification numbers printed on the First
Mortgage Notes, and any such redemption shall not be affected by any defect in
or omission of such numbers. The Company will promptly notify the Trustee of
any change in the CUSIP number of the First Mortgage Notes.

ARTICLE THREE

THE FIRST MORTGAGE NOTES

SECTION 301. TITLE AND TERMS.

The aggregate principal amount of First Mortgage Notes Outstanding at
any time may not exceed the amount of

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<PAGE>
$500,000,000, except for First Mortgage Notes authenticated and delivered upon
registration of transfer of, or in exchange for, or in lieu of, other First
Mortgage Notes pursuant to Section 304, 305, 306, 906 or 1206.

The First Mortgage Notes shall be issued in a single series, known and
designated as the "_____% First Mortgage Notes due 2002" of the Company. The
Stated Maturity for the payment of principal of the First Mortgage Notes shall
be ________ __, 2002, and the First Mortgage Notes shall bear interest at _____%
per annum from the Issue Date, or from the most recent Interest Payment Date to
which interest has been paid thereon or duly provided for, payable semi-annually
on ____ __ and ________ __ of each year (commencing ____ __, 1995) until the
principal thereof is paid or duly provided for.

The principal of (premium, if any,) and interest on the First Mortgage
Notes shall be payable at the office or agency of the Company in the Borough of
Manhattan, The City of New York, maintained for such purpose and at any other
office or agency maintained by the Company for such purpose; PROVIDED, HOWEVER,
that interest may be payable at the option of the Company by check mailed to the
address of the Person entitled thereto as such address shall appear on the
Register.

SECTION 302. DENOMINATIONS.

The First Mortgage Notes shall be issuable in fully registered form
without coupons in denominations of $1,000 or any integral multiple thereof.

SECTION 303. EXECUTION, AUTHENTICATION, DELIVERY AND DATING.

The First Mortgage Notes shall be executed on behalf of the Company by
its Chairman of the Board, its President or one of its Vice Presidents, under
its corporate seal reproduced thereon attested by its Secretary or one of its
Assistant Secretaries. The signature of any of these officers on the First
Mortgage Notes may be manual or facsimile. The seal of the Company may be in
the form of a facsimile thereof and may be impressed, affixed, imprinted or
otherwise reproduced on the First Mortgage Notes. Typographical and other minor
errors or defects in any such reproduction of the seal or any such signature
shall not affect the validity or enforceability of any First Mortgage Note that
has been duly authenticated and delivered by the Trustee.

First Mortgage Notes bearing the manual or facsimile signatures of
individuals who were at any time the proper officers of the Company shall bind
the Company, notwithstanding that such individuals or any of them have ceased to
hold such offices prior to the authentication and delivery of such First

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<PAGE>
Mortgage Notes or did not hold such offices at the date of such First Mortgage
Notes.

At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver First Mortgage Notes executed by the
Company to the Trustee for authentication, together with a Company Order for the
authentication and delivery of such First Mortgage Notes, and the Trustee in
accordance with the Company order shall authenticate and make such First
Mortgage Notes available for delivery. Each First Mortgage Note shall be dated
the date of its authentication. The First Mortgage Notes may contain such
notations, legends or endorsements required by law, stock exchange rule or
usage.

No First Mortgage Note shall be entitled to any benefit under this
Indenture or be valid or obligatory for any purpose unless there appears on such
First Mortgage Note a certificate of authentication substantially in the form
provided for herein executed by the Trustee by manual signature, and such
certificate upon any First Mortgage Note shall be conclusive evidence, and the
only evidence, that such First Mortgage Note has been duly authenticated and
delivered hereunder and is entitled to the benefits of this Indenture.

SECTION 304. TEMPORARY FIRST MORTGAGE NOTES.

Pending the preparation of definitive First Mortgage Notes, the
Company may execute, and upon Company Order the Trustee shall authenticate and
make available for delivery, temporary First Mortgage Notes which are printed,
lithographed, typewritten, mimeographed, or otherwise produced, in any
authorized denomination, substantially in the tenor of the definitive First
Mortgage Notes in lieu of which they are issued and with such appropriate
insertions, omissions, substitutions and other variations as the officers
executing such First Mortgage Notes may determine, as conclusively evidenced by
their execution of such First Mortgage Notes.

If temporary First Mortgage Notes are issued, the Company will cause
definitive First Mortgage Notes to be prepared without unreasonable delay.
After the preparation of definitive First Mortgage Notes, the temporary First
Mortgage Notes shall be exchangeable for definitive First Mortgage Notes upon
surrender of the temporary First Mortgage Notes at the office or agency of the
Company in a Place of Payment, without charge to the Holder. Upon surrender for
cancellation of any one or more temporary First Mortgage Notes, the Company
shall execute and the Trustee shall authenticate and make available for delivery
in exchange therefor a like principal amount of definitive First Mortgage Notes
of authorized denominations and of like tenor. Until so exchanged the temporary
First Mortgage Notes shall in all

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<PAGE>
respects be entitled to the same benefits under this Indenture as definitive
First Mortgage Notes.

SECTION 305. REGISTRATION, REGISTRATION OF TRANSFER AND
EXCHANGE.

The Company shall cause to be kept at the Corporate Trust Office of
the Trustee a register (the register maintained in such office and in any other
office or agency of the Company in a Place of Payment being herein sometimes
collectively referred to as the "Register") in which, subject to such reasonable
regulations as it may prescribe, the Company shall provide for the registration
of First Mortgage Notes and for registration of transfers of First Mortgage
Notes. The Trustee is hereby appointed "Registrar" for the purpose of
registering First Mortgage Notes and transfers of First Mortgage Notes as herein
provided.

Upon surrender for registration of transfer of any First Mortgage Note
at the office or agency of the Company in a Place of Payment, the Company shall
execute, and the Trustee shall authenticate and make available for delivery, in
the name of the designated transferee or transferees, one or more new First
Mortgage Notes, of any authorized denomination or denominations and of a like
aggregate principal amount, all as requested by the transferor.

At the option of the Holder, First Mortgage Notes may be exchanged for
other First Mortgage Notes, of any authorized denomination or denominations and
of a like aggregate principal amount, upon surrender of the First Mortgage Notes
to be exchanged at such office or agency upon the payment of the charges, if
any, hereinafter provided. Whenever any of the First Mortgage Notes are so
surrendered for exchange, the Company shall execute, and the Trustee shall
authenticate and make available for delivery, the First Mortgage Notes which the
Holder making the exchange is entitled to receive.

All First Mortgage Notes issued upon any registration of transfer or
exchange of First Mortgage Notes shall be the valid obligations of the Company,
evidencing the same debt, and entitled to the same benefits under this
Indenture, as the First Mortgage Notes surrendered upon such registration of
transfer or exchange.

Every First Mortgage Note presented or surrendered for registration of
transfer or for exchange shall (if so required by the Company or the Trustee) be
duly endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Company and the Registrar duly executed, by the Holder
thereof or such Holder's attorney duly authorized in writing.

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<PAGE>
No service charge shall be made for any registration of transfer or
exchange of First Mortgage Notes, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any registration of transfer or exchange of First Mortgage
Notes, other than exchanges pursuant to Section 304, 906 or 1206 not involving
any transfer.

The Company shall not be required (i) to issue, register the transfer
of or exchange First Mortgage Notes during a period beginning at the opening of
business 15 days before the date of the mailing of a notice of redemption of
First Mortgage Notes selected for redemption under Section 1202 and ending at
the close of business on the day of such mailing, or (ii) to register the
transfer of or exchange any First Mortgage Note so selected for redemption in
whole or in part, except the unredeemed portion of any First Mortgage Note being
redeemed in part.

SECTION 306. MUTILATED, DESTROYED, LOST AND STOLEN FIRST
MORTGAGE NOTES.

If any mutilated First Mortgage Note is surrendered to the Trustee,
the Company shall execute and upon its request the Trustee shall authenticate
and deliver in exchange therefor a new First Mortgage Note of like tenor and
principal amount and bearing a number not contemporaneously outstanding.

If there shall be delivered to the Company the Trustee (i) evidence of
their satisfaction of the destruction, loss or theft of any First Mortgage Note
and (ii) such security or indemnity as may be required by them to save each of
them and any agent of either of them harmless, then, in the absence of notice to
the Company or the Trustee that such First Mortgage Note has been acquired by a
BONA FIDE purchaser, the Company shall execute and upon its request the Trustee
shall authenticate and deliver, in lieu of any such destroyed, lost or stolen
First Mortgage Note, a new First Mortgage Note of like tenor and principal
amount and bearing a number not contemporaneously outstanding.

In case any such mutilated, destroyed, lost or stolen First Mortgage
Note has become or is about to become due and payable, the Company in its
discretion may, instead of issuing a new First Mortgage Note, pay such First
Mortgage Note.

No service charge shall be made for the issuance of any new First
Mortgage Note under this Section, but the Company may require the payment of a
sum sufficient to cover any tax or other governmental charge that may be imposed
in relation thereto and any other expenses (including the fees and expenses of
the Trustee) connected therewith.

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<PAGE>
Every new First Mortgage Note issued pursuant to this Section in lieu
of any destroyed, lost or stolen First Mortgage Note shall constitute an
original additional contractual obligation of the Company, whether or not the
destroyed, lost or stolen First Mortgage Note shall be at any time enforceable
by anyone, and shall be entitled to all the benefits of this Indenture equally
and proportionately with any and all other First Mortgage Notes duly issued
hereunder.

The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen First Mortgage Notes.

SECTION 307. PAYMENT OF INTEREST; INTEREST RIGHTS PRESERVED.

Interest on any First Mortgage Note which is payable, and is
punctually paid or duly provided for, on any Interest Payment Date shall be paid
to the Person in whose name such First Mortgage Note (or one or more Predecessor
First Mortgage Notes) is registered at the close of business on the Record Date
for such interest.

Any interest on any First Mortgage Note which is payable, but is not
punctually paid or duly provided for, on any Interest Payment Date (herein
called "Defaulted Interest") shall forthwith cease to be payable to the Holder
on the relevant Record Date by virtue of having been such Holder, and such
Defaulted Interest may be paid by the Company, at its election in each case, as
provided in clause (1) or (2) below:

(1) The Company may elect to make payment of any Defaulted Interest,
and any interest payable on Defaulted Interest, to the Persons in whose
names the First Mortgage Notes (or their respective Predecessor First
Mortgage Notes) are registered at the close of business on a Special Record
Date for the payment of such Defaulted Interest, which shall be fixed in
the following manner. The Company shall notify the Trustee in writing of
the amount of Defaulted Interest proposed to be paid on each First Mortgage
Note and the date of the proposed payment, and at the same time the Company
shall deposit with the Trustee an amount of money equal to the aggregate
amount proposed to be paid in respect of such Defaulted Interest or shall
make arrangements satisfactory to the Trustee for such deposit prior to the
date of the proposed payment, such money when deposited to be held in trust
for the benefit of the Persons entitled to such Defaulted Interest as in
this clause provided. Thereupon the Trustee shall fix a Special Record
Date for the payment of such Defaulted Interest which shall be not more
than 15 days and not less than 10 days prior to the date of the proposed
payment and not less than 10 days after the receipt

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by the Trustee of the notice of the proposed payment. The Trustee shall
promptly notify the Company of such Special Record Date and, in the name
and at the expense of the Company, shall cause notice of the proposed
payment of such Defaulted Interest and the Special Record Date therefor to
be mailed, first-class postage prepaid, to each Holder at such Holder's
address as it appears in the Register, not less than 10 days prior to such
Special Record Date. Notice of the proposed payment of such Defaulted
Interest and the Special Record Date therefor having been so mailed, such
Defaulted Interest shall be paid to the Persons in whose names the First
Mortgage Notes (or their respective Predecessor First Mortgage Notes) are
registered at the close of business on such Special Record Date and shall
no longer be payable pursuant to the following clause (2).

(2) The Company may make payment of any Defaulted Interest, and any
interest payable on Defaulted Interest, on the First Mortgage Notes in any
other lawful manner not inconsistent with the requirements of any
securities exchange on which such First Mortgage Notes may be listed, and
upon such notice as may be required by such exchange, if, after notice
given by the Company to the Trustee of the proposed payment pursuant to
this clause, such manner of payment shall be deemed practicable by the
Trustee.

Subject to the foregoing provisions of this Section, each First
Mortgage Note delivered under this Indenture upon registration of transfer of or
in exchange for or in lieu of any other First Mortgage Note shall carry the
rights to interest accrued and unpaid, and to accrue, which were carried by such
Predecessor First Mortgage Note.

SECTION 308. PERSONS DEEMED OWNERS.

Prior to due presentment of a First Mortgage Note for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name such First Mortgage Note is registered as the
owner of such First Mortgage Note for the purpose of receiving payment of
principal of (and premium, if any) and (subject to Section 307) interest on such
First Mortgage Note and for all other purposes whatsoever, whether or not such
First Mortgage Note be overdue, and neither the Company, the Trustee nor any
agent of the Company or the Trustee shall be affected by notice to the contrary.

SECTION 309. CANCELLATION.

All First Mortgage Notes surrendered for payment, redemption,
registration of transfer or exchange shall, if surrendered to any Person other
than the Trustee, be delivered to the Trustee and shall be promptly cancelled by
it. The Company

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may at any time deliver to the Trustee for cancellation any First Mortgage Note
previously authenticated and delivered hereunder which the Company may have
acquired in any manner whatsoever, and all First Mortgage Notes so delivered
shall be promptly cancelled by the Trustee. No First Mortgage Notes shall be
authenticated in lieu of or in exchange for any of the First Mortgage Notes
cancelled as provided in this Section, except as expressly permitted by this
Indenture. All cancelled First Mortgage Notes shall be held by the Trustee and
may be destroyed (and, if so destroyed, certification of their destruction shall
be delivered to the Company, unless, by a Company Order, the Company shall
direct that cancelled First Mortgage Notes be returned to it).

SECTION 310. COMPUTATION OF INTEREST.

Interest on the First Mortgage Notes shall be computed on the basis of
a 360-day year of twelve 30-day months.

ARTICLE FOUR

SATISFACTION AND DISCHARGE

SECTION 401. SATISFACTION AND DISCHARGE OF INDENTURE.

This Indenture and all obligations of the Company under the Security
Documents shall cease to be of further effect (except as to any surviving rights
of registration of transfer or exchange of First Mortgage Notes herein expressly
provided for), when the Trustee, upon Company Request and at the expense of the
Company, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture, when

(1) either:

(A) all Outstanding First Mortgage Notes theretofore
authenticated and issued hereunder (other than (i) First Mortgage
Notes which have been destroyed, lost or stolen and which have been
replaced or paid as provided in Section 306 and (ii) First Mortgage
Notes for whose payment money has theretofore been deposited in trust
or segregated and held in trust by the Company and thereafter repaid
to the Company or discharged from such trust, as provided in Section
1003) have been delivered to the Trustee for cancellation; or

(B) all such First Mortgage Notes not theretofore delivered to
the Trustee for cancellation

(i) have become due and payable, or

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(ii) will become due and payable at their Stated Maturity
within one year, or

(iii) are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the giving of notice
of redemption by the Trustee in the name, and at the expense, of
the Company,

and the Company, in the case of (B)(i), (ii) or (iii) above, has deposited
with the Trustee as trust funds in trust for the purpose an amount
sufficient to pay and discharge the entire indebtedness on such First
Mortgage Notes not theretofore delivered to the Trustee for cancellation,
for principal (and premium, if any) and interest to the date of such
deposit (in the case of First Mortgage Notes which have become due and
payable) or the Stated Maturity or Redemption Date, as the case may be;

(2) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and

(3) the Company has delivered to the Trustee an Officer's Certificate
and an Opinion of Counsel, each stating that all conditions precedent
provided for herein relating to the satisfaction and discharge of this
Indenture have been complied with.

Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 607, the obligations of
the Company to any Authenticating Agent under Section 614 and, if money shall
have been deposited with the Trustee pursuant to clause (B) of clause (1) of
this Section, the obligations of the Trustee under Section 402 and the last
paragraph of Section 1003 shall survive.

SECTION 402. APPLICATION OF TRUST MONEY.

Subject to the provisions of the last paragraph of Section 1003, all
money deposited with the Trustee pursuant to Section 401 shall be held in trust
and applied by it, in accordance with the provisions of the First Mortgage Notes
and this Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal (and premium, if
any) and interest for whose payment such money has been deposited with or
received by the Trustee.

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ARTICLE FIVE

REMEDIES

SECTION 501. EVENTS OF DEFAULT.

"Event of Default", wherever used herein with respect to First
Mortgage Notes, means any one of the following events (whatever the reason for
such Event of Default and whether it shall be voluntary or involuntary or to be
effected by operation of law or pursuant to any judgment, decree or order of any
court or any order, rule or regulation of any administrative or governmental
body):

(1) the Company defaults in the payment of interest on any First
Mortgage Note when such interest becomes due and payable and the default
continues for a period of 30 days; or

(2) the Company defaults in the payment of the principal of (or
premium, if any, on) any First Mortgage Note when the same becomes due and
payable at Maturity, upon redemption (including redemptions under Article
Twelve), upon repurchases pursuant to a Deficiency Offer as described in
Article Eleven, pursuant to an Asset Disposition Offer as described in
Section 1009, pursuant to a Change of Control Offer as described in Section
1013 or pursuant to a First Mortgage Note Offer as described in Section
1016 or otherwise; or

(3) the Company fails to observe or perform any of its other
covenants, warranties or agreements in the First Mortgage Notes or this
Indenture (other than a covenant, agreement or warranty a default in whose
performance or whose breach is elsewhere in this Section specifically dealt
with), and the failure to observe or perform continues for the period and
after the notice specified in the next to last paragraph of this Section;
or

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whether such Indebtedness now exists or shall hereafter be created, shall happen
and shall result in Indebtedness in an aggregate amount of not less than twenty-
five million dollars ($25,000,000) (or, if less, the least amount contained in
any similar provision of an instrument governing any outstanding Subordinated
Indebtedness of the Company, but in no event less than ten million dollars
($10,000,000)) or more becoming or being declared due and payable prior to the
date on which it would otherwise have become due and payable, and such
acceleration shall not have been rescinded or annulled (or if such acceleration
shall not have been rescinded or annulled, such Indebtedness shall not have been
discharged), within a period of 15 days after there shall have been given to the
Company by the Trustee or to the Company by the Holders of at least 25% in
aggregate principal amount of the Outstanding First Mortgage Notes a written
notice specifying such event or events of default and requiring the Company to
cause such acceleration to be rescinded or annulled or to cause such
Indebtedness to be discharged and stating that such notice is a "Notice of
Default" hereunder; or

(5) one or more judgments or decrees shall be entered against the
Company involving, individually or in the aggregate, a liability of twenty-
five million dollars ($25,000,000) or more and a sufficient number of such
judgments or decrees shall not have been vacated, discharged, satisfied or
stayed pending appeal within 30 days from the entry thereof so as to bring
the aggregate liability in respect thereof below the twenty-five million
dollar ($25,000,000) threshold; or

(6) the Company pursuant to or within the meaning of any Bankruptcy
Law (i) commences a voluntary case or proceeding under any Bankruptcy Law
with respect to itself, (ii) consents to the entry of a judgment, decree or
order for relief against it in an involuntary case or proceeding under any
Bankruptcy Law, (iii) consents to or acquiesces in the institution of
bankruptcy or insolvency proceedings against it, (iv) applies for, consents
to or acquiesces in the appointment of or taking possession by a Custodian
of the Company or for any material part of its property, (v) makes a
general assignment for the benefit of its creditors or (vi) takes any
corporate action in furtherance of or to facilitate, conditionally or
otherwise, any of the foregoing; or

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composition in respect of the Company, (B) appoint a Custodian of the Company or
for any material part of its property or (C) order the winding-up or liquidation
of its affairs, and such judgment, decree or order shall remain unstayed and in
effect for a period of 90 consecutive days; or (ii) any bankruptcy or insolvency
petition or application is filed, or any bankruptcy or insolvency proceeding is
commenced against the Company and such petition, application or proceeding is
not dismissed within 90 days; or (iii) any warrant of attachment is issued
against any material portion of the property of the Company which is not
released within 90 days of service; or

(8) the failure to observe or perform any covenant or agreement set
forth in Section 1015 and continuance of such failure for 30 days; or

(9)(i) the failure to observe or perform any of the covenants,
agreements or warranties contained or incorporated by reference in any
Security Document and continuance of such failure for 30 days after written
notice thereof has been given to the Company by the Trustee or to the
Company and the Trustee by the Holders representing at least 25% of the
principal amount of Outstanding First Mortgage Notes, (ii) for any reason,
other than the satisfaction in full and discharge of all obligations
secured thereby, to the extent permitted by this Indenture or any Security
Document, any Security Document ceases to be in full force and effect, any
Lien intended to be created thereby ceases to be or is not a valid and
perfected Lien having the ranking or priority contemplated thereby or any
Person (other than the Trustee and the Holders or the Company) obtains any
interest in the Collateral or any part thereof, except for Permitted
Collateral Liens and continuance of such condition for 30 days, or (iii)
the Company asserts in writing that any Security Document has ceased to be
or is not in full force and effect, in contravention of this Indenture.

A Default under clause (3) above is not an Event of Default until the
Trustee or the Holders of at least 25% in aggregate principal amount of the
Outstanding First Mortgage Notes notify the Company of the Default and the
Company does not cure the Default within 60 days after receipt of the notice.
The notice must specify the Default, demand that it be remedied and state that
the notice is a "Notice of Default." When a Default under clause (3) above is
cured within such 60-day period, it ceases.

The Company shall file with the Trustee written notice of the
occurrence of any Default or Event of Default within five (5) business days of
an Officer becoming aware of any such Default or Event of Default.

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SECTION 502. ACCELERATION OF MATURITY; RESCISSION AND
ANNULMENT.

If an Event of Default with respect to First Mortgage Notes (other
than an Event of Default specified in clause (6) or (7) of Section 501) occurs
and is continuing, the Trustee by notice in writing to the Company, or the
Holders of at least 25% in aggregate principal amount of the Outstanding First
Mortgage Notes by notice in writing to the Company and the Trustee, may declare
the unpaid principal of and accrued interest to the date of acceleration on all
the Outstanding First Mortgage Notes to be due and payable immediately and, upon
any such declaration, the Outstanding First Mortgage Notes shall become and be
immediately due and payable.

If an Event of Default specified in clause (6) or (7) of Section 501
occurs, all unpaid principal (without premium) of and accrued interest on the
Outstanding First Mortgage Notes shall IPSO FACTO become and be immediately due
and payable without any declaration or other act on the part of the Trustee or
any Holder of any First Mortgage Note.

Upon payment of all such principal and interest, all of the Company's
obligations under the First Mortgage Notes and (upon payment of the First
Mortgage Notes) this Indenture shall terminate, EXCEPT obligations under Section
607.

The Holders representing at least two-thirds in principal amount of
the Outstanding First Mortgage Notes by notice to the Trustee may rescind an
acceleration and its consequences if (i) all existing Events of Default, other
than the nonpayment of the principal and interest of the First Mortgage Notes
that has become due solely by such declaration of acceleration, have been cured
or waived, (ii) to the extent the payment of such interest is lawful, interest
on overdue installments of interest and overdue principal that has become due
otherwise than by such declaration of acceleration have been paid, (iii) the
rescission would not conflict with any judgment or decree of a court of
competent jurisdiction and (iv) all payments due to the Trustee and any
predecessor Trustee under Section 607 have been made.

SECTION 503. COLLECTION OF INDEBTEDNESS AND SUITS FOR
ENFORCEMENT BY TRUSTEE.

The Company covenants that if:

(1) default is made in the payment of any interest on any First
Mortgage Note when such interest becomes due and payable and such default
continues for a period of 30 days, or

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(2) default is made in the payment of the principal of (or premium,
if any, on) any First Mortgage Note at the Maturity thereof,

the Company will, upon demand of the Trustee, pay to it, for the benefit of the
Holders of such First Mortgage Notes, the whole amount then due and payable on
such First Mortgage Notes for principal (and premium, if any) and interest and,
to the extent that payment of such interest shall be legally enforceable,
interest on any overdue principal (and premium, if any) and on any overdue
interest, at the rate or rates prescribed therefor in such First Mortgage Notes,
and, in addition thereto, such further amount as shall be sufficient to cover
the costs and expenses of collection, including the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel.

If the Company fails to pay such amounts forthwith upon such demand,
the Trustee, in its own name and as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, may
prosecute such proceeding to judgment or final decree and may enforce the same
against the Company or any other obligor upon such First Mortgage Notes and
collect the moneys adjudged or decreed to be payable in the manner provided by
law out of the property of the Company or any other obligor upon such First
Mortgage Notes, wherever situated.

If an Event of Default occurs and is continuing, the Trustee may in
its discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights, either for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted therein, or to secure any other proper remedy.

SECTION 504. TRUSTEE MAY FILE PROOFS OF CLAIM.

In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor upon the First
Mortgage Notes or the property of the Company or of such other obligor or their
creditors, the Trustee (irrespective of whether the principal of the First
Mortgage Notes shall then be due and payable as therein expressed or by
declaration or otherwise and irrespective of whether the Trustee shall have made
any demand on the Company for the payment of overdue principal or interest)
shall be entitled and empowered, by intervention in such proceeding or
otherwise,

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(1) to file and prove a claim for the whole amount of principal (and
premium, if any) and interest owing and unpaid in respect of the First
Mortgage Notes and to file such other papers or documents as may be
necessary or advisable in order to have the claims of the Trustee
(including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agent and counsel) and of
the Holders allowed in such judicial proceedings, and

(2) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;

and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized by
each Holder to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the Holders, to
pay to the Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 607.

Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the First
Mortgage Notes or the rights of any Holder thereof or to authorize the Trustee
to vote in respect of the claim of any Holder in any such proceeding.

SECTION 505. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF
FIRST MORTGAGE NOTES.

All rights of action and claims under this Indenture or the First
Mortgage Notes may be prosecuted and enforced by the Trustee without the
possession of any of the First Mortgage Notes or the production thereof in any
proceeding relating thereto, and any such proceeding instituted by the Trustee
shall be brought in its own name as trustee of an express trust, and any
recovery of judgment shall, after provision for the payment of the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, be for the ratable benefit of the Holders in respect of which such
judgment has been recovered.

SECTION 506. APPLICATION OF MONEY COLLECTED.

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interest, upon presentation of the First Mortgage Notes in respect of which
moneys have been collected and the notation thereon of the payment if only
partially paid and upon surrender thereof if fully paid:

First: To the payment of all amounts due the Trustee under Section
607;

Second: To the payment of the amounts then due and unpaid for
principal of (and premium, if any) and interest on the First Mortgage Notes
in respect of which or for the benefit of which such money has been
collected, ratably, without preference or priority of any kind, according
to the amounts due and payable on such First Mortgage Notes for principal
(and premium, if any) and interest, respectively; and

Third: To the Company.

The Trustee may fix a record date and payment date for any payment to
Holders pursuant to this Section 506. At least fifteen (15) days before such
record date, the Trustee shall mail to each Holder and the Company a notice that
states the record date, the payment date and the amount to be paid.

SECTION 507. LIMITATION ON SUITS.

No Holder shall have any right to institute any proceeding, judicial
or otherwise, with respect to this Indenture, or for the appointment of a
receiver or trustee, or for any other remedy hereunder, unless:

(1) such Holder has previously given written notice to the Trustee of
a continuing Event of Default;

(2) the Holders of not less than 25% in principal amount of the
Outstanding First Mortgage Notes shall have made written request to the
Trustee to institute proceedings in respect of such Event of Default in its
own name as Trustee hereunder;

(3) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;

(4) the Trustee for 60 days after its receipt of such notice, request
and offer of indemnity has failed to institute any such proceeding; and

(5) no direction inconsistent with such written request has been
given to the Trustee during such 60-day

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period by the Holders of a majority in principal amount of the Outstanding
First Mortgage Notes;

it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other of such
Holders, or to obtain or to seek to obtain priority or preference over any other
of such Holders or to enforce any right under this Indenture, except in the
manner herein provided and for the equal and ratable benefit of all such
Holders.

SECTION 508. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE
PRINCIPAL, PREMIUM AND INTEREST.

Notwithstanding any other provision of this Indenture, the Holder of
any First Mortgage Note shall have the right, which is absolute and
unconditional, to receive payment of the principal of (and premium, if any) and
(subject to Section 307) interest on such First Mortgage Note on the Stated
Maturity or Maturities expressed in such First Mortgage Note (or, in the case of
redemption, on the Redemption Date) and to institute suit for the enforcement of
any such payment, and such rights shall not be impaired without the consent of
such Holder.

SECTION 509. RESTORATION OF RIGHTS AND REMEDIES.

If the Trustee or any Holder has instituted any proceeding to enforce
any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case, subject to any
determination in such proceeding, the Company, the Trustee and the Holders shall
be restored severally and respectively to their former positions hereunder and
thereafter all rights and remedies of the Trustee and the Holders shall continue
as though no such proceeding had been instituted.

SECTION 510. RIGHTS AND REMEDIES CUMULATIVE.

Except as otherwise provided with respect to the replacement of
mutilated, destroyed, lost or stolen First Mortgage Notes in the last paragraph
of Section 306, no right or remedy herein conferred upon or reserved to the
Trustee or to the Holders is intended to be exclusive of any other right or
remedy, and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now or hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent the
concurrent assertion of employment of any other appropriate right or remedy.

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SECTION 511. DELAY OR OMISSION NOT WAIVER.

No delay or omission of the Trustee or of any Holder of any of the
First Mortgage Notes to exercise any right or remedy or constitute a waiver of
any such Event of Default or an acquiescence therein. Every right and remedy
given by this Article or by law to the Trustee or to the Holders may be
exercised from time to time, and as often as may be deemed expedient, by the
Trustee or by the Holders, as the case may be.

SECTION 512. CONTROL BY HOLDERS.

The Holders of a majority in principal amount of the Outstanding First
Mortgage Notes shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or exercising
any trust or power conferred on the Trustee, with respect to the First Mortgage
Notes, PROVIDED that:

(1) such direction shall not be in conflict with any rule of law or
with this Indenture;

(2) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction; and

(3) subject to Section 601, the Trustee need not take any action
which might involve the Trustee in personal liability or be unduly
prejudicial to the Holders not joining therein.

SECTION 513. WAIVER OF PAST DEFAULTS.

Holders representing not less than at least two-thirds in principal
amount of the Outstanding First Mortgage Notes may by written notice to the
Trustee on behalf of the Holders of all First Mortgage Notes waive any Default
or Event of Default and its consequences, except a Default or Event of Default

(1) in respect of the payment of the principal of (or premium, if
any) or interest on any First Mortgage Note, or

(2) in respect of a covenant or other provision hereof which under
Article Nine cannot be modified or amended without the consent of the
Holder of each Outstanding First Mortgage Note affected.

Upon any such waiver, such Default or Event of Default shall cease to
exist and shall be deemed to have been cured, for every purpose of this
Indenture and the First Mortgage Notes; but no such waiver shall extend to any
subsequent or other Default or Event of Default or impair any right consequent
thereon.

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SECTION 514. UNDERTAKING FOR COSTS.

All parties to this Indenture agree, and each Holder of any First
Mortgage Note by such Holder's acceptance thereof shall be deemed to have
agreed, that any court may in its discretion require, in any suit for the
enforcement of any right or remedy under this Indenture, or in any suit against
the Trustee for any action taken, suffered or omitted by it as Trustee, the
filing by any party litigant in such suit of an undertaking to pay the costs of
such suit, and that such court may in its discretion assess reasonable costs,
including reasonable attorneys' fees, against any party litigant in such suit,
having due regard to the merits and good faith of the claims or defenses made by
such party litigant; but the provisions of this Section shall not apply to any
suit instituted by the Company, to any suit instituted by the Trustee, to any
suit instituted by any Holder, or group of Holders, holding in the aggregate
more than 10% in principal amount of the Outstanding First Mortgage Notes, or to
any suit instituted by any Holder for the enforcement of the payment of the
principal of (or premium, if any) or interest on any First Mortgage Note on or
after the Stated Maturity or Maturities expressed in such First Mortgage Note
(or, in the case of redemption, on or after the Redemption Date).

SECTION 515. WAIVER OF STAY OR EXTENSION LAWS.

The Company covenants (to the extent that it may lawfully do so) that
it will not at any time insist upon, or plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay or extension law wherever enacted,
now or at any time hereafter in force, which may affect the covenants or the
performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such law
and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.

ARTICLE SIX

THE TRUSTEE

SECTION 601. CERTAIN DUTIES AND RESPONSIBILITIES OF THE TRUSTEE.

(a) Except during the continuance of an Event of Default, the
Trustee's duties and responsibilities under this Indenture shall be governed by
Section 315(a) of the Trust Indenture Act.

(b) In case an Event of Default has occurred and is continuing, and
is known to the Trustee, the Trustee shall

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exercise the rights and power vested in it by this Indenture and the Security
Documents, and shall use the same degree of care and skill in their exercise, as
a prudent person would exercise or use under the circumstances in the conduct of
his or her own affairs.

SECTION 602. NOTICE OF DEFAULTS.

Within 30 days after the occurrence of any Default or Event of
Default, the Trustee shall give to all Holders, as their names and addresses
appear in the Register, notice of such Default or Event of Default known to the
Trustee, unless such Default or Event of Default shall have been cured or
waived; PROVIDED, HOWEVER, that, except in the case of a Default or Event of
Default in the payment of the principal of (or premium, if any) or interest on
any First Mortgage Note, the Trustee shall be protected in withholding such
notice if and so long as the board of directors, the executive committee or
directors or Responsible Officers of the Trustee in good faith determine that
the withholding of such notice is in the interest of the Holders.

SECTION 603. CERTAIN RIGHTS OF TRUSTEE.

Subject to the provisions of the Trust Indenture Act:

(1) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document believed by it to be genuine and to have been signed or presented
by the proper party or parties;

(2) any request or direction of the company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any
resolution of the Board of Directors may be sufficiently evidenced by a
Board Resolution;

(3) whenever in the administration of this Indenture the Trustee
shall deem it desirable that a matter be proved or established prior to
taking, suffering or omitting any action hereunder or under the Security
Documents, the Trustee (unless other evidence be herein specifically
prescribed) may, in the absence of bad faith on its part, rely upon an
Officer's Certificate;

(4) the Trustee may consult with counsel and the written advice of
such counsel or any Opinion of Counsel

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shall be full and complete authorization and protection in respect of any
action taken, suffered or omitted by it hereunder or under the Security
Documents in good faith and in reliance thereon;

(5) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture or under any Security
Document at the request or direction of any of the Holders pursuant to this
Indenture, unless such Holders shall have offered to the Trustee reasonable
security or indemnity against the costs, expenses and liabilities
(including any liabilities arising under Environmental Laws) which might be
incurred by it in compliance with such request or direction;

(6) prior to the occurrence of an Event of Default and after the
curing or waiving of all such Events of Default which may have occurred,
the Trustee shall not be bound to make any investigation into the facts or
matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, approval or
other paper or document, or the books and records of the Company, unless
requested in writing to do so by the Holders of a majority in principal
amount of the Outstanding First Mortgage Notes; PROVIDED, HOWEVER, that if
the payment within a reasonable time to the Trustee of the costs, expenses
or liabilities likely to be incurred by it in the making of such
investigation is not, in the opinion of the Trustee, reasonably assured to
the Trustee by the security afforded to it by the terms of this Indenture,
the Trustee may require reasonable indemnity against such costs, expenses
or liabilities as a condition to so proceeding; the reasonable expense of
every such investigation shall be paid by the Company or, if paid by the
Trustee, shall be repaid by the Company upon demand;

(7) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder or under the Security Documents either
directly or by or through agents or attorneys and the Trustee shall not be
responsible for any misconduct or negligence on the part of any agent or
attorney appointed with due care by it hereunder; and

(8) the Trustee shall not be required to expend or risk its own funds
or otherwise incur any financial liability in the performance of any of its
duties hereunder or under any Security Document, or in the exercise of its
rights or power, if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or
liability is not reasonably assured to it.

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SECTION 604. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF
FIRST MORTGAGE NOTES.

The recitals contained herein and in the First Mortgage Notes, except
the Trustee's certificates of authentication, shall be taken as the statements
of the Company, and the Trustee or any Authenticating Agent assumes no
responsibility for their correctness. The Trustee makes no representations as
to the validity or sufficiency of this Indenture, the Security Documents or of
the First Mortgage Notes. Neither the Trustee nor any Authenticating Agent
shall be accountable for the use or application by the Company of First Mortgage
Notes or the proceeds thereof.

SECTION 605. MAY HOLD FIRST MORTGAGE NOTES.

The Trustee, any Authenticating Agent, any Paying Agent, any Registrar
or any other agent of the Company, in its individual or any other capacity, may
become the owner or pledgee of First Mortgage Notes and, subject to Section 608
and 613, may otherwise deal with the Company with the same rights it would have
if it were not Trustee, Authenticating Agent, Paying Agent, Registrar or such
other agent.

SECTION 606. MONEY HELD IN TRUST.

Money held by the Trustee in trust hereunder (including amounts held
by the Trustee as Paying Agent) need not be segregated from other funds except
to the extent required by law. The Trustee shall be under no liability for
interest on any money received by it hereunder except as otherwise agreed upon
in writing with the Company.

SECTION 607. COMPENSATION AND REIMBURSEMENT.

The Company agrees:

(1) to pay to the Trustee from time to time reasonable compensation
for all services rendered by it hereunder (which compensation shall not be
limited by any provision of law in regard to the compensation of a trustee
of an express trust);

(2) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements and
advances incurred or made by the Trustee in accordance with any provision
of this Indenture (including the reasonable compensation and the expenses
and disbursements of its agents and counsel), except any such expense,
disbursement or advance as may be attributable to its negligence or bad
faith; and

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(3) to indemnify the Trustee for, and to hold it harmless against,
any loss, liability, damage, claim or expense, including taxes (other than
taxes based upon or determined or measured by the income of the Trustee),
incurred without negligence or bad faith on its part, arising out of or in
connection with the acceptance or administration of the trust or trusts
hereunder, including the costs and expenses of defending itself against any
claim or liability in connection with the exercise or performance of any of
its powers or duties hereunder.

As security for the performance of the obligations of the Company
under this Section, the Trustee shall have a claim prior to the First Mortgage
Notes upon all property and funds held or collected by the Trustee hereunder,
except funds held in trust for payment of principal (and premium, if any) or
interest on the First Mortgage Notes.

When the Trustee incurs expenses or renders services in connection
with an Event of Default specified in Section 501(6) or Section 501(7), the
expenses (including the reasonable charges and expenses of its counsel) and the
compensation for the services are intended to constitute expenses of
administration under any applicable federal or state bankruptcy, insolvency or
other similar law.

The provisions of this Section 607 shall survive this Indenture.

SECTION 608. DISQUALIFICATION; CONFLICTING INTERESTS.

The Trustee shall be disqualified only where such disqualification is
required by Section 310(b) of the Trust Indenture Act.

SECTION 609. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY.

There shall at all times be a Trustee hereunder which shall be
eligible to act as Trustee under Section 310(a)(1) of the Trust Indenture Act
having a combined capital and surplus of at least $50,000,000 subject to
supervision or examination by federal or State authority, to the extent there is
such an institution eligible and willing to serve. If such corporation
publishes reports of condition at least annually, pursuant to law or to the
requirements of said supervising or examining authority, then for the purposes
of this Section, the combined capital and surplus of such corporation shall be
deemed to be its combined capital and surplus as set forth in its most recent
report of condition so published. Neither the Company nor any Affiliate of the
Company may serve as Trustee. If at any time the Trustee shall cease to be
eligible in accordance with the

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provisions of this Section, it shall resign immediately in the manner and with
the effect hereinafter specified in this Article.

SECTION 610. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR.

(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee in accordance with the
applicable requirements of Section 611 and execution of supplemental Security
Documents if required.

(b) The Trustee may resign at any time by giving written notice
thereof to the Company. If the instrument of acceptance by a successor Trustee
required by Section 611 shall not have been delivered to the Trustee within 30
days after the giving of such notice of resignation, the resigning Trustee may
petition any court of competent jurisdiction for the appointment of a successor
Trustee.

(c) The Trustee may be removed at any time by Act of the Holders of a
majority in principal amount of the Outstanding First Mortgage Notes, delivered
to the Trustee and to the Company.

(d) If at any time:

(i) the Trustee shall fail to comply with Section 310(b) of the
Trust Indenture Act after written request therefor by the Company or by any
Holder who has been a BONA FIDE Holder for at least six months; or

(ii) the Trustee shall cease to be eligible under Section 609 and
shall fail to resign after written request therefor by the Company or by
any Holder who has been a BONA FIDE Holder for at least six months; or

(iii) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or of its
property shall be appointed or any public officer shall take charge or
control of the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation;

then, in any such case, (A) the Company by a Board Resolution may remove the
Trustee, or (B) subject to Section 315(e) of the Trust Indenture Act, any Holder
who has been a BONA FIDE Holder for at least six months may, on behalf of
himself and all others similarly situated, petition any court of competent
jurisdiction for the removal of the Trustee and the appointment of a successor
Trustee, subject to any stay of such removal entered in accordance with Section
310(b) of the Trust Indenture Act.

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(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause, the
Company, by a Board Resolution, shall promptly appoint a successor Trustee and
shall comply with the applicable requirements of Section 611. If, within one
year after such resignation, removal or incapability, or the occurrence of such
vacancy, a successor Trustee shall be appointed by Act of the Holders of a
majority in principal amount of the Outstanding First Mortgage Notes delivered
to the Company and the retiring Trustee, the successor Trustee so appointed
shall, forthwith upon its acceptance of such appointment in accordance with the
applicable requirements of Section 611, become the successor Trustee and to that
extent supersede the successor Trustee appointed by the Company. If no
successor Trustee shall have been so appointed by the Company or the Holders and
accepted appointment in the manner required by Section 611, any Holder who has
been a BONA FIDE Holder for at least six months may, subject to Section 514
hereof, on behalf of himself and all others similarly situated, petition any
court of competent jurisdiction for the appointment of a successor Trustee.

(f) The Company shall give notice of each resignation and each
removal of the Trustee and each appointment of a successor Trustee by mailing
written notice of such event by first-class mail, postage prepaid, to all
Holders as their names and addresses appear in the Register. Each notice shall
include the name of the successor Trustee and the address of its Corporate Trust
Office.

SECTION 611. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.

(a) In case of the appointment hereunder of a successor Trustee,
every such successor Trustee so appointed shall execute, acknowledge and deliver
to the Company and to the retiring Trustee an instrument accepting such
appointment, and thereupon the resignation or removal of the retiring Trustee
shall become effective and such successor Trustee, without any further act, deed
or conveyance, shall become vested with all the rights, powers, trusts and
duties of the retiring Trustee; but, on the request of the Company or the
successor Trustee, such retiring Trustee shall, upon payment of its charges,
execute and deliver an instrument transferring to such successor Trustee all the
rights, powers and trusts of the retiring Trustee, including all rights, powers
and trusts under each of the Security Documents, and shall duly assign, transfer
and deliver to such successor Trustee all property and money held by such
retiring Trustee hereunder, subject to its Lien, if any, provided for in Section
607.

(b) Upon request of any such successor Trustee, the Company shall
execute any and all instruments for more fully and

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certainly vesting in and confirming to such successor Trustee all such rights,
powers and trusts referred to in Subsection (a) above.

(c) No successor Trustee shall accept its appointment unless at the
time of such acceptance such successor Trustee shall be qualified and eligible
under this Article and the Trust Indenture Act.

SECTION 612. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO
BUSINESS.

Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversation or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all the corporate trust business
of the Trustee, shall be the successor of the Trustee hereunder, PROVIDED such
corporation shall be otherwise qualified and eligible under this Article and the
Trust Indenture Act, without the execution or filing of any paper or any further
act on the part of any of the parties hereto. In case any First Mortgage Notes
shall have been authenticated, but not delivered, by the Trustee then in office,
any successor by merger, conversion or consolidation to such authenticating
Trustee may adopt such authentication and deliver the First Mortgage Notes so
authenticated with the same effect as if such successor Trustee had itself
authenticated such First Mortgage Notes.

SECTION 613. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.

The Trustee shall comply with Section 311(a) of the Trust Indenture
Act, excluding any creditor relationship listed in Section 311(b) of the Trust
Indenture Act. A Trustee who has resigned or been removed shall be subject to
Section 311(a) of the Trust Indenture Act to the extent indicated therein.

SECTION 614. APPOINTMENT OF AUTHENTICATING AGENT.

At any time when any of the First Mortgage Notes remain Outstanding
the Trustee may appoint an Authenticating Agent or Agents which shall be
authorized to act on behalf of, and subject to the direction of, the Trustee to
authenticate First Mortgage Notes issued upon exchange, registration of transfer
or partial redemption thereof or pursuant to Section 306, and First Mortgage
Notes so authenticated shall be entitled to the benefits of this Indenture and
shall be valid and obligatory for all purposes as if authenticated by the
Trustee hereunder. Wherever reference is made in this Indenture to the
authentication and delivery of First Mortgage Notes by the Trustee or the
Trustee's certificate of authentication, such reference shall be deemed to
include authentication and delivery on behalf of the Trustee by an

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Authenticating Agent and a certificate of authentication executed on behalf of
the Trustee by an Authenticating Agent. Each Authenticating Agent shall be
acceptable to the Company and shall at all times be a corporation organized and
doing business under the laws of the United States of America, any State thereof
or the District of Columbia, authorized under such laws to act as Authenticating
Agent, having a combined capital and surplus of not less than $50,000,000 and
subject to supervision or examination by federal or State authority. If such
Authenticating Agent publishes reports of condition at least annually, pursuant
to law or to the requirements of said supervising or examining authority, then
for the purposes of this Section, the combined capital and surplus of such
Authenticating Agent shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published. If at any time
an Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, such Authenticating Agent shall resign immediately
in the manner and with the effect specified in this Section.

Any corporation into which an Authenticating Agent may be merged or
converted to with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any corporation succeeding to the corporate agency or
corporate trust business of an Authenticating Agent, shall continue to be an
Authenticating Agent, provided such corporation shall be otherwise eligible
under this Section, without the execution or filing of any paper or any further
act on the part of the Trustee or the Authenticating Agent.

An Authenticating Agent may resign at any time by giving written
notice thereof to the Trustee and to the Company. The Trustee may at any time
terminate the agency of an Authenticating Agent by giving written notice thereof
to such Authenticating Agent and to the Company. Upon receiving such a notice
of resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, the Trustee may appoint a successor Authenticating
Agent which shall be acceptable to the Company and shall mail written notice of
such appointment by first-class mail, postage prepaid, to all Holders, as their
names and addresses appear in the Register. Any successor Authenticating Agent
upon acceptance of its appointment hereunder shall become vested with all the
rights, powers and duties of its predecessor hereunder, with like effect as if
originally named as an Authenticating Agent. No successor Authenticating Agent
shall be appointed unless eligible under the provisions of this Section.

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The Company agrees to pay to each Authenticating Agent from time to
time reasonable compensation for its services under this Section.

If an appointment is made pursuant to this Section, the First Mortgage
Notes may have endorsed thereon, in addition to the Trustee's certificate of
authentication, an alternate certificate of authentication in the following
form:

Dated: ________________________

This is one of the ____% First Mortgage Notes due 20__ issued under
the Indenture referred to in the within-mentioned Indenture.

NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
____________________
AS TRUSTEE

By:____________________________
AS AUTHENTICATING AGENT

By:____________________________
AUTHORIZED SIGNATORY

ARTICLE SEVEN

HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY

SECTION 701. COMPANY TO FURNISH TRUSTEE NAMES AND ADDRESSES OF
HOLDERS.

The Company will furnish or cause to be furnished to the Trustee:

(1) semi-annually, not later than January 1 and July 1 in each
year, a list, in such form as the Trustee may reasonably require, of the
names and addresses of the Holders as of the preceding December 15 or June
15, as the case may be, and

(2) at such other times as the Trustee may request in writing, within
30 days after the receipt by the Company of any such request, a list of
similar form and content as of a

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date not more than 15 days prior to the time such list is furnished;

PROVIDED, HOWEVER, that so long as the Trustee is the Registrar, no such list
shall be required to be furnished.

SECTION 702. PRESERVATION OF INFORMATION; COMMUNICATIONS TO
HOLDERS.

(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Trustee as provided in Section 701 and the names and
addresses of Holders received by the Trustee in its capacity as Registrar. The
Trustee may destroy any list furnished to it as provided in Section 701 upon
receipt of a new list so furnished.

(b) Holders may communicate as provided in Section 312(b) of the
Trust Indenture Act with other Holders with respect to their rights under this
Indenture or under the First Mortgage Notes, and the Trustee shall comply with
its obligations under such Section 312(b).

(c) Each Holder of First Mortgage Notes, by receiving and holding the
same, agrees with the Company and the Trustee that neither the Company nor the
Trustee nor any agent of either of them shall be held accountable by reason of
the disclosure of any such information as to the names and addresses of the
Holders in accordance with Section 702(b), regardless of the source from which
such information was derived, and that the Trustee shall not be held accountable
by reason of mailing any material pursuant to a request made under Section
702(b).

SECTION 703. REPORTS BY TRUSTEE.

(a) Within 60 days after May 15 of each year commencing with the year
1995, the Trustee shall transmit by mail to all Holders as provided in Section
313(c) of the Trust Indenture Act, a brief report dated as of such May 15, if
required by and in compliance with Section 313(a) of the Trust Indenture Act.
If required by Section 313(a) of the Trust Indenture Act, such report shall
describe any release, or release and substitution, of Collateral subject to the
Lien of any applicable Security Document (and consideration therefor, if any)
which has not previously been reported.

(b) The Trustee shall comply with Sections 313(b) and 313(c) of the
Trust Indenture Act.

(c) A copy of each such report shall, at the time of such
transmission to Holders, be filed by the Trustee with each stock exchange upon
which the First Mortgage Notes are listed,

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with the Commission and with the Company. The Company will notify the Trustee
when any of the First Mortgage Notes are listed on any stock exchange.

SECTION 704. REPORTS BY COMPANY.

The Company shall:

(1) file with the Trustee, within 15 days after the Company is
required to file the same with the Commission, copies of the annual reports
and of the information, documents and other reports (or copies of such
portions of any of the foregoing as the Commission may from time to time by
rules and regulations prescribe) which the Company may be required to file
with the Commission pursuant to Section 13 or Section 15(d) of the Exchange
Act; or, if the Company is not required to file information, documents or
reports pursuant to either of said Sections, then it shall file with the
Trustee and the Commission, within the earlier of (a) the same 15 days
after the Company would have been required to file with the Commission
under the preceding clause and (b) the date which it is required to so file
under the 1991 Indenture so long as any Indebtedness is outstanding
thereunder, in accordance with rules and regulations prescribed from time
to time by the Commission, such of the supplementary and periodic
information, documents and reports which may be required pursuant to
Section 13 of the Exchange Act in respect of a security listed and
registered on a national securities exchange as may be prescribed from time
to time in such rules and regulations;

(2) file with the Trustee and the Commission, in accordance with
rules and regulations prescribed from time to time by the Commission, such
additional information, documents and reports with respect to compliance by
the Company with the conditions and covenants of this Indenture as may be
required from time to time by such rules and regulations;

(3) transmit by mail to all Holders, as their names and addresses
appear in the Register, (a) concurrently with furnishing the same to its
stockholders, the Company's annual report to stockholders, containing
certified financial statements, and any other financial reports which the
Company generally furnishes to its stockholders, and (b) within 30 days
after the filing thereof with the Trustee, such summaries of any other
information, documents and reports required to be filed by the Company
pursuant to paragraphs (1) and (2) of this Section as may be required by
rules and regulations prescribed from time to time by the Commission; and

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(4) furnish to the Trustee, on or before May 1 of each year, a brief
certificate from the principal executive officer, principal financial
officer or principal accounting officer as to his or her knowledge of the
Company's compliance with all conditions and covenants under this
Indenture. For purposes of this paragraph, such compliance shall be
determined without regard to any period of grace or requirement of notice
provided under this Indenture. Such certificate need not comply with
Section 102.

ARTICLE EIGHT

CONSOLIDATION, MERGER, LEASE, SALE OR TRANSFER

SECTION 801. WHEN COMPANY MAY MERGE, ETC.

The Company shall not consolidate with, or merge with or into any
other corporation (whether or not the Company shall be the surviving
corporation), or sell, assign, transfer or lease all or substantially all of its
properties and assets as an entirety or substantially as an entirety to any
Person or group of affiliated Persons, in one transaction or a series of related
transactions, unless:

(1) either the Company shall be the continuing Person or the Person
(if other than the Company) formed by such consolidation or with which or
into which the Company is merged or the Person (or group of affiliated
Persons) to which all or substantially all the properties and assets of the
Company as an entirety are sold, assigned, transferred or leased is a
corporation (or constitute corporations) organized and existing under the
laws of the United States of America or any State thereof or the District
of Columbia and expressly assumes, by an indenture supplemental hereto,
executed and delivered to the Trustee, in form satisfactory to the Trustee,
all the obligations of the Company under the First Mortgage Notes, this
Indenture and the Security Documents, including the Trustee's uninterrupted
Lien (subject to Permitted Collateral Liens) in respect of the Collateral;

(2) immediately before and after giving effect to such transaction or
series of related transactions, no Event of Default, and no Default, shall
have occurred and be continuing;

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of the surviving, consolidated or transferee entity if the Company is not
continuing, treating such entity as the Company for purposes of determining
Consolidated Net Worth) shall be at least equal to the Consolidated Net
Worth of the Company immediately before such transaction or series of
related transactions; and

(4) immediately after giving effect to such transaction or series of
related transactions, the Company (or the surviving, consolidated or
transferee entity if the Company is not continuing, but treating such
entity as the Company for purposes of making such determination) would be
permitted to incur an additional dollar of Indebtedness (not constituting
Permitted Indebtedness) immediately prior to such transaction or series of
related transactions under Section 1008; PROVIDED, HOWEVER,that this
Subsection (4) shall be inapplicable if (a) such transaction or series of
related transactions would result in the occurrence of a Change of Control
or (b) immediately prior to giving effect to such transaction or series of
related transactions, the Company would not be permitted to incur an
additional dollar of Indebtedness (not constituting Permitted Indebtedness)
under Section 1008, and immediately after giving effect to such transaction
or series of related transactions on a PRO FORMA basis, but prior to any
purchase accounting adjustments resulting from the transaction or series of
related transactions, the Consolidated Interest Coverage Ratio of the
Company (or the surviving, consolidated or transferee entity if the Company
is not continuing, treating such entity as the Company for purposes of
determining Consolidated Interest Coverage Ratio) shall be at least equal
to the Consolidated Interest Coverage Ratio of the Company immediately
before such transaction or series of related transactions; and PROVIDED,
FURTHER, that notwithstanding the foregoing, if this Subsection (4) in
inapplicable by reason of clause (b) of the first proviso to this
Subsection, and at the date three months after the consummation of such
transaction or series of related transactions the rating ascribed to the
First Mortgage Notes by Standard & Poor's Corporation or Moody's Investors
Service, Inc. shall be lower than the rating ascribed to the First Mortgage
Notes prior to the public announcement of such transaction or series of
related transactions, then the Company shall make an offer for the First
Mortgage Notes at the same price and following the same procedures and
obligations as required with respect to a Change of Control pursuant to
Section 1013 (as if such date three months after the giving effect to such
transaction or series of related transactions were the Change of Control
Date).

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SECTION 802. FIRST MORTGAGE NOTES TO BE SECURED IN CERTAIN EVENTS.

If, upon any consolidation or merger, or upon any sale, assignment,
transfer or lease as provided in Section 801, any material property of the
Company or any Restricted Subsidiary or any shares of Capital Stock or
Indebtedness of any Restricted Subsidiary, owned immediately prior thereto,
would thereupon become subject to any Lien securing any indebtedness for
borrowed money of, or guaranteed by, such other corporation or Person (other
than any Permitted Lien), the Company, prior to such consolidation, merger,
sale, assignment, transfer or lease, will by indenture supplemental hereto
secure the due and punctual payment of the principal of, and premium, if any,
and interest on the First Mortgage Notes then Outstanding (together with, if the
Company shall so determine, any other Indebtedness of, or guaranteed by, the
Company or any Restricted Subsidiary and then existing or thereafter created)
equally and ratably with (or, at the option of the Company, prior to) the
Indebtedness secured by such Lien.

SECTION 803. OFFICER'S CERTIFICATE; OPINION OF COUNSEL.

The Company shall deliver to the Trustee prior to the proposed
transaction(s) covered by Section 801 an Officer's Certificate and an Opinion of
Counsel, each stating that the transaction(s) and such supplemental indenture
comply with this Indenture and that all conditions precedent to the consummation
of the transaction(s) under this Indenture have been met.

SECTION 804. SUCCESSOR CORPORATION SUBSTITUTED.

Upon any consolidation by the Company with or merger by the Company
into any other corporation or any lease, sale, assignment or transfer of all or
substantially all of the property and assets of the Company in accordance with
Section 801, the successor corporation formed by such consolidation or into
which the Company is merged or the successor corporation or affiliated group of
corporations to which such lease, sale, assignment or transfer is made shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under this Indenture or under the Security Documents with the same
effect as if such successor corporation or corporations had been named as the
Company herein or under the Security Documents, and thereafter, except in the
case of a lease, the predecessor corporation or corporations shall be relieved
of all obligations and covenants under this Indenture, the First Mortgage Notes
and the Security Documents and in the event of such conveyance or transfer,
except in the case of a lease, any such predecessor corporation may be dissolved
and liquidated.

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ARTICLE NINE

SUPPLEMENTS AND AMENDMENTS TO THE
INDENTURE AND SECURITY DOCUMENTS

SECTION 901. SUPPLEMENTAL INDENTURES AND AMENDMENTS TO SECURITY
DOCUMENTS WITHOUT CONSENT OF HOLDERS.

Without notice to or the consent of any Holders, the Company, when
authorized by a Board Resolution, and the Trustee, at any time and from time to
time, may, subject to Section 1003, enter into one or more indentures
supplemental hereto or one or more amendments to the Security Documents, in form
satisfactory to the Trustee, for any of the following purposes:

(1) to evidence the succession of another Person to the Company and
the assumption by any such successor of the covenants of the Company herein
and in the First Mortgage Notes or the Security Documents, as the case may
be; or

(2) to add to the covenants of the Company for the benefit of the
Holders or to surrender any right or power herein or in the First Mortgage
Notes or the Security Documents conferred upon the Company; or

(3) to add any additional Events of Default; or

(4) to further secure the First Mortgage Notes; or

(5) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee; or

(6) to cure any ambiguity, defect or inconsistency or to correct or
supplement any provision herein or in any Security Document which may be
inconsistent with any other provision herein or therein; or

(7) to comply with the requirements of the Commission in order to
effect or maintain the qualification of this Indenture under the Trust
Indenture Act; or

(8) to make any change that does not materially adversely affect the
interests of the Holders.

Upon request of the Company, accompanied by a Board Resolution
authorizing the execution of any such supplemental indenture or amendment to the
Security Documents, and upon receipt by the Trustee of the documents described
in (and subject to the last sentence of) Section 903, the Trustee shall join
with the Company in the execution of any supplemental indenture or amendment to
the Security Documents authorized or permitted by

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the terms of this Indenture or the Security Documents, respectively.

SECTION 902. SUPPLEMENTAL INDENTURES AND AMENDMENTS TO SECURITY
DOCUMENTS WITH CONSENT OF HOLDERS

With the written consent of Holders representing at least two-thirds
in principal amount of the Outstanding First Mortgage Notes, by Act of said
Holders delivered to the Company and the Trustee, the Company, when authorized
by a Board Resolution, and the Trustee shall, subject to Section 903, enter
into an indenture or indentures supplemental hereto or one or more amendments
to any Security Document, to which it is a party (or authorize one or more
amendments to any other Security Document) for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions
of this Indenture or of any Security Document or of modifying in any manner
the rights of the Holders under this Indenture or the rights or obligations of
the parties to any Security Document or taking any actions pursuant thereto;
PROVIDED, HOWEVER, that no such supplemental indenture or amendment in respect
of any Security Document shall, without the consent of the Holder of each
Outstanding First Mortgage Note,

(1) change the Stated Maturity of the principal of, or any
installment of principal of or interest on, any First Mortgage Note, or
reduce the principal amount thereof or the rate of interest thereon or any
premium payable upon the redemption thereof or extend the time for payment
thereof, or change the Place of Payment where, or the coin or currency in
which, any First Mortgage Note or any premium or the interest thereon is
payable, or impair the right to institute a suit for the enforcement of any
such payment on or after the Stated Maturity thereof (or, in the case of
redemption, on or after the Redemption Date), or

(2) reduce the percentage in principal amount of the Outstanding
First Mortgage Notes, the consent of whose Holders is required for any such
supplemental indenture or amendment, or the consent of whose Holders is
required for any waiver of compliance with certain provisions of this
Indenture or Defaults or Events of Default hereunder and their consequences
provided for in this Indenture, or

(3) change the repurchase provisions (including those contained in
Article Eleven, Section 1009, Section 1013, 1015 and 1016) or redemption
provisions (including those contained in Article Twelve) hereof in a manner
adverse to such Holder, or

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(4) subordinate in right of payment, or otherwise subordinate, the
First Mortgage Notes to any other Indebtedness; or

(5) modify any of the provisions of this Section, Section 513 or
Section 1014, except to increase any such percentage or to provide that
certain other provisions of this Indenture or the Security Documents cannot
be modified or waived without the consent of the Holder of each Outstanding
First Mortgage Note affected thereby, PROVIDED, HOWEVER, that this clause
shall not be deemed to require the consent of any Holder with respect to
changes in the references to "the Trustee" and concomitant changes in this
Section and Section 1014, or the deletion of this proviso, in accordance
with the requirements of Sections 611(b) and 901(7); or

(6) permit the creation of any Lien on the Collateral or any part
thereof (other than Permitted Collateral Liens and Liens in favor of the
Trustee) or terminate the Lien of any Security Document as to any part of
the Collateral, except as permitted by this Indenture or any Security
Document.

It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture or amendment
to any Security Document, but it shall be sufficient if such Act shall approve
the substance thereof.

SECTION 903. EXECUTION OF SUPPLEMENTAL INDENTURES AND
AMENDMENTS TO SECURITY DOCUMENTS.

The Trustee shall sign any supplemental indenture or any amendment to
any Security Document authorized pursuant to this Article, subject to the last
sentence of this Section 903. In executing, or accepting the additional trusts
created by, any supplemental indenture or any amendment to any Security Document
permitted by this Article or the modifications thereby of the trusts created by
this Indenture and the Security Documents, the Trustee shall be entitled to
receive, and (subject to Section 601) shall be fully protected in relying upon,
an Officer's Certificate and an Opinion of Counsel stating that the execution of
such supplemental indenture or amendment is authorized or permitted by this
Indenture or the Security Documents, respectively. The Trustee may, but shall
not be obligated to, enter into any such supplemental indenture or amendment
which affects the Trustee's own rights, duties or immunities under this
Indenture and the Security Documents or otherwise.

SECTION 904. EFFECT OF SUPPLEMENTAL INDENTURES AND
AMENDMENTS TO SECURITY DOCUMENTS.

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Upon the execution of any supplemental indenture or any amendment to
any Security Document under this Article, this Indenture or such Security
Document, as the case may be, shall be modified in accordance therewith, and
such supplemental indenture or amendment shall form a part of this Indenture for
all purposes; and every Holder of First Mortgage Notes theretofore or thereafter
authenticated and delivered hereunder shall be bound thereby.

SECTION 905. CONFORMITY WITH TRUST INDENTURE ACT

Every supplemental indenture executed pursuant to this Article shall
conform to the requirements of the Trust Indenture Act.

SECTION 906. REFERENCE IN FIRST MORTGAGE NOTES TO SUPPLEMENTAL
INDENTURES.

First Mortgage Notes authenticated and delivered after the execution
of any supplemental indenture pursuant to this Article may, and shall if
required by the Trustee, bear a notation in form approved by the Trustee as to
any matter provided for in such supplemental indenture. If the Company shall so
determine, new First Mortgage Notes so modified as to conform, in the opinion of
the Trustee and the Company, to any such supplemental indenture may be prepared
and executed by the Company and authenticated and delivered by the Trustee in
exchange for Outstanding First Mortgage Notes.

ARTICLE TEN

COVENANTS

SECTION 1001. PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST.

The Company covenants and agrees for the benefit of the Holders that
it will duly and punctually pay the principal of (and premium, if any) and
interest on the First Mortgage Notes in accordance with the terms of the First
Mortgage Notes and this Indenture. An installment of principal or interest
shall be considered paid on the date it is due if the Trustee or Paying Agent
holds by 12:00 noon New York City time on that date dollars designated for and
sufficient to pay the installment and is not prohibited from paying such money
to the Holders pursuant to the terms of this Indenture.

SECTION 1002. MAINTENANCE OF OFFICE OR AGENCY.

The Company will maintain in the Place of Payment, an office or agency
where First Mortgage Notes may be presented or surrendered for payment, where
First Mortgage Notes may be

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surrendered for registration of transfer or exchange and where notices and
demands to or upon the Company in respect of the First Mortgage Notes and this
Indenture may be served. The Company will give prompt written notice to the
Trustee of the location, and any change in the location, of such office or
agency. If at any time the Company shall fail to maintain such required office
or agency or shall fail to furnish the Trustee with the address thereof, such
presentations, surrenders, notices and demands may be made or served at the
Corporate Trust Office of the Trustee, and the Company hereby appoints the
Trustee as its agent to receive all such presentations, surrenders, notices and
demands.

The Company may also from time to time designate one or more other
offices or agencies where the First Mortgage Notes may be presented or
surrendered for any or all such purposes and may from time to time rescind such
designations; PROVIDED, HOWEVER, that no such designation or rescission shall in
any manner relieve the Company of its obligation to maintain an office or agency
in the Place of Payment for such purposes. The Company will give prompt written
notice to the Trustee of any such designation or rescission and of any change in
the location of any such other office or agency.

SECTION 1003. MONEY FOR FIRST MORTGAGE NOTES PAYMENTS TO BE HELD
IN TRUST.

If the Company shall at any time act as its own Paying Agent with
respect to the First Mortgage Notes, it will, on or before each due date of the
principal of (and premium, if any) or interest on any of the First Mortgage
Notes, segregate and hold in trust for the benefit of the Persons entitled
thereto a sum sufficient to pay the principal (and premium, if any) or interest
so becoming due until such sums shall be paid to such Persons or otherwise
disposed of as herein provided and will promptly notify the Trustee of its
action or failure so to act.

Whenever the Company shall have one or more Paying Agents with respect
to the First Mortgage Notes, it will, prior to each due date of the principal of
(and premium, if any) or interest on any of the First Mortgage Notes, deposit
with a Paying Agent a sum sufficient to pay the principal (and premium, if any)
or interest so becoming due, such sum to be held in trust for the benefit of the
Persons entitled to such principal, premium or interest, and (unless such Paying
Agent is the Trustee) the Company will promptly notify the Trustee of its action
or failure to so act.

The Company will cause each Paying Agent for the First Mortgage Notes
(other than the Trustee) to execute and deliver to the Trustee an instrument in
which such Paying Agent shall agree

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with the Trustee, subject to the provisions of this Section, that such Paying
Agent will:

(1) hold all sums held by it for the payment of the principal of (and
premium, if any) or interest on First Mortgage Notes in trust for the
benefit of the Persons entitled thereto until such sums shall be paid to
such Persons or otherwise disposed of as herein provided;

(2) give the Trustee notice of any default by the Company (or any
other obligor upon the First Mortgage Notes) in the making of any payment
of principal (and premium, if any) or interest on the First Mortgage Notes;
and

(3) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so
held in trust by such Paying Agent.

The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such money.

Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of (and premium, if
any) or interest on any First Mortgage Note and remaining unclaimed for one year
after such principal (and premium, if any) or interest has become due and
payable shall be paid to the Company on Company Request, or (if then held by the
Company) shall be discharged from such trust; and the Holder of such First
Mortgage Note shall thereafter, as an unsecured general creditor, look only to
the Company for payment thereof, and all liability of the Trustee or such Paying
Agent with respect to such trust money, and all liability of the Company as
trustee thereof, shall thereupon cease; PROVIDED, HOWEVER, that the Trustee or
such Paying Agent, before being required to make any such repayment may at the
expense of the Company cause to be published once, in a newspaper published in
the English language, customarily published on each Business Day and of general
circulation in New York, New York notice that such money remains unclaimed and
that, after a date specified therein, which shall not be less than 30 days from
the date of such publication, any unclaimed balance of such money then remaining
will be repaid to the Company.

SECTION 1004. CORPORATE EXISTENCE.

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Subject to Article Eight, the Company will do or cause to be done all
things necessary to preserve and keep in full force and effect its corporate
existence and that of each of its Restricted Subsidiaries and the rights
(charter and statutory), licenses and franchises of the Company and its
Restricted Subsidiaries; PROVIDED, HOWEVER, that (a) the Company shall not be
required to preserve any such right, license or franchise or the corporate
existence of any of its Restricted Subsidiaries if the Board of Directors, or
the board of directors of the Restricted Subsidiary concerned, as the case may
be, shall determine that the preservation thereof is no longer desirable in the
conduct of the business of the Company or any of its Restricted Subsidiaries and
that the loss thereof is not materially disadvantageous to the Holders and (b)
nothing herein contained shall prevent any Restricted Subsidiary of the Company
from liquidating or dissolving, or merging into, or consolidating with the
Company (PROVIDED that the Company shall be the continuing or surviving
corporation) or with any one or more Restricted Subsidiaries of the Company if
the Board of Directors or the board of directors of the Restricted Subsidiary
concerned, as the case may be, shall so determine.

SECTION 1005. PAYMENT OF TAXES AND OTHER CLAIMS.

Without prejudice to the provisions of Article Sixteen of this
Indenture and the provisions of the applicable Security Documents, the Company
will pay or discharge or cause to be paid or discharged, before the same shall
become delinquent, (1) all material taxes, assessments and governmental charges
levied or imposed upon the Company or any Restricted Subsidiary or upon the
income, profits or property of the Company or any Restricted Subsidiary and (2)
all lawful claims against the Company or any Restricted Subsidiary for labor,
materials and supplies which in the case of either clause (1) or (2) of this
Section, if unpaid, might by law become a material Lien upon the property of the
Company or any Restricted Subsidiary; PROVIDED, HOWEVER, that neither the
Company nor any Restricted Subsidiary shall be required to pay or discharge or
cause to be paid or discharged any such tax, assessment, charge or claim whose
amount, applicability or validity is being contested in good faith by
appropriate proceedings.

SECTION 1006. RESTRICTION ON DIVIDENDS.

The Company will not, and will not permit any Subsidiary of the
Company to, directly or indirectly, (1) declare or pay any dividend or make any
distribution, in cash or otherwise, in respect of any shares of Capital Stock of
the Company or to the holders of Capital Stock of the Company as such (other
than dividends or distributions payable in shares of Capital Stock of the
Company (other than Redeemable Stock)) or (2) purchase, redeem or otherwise
acquire or retire for value any

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of the Capital Stock of the Company or options, warrants or other rights to
acquire any such Capital Stock, other than acquisitions of Capital Stock or such
options, warrants or other rights by any Subsidiary of the Company from the
Company (any such transaction included in clause (1) or (2) being hereafter
collectively referred to as a "Restricted Payment") if (i) at the time of such
Restricted Payment and after giving effect thereto, (a) an Event of Default
shall have occurred and be continuing or (b) the Consolidated Net Worth of the
Company shall be less than seven hundred fifty million dollars ($750,000,000);
or if (ii) after giving effect to such Restricted Payment, the aggregate amount
expended subsequent to November 1, 1991, for all such Restricted Payments (the
amount of any Restricted Payment, if other than cash, to be the fair market
value of such payment as determined by the Board of Directors of the Company,
whose reasonable determination shall be conclusive and evidenced by a Board
Resolution) exceeds the algebraic sum of (w) a number calculated as follows:
(A) if the aggregate Consolidated Net Income of the Company earned on a
cumulative basis during the period subsequent to September 30, 1991 through the
end of the last fiscal quarter that is prior to the declaration of any such
dividend or distribution or the giving of notice of such purchase, redemption or
other acquisition or retirement and for which such financial information is then
available, is a positive number, then 100% of such positive number, and (B) if
the aggregate Consolidated Net Income of the Company earned on a cumulative
basis during the period subsequent to September 30, 1991 through the end of the
last fiscal quarter that is prior to the declaration of any such dividend or
distribution or the giving of notice of such purchase, redemption or other
acquisition or retirement and for which such financial information is then
available, is a negative number, then 100% of such negative number, (x) the
aggregate net cash proceeds received by the Company from the issuance and sale,
other than to a Subsidiary of the Company, subsequent to November 1, 1991, of
Capital Stock (including Capital Stock issued upon the conversion of, or in
exchange for, securities other than Capital Stock and options, warrants or other
rights to acquire Capital Stock, but excluding Redeemable Stock), (y) the
aggregate net cash proceeds originally received by the Company from the issuance
and sale, other than to a Subsidiary of the Company, of Indebtedness of the
Company that is converted into Capital Stock of the Company subsequent to
November 1, 1991, and (z) three hundred million dollars ($300,000,000);
PROVIDED, HOWEVER, that the retirement of any shares of the Company's Capital
Stock by exchange for, or out of the proceeds of the substantially concurrent
sale of, other shares of Capital Stock of the Company other than Redeemable
Stock shall not constitute a Restricted Payment. If all of the conditions to
the declaration of a dividend or distribution set out in this Section are
satisfied at the time such dividend or distribution is declared, then such
dividend or distribution may be paid or made within sixty days after such
declaration even if the payment of such

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dividend, the making of such distribution or the declaration thereof would not
have been permitted under this Section at any time after such declaration.

SECTION 1007. LIMITATION ON FUTURE LIENS AND GUARANTIES.

(a) If the Company or any Subsidiary of the Company shall create,
incur, assume or suffer to exist any Lien upon any of the assets of the Company
or a Subsidiary of the Company other than upon the Collateral (whether such
assets are owned at November 1, 1991 or thereafter acquired) as security for (i)
any Indebtedness or other obligation (whether unconditional or contingent) of
the Company that ranks PARI PASSU with the First Mortgage Notes or any
Indebtedness or other obligation (whether unconditional or contingent) of a
Subsidiary of the Company, the Company will secure or will cause such Subsidiary
to guarantee and secure the Outstanding First Mortgage Notes equally and ratably
with (or, at the option of the Company, prior to) such Indebtedness or other
obligation, so long as such Indebtedness or other obligation shall be so
secured, or (ii) any Subordinated Indebtedness, the Company will secure the
Outstanding First Mortgage Notes prior to such Subordinated Indebtedness, so
long as such Subordinated Indebtedness shall be so secured; PROVIDED, HOWEVER,
that this Subsection shall not apply in the case of Permitted Liens or Liens
granted by any Unrestricted Subsidiary to secure Indebtedness or other
obligations of itself or of any Person other than the Company and its Restricted
Subsidiaries.
(b) The Company will not guarantee the Indebtedness of any Subsidiary
of the Company and will not permit any such Subsidiary or Seminole to guarantee
(i) any Indebtedness of the Company that ranks PARI PASSU with the First
Mortgage Notes, (ii) any Indebtedness of a Subsidiary of the Company or (iii)
any Subordinated Indebtedness; PROVIDED, HOWEVER, that this Subsection shall not
apply to (1) any guaranty by a Subsidiary if such Subsidiary also guarantees the
First Mortgage Notes on a PARI PASSU basis with respect to guaranties of
Indebtedness described in clause (i) and (ii) and on a senior basis with respect
to guaranties of Indebtedness described in clause (iii); (2) any guaranty
existing on November 1, 1991 or any extension or renewal of such guaranty to the
extent such extension or renewal is for the same or a lesser amount; (3) any
guaranty which constitutes Indebtedness permitted by clause (v) or (vi) of the
definition of Permitted Indebtedness granted by a Person permitted to incur such
Indebtedness; (4) any guaranty by the Company of Indebtedness of a Restricted
Subsidiary, PROVIDED that (A) incurrence of such Indebtedness of the Restricted
Subsidiary is not prohibited by this Indenture and (B) (x) such guaranty
constitutes Indebtedness of the Company incurred as Permitted Indebtedness
pursuant to clause (vii) or (viii) of the definition of Permitted Indebtedness
(it being understood that, for purposes of determining Permitted Indebtedness,
any such guaranty shall be

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deemed to constitute Indebtedness separate from, and, in addition to,
Indebtedness of a Restricted Subsidiary which is so guaranteed) or (y)
immediately prior to and (on a PRO FORMA basis) after granting such guaranty,
the Company would be permitted to incur an additional dollar of Indebtedness
(not constituting Permitted Indebtedness) under Section 1008; (5) any guaranty
by an Unrestricted Subsidiary of Indebtedness or other obligations of any Person
other than the Company and its Restricted Subsidiaries; (6) any guaranty by the
Company or any Subsidiary or Seminole of Indebtedness or other obligations
constituting Indebtedness permitted by clause (i)(a) of the definition of
Permitted Indebtedness in a principal amount not exceeding the principal amount
outstanding or committed under the Credit Agreements (including any letter of
credit facility, but without duplication with respect to commitments for loans
the use of proceeds of which is restricted to repayment of other Indebtedness
under the Credit Agreements) as of November 1, 1991, PLUS two hundred fifty
million dollars ($250,000,000) and LESS the proceeds from the sale of all
Indebtedness under the 1991 Indenture issued from time to time applied to repay
Indebtedness under the Credit Agreements; (7) any guaranty by the Company of
Indebtedness of any Restricted Subsidiary outstanding on November 1, 1991 which
is not subordinated to any Indebtedness of such Restricted Subsidiary, and any
renewal, extension or refinancing of such Indebtedness permitted by this
Indenture; (8) any guaranty by the Company of Indebtedness of any Restricted
Subsidiary that is organized under the laws of a jurisdiction other than the
United States or any subdivision thereof, PROVIDED that the incurrence of such
Indebtedness of such Restricted Subsidiary is not prohibited by this Indenture;
(9) any guaranty by a Restricted Subsidiary that is organized under the laws of
a jurisdiction other than the United States or any subdivision thereof of the
Indebtedness of any of its Subsidiaries that is a Restricted Subsidiary and that
is organized under the laws of a jurisdiction other than the United States or
any subdivision thereof, PROVIDED that incurrence of such Indebtedness of such
Restricted Subsidiary is not prohibited by this Indenture; (10) any guaranty by
the Company or a Subsidiary of the Company of Indebtedness or other obligations
in a principal amount not exceeding two hundred fifty thousand dollars
($250,000); (11) any guaranty in the form of an endorsement of negotiable
instruments for deposit or collection and similar transactions; (12) any
guaranty arising under or in connection with performance bonds, indemnity bonds,
surety bonds, or commercial letters of credit not exceeding twenty-five million
dollars ($25,000,000) in aggregate principal amount from time to time
outstanding; (13) any guaranty by a Subsidiary of the Company of Indebtedness or
other obligations of another Subsidiary in effect at the time of such guarantor
becoming a Subsidiary and not created in contemplation thereof; or (14) any
guaranty by the Company or a Restricted Subsidiary of any Interest Swap
Obligation, Currency

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Agreement or Commodities Agreement relating to Indebtedness that is guaranteed
pursuant to another clause of this Subsection.

SECTION 1008. LIMITATION ON FUTURE INCURRENCE OF INDEBTEDNESS.

The Company will not, and will not permit any Restricted Subsidiary
to, incur, create, assume, guarantee or in any other manner become directly or
indirectly liable with respect to or responsible for the payment of any
Indebtedness except: (1) Permitted Indebtedness; and (2) Indebtedness of the
Company if at the time thereof and after giving effect thereto the Consolidated
Interest Coverage Ratio of the Company, on a PRO FORMA basis for the then four
most recent full quarters, taken as a whole (giving effect to (i) such
Indebtedness and (ii) the effect on the Consolidated Cash Flow Available for
Fixed Charges of the Company for the then four most recent full fiscal quarters,
taken as a whole, as a result of any acquisition of a Person acquired by the
Company or any Restricted Subsidiary with the proceeds of such Indebtedness),
would be greater than 1.75 to 1. Without limiting the foregoing, the Company
shall not, and shall not permit any Restricted Subsidiary to, guarantee, or in
any other manner become directly or indirectly liable with respect to or
responsible for the payment of, Indebtedness of any Unrestricted Subsidiary in
an amount greater than, for all guaranties and undertakings of responsibility by
the Company and its Restricted Subsidiaries, 20% of the aggregate amount of
Indebtedness of such Unrestricted Subsidiary.

SECTION 1009. LIMITATION ON ASSET DISPOSITIONS.

(a) (i) The Company will not, and will not permit any Restricted
Subsidiary to, make any Asset Disposition unless the Company (or the Restricted
Subsidiary, as the case may be) receives consideration at the time of such Asset
Disposition at least equal to the fair market value for the assets sold or
otherwise disposed of (which shall be as determined in good faith (x) in the
case of dispositions of assets having a fair market value of ten million dollars
($10,000,000) or more, by the Board of Directors, whose reasonable determination
shall be conclusive and evidenced by a Board Resolution, or (y) in the case of
dispositions of assets having a fair market value of less than ten million
dollars ($10,000,000) but not less than five million dollars ($5,000,000), an
Officer of the Company, whose reasonable determination shall be conclusive and
evidenced by a certificate of such Officer) and (ii) the Company will apply the
aggregate net proceeds in excess of three hundred million dollars ($300,000,000)
received by the Company or any Restricted Subsidiary from all Asset Dispositions
occurring subsequent to November 1, 1991 (but excluding for purposes of this
clause (ii), whether before or after the receipt of net proceeds in excess of
three hundred million dollars ($300,000,000), (1) the net

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proceeds of any Asset Disposition or series of related Asset Dispositions where
the net proceeds are less than five million dollars ($5,000,000) and (2) the
first twenty-five million dollars ($25,000,000) of net proceeds in each fiscal
year without taking into account any amount excluded pursuant to (1)) as
follows: (A) to the payment or prepayment of any Senior Indebtedness within six
months of such Asset Disposition, or (B) to investment in the business of the
Company and its Restricted Subsidiaries (including, without limitation, by
acquiring equity, other than Redeemable Stock, of the transferee of such Asset
Disposition) within six months of such Asset Disposition or, if such investment
is with respect to a project to be completed within a period greater than six
months from such Asset Disposition, then within the period of time necessary to
complete such project; PROVIDED, HOWEVER, that (x) in the case of applications
contemplated by clause (B), the Board of Directors has, within such six-month
period, adopted in good faith a resolution committing such excess proceeds to
such investment, (y) EXCEPT as provided in the next sentence, none of such
excess proceeds shall be used to make any Restricted Payment or any payment in
respect of Subordinated Indebtedness and (z) to the extent not applied in
accordance with clauses (A) or (B) above, or if after being so applied there
remain excess net proceeds in an amount greater than ten million dollars
($10,000,000), the Company shall make a PRO RATA offer to all Holders to
purchase First Mortgage Notes at 100% of principal amount, plus accrued and
unpaid interest to the Asset Disposition Payment Date, up to an aggregate
principal amount equal to such excess net proceeds (as adjusted pursuant to
Subsection (g) of this Section, the "Asset Disposition Offer Amount"). If after
being applied in accordance with clauses (A), (B) and (z) above there remain
excess net proceeds, the Company will apply such excess net proceeds to the
general corporate purposes of the Company or any Subsidiary of the Company.

(b) Notwithstanding Subsection (a) of this Section, to the extent the
Company or any of its Restricted Subsidiaries receives securities or other non-
cash property or assets as proceeds of an Asset Disposition (other than equity
in the transferee not constituting Redeemable Stock), the Company shall not be
required to make any application required by Subsection (a) of this Section
until it receives cash proceeds from a sale, repayment, exchange, redemption or
retirement of or extraordinary dividend or return of capital on such non-cash
property, EXCEPT that if and to the extent the sum of all cash proceeds plus the
fair market value of equity (other than Redeemable Stock) in the transferee of
such Asset Disposition received at the time of such Asset Disposition is less
than 70% of the fair market value of the total proceeds of such Asset
Disposition (with such fair market value determined and evidenced in the same
manner as stated in clause (i) of Subsection (a) of this Section), the amount of
such deficiency (the "Deficiency Amount") shall be

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applied as required by Subsection (a) of this Section as if received at the time
of the Asset Disposition. Any amounts deferred pursuant to the preceding
sentence shall be applied in accordance with Subsection (a) of this Section when
cash proceeds are thereafter received from a sale, repayment, exchange,
redemption or retirement of or extraordinary dividend or return of capital on
such non-cash property; PROVIDED, HOWEVER, that the Company shall not be
required to apply with respect to any equity interest in a transferee an amount
exceeding the fair market value attributable to such equity interest at the time
of the Asset Disposition; and PROVIDED, FURTHER, that if a Deficiency Amount was
applied pursuant to the exception contained in the preceding sentence, then once
the cumulative amount of applications made pursuant to Subsections (a) and (b)
of this Section (including any Deficiency Amounts) equals 100% of the fair
market value of the total proceeds of the Asset Disposition at the time of such
Asset Disposition, cash proceeds thereafter received from a sale, repayment,
exchange, redemption or retirement of or extraordinary dividend or return of
capital on such non-cash property shall not be required to be applied in
accordance with Subsection (a) of this Section EXCEPT to the extent such cash
proceeds exceed the Deficiency Amount.

(c) An offer to purchase First Mortgage Notes required to be made
pursuant to this Section is referred to as an "Asset Disposition Offer" and the
date on which the purchase of First Mortgage Notes relating to any such Asset
Disposition Offer is to be made is referred to as the "Asset Disposition Payment
Date."

(d) The Company shall provide the Trustee with notice of an Asset
Disposition Offer and with all information required to accompany the notice
described in (e) below, at least 45 days before any such Asset Disposition
Payment Date and at least 10 days before the notice of any Asset Disposition
Offer is mailed to Holders.

(e) Notice of an Asset Disposition Offer described in this Section
shall be mailed on behalf of the Company by the Trustee to all Holders at their
last registered addresses not less than 30 days nor more than 60 days before the
Asset Disposition Payment Date, which shall be a date not more than 210 days
after the Asset Disposition giving rise to such Asset Disposition Offer. The
Asset Disposition Offer shall remain open from the time of the mailing of
such notice until not more than five Business Days before the Asset Disposition
Payment Date. The notice shall state:

(1) that the Asset Disposition Offer is being made pursuant to this
Section and the reason for the Asset Disposition Offer;

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(2) the purchase price and the Asset Disposition Payment Date;

(3) the aggregate principal amount of First Mortgage Notes initially
subject to the Asset Disposition Offer Amount and, if applicable, a
description of the adjustment mechanisms describe in Subsection (g) of this
Section;

(4) the name and address of the Paying Agent and the Trustee and that
First Mortgage Notes must be surrendered to the Paying Agent to collect the
purchase price;

(5) that any of the First Mortgage Notes not tendered or accepted for
payment will continue to accrue interest;

(6) that any First Mortgage Note accepted for payment pursuant to the
Asset Disposition Offer shall cease to accrue interest after the Asset
Disposition Payment Date;

(7) that each Holder electing to have a First Mortgage Note purchased
pursuant to an Asset Disposition Offer will be required to surrender the
First Mortgage Note, with the form entitled "Option of Holder to Elect
Purchase" on the reverse of the First Mortgage Note completed, to the
Paying Agent at the address specified in the notice prior to the close of
business on the fifth Business Day prior to the Asset Disposition Payment
Date;

(8) that Holders will be entitled to withdraw their election if the
Paying Agent receives, not later than the close of business on the third
Business Day preceding the Asset Disposition Payment Date, a telegram,
telex, facsimile transmission or letter setting forth: the name of the
Holder, the principal amount of the First Mortgage Note the Holder
delivered for purchase, the certificate number of the First Mortgage Note
the Holder delivered and a statement that such Holder is withdrawing his
election to have the First Mortgage Note purchased; and

(9) that Holders whose First Mortgage Notes are purchased only in
part will be issued new First Mortgage Notes equal in principal amount to
the unpurchased portion of the First Mortgage Notes surrendered.

(f) On the Asset Disposition Payment Date, the Company shall (i)
accept for payment First Mortgage Notes or portions thereof tendered pursuant to
the Asset Disposition Offer in an aggregate principal amount equal to the Asset
Disposition Offer Amount or such lesser amount of First Mortgage Notes as shall
have been tendered, (ii) on or before 12:00 noon New York City time, deposit
with the Paying Agent money sufficient to pay the purchase price of all First
Mortgage Notes or portions thereof so

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accepted, and (iii) deliver or cause to be delivered to the Trustee First
Mortgage Notes so accepted together with an Officer's Certificate stating the
First Mortgage Notes or portions thereof accepted by the Company. If the
aggregate principal amount of First Mortgage Notes tendered exceeds the Asset
Disposition Offer Amount, the Company shall select the First Mortgage Notes to
be purchased on a PRO RATA basis to the nearest one thousand dollars ($1,000) of
principal amount. The Paying Agent shall promptly mail or deliver to Holders of
First Mortgage Notes so accepted payment in an amount equal to the purchase
price, and the Company shall execute and the Trustee shall promptly authenticate
and mail or make available for delivery to such Holders a new First Mortgage
Note equal in principal amount to any unpurchased portion of the First Mortgage
Note surrendered. Any First Mortgage Notes not so accepted shall be promptly
mailed or made available for delivery to the Holder thereof. The Company will
publicly announce the results of the Asset Disposition Offer on or as soon as
practicable after the Asset Disposition Payment Date. For purposes of this
Section, the Trustee or its agent shall act as the Paying Agent.

(g) The Company shall not make an "Asset Disposition Offer" (as
defined) required under Section 1009 of the 1991 Indenture in connection with a
disposition of assets other than the Collateral unless the Company shall have
made an Asset Disposition Offer hereunder (and in respect of certain other
Senior Indebtedness in accordance with the following sentence) on a PRO RATA
basis (in an aggregate amount equal to the amount to be offered pursuant to the
Asset Disposition Offer under the 1991 Indenture) the closing date of which is
prior to six months after the asset disposition triggering the obligations of
the Company under the 1991 Indenture. Notwithstanding the previous sentence,
if on or after the date hereof, the Company issues any Senior Indebtedness
(including the __% Senior Notes due 2004, reference being made to Section
1009(g) of the indenture with respect thereto) containing a requirement that an
offer be made to repurchase such Senior Indebtedness under the same
circumstances and in the same manner (including the prescribed time periods
hereof) provided in this Section 1009, then (i) the Company may apply the Asset
Disposition Offer Amount (before any adjustment pursuant to this sentence) to
the PRO RATA purchase of First Mortgage Notes tendered hereunder and the Senior
Indebtedness tendered thereunder and (ii) the Asset Disposition Offer Amount
available to repurchase the First Mortgage Notes shall be reduced by the amount
applied to the purchase of such Senior Indebtedness; PROVIDED that this sentence
shall only apply to (i) Senior Indebtedness issued on or after the date hereof
(including the __% Senior Notes due 2004) that explicitly permits the PRO RATA
purchase of First Mortgage Notes as described herein and refers to this Section
1009(g) and any Indebtedness outstanding at the date of this Indenture that is
amended to explicitly permit the PRO RATA purchase of First Mortgage Notes as
described herein and

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refers to this Section 1009(g) and (ii) asset dispositions not involving
Collateral.

SECTION 1010. MAINTENANCE OF PROPERTIES.

The Company will cause all material properties used or useful in the
conduct of its business or the business of any of its Subsidiaries to be
maintained and kept in good condition, repair and working order (normal wear and
tear excepted) and supplied with all necessary equipment and will cause to be
made all necessary repairs, renewals, replacements, betterments and improvements
thereof, all as in the judgment of the Company may be necessary, so that the
business carried on in connection therewith may be properly and advantageously
conducted at all times; PROVIDED, HOWEVER, that nothing in this Section shall
prevent the Company from discontinuing the operation or maintenance of any of
such properties, or disposing of any of them, if such discontinuance or disposal
is, in the judgment of the Board of Directors or of the board of directors of
the Subsidiary concerned, as the case may be, desirable in the conduct of the
business of the Company or any Subsidiary of the Company and not materially
disadvantageous to the Holders.

SECTION 1011. COMPLIANCE CERTIFICATES.

(a) The Company shall deliver to the Trustee within 90 days after the
end of each fiscal year of the Company (which fiscal year currently ends on
December 31), an Officer's Certificate stating whether or not the signer knows
of any Default or Event of Default by the Company that occurred prior to the end
of the fiscal year and is then continuing. If the signer does know of such a
Default or Event of Default, the certificate shall describe each such Default or
Event of Default and its status and the specific section or sections of this
Indenture in connection with which such Default or Event or Default has
occurred. The Company shall also promptly notify the Trustee in writing should
the Company's fiscal year be changed so that the end thereof is on any date
other than the date on which the Company's fiscal year currently ends.

(b) The Company shall deliver to the Trustee as soon as practicable
but in any event not later than 45 days after the end of each fiscal quarter an
Officer's Certificate setting forth the Company's Subordinated Capital Base for
purposes of this Section 1011. The Trustee may conclusively rely on the
Officer's Certificate for such purposes.

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accounting matters and (ii) whether, in connection with their audit examination,
any Default has come to their attention and if such a Default has come to their
attention, specifying the nature and period of existence thereof and the
specific section or sections of this Indenture in connection with which such
Default has occurred; PROVIDED, that without any restriction as to the scope of
the audit examination, such independent certified public accountants shall not
be liable by reason of the failure to obtain knowledge of such Default that
would not be disclosed in the course of an audit examination conducted in
accordance with generally accepted auditing standards.

(d) The Company shall deliver to the Trustee forthwith upon becoming
aware of a Default or Event of Default (but in no event later than 10 days after
the occurrence of each Default or Event of Default that is continuing), an
Officer's Certificate setting forth the details of such Default or Event of
Default and the action that the Company proposes to take with respect thereto
and the specific section or sections of this Indenture in connection with which
such Default or Event of Default has occurred.

SECTION 1012. WAIVER OF STAY, EXTENSION OR USURY LAWS.

The Company covenants (to the extent that it may lawfully do so) that
it will not at any time insist upon, or plead, or in any manner whatsoever
claim, and will actively resist any and all efforts to be compelled to take the
benefit or advantage of, any stay or extension law or any usury law or other
law, which would prohibit or forgive the Company from paying all or any portion
of the principal of and/or interest on the First Mortgage Notes as contemplated
herein, wherever enacted, now or at any time hereafter in force, or which may
affect the covenants or the performance of this Indenture; and (to the extent
that it may lawfully do so) the Company hereby expressly waives all benefit or
advantage of any such law, and covenants that it will not hinder, delay or
impede the execution of any power herein granted to the Trustee, but will suffer
and permit the execution of every such power as though no such law had been
enacted.

SECTION 1013. CHANGE OF CONTROL.

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prior to giving the notice to Holders provided in Subsection (b) below, the
Company shall (i) repay in full in cash such Specified Bank Debt or (ii) obtain
the requisite consent of holders of such Specified Bank Debt to permit the
repurchase of First Mortgage Notes without giving rise to an event of default
under such Specified Bank Debt.

(b) Promptly upon satisfaction of either one of the obligations, if
then applicable, set forth in clause (i) or (ii) of Subsection (a) above, the
Company shall mail a notice to each Holder and the Trustee in respect of the
Change of Control Offer (which notice shall contain all instructions and
materials necessary to enable such Holders to tender First Mortgage Notes)
stating:

(1) that the Change of Control Offer is being made pursuant to this
Section and that all First Mortgage Notes properly tendered will be
accepted for payment;

(2) the purchase price and the purchase date (which shall be no
earlier than 30 days nor later than 40 days from the date such notice is
mailed, but in any event prior to the date on which any Subordinated
Indebtedness is paid pursuant to the terms of a provision similar to this
Section) (the "Change of Control Payment Date");

(3) the name and address of the Paying Agent and the Trustee and that
the First Mortgage Notes must be surrendered to the Paying Agent to collect
the purchase price;

(4) that any First Mortgage Note not tendered will continue to accrue
interest;

(5) that any First Mortgage Note accepted for payment pursuant to the
Change of Control Offer shall cease to accrue interest after the Change of
Control Payment Date;

(6) that each Holder electing to have a First Mortgage Note purchased
pursuant to a Change of Control Offer will be required to surrender the
First Mortgage Note, with the form entitled "Option of Holder to Elect
Purchase" on the reverse of the First Mortgage Note completed, to the
Paying Agent at the address specified in the notice prior to the close of
business on the Business Day prior to the Change of Control Payment Date;

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the principal amount of the First Mortgage Note the Holder delivered for
purchase, the certificate numbers of the First Mortgage Note the Holder
delivered and a statement that such Holder is withdrawing his election to
have such First Mortgage Note purchased; and

(8) that Holders whose First Mortgage Notes are purchased only in part
will be issued new First Mortgage Notes equal in principal amount to the
unpurchased portion of the First Mortgage Notes surrendered.

On or before 12:00 noon New York City time on the Change of Control
Payment Date, the Company shall (i) accept for payment First Mortgage Notes or
portions thereof tendered pursuant to the Change of Control Offer, (ii) deposit
with the Paying Agent money sufficient to pay the purchase price of all First
Mortgage Notes or portions thereof so accepted and (iii) deliver or cause to be
delivered to the Trustee First Mortgage Notes so accepted, together with an
Officer's Certificate stating the aggregate principal amount of the First
Mortgage Notes or portions thereof so accepted by the Company. The Paying Agent
shall promptly mail or deliver to the Holder of First Mortgage Notes so accepted
payment in an amount equal to the purchase price, and the Trustee shall promptly
authenticate and mail or make available for delivery to such Holder a new First
Mortgage Note equal in principal amount to any unpurchased portion of the First
Mortgage Note surrendered. The Company will publicly announce the results of
the Change of Control Offer on or as soon as practicable after the Change of
Control Payment Date. For purposes of this Section, the Trustee or its agent
shall act as the Paying Agent.

If a Change of Control has occurred but a Change of Control Offer is
not permitted to be made, the Company shall mail a notice of such Change of
Control to each Holder within 30 days following a Change of Control Date.

The Company shall comply with any applicable tender offer rules
(including, without limitation, any applicable requirements of Rule 14e-1 under
the Exchange Act) and any other legal requirements in the event that a Change of
Control Offer is made under the circumstances described in this Section 1013.

SECTION 1014. WAIVER OF CERTAIN COVENANTS.

The Company may omit in any particular instance to comply with any
term, provision or condition set forth in Sections 1006, 1007, 1008, 1009 and
1015, if before the time for such compliance Holders representing at least two-
thirds in principal amount of the Outstanding First Mortgage Notes shall, by
Act of such Holders, either waive such compliance in such instance or generally
waive compliance with such term, provision or

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condition, but no such waiver shall extend to or affect such term, provision or
condition except to the extent so expressly waived, and, until such waiver shall
become effective, the obligations of the Company and the duties of the Trustee
in respect of any such term, provision or condition shall remain in full force
and effect.

SECTION 1015. LIMITATION ON COLLATERAL ASSET DISPOSITIONS AND
COLLATERAL LOSS EVENTS.

(a) The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, consummate or permit a Collateral Asset
Disposition unless: (i) the Company receives consideration in respect of and
concurrently with such Collateral Asset Disposition at least equal to the fair
market value of the relevant Collateral; (ii) with respect to each such
Collateral Asset Disposition, the Company delivers an Officer's Certificate to
the Trustee dated no more than 30 days prior to the date of consummation of the
relevant Collateral Asset Disposition, certifying that (A) such disposition
complies with clause (i) above, (B) the fair market value of the Collateral
being sold was determined in good faith by the Board of Directors of the
Company, including a majority of the Independent Directors (whose determination
was based on the opinion of a qualified Independent Appraiser or Independent
Financial Adviser prepared contemporaneously with such Collateral Asset
Disposition and which opinion will be evidenced by an opinion letter of the
Independent Appraiser or Independent Financial Adviser and attached to the
Officer's Certificate), as evidenced by copies of the resolutions of the Board
of Directors of the Company (which shall also indicate that the relevant
Collateral Asset Disposition is being made for an appropriate business purpose
which is not the redemption of the First Mortgage Notes), indicating the
requisite approval by the Independent Directors and the Board of Directors,
adopted in respect of and concurrently with such Collateral Asset Disposition
and (C) in the case of a release of less than all of a Collateral Property,
the release of the relevant portion of such Collateral Property will not
interfere with or materially and adversely affect the value of the remaining
portion of such Collateral Property, the maintenance and operation of such
remaining portion or the Trustee's uninterrupted valid first ranking Lien
(subject to Permitted Collateral Liens) on such remaining portion (accompanied
by a binding commitment of a title insurer to issue an endorsement to the title
insurance policy previously issued in respect of such Collateral Property
confirming that, after such release, the Trustee's first ranking Lien on such
remaining portion will remain unimpaired and uninterrupted (subject only to
Permitted Collateral Liens existing on the date hereof or obtaining priority
through operation of law)); (iii) at least 90% of such consideration is in
cash or Cash Equivalents; (iv) the Net Proceeds therefrom shall be paid directly
by the purchaser thereof to the Trustee and deposited into the Cash Collateral
Account pending application in accordance with clause (vii) below and the
Company takes such actions, at its sole expense, as shall

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be required to ensure that the Trustee has from such date a first ranking Lien
thereon (subject to Permitted Collateral Liens) pursuant to this Indenture and
the Security Documents; (v) concurrently with the relevant Collateral Asset
Disposition, the Company takes such actions, at its sole expense, as shall be
required to ensure that the Trustee has from such date a first ranking Lien
(subject to Permitted Collateral Liens) on any portion of such consideration
which is not in the form of cash or Cash Equivalents ("Non-Cash Consideration"),
and, upon receipt thereof, of property received in the future in exchange for
all or any part of such Non-Cash Consideration, pursuant to the terms of this
Indenture and the Security Documents; (vi) the Company takes such other actions,
at its sole expense, as shall be required to permit the Trustee to release the
Collateral being sold from the Lien of this Indenture and the Security
Documents; and (vii) the Company, within six months from the date of
consummation of a Collateral Asset Disposition, applies all of the Net Proceeds
therefrom for the following purposes, individually or in combination, (A) to
purchase or otherwise invest in Replacement Collateral (in accordance with
Subsection (c) below) or (B) to make a First Mortgage Note Offer; PROVIDED
that, (x) in the event that the Company enters into a binding commitment to
purchase or otherwise invest in Replacement Collateral pursuant to the
foregoing clause (vii)(A) within such six month period, the Company will have
eighteen months from the date of consummation of such Collateral Asset
Disposition to consummate such purchase or investment, which shall be completed
with due diligence and (y) in connection with a Collateral Asset Disposition
involving all (but not less than all) of the Collateral Property located in
York, Pennsylvania (as more specifically described in the relevant Security
Document), the Company may, concurrently with such Collateral Asset Disposition,
make subject to the Lien of this Indenture as Replacement Collateral any other
assets of the Company satisfying the definition of "Replacement Collateral" in
accordance with Subsection (c) below in lieu of the assets purchased with the
Net Proceeds of such Collateral Asset Disposition. The Company will not, and
will not permit any of its Restricted Subsidiaries, directly or indirectly, to
enter into a sale-leaseback transaction involving the Collateral.

(b) The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, suffer or permit a Collateral Loss
Event unless: (i) the Net Proceeds therefrom are paid directly by the party
providing such Net Proceeds to the Trustee and deposited in the Cash Collateral
Account, (ii) the Company takes such actions, at its sole expense, as shall be
required to ensure that the Trustee has from the date of such deposit a first
ranking Lien (subject to Permitted Collateral Liens) on such Net Proceeds in the
Cash Collateral Account pursuant to the terms of this Indenture and the Security
Documents and (iii) the Company, within six months of receipt of the Net
Proceeds therefrom, applies all the Net Proceeds received therefrom for the
following purposes, individually or in combination: (A) to purchase or
otherwise

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invest in Replacement Collateral; (B) to Restore the relevant Collateral; or (C)
to make a First Mortgage Note Offer; PROVIDED that, in the event that the
Company enters into a binding commitment to purchase or otherwise invest in
Replacement Collateral pursuant to the foregoing clause (iii)(A) or to Restore
the relevant Collateral pursuant to the foregoing clause (iii)(B) within six
months of receipt of such Net Proceeds from a Collateral Loss Event, the Company
will have eighteen months from the date of such receipt to consummate or
complete such purchase, investment or Restoration, which shall be carried out
with due diligence. In connection with any Restoration, the Company shall
follow the procedures set forth in Section 1610 hereof.

(c) In the event that the Company (i) elects pursuant to clause
(a)(vii)(A) of this Section or clause (b)(iii)(A) of this Section to apply any
portion of the Net Proceeds from a Collateral Asset Disposition or Collateral
Loss Event, respectively, to purchase or otherwise invest in Replacement
Collateral, (ii) pursuant to Subsection (f) below is deemed to purchase or
otherwise invest in Replacement Collateral or (iii) pursuant to clause
(a)(vii)(y) elects to provide other assets of the Company as Replacement
Collateral for the Collateral Property located in York, Pennsylvania following
the sale thereof, (1) the Company shall deliver an Officers' Certificate to the
Trustee dated no more than 30 days prior to the date of consummation of the
relevant purchase of or investment in Replacement Collateral (in the case of
(i)), or of the relevant Collateral Asset Disposition (in the case of (iii) or
dated the date of withdrawal (in the case of (ii)), certifying that: (x) in the
case of clause (i), the purchase price for or the amount of the investment in
the relevant Replacement Collateral does not exceed the fair market value of
such Replacement Collateral, (y) in the case of clause (ii), the Company is
required to use the relevant portion of such Net Proceeds to fund an "Asset
Disposition Offer" under the 1991 Indenture in accordance with Subsection (f)
and has complied with Subsection (f) in connection therewith or (z) in the case
of (iii), the fair market value of such Replacement Collateral is not less than
thirty-one million dollars ($31,000,000), as determined in good faith by the
Board of Directors of the Company, including a majority of the Independent
Directors (whose determination (in the case of clauses (x) and (z)) was based
on the opinion of a qualified Independent Appraiser or Independent Financial
Adviser prepared contemporaneously with the consummation of such purchase of,
or investment in, the relevant Replacement Collateral and which opinion will
be evidenced by an opinion letter of the Independent Appraiser or Independent
Financial Adviser attached to the Officers' Certificate), as evidenced by
copies of the resolutions of the Board of Directors, indicating the requisite
approval of the Independent Directors, adopted in respect of and concurrently
with the purchase of or investment in such Replacement Collateral; and (2) the
Company shall take such actions, at its

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sole expense, as shall be required to permit the Trustee to release such Net
Proceeds (or proceeds required to be applied to the prepayment of Indebtedness
under the 1991 Indenture, as described in Subsection (f) of this Section) from
the Lien of this Indenture and the Security Documents and to ensure that the
Trustee has, from the date of such purchase or investment, a first ranking Lien
(subject to Permitted Collateral Liens) on such Replacement Collateral pursuant
to the terms of this Indenture and the Security Documents. Furthermore, the
Trustee shall have received concurrently with the grant to it of the Lien in
respect of any Replacement Collateral constituting real property or equipment
the documents set forth in Section 1601(e) relating to such Replacement
Collateral substantially in the form delivered to the Trustee on the date of
this Indenture in respect of the original Collateral Properties.

(d) Notwithstanding the foregoing, the Company may defer a First
Mortgage Note Offer until such time as the Excess Proceeds exceed fifteen
million dollars ($15,000,000) (30 days from which time the Company must make a
First Mortgage Note Offer), PROVIDED that (i) the Company provides written
notice to the Trustee of such deferred application of Excess Proceeds, (ii) all
Excess Proceeds are deposited and remain on deposit in the Cash Collateral
Account pending a First Mortgage Note Offer and (iii) any First Mortgage Note
Offer shall include all Excess Proceeds on deposit in the Cash Collateral
Account on the date of such First Mortgage Note Offer, regardless of whether the
Excess Proceeds exceed fifteen million dollars ($15,000,000) at such time.
All amounts remaining after the completion of any First Mortgage Note Offer
shall remain in the Cash Collateral Account subject to the Lien of this
Indenture. The Company may use such amounts to purchase or otherwise invest in
Replacement Collateral securing the First Mortgage Notes on the basis described
in Subsection (c) of this Section 1015 at any time and from time to time.

(e) Within 30 days of any decision by the Company to make a First
Mortgage Note Offer or of the date upon which the Excess Proceeds exceed fifteen
million dollars ($15,000,000), the Company, or the Trustee at the Company's
request, will mail or cause to be mailed to all Holders a notice of the First
Mortgage Note Offer in accordance with Section 1016 and of the Holders' rights
resulting therefrom. Such notice will contain all instructions and materials
necessary to enable Holders to tender their First Mortgage Notes to the Company.

(f) If, pursuant to Section 1009 of the 1991 Indenture, the Company
is required to make an "Asset Disposition Offer" (as defined thereunder) using
proceeds from a Collateral Asset Disposition, the Company may use such proceeds
as are on deposit in the Cash Collateral Account to fund the purchase of
Indebtedness under the 1991 Indenture tendered pursuant to such

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offer; PROVIDED that the Company shall have subjected to the Lien of this
Indenture and the Security Documents cash in an amount equal to such proceeds as
Replacement Collateral pursuant to Subsection (c) of this Section in lieu of the
cash released from the Cash Collateral Account, the amount so released being
deemed to be the amount invested in or used to purchase Replacement Collateral
for the purpose of such Subsection (c) and such release and substitution being
deemed to constitute a purchase of such Replacement Collateral.

SECTION 1016. PROCEDURES CONCERNING FIRST
MORTGAGE NOTE OFFERS.

(a) All First Mortgage Note Offers shall be made at an offer price
(the "First Mortgage Note Offer Price") in cash (i) for Outstanding First
Mortgage Notes in an amount equal to 100% of their principal amount, PLUS any
accrued and unpaid interest, if any, to the First Mortgage Note Offer Payment
Date, and shall be conducted in accordance with the procedures set forth in
subsections (b) through (d) of this Section 1016.

(b) Within 30 days after any date on which the Company decides, or is
required pursuant to Section 1015, to make a First Mortgage Note Offer, the
Company or the Trustee on behalf of the Company shall mail a notice to each
Holder in respect of the First Mortgage Note Offer at such Holder's last
registered address (which notice shall contain all instructions and materials
necessary to enable such Holders to tender First Mortgage Notes) stating:

(1) that the First Mortgage Note Offer is being made pursuant to this
Section, and the reason for the First Mortgage Note Offer;

(2) the aggregate principal amount of the First Mortgage Notes
subject to the First Mortgage Note Offer;

(3) that the Holder has the right to require the Company to
repurchase such Holder's First Mortgage Notes at the First Mortgage Note
Offer Price, subject to proration in the event the aggregate principal
amount of the First Mortgage Notes subject to the First Mortgage Note Offer
is less than the aggregate principal of all First Mortgage Notes tendered;

(4) the name and address of the Paying Agent and the Trustee and that
the First Mortgage Notes must be surrendered to the Paying Agent to collect
the First Mortgage Note Offer Price;

(5) the date of the closing of the First Mortgage Note Offer (the
"First Mortgage Note Offer Payment Date"), which

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shall be no earlier than 30 days nor later than 60 days from the date such
notice is mailed;

(6) that any of the First Mortgage Notes not tendered or accepted for
payment will continue to accrue interest;

(7) that any First Mortgage Note accepted for payment pursuant to the
First Mortgage Note Offer shall cease to accrue interest after the First
Mortgage Note Offer Payment Date;

(8) that each Holder electing to have First Mortgage Notes purchased
pursuant to a First Mortgage Note Offer will be required to surrender the
First Mortgage Note, with the form entitled "Option of Holder to Elect
Purchase" on the reverse of the First Mortgage Note completed, to the
Paying Agent at the address specified in the notice prior to the close of
business on the fifth Business Day prior to the First Mortgage Note Payment
Date;

(9) that Holders will be entitled to withdraw their election if the
Paying Agent receives, not later than three (3) Business Days prior to the
First Mortgage Note Offer Payment Date, a telegram, telex, facsimile
transmission or letter setting forth: the name of the Holder, the principal
face amount of the First Mortgage Notes the Holder delivered for purchase,
the certificate number of the First Mortgage Note the Holder delivered and
a statement that such Holder is withdrawing its election to have such First
Mortgage Notes purchased; and

(10) that Holders whose First Mortgage Notes are purchased only in
part will be issued new First Mortgage Notes equal in principal amount to
the unpurchased portion of the First Mortgage Notes surrendered.

(c) On the First Mortgage Note Offer Payment Date, the Company shall
(i) accept for payment First Mortgage Notes or portions thereof tendered
pursuant to the First Mortgage Note Offer in an aggregate principal amount equal
to the First Mortgage Note Offer Amount or such lesser amount of First Mortgage
Notes as shall have been tendered, (ii) on or before 12:00 noon New York City
time, deposit with the Paying Agent money sufficient to pay the purchase price
of all First Mortgage Notes or portions thereof so accepted, and (iii) deliver
or cause to be delivered to the Trustee First Mortgage Notes so accepted
together with an Officer's Certificate stating the First Mortgage Notes or
portions thereof accepted by the Company. If the aggregate principal amount of
First Mortgage Notes surrendered exceeds the aggregate principal amount of First
Mortgage Notes subject to the First Mortgage Note Offer, as indicated in the
notice required by Subsection (b) of this Section 1016, the

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Trustee shall select the First Mortgage Notes to be purchased on a PRO RATA
basis to the nearest one thousand dollars ($1,000) of principal amount. The
Paying Agent shall promptly mail or deliver to Holders of First Mortgage Notes
so accepted payment in an amount equal to the purchase price, and the Company
shall execute and the Trustee shall promptly authenticate and mail or make
available for delivery to such Holders a new First Mortgage Note equal in
principal amount to any unpurchased portion of the First Mortgage Note
surrendered. Any First Mortgage Notes not so accepted shall be promptly mailed
or made available for delivery to the Holder thereof. The Company will publicly
announce the results of the First Mortgage Note Offer on or as soon as
practicable after the First Mortgage Note Offer Payment Date. For purposes of
this Section, the Trustee or its agent shall act as the Paying Agent.

(d) The Company shall comply with any applicable tender offer rules
(including, without limitation, any applicable requirements of Rule 14e-1 under
the Exchange Act) in the event that a First Mortgage Note Offer is made under
the circumstances described in this Section 1016.

ARTICLE ELEVEN

MAINTENANCE OF SUBORDINATED CAPITAL BASE

SECTION 1101. MAINTENANCE OF SUBORDINATED CAPITAL BASE.

(a) Subject to the terms of Section 1102, in the event that the
Company's Subordinated Capital Base is less than one billion dollars
($1,000,000,000) (the "Minimum Subordinated Capital Base") as at the end of each
of any two consecutive fiscal quarters (the last day of the second such fiscal
quarter, a "Deficiency Date"), then, with respect to First Mortgage Notes, the
Company shall, no later than 60 days after the Deficiency Date (105 days if a
Deficiency Date is also the end of the Company's fiscal year), make an offer to
all Holders to purchase (a "Deficiency Offer") 10% of the principal amount of
First Mortgage Notes originally issued, or such lesser amount as may be
Outstanding at the time each Deficiency Offer is made (the "Deficiency Offer
Amount"), at a purchase price equal to 100% of principal amount, plus accrued
and unpaid interest to the Deficiency Payment Date.

(b) Thereafter, semi-annually the Company shall make like Deficiency
Offers for the then applicable Deficiency Offer Amount of First Mortgage Notes
until the Company's Subordinated Capital Base as at the end of any subsequent
fiscal quarter shall be equal to or greater than the Minimum Subordinated
Capital Base. Notwithstanding the foregoing, after any specified Deficiency
Date, the last day of any subsequent fiscal quarter shall not constitute a
Deficiency Date (giving rise to an

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additional obligation under Subsection (a) of this Section) unless the Company's
Subordinated Capital Base was equal to or greater than the Minimum Subordinated
Capital Base as at the end of a fiscal quarter that followed such specified
Deficiency Date and preceded such subsequent quarter.

(c) Within 60 days (105 days if a Deficiency Date is also the end of
the Company's fiscal year) following a Deficiency Date, the Company shall mail a
notice to each Holder in respect of the Deficiency Offer (which notice shall
contain all instructions and materials necessary to enable such Holders to
tender First Mortgage Notes) stating:

(1) that the Deficiency Offer is being made pursuant to this Section
and the reason for the Deficiency Offer;

(2) the purchase price and the purchase date, which shall be 20
Business Days from the date such notice is mailed or, if acceptance for
payment and payment is not then lawful, on the earliest subsequent Business
Day on which acceptance for payment and payment is then lawful (a
"Deficiency Payment Date");

(3) the aggregate principal amount of First Mortgage Notes subject to
the Deficiency Amount;

(4) the name and address of the Paying Agent and the Trustee and that
First Mortgage Notes must be surrendered to the Paying Agent to collect the
purchase price;

(5) that any of the First Mortgage Notes not tendered or accepted for
payment will continue to accrue interest;

(6) that any First Mortgage Note accepted for payment pursuant to the
Deficiency Offer shall cease to accrue interest after the Deficiency
Payment Date;

(7) that each Holder electing to have a First Mortgage Note purchased
pursuant to a Deficiency Offer will be required to surrender the First
Mortgage Note, with the form entitled "Option of Holder to Elect Purchase"
on the reverse of the First Mortgage Note completed, to the Paying Agent at
the address specified in the notice prior to the close of business on the
Business Day prior to the Deficiency Payment Date;

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Holder delivered for purchase, the certificate number of the First Mortgage
Note the Holder delivered and a statement that such Holder is withdrawing
his election to have the First Mortgage Note purchased; and

(9) that Holders whose First Mortgage Notes are purchased only in part
will be issued new First Mortgage Notes equal in principal amount to the
unpurchased portion of the First Mortgage Notes surrendered.

(d) On a Deficiency Payment Date, the Company shall (i) accept for
payment First Mortgage Notes or portions thereof tendered pursuant to the
Deficiency Offer in an aggregate principal amount equal to the Deficiency Offer
Amount or such lesser principal amount of such First Mortgage Notes as shall
have been tendered, (ii) on or before 12:00 noon New York City time, deposit
with the Paying Agent money sufficient to pay the purchase price of all such
First Mortgage Notes or portions thereof so accepted, and (iii) deliver, or
cause to be delivered to the Trustee, First Mortgage Notes so accepted together
with an Officer's Certificate stating the First Mortgage Notes or portions
thereof accepted by the Company. If the aggregate principal amount of such
First Mortgage Notes tendered exceeds the Deficiency Offer Amount, the Company
shall select the First Mortgage Notes to be purchased on a PRO RATA basis to the
nearest one thousand dollars ($1,000) of principal amount. The Paying Agent
shall promptly mail or make available for delivery to Holders of First Mortgage
Notes so accepted payment in amounts equal to the purchase prices therefor, and
the Company shall execute and the Trustee shall promptly authenticate and mail
or make available for delivery to such Holders new First Mortgage Notes equal in
principal amounts to, any unpurchased portion of the First Mortgage Notes
surrendered. Any First Mortgage Notes not so accepted shall be promptly mailed
or made available for delivery to the Holder thereof. The Company will publicly
announce the results of the Deficiency Offer on or as soon as practicable after
the Deficiency Payment Date. For purposes of this Section, the Trustee or its
agent shall act as the Paying Agent.

(e) The Company shall comply with and applicable tender offer rules
(including, without limitation, any applicable requirements of Rule 14e-1 under
the Exchange Act) and any other legal requirements in the event that a
Deficiency Offer is made under the circumstances described in this Section 1101.

SECTION 1102. ALTERNATIVE INTEREST RATE ADJUSTMENT.

(a) Notwithstanding the terms of Section 1101, in the event that (1)
the making of a Deficiency Offer by the Company or (2) the purchase of First
Mortgage Notes by the Company in respect of a Deficiency Offer would constitute
a default (with

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the giving of notice, the passage of time or both) with respect to any Specified
Bank Debt at the time outstanding, then, in lieu of the making of a Deficiency
Offer in the circumstances set forth in Section 1101, (i) the interest rate on
the First Mortgage Notes shall be reset as of the first day of the second fiscal
quarter following the Deficiency Date (the "Reset Date") to a rate per annum
(the "Reset Rate") equal to the greater of (x) the Initial Interest Rate and (y)
the sum of (A) ______ basis points and (B) the higher of the ______ Year
Treasury Rate and the ____ Year Treasury Rate, (ii) on the first Interest
Payment Date following the Reset Date, the interest rate on the First Mortgage
Notes, as reset on the Reset Date, shall increase by fifty (50) basis points,
and (iii) the interest rate on the First Mortgage Notes shall further increase
by an additional fifty (50) basis points on each succeeding Interest Payment
Date; PROVIDED, HOWEVER, that in no event shall the interest rate on the First
Mortgage Notes at any time exceed the Initial Interest Rate by more than two
hundred (200) basis points.

(b) Once the interest rate on the First Mortgage Notes has been reset
pursuant to Subsection (a) of this Section, if the Company's Subordinated
Capital Base is equal to or greater than the Minimum Subordinated Capital Base
as of the last day of any fiscal quarter subsequent to the Deficiency Date,
interest on the First Mortgage Notes shall return to the Initial Interest Rate
effective as of the first day of the second following fiscal quarter; PROVIDED,
HOWEVER, that the interest rate on the First Mortgage Notes shall again be
adjusted in accordance with Subsection (a) of this Section if the Company's
Subordinated Capital Base shall thereafter be less than the Minimum Subordinated
Capital Base as at the last day of any two consecutive subsequent fiscal
quarters and if the making of a Deficiency Offer or the purchase of First
Mortgage Notes by the Company in respect of a Deficiency Offer would, at such
time, constitute a default (with the giving of notice, the passage of time, or
both) with respect to any Specified Bank Debt at the time outstanding.

(c) The Company shall notify the Trustee of the Reset Rate not later
than two Business Days after the Reset Date in the circumstances set forth in
Subsection (a) of this Section. Not later than five Business Days after the
Trustee has received such notice from the Company, the Trustee shall mail to
each Holder such notice setting forth the Reset Rate. Commencing on the Reset
Date, the First Mortgage Notes shall bear interest (as determined in accordance
with clauses (i), (ii) and (iii) of Subsection (a) of this Section) until the
date on which such interest rate returns to the Initial Interest Rate pursuant
to Subsection (b) of this Section. The Company shall notify the Trustee and the
Holders of such First Mortgage Notes promptly when the interest rate on such
First Mortgage Notes returns to the Initial Interest Rate pursuant to Subsection
(b) of this

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Section. Failure of the Company or the Trustee to give, or failure of a Holder
to receive, such notices shall not in any event affect the validity of the
proceedings of the adjustment of the interest to be borne by such First Mortgage
Notes effective on the Reset Date of the Company's obligations hereunder.

ARTICLE TWELVE

REDEMPTION OF FIRST MORTGAGE NOTES

SECTION 1201. ELECTION TO REDEEM; NOTICE TO TRUSTEE.

The Company may at its option redeem First Mortgage Notes pursuant to
paragraph 4 of the reverse of the First Mortgage Notes. The election of the
Company to redeem any of the First Mortgage Notes shall be evidenced by a Board
Resolution. In case of any redemption at the election of the Company of less
than all the First Mortgage Notes, the Company shall, at least 45 days prior to
the Redemption Date fixed by the Company (unless a shorter notice shall be
satisfactory to the Trustee), notify the Trustee of such Redemption Date and of
the principal amount of First Mortgage Notes to be redeemed. The Company shall
deliver to the Trustee an Officer's Certificate, a Board Resolution authorizing
the redemption and an Opinion of Counsel with respect to the due authorization
of such redemption and to the effect that such redemption is being made in
accordance with this Indenture and the First Mortgage Notes.

SECTION 1202. SELECTION BY TRUSTEE OF THE FIRST MORTGAGE NOTES TO BE REDEEMED.

If less than all the First Mortgage Notes are to be redeemed, the
particular First Mortgage Notes to be redeemed shall be selected not more than
90 days prior to the Redemption Date by the Trustee, from the Outstanding First
Mortgage Notes not previously called for redemption or submitted for repurchase
pursuant to Sections 1009, 1013, 1015 and 1016, substantially PRO RATA, by lot
or by any other method as the Trustee considers fair and appropriate and that
complies with the requirements of the principal national securities exchange, if
any, on which such First Mortgage Notes are listed, and which may provide for
the selection for redemption of portions (equal to $1,000 or any integral
multiple thereof) of the principal amount of First Mortgage Notes of a
denomination larger than $1,000.

The Trustee shall promptly notify the Company in writing of the First
Mortgage Notes selected for redemption and, in the case of any First Mortgage
Note selected for partial redemption, the principal amount thereof to be
redeemed.

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For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to the redemption of First Mortgage Notes
shall relate, in the case of any First Mortgage Note redeemed or to be redeemed
only in part, to the portion of the principal amount of such First Mortgage Note
which has been or is to be redeemed.

SECTION 1203. NOTICE OF REDEMPTION.

Notice of redemption shall be given by first-class mail, postage
prepaid, mailed not less than 30 nor more than 45 days prior to the Redemption
Date, to each Holder of First Mortgage Notes to be redeemed, at the address of
such Holder appearing in the Register.

All notices of redemption shall state:

(1) the Redemption Date;

(2) the Redemption Price (including the amount of accrued and unpaid
interest to be paid);

(3) the name and address of the Paying Agent and the Trustee and that
the First Mortgage Notes must be surrendered to the Paying Agent to collect
the Redemption Price;

(4) if less than all Outstanding First Mortgage Notes are to be
redeemed, the identification (and, in the case of partial redemption, the
principal amounts) of the particular First Mortgage Notes to be redeemed
and that, on or after the Redemption Date, upon surrender of any First
Mortgage Note to be redeemed in part, a new First Mortgage Note in
principal amount equal to the unredeemed portion thereof will be issued;

(5) that on the Redemption Date the Redemption Price will become due
and payable upon each such First Mortgage Note or portion thereof to be
redeemed and, if applicable, that interest thereon will cease to accrue on
and after said date; and

(6) the CUSIP number, if any, of the First Mortgage Notes to be
redeemed.

Notice of redemption of First Mortgage Notes to be redeemed at the
election of the Company shall be given by the Company or, at the Company's
request, by the Trustee in the name and at the expense of the Company.

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SECTION 1204. DEPOSIT OF REDEMPTION PRICE.

Prior to any Redemption Date, the Company shall deposit with the
Trustee or with a Paying Agent (or, if the Company is acting as its own Paying
Agent, segregate and hold in trust as provided in Section 1003) an amount of
money sufficient to pay the Redemption Price of, and (except if the Redemption
Date shall be an Interest Payment Date) accrued interest on, all the First
Mortgage Notes or portions thereof which are to be redeemed on that date.

SECTION 1205. FIRST MORTGAGE NOTES PAYABLE ON REDEMPTION DATE.

Notice of redemption having been given as aforesaid, the First
Mortgage Notes so to be redeemed shall, on the Redemption Date, become due and
payable at the Redemption Price therein specified, and from and after such date
(unless the Company shall default in the payment of the Redemption Price and
accrued interest) such First Mortgage Notes or portions thereof shall cease to
bear interest. Upon surrender of any such First Mortgage Note for redemption in
accordance with said notice, such First Mortgage Note or portion thereof shall
be paid by the Company at the Redemption Price, together with accrued interest
to the Redemption Date; PROVIDED, HOWEVER, that installments of interest whose
Stated Maturity is on or prior to the Redemption Date shall be payable to the
Holders of such First Mortgage Notes, or one or more Predecessor First Mortgage
Notes, registered as such at the close of business on the relevant Record Dates
or Special Record Dates according to their terms and the provisions of Section
307.

If any First Mortgage Note or portion thereof called for redemption
shall not be so paid upon surrender thereof for redemption, the principal (and
premium, if any) shall, until paid, bear interest from the Redemption Date at
the rate prescribed therefor in the First Mortgage Note.

SECTION 1206. FIRST MORTGAGE NOTES REDEEMED IN PART.

Any First Mortgage Note which is to be redeemed only in part shall be
surrendered at an office or agency of the Company at a Place of Payment therefor
(with, if the Company or the Trustee so requires, due endorsement by, or a
written instrument of transfer in form satisfactory to the Company and the
Trustee duly executed by, the Holder thereof or his attorney duly authorized in
writing), and the Company shall execute, and the Trustee shall authenticate and
deliver to the Holder of such First Mortgage Note without service charge, one or
more new First Mortgage Notes, of any authorized denomination as requested by
such Holder, in aggregate principal amount equal to and in exchange for the
unredeemed portion of the principal of the First Mortgage Note so surrendered.

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ARTICLE THIRTEEN

COLLATERAL AND SECURITY DOCUMENTS

SECTION 1301. SECURITY DOCUMENTS.

(a) As general and continuing collateral security for the due
repayment and satisfaction of all present and future indebtedness, liabilities
and obligations of any kind whatsoever, under, in connection with or relating to
this Indenture, including without limitation, the First Mortgage Notes and any
ultimate unpaid balance thereof and to secure the due performance of all of the
other present and future obligations of the Company to the Trustee (including
obligations under Section 607 hereof) and the Holders under this Indenture,
each Security Document and the First Mortgage Notes, the Company for all
purposes, has entered into the Security Documents and pledged the Collateral.

(b) The Company covenants and agrees that it has full right, power
and lawful authority to grant, bargain, sell, release, convey, hypothecate,
assign, mortgage, pledge, transfer and confirm the property constituting the
Collateral, in the manner and form done in the Security Documents, or intended
to be done, free and clear of all Liens, pledges, charges and encumbrances
whatsoever (other than Permitted Collateral Liens), and that (i) it will forever
warrant and defend the title to the same against the claims of all persons
whatsoever (except as to Permitted Collateral Liens), (ii) it will execute,
acknowledge and deliver to the Trustee such further assignments, transfers,
assurances or other instruments as the Trustee may require or request, and (iii)
it will do or cause to be done all such acts and things as may be necessary or
proper, or as may be required by the Trustee, to assume and confirm to the
Trustee the Collateral, or any part thereof, as from time to time constituted,
so as to render the same available for the security and benefit of the Security
Documents, this Indenture and of the First Mortgage Notes. The Company further
covenants and agrees that each Security Document, as applicable, creates or will
create, as the case may be, a direct and valid first ranking Lien (subject to
Permitted Collateral Liens) on the Collateral subject thereto.

SECTION 1302. RECORDING.

The Company will cause, at its own expense, this Indenture and each
Security Document, and all amendments or supplements thereto, to be registered,
recorded and filed and/or re-recorded and/or re-filed and/or renewed in such
manner and in such place or places, if any, as may be required by law in order
to preserve, protect and maintain the perfected first ranking Liens of the
Security Documents and

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all parts of the Collateral and to effectuate and preserve the security of the
Holders and all rights of the Trustee. The Company will pay all mortgage,
mortgage recording, stamp, intangible or other similiar taxes required to be
paid by any Person under applicable Legal Requirements in connection with the
execution, delivery, recordation, filing, perfection or enforcement of any of
the Security Documents.

The Company shall furnish to the Trustee:

(1) promptly after the execution and delivery of this Indenture or
other instrument of further assurance, an Opinion of Counsel stating that,
in the opinion of such counsel, this Indenture, the Security Documents, and
all other instruments of further assurance have been properly recorded,
registered and filed to the extent necessary to make effective the Lien
intended to be created by the Security Documents, and reciting the details
of such action or referring to prior Opinions of Counsel in which such
details are given, and stating that all statements have been executed and
filed that are necessary fully to preserve and protect the rights of the
Holders and the Trustee hereunder and under the Security Documents, or
stating that, in the opinion of such counsel, no such action is necessary
to make such Liens effective; and

(2) by December 15 in each year beginning with the year 1995, an
Opinion or Opinions of Counsel, dated as of such date, either stating that,
in the opinion of such counsel, such action has been taken with respect to
the recording, registering, filing, re-recording, re-registering and re-
filing of (x) this Indenture, (y) the Security Documents, and all
supplemental indentures and amendments thereto, and (z) financing
statements, continuation statements or other instruments of further
assurances, as is necessary to maintain the Lien of each such Security
Document and reciting the details of such action or referring to prior
Opinions of Counsel in which such details are given, and stating that all
financing statements and continuation statements have been executed and
filed that are necessary to preserve and protect the rights of the Holders
and the Trustee hereunder, the rights of the Trustee under the Security
Documents, or stating that, in the opinion of such counsel, no such action
is necessary to maintain such Liens.

SECTION 1303. POSSESSION OF THE COLLATERAL AND THE CASH COLLATERAL ACCOUNT.

(a) Subject to Article 14, until the security provided by the
Security Documents becomes enforceable, the Company may possess, manage, operate
and enjoy, as applicable, the Collateral in accordance with the terms of the
Security Documents.

(b) Notwithstanding the foregoing, all moneys received by the Trustee
for the release of any part of the Collateral, all

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Condemnation Proceeds or Insurance Proceeds in respect of the Collateral
received by the Trustee, and all amounts of money, securities, letters of credit
and other evidences of indebtedness deposited with or held by the Trustee in
accordance with this Indenture and any Security Document shall be held by the
Trustee, as security for the obligations of the Company under this Indenture and
the Security Documents until applied in accordance with the terms of this
Indenture. Neither receipt by the Trustee, nor any application whatsoever by
the Trustee of Condemnation Proceeds or Insurance Proceeds, or other moneys
under this Subsection (b) shall operate as payment or novation of the Company's
indebtedness under this Indenture or the Security Documents, or as a reduction
of the mortgages, pledges and charges created under the Security Documents,
notwithstanding any law, usage or custom to the contrary.

SECTION 1304. SUITS TO PROTECT THE COLLATERAL.

The Trustee shall have power to institute and to maintain such suits
and proceedings as it may deem expedient to prevent any impairment of the
Collateral by any acts which may be unlawful or in violation of this Indenture
or any of the Security Documents, and such suits and proceedings as the Trustee
may deem expedient to preserve or protect its interests and the interests of the
Holders in the Collateral and in the principal, interest, issues, profits,
rents, revenues and other income arising therefrom, including power to institute
and maintain suits or proceedings to restrain the enforcement of or compliance
with any legislative or other governmental enactment, rule or order that may be
unconstitutional or otherwise invalid, if the enforcement of, or compliance
with, such enactment, rule or order would impair the security hereunder or under
any of the Security Documents, or be prejudicial to the interests of the Holders
or the Trustee.

SECTION 1305. RELEASE UPON TERMINATION OF THE COMPANY'S
OBLIGATIONS; PARTIAL RELEASE.

(a) In the event that the Company delivers an Officer's Certificate
certifying that all obligations under this Indenture have been satisfied and
discharged by complying with the provisions of Article Four or Section 1502, the
Trustee shall (i) to the extent the satisfaction and discharge of the Security
Documents is given in accordance with Article Four or Section 1502 deliver to
the Holders a notice stating that the Trustee, on behalf of the Holders,
disclaims and gives up any and all rights it has in and to the Collateral and
under this Indenture and the Security Documents (except for Section 1607(e)),
and, upon and after the receipt by the Holders of such notice, the Trustee shall
not be deemed to hold any of the Collateral pursuant to this Indenture and the
Security Documents on behalf of the Trustee for the benefit of the Holders; or
(ii) otherwise

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disclaim and give up any and all rights it has in and to the Collateral, and any
rights it has under any of the Security Documents, and the Trustee shall not be
deemed to hold any of the Collateral for the benefit of the Holders.

(b) The release of any Collateral from the terms hereof or from the
terms of any of the Security Documents, or the release, in whole or in part, of
the Lien created hereby or by any and all of the Security Documents, will not be
deemed to impair the Lien described in Section 1301 in contravention of the
provisions of this Indenture if and to the extent the Collateral or Lien are
released pursuant to, and in accordance with, the Security Documents and
pursuant to, and in accordance with, the terms hereof. The Trustee and each of
the Holders acknowledge that a release of any of the Collateral or any part of
the Lien in accordance with the terms of any of the Security Documents and the
terms hereof will not be deemed for any purpose to be an impairment of the Lien
in contravention of the terms of this Indenture. To the extent applicable, the
Company shall comply with Section 314 of the Trust Indenture Act relating to the
release of property or securities from the security interest in the Collateral.
Any certificate or opinion required by Section 314 of the Trust Indenture Act
shall be set forth in an Officer's Certificate, except in cases in which Section
1015 of this Indenture or Section 314(d) of the Trust Indenture Act requires
that such certificate or opinion be made by an independent person.

ARTICLE FOURTEEN

CASH COLLATERAL ACCOUNT

SECTION 1401. CASH COLLATERAL ACCOUNT.

The Company hereby acknowledges the establishment of the Cash
Collateral Account. As collateral security for the due, full and prompt payment
or performance when due of all of the Account-Related Obligations (as defined
below), the Company hereby grants to the Trustee on behalf of the Holders a
continuing first-ranking Lien (subject to Permitted Collateral Liens) upon and
security interest in, and pledges and assigns to the Trustee on behalf of the
Holders, all of the Company's right, title and interest in and to the Cash
Collateral Account and all funds on deposit from time to time therein, together
with all cash and non-cash proceeds (including, without limitation, investments
made pursuant to Section 1402(d)) thereof and distributions with respect
thereto, inclusive of all interest and earnings thereon and increments thereto
(collectively, the "Account Collateral"), except for Account Collateral
distributed in accordance with the terms of this Indenture, until the
termination of the Cash Collateral Account pursuant to the terms of this
Indenture. "Account-Related Obligations" means all of

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the Company's present and future indebtedness, liabilities and obligations of
any kind whatsoever, under, in connection with or relating to this Indenture,
including, without limitation, the First Mortgage Notes and any ultimate unpaid
balance thereof and to secure the due performance of all of the other present
and future obligations of the Company to the Trustee (including obligations
under Section 607 of this Indenture) and the Holders. From the date hereof and
continuing until after satisfaction and discharge of this Indenture pursuant to
Section 401 of this Indenture, the Cash Collateral Account shall be maintained
with and managed by the Trustee, and the Trustee shall act with respect thereto
only in accordance with this Indenture.

SECTION 1402. TERMS OF CASH COLLATERAL ACCOUNT.

(a) (i) From the date hereof and up and to satisfaction and discharge
of this Indenture pursuant to Section 401, there shall be established by the
Company a Cash Collateral Account with the Trustee in the name "Stone Container
Corporation, subject to the lien and security interest in favor of Norwest Bank
Minnesota, National Association" (or in the event a successor Trustee is
appointed under this Indenture, a similar account shall be established
consistently showing the name of such Trustee) which account shall be under the
sole dominion and control of the Trustee acting in accordance with this
Indenture.

(ii) The Company shall have no right under the terms of the Cash
Collateral Account established pursuant to clause (i) above, so long as any
First Mortgage Note is Outstanding or other payments are due under this
Indenture, to withdraw or instruct any Person to withdraw on its behalf any
money from the Cash Collateral Account. The Company shall deposit, or
shall have deposited as required by this Indenture, from time to time into
the Cash Collateral Account all Net Proceeds from any Collateral Asset
Disposition or Collateral Loss Event in the manner required by Section
1015, as well as any Insurance Proceeds or Condemnation Proceeds received
in respect of a Partial Collateral Loss in the manner required by Section
1610. In addition, any income received by the Company or the Trustee with
respect to the balance from time to time standing to the credit of the Cash
Collateral Account shall be deposited in the Cash Collateral Account, and
shall be applied to purchase Replacement Collateral pursuant to Section
1015, or applied to purchase First Mortgage Notes pursuant to all First
Mortgage Note Offers made by the Company pursuant to Section 1015 following
the date of such deposit, or applied to Restoration pursuant to Section
1610 in the event of a Partial Collateral Loss. All right, title and
interest in and to the Account Collateral shall vest in the Trustee, shall
constitute part of the Collateral hereunder and shall not constitute
payment of the obligations of the Company

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under Indenture or any Security Document or under the First Mortgage
Notes, whether principal, premium, interest (including Defaulted Interest,
and whether or not accruing after the commencement of any case, proceeding
or other action relating to the bankruptcy, insolvency or reorganization of
the Company) or otherwise, until applied thereto as hereinafter provided.
In the event that any amount is required to be deposited in the Cash
Collateral Account as aforesaid, the Company shall take such actions at its
sole expense as shall be required to ensure that the Trustee has from the
date of such deposit a first ranking Lien and security interest (subject to
Permitted Collateral Liens) on such deposit for the benefit of the Trustee
and the Holders. Upon receipt of an appropriate Opinion of Counsel
pursuant to Section 102 and in accordance with the Trust Indenture Act of
1939, the Trustee shall take such steps as shall be required to ensure that
it has from the date of such deposit a first ranking Lien (subject to
Permitted Collateral Liens) on such deposit for its benefit and for the
benefit of the Holders.

(iii) For so long as the First Mortgage Notes are Outstanding, the
Trustee shall not exercise any right of setoff or recoupment or similar
right that it may otherwise have against the Cash Collateral Account to
satisfy obligations of the Company to the Trustee (other than those
obligations that may have arisen under the Security Documents and in
respect of the Collateral).

(b) Except as otherwise provided in Section 1015, 1610 or subsection
(c) of this Section 1402, no amount (including interest on amounts on deposit in
the Cash Collateral Account) shall be paid or released to or for the account of,
or withdrawn by or for the account of, the Company or any other Person from
the Cash Collateral Account.

(c) The balance from time to time standing to the credit of the Cash
Collateral Account shall be distributed to the Company or any other Person
entitled thereto only as permitted under Sections 1015 and 1610; PROVIDED that
the Trustee shall not distribute to the Company or such other Person any such
funds at any time a Default or an Event of Default shall have occurred and is
continuing. If immediately available cash on deposit in the Cash Collateral
Account is not sufficient to make any such permitted distribution, the Trustee
shall liquidate as promptly as practicable Cash Equivalents as required to
obtain sufficient cash to make such distribution and, notwithstanding any other
provision of Sections 1015 and 1610 or this Section 1402, such distribution
shall not be made until such liquidation has taken place.

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(d) The Trustee shall invest from time to time amounts on deposit in
the Cash Collateral Account in U.S. Government Obligations maturing within 30
days from the date of acquisition thereof, or a longer period (not exceeding one
year) if the Company certifies to the Trustee that the funds are set aside
either: (x) to purchase or invest in Replacement Collateral pursuant to Section
1015(a)(vii) in the event of a Collateral Asset Disposition; or (y) to Restore
the relevant Collateral in accordance with Section 1610(c) and the Trustee shall
at all times have the exclusive right to make investment decisions with respect
to amounts on deposit in the Cash Collateral Account. Such investments
described above shall be held in the name of the Trustee and shall be under the
sole dominion and control of the Trustee, pursuant to this Article Fourteen,
subject to the rights of the Trustee under Article Five. Each such investment
shall be either:

(i) evidenced by negotiable certificates or instruments, or if
non-negotiable then issued in the name of the Trustee, which (1) are
promptly upon acquisition delivered (together with any appropriate
instruments of transfer) to, and held by, the Trustee or an agent thereof
(which shall not be the Company or any of its Affiliates) in the State of
New York or (2) held by of on behalf of The Depository Trust Company (the
"Clearing Corporation") and credited to a securities account of the Trustee
maintained with the Clearing Corporation; or

(ii) maintained in book-entry form on the records of a Federal
Reserve Bank and registered in the name of the Trustee, as depositary, in a
book-entry securities account maintained with respect to such investment
with the Federal Reserve Bank in the Federal Reserve District in which the
Corporate Trust Office is located.

The Company shall bear the risk of any realized losses incurred on
such investments, and if any such realized loss shall occur on a day when the
Company would not be permitted pursuant to subsection (a) of this Section 1402
to withdraw monies from the Cash Collateral Account, the Company shall promptly
remit an amount equal to the amount of any such loss to the Trustee for credit
to the Cash Collateral Account.

SECTION 1403. REPRESENTATIONS, WARRANTIES AND
COVENANTS SPECIFIC TO THE
CASH COLLATERAL ACCOUNT.

The Company represents, warrants and covenants that the Lien and
security interest on the Account Collateral granted pursuant to Section 1401 is
and will remain (and the Company will make all such future filings and take all
such future actions as may be necessary or desirable in order to ensure that it
remains)

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a legal, valid, binding and enforceable Lien and security interest,
securing the Account-Related Obligations, ranking prior and superior to all
other Liens thereon (other than Permitted Collateral Liens), and covenants
that it shall take all necessary action to cause and maintain a perfected first
ranking Lien (subject to Permitted Collateral Liens) in such Cash Collateral
Account). The Company represents and warrants that as of the date hereof, all
filings and other actions necessary or desirable for the purpose of registering
notice of, perfecting and establishing the first ranking of such Lien (subject
to Permitted Collateral Liens) and security interest have been duly made or
taken. At any time upon the reasonable request of the Trustee, the Company
will, at the Company's sole expense, execute, acknowledge, deliver, record
and/or file such documents or instruments in form reasonably satisfactory to
the Trustee, and do such acts and things as may be reasonably necessary,
desirable or proper to carry out more effectively the purposes of such Lien and
security interest or to further assure, evidence, preserve or protect the
perfection, ranking or other benefits thereof.

ARTICLE FIFTEEN

DEFEASANCE AND COVENANT DEFEASANCE

SECTION 1501. APPLICABILITY OF ARTICLE; COMPANY'S OPTION TO
EFFECT DEFEASANCE OR COVENANT DEFEASANCE.

The Company may at its option by Board Resolution, at any time, with
respect to the First Mortgage Notes, elect to have either Section 1502 (if
applicable) or Section 1503 (if applicable) be applied to the Outstanding First
Mortgage Notes upon compliance with the applicable conditions set forth below in
this Article.

SECTION 1502. DEFEASANCE AND DISCHARGE.

Upon the Company's exercise of the option provided in Section 1501 to
defease the Outstanding First Mortgage Notes, the Company shall be discharged
from its obligations with respect to the Outstanding First Mortgage Notes on the
date the applicable conditions set forth in Section 1504 are satisfied
(hereinafter, "defeasance"). Defeasance shall mean that the Company shall be
deemed to have paid and discharged the entire indebtedness represented by the
Outstanding First Mortgage Notes and to have satisfied all its other obligations
under such First Mortgage Notes, this Indenture and the Security Documents (and
the Trustee, at the expense of the Company, shall executed proper instruments
acknowledging the same); PROVIDED, HOWEVER, that the following rights,
obligations, powers, trusts, duties and immunities shall survive until otherwise
terminated or discharged hereunder: (A) the rights of Holders of Outstanding
First Mortgage Notes to receive, solely from the trust fund provided for in
Section 1504, payments in respect of the principal of (and

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premium, if any) and interest on such First Mortgage Notes when such payments
are due, (B) the Company's obligations with respect to such First Mortgage Notes
under Sections 304, 305, 306, 1002, 1003 and 1607(e), (C) the rights, powers,
trusts, duties and immunities of the Trustee hereunder and (D) this Article.
Subject to compliance with this Article, the Company may exercise its option
with respect to defeasance under this Section 1502 notwithstanding the prior
exercise of its option with respect to covenant defeasance under Section 1503.

SECTION 1503. COVENANT DEFEASANCE.

Upon the Company's exercise of the option provided in Section 1501 to
obtain a covenant defeasance with respect to the Outstanding First Mortgage
Notes, the Company shall be released from its obligations under this Indenture
(except its obligations under Sections 306, 506, 509, 610, 1001, 1002, 1011 and
1012) with respect to the Outstanding First Mortgage Notes on and after the date
the applicable conditions set forth in Section 1504 are satisfied (hereinafter,
"covenant defeasance"). Covenant defeasance shall mean that the Company may
omit to comply with and shall have no liability in respect of any term,
condition or limitation set forth in this Indenture (except its obligations
under Sections 306, 506, 509, 610, 1001, 1002, 1011 and 1012), whether directly
or indirectly by reason of any reference elsewhere herein or by reason of any
reference to any other provision herein or in any other document, and such
omission to comply shall not constitute an Event of Default under Section 501(3)
with respect to Outstanding First Mortgage Notes, and the remainder of this
Indenture and of the First Mortgage Notes shall be unaffected thereby.

SECTION 1504. CONDITIONS TO DEFEASANCE OR COVENANT DEFEASANCE.

The following shall be the conditions to defeasance under Section 1502
and covenant defeasance under Section 1503 with respect to the Outstanding First
Mortgage Notes:

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case sufficient, after payment of all federal, state and local taxes or
other charges or assessments in respect thereof payable by the Trustee, in
the opinion of a nationally recognized firm of independent public
accountants expressed in a written certification thereof delivered to the
Trustee, to pay and discharge, and which shall be applied by the Trustee
(or other qualifying trustee) to pay and discharge, (i) the principal of
(and premium, if any, on) and each installment of principal of (and
premium, if any) and interest on the Outstanding First Mortgage Notes on
the Stated Maturity of such principal or installment of principal or
interest and (ii) any mandatory payments applicable to the Outstanding
First Mortgage Notes on the day on which such payments are due and payable
in accordance with the terms of this Indenture and of such First Mortgage
Notes.

(2) No Default or Event of Default shall have occurred and be
continuing on the date of such deposit or shall occur as a result of such
deposit, and no Default or Event of Default under clause (6) or (7) of
Section 501 hereof shall occur and be continuing, at any time during the
period ending on the 91st day after the date of such deposit (it being
understood that this condition shall not be deemed satisfied until the
expiration of such period).

(3) Such deposit, defeasance or covenant defeasance shall not result
in a breach or violation of, or constitute a default under, any other
agreement or instrument to which the Company is a party or by which it is
bound.

(4) Such defeasance or covenant defeasance shall not cause the First
Mortgage Notes then listed on any national securities exchange registered
under the Exchange Act to be delisted.

(5) In the case of an election with respect to Section 1502, the
Company shall have delivered to the Trustee either (A) a ruling directed to
the Trustee received from the Internal Revenue Service to the effect that
the Holders of the Outstanding First Mortgage Notes will not recognize
income, gain or loss for federal income tax purposes as a result of such
defeasance and will be subject to federal income tax on the same amounts,
in the same manner and at the same times as would have been the case if
such defeasance had not occurred or (B) an Opinion of Counsel, based on
such ruling or on a change in the applicable federal income tax law since
the date of this Indenture, in either case to the effect that, and based
thereon such opinion shall confirm that, the Holders of the Outstanding
First Mortgage Notes will not recognize income, gain or loss for federal
income tax purposes as a result of such

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defeasance and will be subject to federal income tax on the same amounts, in the
same manner and a the same times as would have been the case if such defeasance
had not occurred.

(6) In the case of an election with respect to Section 1503, the
Company shall have delivered to the Trustee an Opinion of Counsel or a
ruling directed to the Trustee received from the Internal Revenue Service
to the effect that the Holders of the Outstanding First Mortgage Notes will
not recognize income, gain or loss for federal income tax purposes as a
result of such covenant defeasance and will be subject to federal income
tax on the same amounts, in the same manner and at the same times as would
have been the case if such covenant defeasance had not occurred.

(7) The Company shall have delivered to the Trustee an Officer's
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for relating to either the defeasance under Section 1502
or the covenant defeasance under Section 1503 (as the case may be) have
been complied with.

SECTION 1505. DEPOSITED MONEY AND GOVERNMENT OBLIGATIONS TO BE
HELD IN TRUST; OTHER MISCELLANEOUS PROVISIONS.

Subject to the provisions of the last paragraph of Section 1003, all
money and Government Obligations (including the proceeds thereof) deposited with
the Trustee (or other qualifying trustee, collectively for purposes of this
Section 1505, the "Trustee") pursuant to Section 1504 in respect of the
Outstanding First Mortgage Notes shall be held in trust and applied by the
Trustee, in accordance with the provisions of such First Mortgage Notes and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Holders of such First Mortgage Notes of all sums due and to
become due thereon in respect of principal (and premium, if any) and interest,
but such money need not be segregated from other funds except to the extent
required by law.

The Company shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the Government Obligations
deposited pursuant to Section 1504 or the principal and interest received in
respect thereof, other than any such tax, fee or other charge which by law is
for the account of the Holders of the Outstanding First Mortgage Notes.

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opinion of a nationally recognized firm of independent public accountants
expressed in a written certification thereof delivered to the Trustee, are in
excess of the amount thereof which would then be required to be deposited for
the purpose for which such money or U.S. Government Obligations were deposited.

ARTICLE SIXTEEN

COVENANTS SPECIFIC TO THE COLLATERAL PROPERTY

SECTION 1601. GOOD TITLE; AUTHORITY; PRIORITY; MAINTENANCE OF
TITLE; SUPPLEMENTAL INDENTURES; REGISTRATION,
RECORDING AND FILING; CLOSING DOCUMENTS.

(a) The Company represents, warrants and covenants that (i) it is and
will be the sole owner of and has and will have good and indefeasible title in
fee to the real property comprising part of each Collateral Property (except
that the Company is and will be the sole holder of a leasehold interest in the
portion of the Collateral Property located in Ontonagon, Michigan, as further
described in the Mortgage relating to such Mortgaged Property) and good title
to the balance of each such Collateral Property, and is now lawfully seized and
possessed of the Collateral subject to the Liens created by the Security
Documents (and any Permitted Collateral Liens); (ii) it has, and will have, good
right and lawful authority to hypothecate, mortgage, pledge, assign, charge,
cede and transfer all of the Collateral as provided in the Security Documents;
(iii) the Collateral is, and will be, free and clear of any Lien, except
Permitted Collateral Liens; and (iv) each Security Document, as applicable,
creates and constitutes, and will create and constitute a valid and enforceable
uninterrupted and perfected first ranking Lien (subject to Permitted Collateral
Liens) on the Collateral.

(b) The Company hereby does and will forever warrant and defend the
title to the Collateral against the claims and demands of all Persons whomsoever
and warrants that it will fully and effectively maintain the security created by
the applicable Security Documents. The Company further represents and warrants
that each of the material contracts, leases and agreements described in the
Security Documents is in full force and effect and no defaults, waivers or
indulgences exist thereunder.

(c) The Company shall promptly after the execution thereof properly
file or record, as applicable, the Security Documents in the appropriate public
records, where, in the opinion of the Trustee, the filing or registration
thereof may be necessary or advisable, and shall as applicable, from time to
time renew the same, if such renewal is necessary or advisable in the opinion of
the Trustee, to maintain such security.

(d) Except as permitted by the Security Documents or this Indenture,
the Company shall keep in effect all material rights and appurtenances to or
that constitute a part of the Collateral.

(e) As a condition to the effectiveness of this Indenture and the
issuance of the First Mortgage Notes hereunder,

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the Company shall have delivered to the Trustee the following documents relating
to the Collateral in form and substance satisfactory to the Trustee and its
counsel:

(i) Security Documents and related lien searches for each
Collateral Property;

(ii) reports, ucc filings, tax liens, judgments and litigation
with respect to each Collateral Property;

(iii) title insurance policies and surveys for each Collateral
Property;

(iv) certificates of insurance;

(v) environmental and engineer reports for each Collateral
Property;

(vi) evidence of compliance with zoning and other local laws
(including possession of required permits) for each Collateral
Property;

(vii) opinion of local counsel in each jurisdiction where a
Collateral Property is located;

(viii) documents and opinions of counsel relating to the Company's
due execution and delivery of the Security Documents; and

(ix) such other documents as the Trustee or its counsel may
reasonably request.

SECTION 1602. FURTHER DOCUMENTATION TO ASSURE LIEN; FEES AND EXPENSES.

(a) The Company shall, at its sole cost and expense, promptly do,
execute, acknowledge and deliver all and every such further acts, deeds,
conveyances, charges, mortgages, assignments, notices of assignment, transfers
and assurances as the Trustee shall from time to time reasonably request, which
may be necessary or advisable in the opinion of the Trustee from time to time to
assure, perfect and maintain without interruption, convey, assign, transfer,
hypothecate and confirm unto the Trustee the property and rights thereby
conveyed, hypothecated or otherwise assigned, or which the Company hereunder
or thereunder may be bound to convey, hypothecate or otherwise assign to the
Trustee, or which may facilitate the performance of the terms of the first
ranking Lien (subject to Permitted Collateral Liens) and any other Liens created
under applicable Security Documents, or the filing, registering or recording of
such applicable Security Document.

(b) The Company shall promptly (i) deliver to the Trustee such
supplemental agreements, documents or notices containing further descriptions of
properties (including

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replacements and additions to the Collateral) mortgaged or intended to be
mortgaged by the applicable Security Document, as may, in the opinion of the
Trustee, be necessary or advisable to give the Trustee valid and enforceable
first ranking Liens (subject to Permitted Collateral Liens) upon such properties
as contemplated by the granting clauses or the charging provisions of such
applicable Security Document, and (ii) cause at all times to be kept registered,
recorded and filed the applicable Security Document, any and all supplemental
trust deeds and instruments of hypothec, mortgage, pledge, assignment, charge,
cession and transfer or further assurance, any required financing and
continuation statements and all other required papers in such manner and in such
places as may in the opinion of the Trustee be required by law, or which may be
necessary or advisable, in order fully to perfect, preserve and protect the
uninterrupted Liens (subject to Permitted Collateral Liens) of the applicable
Security Document as a mortgage, pledge, assignment, charge, cession and
transfer of immovables and movables and interest therein. The Company shall
promptly pay or cause to be paid all taxes, fees and other charges in connection
with such recording and/or filing.

(c) The Company shall from time to time execute and do or cause to be
executed and done all such assurances and things as the Trustee may reasonably
require for facilitating the realization of the Collateral, for exercising all
the powers, authorities and discretion conferred upon the Trustee under such
Security Document and for confirming to any purchaser of any of the Collateral,
whether held by the Trustee under the applicable Security Documents or by
judicial proceedings, the title to the properties so sold, and that it shall
give or cause to be given all notices and directions as the Trustee may consider
expedient.
(d) If the government of any state in which any of the Collateral
Property is located or any political subdivision thereof (including a
municipality) shall levy, assess or charge any tax, imposition or assessment
upon the Security Documents relating to the obligations or the interest of the
Trustee, in any of the Collateral (other than income, franchise or similar taxes
imposed on the Trustee or on the Holders), the Company shall pay all such taxes,
assessments and impositions to, for or on account of the Trustee when due and
payable and shall furnish promptly to the Trustee proof of such payment.
Notwithstanding the foregoing, the Company may contest such amount paid or
payable in accordance with the procedures set forth in Section 1606(d).

SECTION 1603. IMPAIRMENT OF COLLATERAL.

The Company shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly, (i) incur or suffer to exist any Lien upon any of
the Collateral other than Permitted

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Collateral Liens, (ii) take any action or omit to take any action with respect
to the Collateral that would or could be reasonably expected to have the result
of adversely affecting, impairing or failing to maintain without interruption
the security interests in the Collateral under this Indenture or the Security
Documents, or (iii) grant any interest whatsoever (other than Permitted
Collateral Liens) in any of the Collateral to any other Person (other than the
Company or the Trustee), or suffer to exist any such interest.

SECTION 1604. OBLIGATIONS WITH RESPECT TO
LEASES AND MATERIAL CONTRACTS.

(a) Without prejudice to Section 1603, if the Company shall be
permitted to enter into any lease or sublease with respect to any of the
Collateral Property, the Company shall not (i) execute any assignment of any
such assigned lease or sublease or of the rents or any part thereof other than
pursuant to the applicable Security Document, (ii) accept any prepayments of any
installment of rents or other amounts to become due thereunder for a period
exceeding one month (except for a security deposit), or (iii) enter into or
modify any such assigned lease in any fashion which will (x) interfere in any
material respect with the ordinary operation of such Collateral Property or (y)
materially and adversely affect the value of such Collateral Property or the
security provided by the applicable Security Document, without the prior written
consent of the Trustee.

(b) The Company shall furnish to the Trustee, upon the request
thereof, within thirty (30) days after such request to do so, a written
statement in respect of any or all of the leases that include any of the
Collateral Properties, setting forth the space occupied, if any, the portion of
the Collateral Property demised thereby, the rentals or other amounts payable
thereunder, and such other information as the Trustee may reasonably request (to
the extent reasonably available to the Company).

(c) The Company shall notify the Trustee annually, within 90 days
from the end of each of its fiscal years, of the existence of any and all leases
or leasing contracts in respect of any part of the Collateral.

SECTION 1605. USE AND CONFIGURATION; MAINTENANCE OF
COLLATERAL PROPERTIES.

(a) The Company represents and warrants that (i) the Collateral
Properties are served by all utilities required or necessary for the current use
thereof, (ii) all streets necessary to serve the Collateral Properties are
substantially completed and serviceable and have been dedicated and accepted as
such by each governmental authority having jurisdiction and (iii) the Company
has access to the Collateral Properties from public roads or by way of recorded
easements sufficient to allow the Company

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to conduct its business as conducted presently at such Collateral Properties.

(b) The Company shall, at all times, make or cause to be made such
expenditures by means of renewals, replacements, repairs, maintenance or
otherwise as shall be necessary to maintain, preserve and keep the Collateral
Properties in good working order, condition and repair (ordinary wear and tear
excepted), in a state of good operating efficiency, and shall not commit any
waste on or with respect to the Collateral Properties that has the effect of
reducing materially the value of such Collateral or any other property of the
Company or its Restricted Subsidiaries constituting Collateral. The Company (i)
shall not alter or permit to be altered the occupancy of the Collateral
Properties or use of all or any part of the Collateral Properties without the
prior written consent of the Trustee if such alteration could reasonably be
expected to reduce materially the value of the Collateral, and (ii) shall do all
other acts which from the character or use of the Collateral Properties
reasonably may be necessary, advisable or appropriate to comply with the terms
of this Indenture and the Security Documents. Except as otherwise permitted by
this Indenture or the Security Documents, the material improvements to the
Collateral Properties and any material machinery and equipment shall not be
demolished, nor shall any such material improvements, machinery and equipment be
removed without the prior written consent of the Trustee.

(c) The Company shall duly observe and conform to all covenants,
terms and conditions under or upon which any part of the Collateral is held.

SECTION 1606. PAYMENT OF TAXES, ASSESSMENTS;
COMPLIANCE WITH LAW.

(a) Unless contested in accordance with the provisions of Subsection
(d) below, the Company shall pay and discharge, from time to time when the same
shall become due, all immoveable and other taxes, special assessments, levies,
permits, inspection and license fees, all utility charges, including water and
sewer rents and charges, and all other public charges, imposed upon or assessed
against the Collateral or any part thereof or upon the revenues, rents, issues,
income and profits of the Collateral or any part thereof, including, without
limitation, those arising in respect of the occupancy, use or possession
thereof.

(b) From and after the occurrence and during the continuance of an
Event of Default, the Company shall pay directly to the Trustee for deposit into
the Cash Collateral Account, on the first day of each month, an amount
reasonably estimated by the Trustee to be equal to one-twelfth (1/12th) of the
annual taxes, assessments and other items required to be discharged by the
Company under Subsection (a) above. Such amounts shall be held by the Trustee
in the Cash Collateral

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Account and (at the time that any payment is due pursuant to Subsection (a)
above) the Trustee, after receipt of an Officer's Certificate, shall release an
amount to make such payment and to apply such amount to the payment that is due.
If the amounts so deposited by the Company into the Cash Collateral Account
under this Subsection (b) prove insufficient to pay the amounts required to be
discharged by the Company, then, upon demand, the Company shall pay directly to
the Trustee for deposit into the Cash Collateral Account such additional
amounts. In the event that the First Mortgage Notes become immediately due and
payable upon maturity or acceleration, or the Collateral becomes enforceable
otherwise, the Trustee may apply all or any part of the sums held pursuant to
this Subsection (b) to payment and performance of the Company's obligations in
accordance with this Indenture and the applicable Security Document, until such
time, if any, that such acceleration is rescinded in accordance with this
Indenture.

(c) The Company currently has and shall maintain in full force and
effect all material Permits now or hereafter required by any Authority
(including, without limitation, building ordinances and codes and zoning
requirements) to operate or use and occupy the Collateral Properties for their
intended uses or that otherwise relate to the Collateral Property. Unless
contested in accordance with the provisions of Subsection (d) below, the Company
shall comply promptly in all respects with all requirements set forth in the
permits and all requirements of any law, ordinance, rule, regulation or
requirement of any Authority related to all or any part of the Collateral
Property or the condition, use or occupancy of all or any part thereof or any
recorded deed of restriction, declaration, covenant running with the land or
otherwise, now or hereafter in force, except in such cases where such
noncompliance would not have a material adverse effect on the condition, use,
operation or value of the relevant Collateral Property. The Company shall not
initiate or consent to any change in the zoning or any other permitted use
classification of any Land which could reasonably be expected to have a material
adverse effect on the Lien under the applicable Security Document or the value
of any Collateral Property without the written consent of the Trustee.

(d) The Company may at its own expense contest the amount or
applicability of any of the obligations described in Subsections (a) and (c)
above by appropriate legal proceedings, prosecution of which operates to prevent
the collection thereof and the sale or forfeiture of the Collateral or any part
thereof to satisfy the same; PROVIDED, HOWEVER, that in connection with such
contest, the Company shall (i) have made provision for the payment of such
contested amount on the Company's books if and to the extent required by GAAP or
(ii) if deemed necessary or advisable in the opinion of the Trustee, pay
directly to the Trustee for deposit into the Cash Collateral Account a sum
sufficient to pay and discharge such obligation and the Trustee's estimate of
all interest and penalties related thereto.

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Notwithstanding the foregoing provisions of this subsection (d), (1) no contest
of any such obligations may be pursued by the Company if such contest would (y)
expose the Trustee or any Holder to any criminal liability or, unless the
Company shall have furnished a bond or other security therefor reasonably
satisfactory to the Trustee, any additional civil liability for failure to
comply with such obligations, or (z) have a material adverse effect on the
Collateral and (2) if at any time payment of any obligation imposed upon the
Company by this Section 1606 shall become necessary to prevent the delivery of a
sale for tax conveying the Collateral or any portion thereof because of
nonpayment, the Company shall pay the same in sufficient time to prevent the
delivery of such sale by any Authority.

SECTION 1607. ENVIRONMENTAL MATTERS.

(a) The Company (i) shall be, and shall cause its Restricted
Subsidiaries to be, at all times in compliance in all material respects with all
applicable Environmental Laws and (ii) shall ensure, and shall cause its
Restricted Subsidiaries to ensure, that the condition of all property forming
part of the Collateral is in compliance in all material respects with
Environmental Laws.

(b) The Company shall, and shall cause its Restricted Subsidiaries
to, promptly provide notice to the Trustee of any written notice received to the
effect that any of them is or may reasonably be likely to become liable to any
Person or governmental authority in an amount in excess of $1,000,000 as a
result of: (i) any violation or alleged violation by any of them of any
Environmental Laws, (ii) any administrative or judicial complaint or order filed
against any of them alleging a violation of any Environmental Laws, (iii) any
breach or alleged breach of any environmental certificate, approval or permit
relating to the installations or operations at the Collateral Properties, or
(iv) any liability arising out of the Release or threatened Release of any
Contaminant into the environment or for any damages resulting from such Release.

(c) Upon reasonable request and at reasonable intervals, the Company
shall, and shall cause its Restricted Subsidiaries to, provide the Trustee with
updated information concerning any matter for which notice is provided under
subparagraph (b) above. In addition, upon written request by the Trustee, but
no more frequently than annually, the Company shall, and shall cause its
Restricted Subsidiaries to, submit to the Trustee a report ("Environmental
Report") providing an update of the status of each environmental, health or
safety compliance, hazard or liability issue identified in any notice required
pursuant to subparagraph (b), above.

In the event the Company or the Restricted Subsidiaries receives any
written notice from any governmental authority, or

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if there is a change in Environmental Laws, either of which is reasonably likely
to give rise to a material adverse effect on any Collateral Property, the
Trustee, in its discretion, acting reasonably, may require the Company to
undertake an environmental assessment, evaluating potential costs to correct or
meet such change in law, using qualified engineers or environmental consultants,
for any property affected by such notice or change in law and forming part of
the Collateral, which assessments shall be treated as confidential by Trustee.

(d) The Company shall, and shall cause its Restricted Subsidiaries
to, diligently undertake any Remedial Action required under Environmental Laws
in the event of (i) any violation of any Environmental Laws, (ii) any Release of
any Contaminant on any property forming part of the Collateral or owned by the
Company or its Restricted Subsidiaries or (ii) any other Release or threatened
Release of a Contaminant into the Environment occurring in the course of the
operations of the Company or its Restricted Subsidiaries or originating from
said property; provided, however, that the Company and its Restricted
Subsidiaries shall have no obligations under this subparagraph (d) to the extent
any of them is diligently prosecuting a defense or other legal challenge to any
alleged liability or requirement for Remedial Action.

(e) The Company hereby undertakes, to the extent permitted by
applicable law, to indemnify the Holders, as well as the Trustee, their
officers, directors, employees, agents and shareholders, and agrees to hold each
of them harmless from and against any and all losses, liabilities, damages,
reasonable costs, expenses and claims of any and every kind whatsoever, arising
out of or related to:

(i) defending and/or counter-claiming or claiming over against
third parties in respect of any environmental action or matter
relating to any property that forms part of the Collateral,
and

(ii) any cost, liability or damage arising out of the disposition
or settlement of any environmental action entered into by the
Trustee relating to any property that forms part of the
Collateral, and which at any time or from time to time may be
paid or incurred by, or asserted against the Trustee for, with
respect to or as a direct or indirect result of (a) the
presence in contravention of any Environmental Law (or any
governmental directive given to the Company or any of its
Restricted Subsidiaries) on or under, or the Release from any
property that forms part of the Collateral, or any other
property owned or occupied by the Company or any of its

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Restricted Subsidiaries, of any Contaminant into the
environment and (b) a failure on the part of the Company or
its Restricted Subsidiaries to comply with any Environmental
Laws.

The provisions of any undertakings and indemnifications set out in
this Section 1607 shall survive the satisfaction of the Company's obligations
under the First Mortgage Notes, and its release from all other obligations under
this Indenture and the Security Documents. Notwithstanding the foregoing, the
indemnity provided by the Company and its Restricted Subsidiaries pursuant to
this Section 1607(e) shall not apply to any liabilities or costs arising out of
the gross negligence or wilful misconduct of Trustee or to liabilities arising
out of the actions or inactions of third parties after any transfer of any
property forming a part of the Collateral.

SECTION 1608. CONDEMNATION.

If there shall occur any Condemnation or commencement of proceedings
thereof with respect to Collateral that has a fair value exceeding $500,000.00,
the Company shall immediately notify the Trustee upon receiving notice of such
Condemnation or commencement of proceedings therefor. Any such Condemnation
Proceeds are hereby assigned to the Trustee and shall be deposited directly into
the Cash Collateral Account to be held subject to the terms of this Indenture
(including Section 1610) and the applicable Security Documents, provided that,
so long as no Event of Default has occurred and is continuing, such
Condemnation Proceeds need not be so deposited unless they exceed two million
five hundred thousand dollars ($2,500,000). The Company shall take all steps
necessary to notify the condemning authority of such assignment.

SECTION 1609. REQUIRED INSURANCE POLICIES.

The Company shall maintain in full force the insurance coverages in
respect of the Collateral required by this Section 1609 as follows:

(A) POLICIES TO BE MAINTAINED:

The Company shall take out and maintain at all times the following
policies of insurance relating to the Collateral Properties and their operation
with financially sound and reputable insurers:

(1) "ALL RISKS" PROPERTY INSURANCE: Property insurance on an "all
risks" basis against physical loss of, damage to or impairment of the
material improvements, machinery and equipment, including coverage of the
risks of earthquake and flood. All such insurance shall be for not less
than full replacement cost value, with limits and sublimits, if any,
consistent with Subsection (B) below.

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The policy will apply in connection with construction, renovation, replacement
and expansion.

(2) BUSINESS INTERRUPTION INSURANCE: Business interruption insurance
written on a gross earnings form to cover the actual loss sustained,
including loss of earnings, fixed costs and debt service, resulting from
interruption of business operations due to physical loss of, damage to or
impairment of the material improvements, machinery and equipment.

(3) BOILER AND MACHINERY INSURANCE: Comprehensive broad form boiler
and machinery insurance to cover physical loss or damage, which insurance
shall be for not less than full replacement cost value, with limits and
sublimits, if any, consistent with Subsection (B) below.

(4) COMPREHENSIVE GENERAL LIABILITY INSURANCE: Comprehensive general
liability insurance to cover all sums which the Company or its Restricted
Subsidiaries shall become obligated to pay by reason of liability imposed
by law upon the insured or assumed by the insured under any contract for
damages because of bodily injury or property damage, including in
connection with any construction. Such insurance shall include the policy
extensions commonly referred to as:

(i) Blanket written and oral contractual liability;

(ii) Owner's and contractor's protective liability;

(iii) Personal injury liability;

(iv) Employer's liability;

(v) Property damage on a broad form basis;

(vi) Non-owned automobile liability;

(vii) Non-owned watercraft liability;

(viii) Named peril pollution liability, including legal liability
for any evacuation; and

(ix) Products and completed operations liability.

(5) AUTOMOBILE LIABILITY INSURANCE: Automobile liability insurance
on all vehicles owned, leased, hired, operated or licensed by or in the
name of the Company for bodily injury, death or property damage, including
loss of use thereof.

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(6) UMBRELLA LIABILITY INSURANCE. Excess or umbrella liability
insurance in respect of the insurance required by paragraphs (4) and (5) of
this Subsection 1609(A) in the aggregate in excess of the underlying limits
of the policies taken out pursuant to said paragraphs (4) and (5).

(B) DEDUCTIBLES AND MULTIPLE INSUREDS:

Deductibles, limits and sublimits in connection with any insurance
policies required under this Section 1609 shall be for such amounts as would be
purchased by a prudent Person engaged in the pulp and paper industry in North
America and similarly situated with the Company. If any such policies insure
others as well as the Company, it will contain a cross-liability or severability
of interests clause.

Notwithstanding anything contained in this Section 1609, the Company
shall take and maintain all such other insurance policies as may be required
from time to time by any applicable statute, regulation, decree or court order.
Moreover, the Trustee shall, after consultation with the Company, be entitled,
acting reasonably, to require the Company to amend the scope or limits of
insurance (including but not limited to decreases or increases in limits to take
into account deflation or inflation) or to obtain such additional insurance, all
as may be advisable in accordance with industry practice, and the Company shall
comply with any request by the Trustee to do so within thirty days of such
request (or such longer period as may be reasonably required to obtain such
amendment or new insurance).

If any insurance required to be maintained by the Company under this
Section 1609 is not available on a commercially reasonable basis as a result of
changes in the insurance market occurring after the date hereof, the Company may
so advise the Trustee, and the Company shall procure such insurance most closely
approximating the required insurance which is not available at commercially
reasonable rates as determined by a Person qualified to survey risks and to
recommend insurance coverage for companies in the pulp and paper industry that
is not an employee, officer or director or Affiliate of the Company or any of
its Affiliates selected by the Company and approved by the Trustee, as specified
in a certificate of such Person delivered to the Trustee, PROVIDED that this
provision shall not relieve the Company of the obligation of maintaining the
insurance as required in Section 1609 (A)(1), (2) or (3).

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(D) POLICY REQUIREMENTS:

(1) PARTIES PROTECTED. The interest of the Trustee under this
Indenture and as mortgagee and secured creditor in the Collateral under the
Security Documents shall be noted as loss payee upon all property policies
taken out by the Company relating to the Collateral, whether or not
required by this Section 1609. Each of the said policies will contain a
mortgage clause and a breach of conditions endorsement or extension, in
form and substance satisfactory to the Trustee. The interests of other
hypothecary creditors may also be noted upon property policies or protected
by a mortgage clause, PROVIDED that their encumbrances relate to property
other than the Collateral.

Each of the said policies will contain a waiver of subrogation by the
insurer against the Trustee and against the other hypothecary creditors
whose interests are noted, and all of their directors, officers and
employees.

Each policy of insurance referred to in paragraphs (A) (1), (2), (3)
and (4) shall provide for automatic assignment to the Trustee and coverage
for a minimum of sixty days, regardless of the policy expiration date,
after the Trustee shall have taken possession or become owner of the
material improvements, machinery and/or equipment. Each liability policy
written on a claims made basis shall provide that if it remains in force at
the time the Security Documents is discharged, the claims reporting period
will, on the request of the Trustee, be continued for one year after the
expiry date of the policy.

The Trustee shall be named as additional insureds under all liability
policies taken out by the Company relating to the Collateral, including,
without limitation, those referred to in paragraphs (A)(4) and (6).

(2) NOTICE REQUIREMENTS IN POLICIES: All insurance policies shall
provide for sixty days' prior written notice of cancellation, termination
or material change to the Trustee and the other hypothecary creditors whose
interests are noted.

(3) INSURER, FORM OF POLICY: All insurance policies required by this
Indenture or the Security Documents shall be taken out with reputable
insurers and reinsurers which are acceptable to the Trustee, acting
reasonably and in consultation with the Company's insurance broker, and
which are licensed to do business as required. All such policies shall be
in form acceptable to the Trustee, acting reasonably and in consultation
with the Company's insurance broker.

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All insurance shall provide primary coverage for the risks insured,
without right of contribution of any other insurance carried by or on
behalf of the Trustee with respect to its interest in the material
improvements, machinery and equipment.

All insurance shall be endorsed to provide that, inasmuch as the
policy is written to cover more than one insured, all terms, conditions,
insuring agreements and endorsements, with the exception of insurers limits
of liability, shall operate in the same manner as if there were a separate
policy covering each insured.

(4) NO CO-INSURANCE: No property policies shall permit co-insurance.

(E) COMPANY'S OBLIGATIONS CONCERNING INSURANCE:

(1) PAYMENT OF PREMIUMS: The Company will pay punctually all
premiums payable for all insurance taken out and maintained by it and will
on request furnish the Trustee with proof of such payment.

(2) DELIVERY OF POLICIES, RENEWALS AND AMENDMENTS: The Company shall
promptly deliver to the Trustee copies of all certificates and policies of
insurance taken out by it, certified by the insurer or its authorized
representative in each case. The Company shall also provide evidence
(which may include cover notes or binders) of every renewal or replacement
of a policy at least ten days prior to its expiry date. If any policy is
materially and adversely amended the Company shall promptly provide the
Trustee with a certified copy of such amendment.

(3) ANNUAL CERTIFICATE OF INSURANCE: The Company will on or before
the renewal date of each policy in each year deliver to the Trustee
certificates of insurance issued by each of its insurers, in form and
substance satisfactory to the Trustee, certifying which policies of
insurance have been obtained or renewed and listing all policies in force.
In addition, the Company shall deliver a certificate stating the following
in respect of each such policy:

(i) the policy limits;

(ii) the insurance companies or underwriters carrying the
insurance;

(iii) the effective and expiry dates of the policy, and

(iv) that the policy complies with the provisions of Section
1609(D).

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(4) COMPLIANCE WITH POLICY REQUIREMENTS: The Company shall comply
with all material requirements of all policies of insurance and in
particular will promptly inform each of its insurers of all material events
and matters which it is necessary to disclose to such insurer to preserve
or obtain coverage. Without limiting the generality of the foregoing, the
Company shall not in its use and occupancy of the Collateral Properties
(including, without limitation, in the making of any alteration thereto)
take any action that could reasonably be expected to be the basis for
termination, revocation or denial of any insurance coverage required to be
maintained under this Indenture or that could reasonably be expected to be
the basis for a defense to any claim under any insurance policy maintained
in respect of the Collateral.

(5) AMOUNT OF COVERAGE: Wherever the Company is required to maintain
insurance coverage for full replacement cost value or for full indemnity,
it shall make due allowance for the anticipated effect of inflation or
increases in costs, expenditures or revenues, as may be reasonably
foreseeable.

(6) NOTIFICATION OF TRUSTEE AND FILING OF PROOFS OF CLAIM: In the
event of any total or partial loss with respect to any Collateral in excess
of $[500,000.00] in the reasonable estimation of the Company, the Company
shall notify the Trustee and any other hypothecary creditor whose interest
is noted of such occurrence within thirty days of the date of the
occurrence and shall do or cause to be done all such acts and things as may
be necessary or advisable to obtain prompt payment of all insurance
proceeds in relation thereto in accordance with the terms hereof, including
(without limitation) the timely filing of interim and final proofs of loss
with insurers subject, however, to the provisions of Section 1610.

(F) NO OBLIGATION ON TRUSTEE:

The Trustee makes no representation or warranty as to the sufficiency
or adequacy of the insurance coverage required to be maintained pursuant to this
Section 1609. The Trustee shall have no obligation to verify any information or
statement contained in any certificate or policy delivered to it.

(G) TRUSTEE MAY INSURE:

If the Company fails to take out or maintain insurance as required by
this Section 1609, and if it fails to rectify such situation within forty-eight
hours after notice from the Trustee, the Trustee shall have the right but not
the obligation to take out and maintain such insurance at the cost of the
Company. No

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insurance taken out by the Trustee shall relieve the Company of its obligation
to insure hereunder and the Trustee shall not be liable for any loss or damage
suffered by the Company in connection therewith.

(H) Any and all Insurance Proceeds (except if no Event of Default has
occurred and is continuing, and the total Insurance Proceeds received in
connection with a Casualty do not exceed two million five hundred thousand
dollars ($2,500,000)) received by the Company shall be paid to the Trustee to
be deposited directly and held in the Cash Collateral Account subject to the
terms of this Indenture, including Section 1610. Following an Event of Default,
all proceeds of insurance for business interruptions of a Collateral Property
shall be paid directly into the Cash Collateral Account, and shall be subject to
the Lien (subject to Permitted Collateral Liens) of the applicable Security
Document and shall be applied in accordance with the terms of this Indenture.

SECTION 1610. WITHDRAWALS OF CONDEMNATION PROCEEDS
AND INSURANCE PROCEEDS.

(a) In the event of any Casualty or Condemnation not involving or
constituting a Collateral Loss Event (for which no Event of Default has occurred
and is continuing, and the Insurance Proceeds or Condemnation Proceeds exceed
two million five hundred thousand dollars ($2,500,000)) (a "Partial Collateral
Loss"), (1) the Insurance Proceeds or Condemnation Proceeds therefrom shall be
paid directly to the Trustee for deposit in the Cash Collateral Account and (2)
the Company shall take such actions, at its sole expense, as may be required to
ensure that the Trustee has from the date of such deposit a first ranking Lien
(subject to Permitted Collateral Liens) on such Insurance Proceeds or
Condemnation Proceeds pursuant to the applicable Security Document or this
Indenture. The Company shall apply all such Insurance Proceeds or Condemnation
Proceeds to commencement and completion of Restoration of the Collateral
affected by the relevant Casualty or Condemnation.

(b) In connection with any Partial Collateral Loss, or any Collateral
Loss Event with respect to which the Company has elected to apply the Insurance
Proceeds or Condemnation Proceeds, as the case may be, to Restoration of the
relevant Collateral pursuant to Section 1015(b)(iii)(B), the Company shall take
such actions, at its sole expense, as shall be required to permit the Trustee to
release such Insurance or Condemnation Proceeds from the Lien thereon. Upon the
receipt of an appropriate Opinion of Counsel pursuant to Section 102 and in
accordance with the Trust Indenture Act of 1939, and any related documentation,
the Trustee shall release to the Company the Insurance Proceeds or Condemnation
Proceeds from such Casualty or Condemnation on deposit in the Cash Collateral
Account (less the cost of recovering and paying out such Insurance Proceeds or
Condemnation Proceeds, including attorneys' fees and costs allocable to
inspecting the Work (as defined below) and the plans and

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<PAGE>
specifications therefor) in order to enable the Company to Restore the relevant
Collateral to at least its general utility and value prior to the relevant
Casualty or Condemnation, only in accordance with the following procedures:

(1) if the cost of the work to be completed (the "Work"), estimated
by the Company, shall exceed $10,000,000.00, the Work shall be under the
charge of an architect, engineer or construction manager (who may be an
employee of the Company) and, before the Company commences any Work, other
than temporary Work to protect property to prevent interference with
business and Restoration work up to $5,000,000.00, the Trustee and an
independent consulting engineer selected by the Company and approved by the
Trustee shall have approved the plans and specifications for the Work,
which approval shall not be unreasonably withheld or delayed, it being
nevertheless understood that said plans and specifications shall provide
for such Work that, upon completion thereof, the improvements shall be at
least equal in general utility and value to the Improvements that were on
the site prior to the Condemnation or Casualty;

(2) each request for payment shall be made on no less than 10 nor
more than 30 days' prior notice to the Trustee and shall be accompanied by
a certificate to be made by such architect, engineer or construction
manager, if supervision is required by such a person under clause (1) of
this Section 1610(b), and by an Officer's Certificate, stating (i) that all
of the Work completed has been done substantially in compliance with the
approved plans and specifications, if any is required under said clause
(1), (ii) that the sum requested is required to pay, or to reimburse the
Company for the cost incurred in connection with, such Work (giving a brief
description of the services and materials provided in connection with such
Work); (iii) that the sum requested, when added to all proceeds previously
paid out by the Trustee, does not exceed the value of the Work done
(including down payments made to suppliers related to the Work in
accordance with customary practice) as of the date of such certificate
(less any retainer set forth in the relevant construction contract,
if applicable, which shall contain customary provisions) and (iv) that the
amount of Insurance Proceeds or Condemnation Proceeds, as the case may be,
from the relevant Casualty or Condemnation remaining in the Cash Collateral
Account, together with the Insurance Proceeds or Condemnation Proceeds
which will thereafter become available in connection therewith (together
with any funds of the Company other than Condemnation Proceeds or Insurance
Proceeds deposited by the Company in the Cash Collateral Account for
purposes of completion of such Work), will at all times be sufficient to
complete the Restoration (giving in such

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reasonable detail as the Trustee may require an estimate of the cost of
such completion);

(3) each request shall be accompanied by waivers of Liens
(conditional as to the current request and unconditional as to prior
requests) satisfactory to the Trustee covering that part of the Work for
which payment or reimbursement is being requested and by evidence
satisfactory to the Trustee that there has not been filed with respect to
the Collateral Property any mechanic's or other Lien or instrument for the
retention of title in respect of any part of the Work not discharged of
record (other than Permitted Collateral Liens);

(4) any Work shall, once commenced, be prosecuted diligently to
completion in a good and workmanlike manner in material compliance with all
applicable Legal Requirements;

(5) each request shall be accompanied by an Officer's Certificate
dated not more than 10 days prior to the date of such request to the effect
that

(i) no material contract, lease or license affecting the relevant
Collateral Property immediately prior to the relevant Casualty or
Condemnation shall have been canceled, or contain any still
exercisable right to cancel, due to such Condemnation or Casualty;

(ii) no Default or Event of Default shall have occurred and be
continuing;

(6) the request for any payment after the Work has been completed
shall be accompanied by a copy of any certificate or certificates required
by law to render occupancy of the relevant Collateral Property legal;

(7) the buildings, equipment or other improvements or fixtures
covered by the Work shall be subject to the Lien of and security interest
created by the Security Documents (subject only to Permitted Collateral
Liens) and the Trustee shall have received an Opinion of Counsel
satisfactory to it to this effect;

(8) each request shall be accompanied by the documentation required
under Section 314(d) of the Trust Indenture Act;

(9) during the performance of any such Work, the Company shall
procure and maintain the insurance coverages required under Section 1609
hereof, including business interruption insurance covering the entire
period of Restoration; and

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<PAGE>

(10) the Company shall provide such other documents as the Trustee may
reasonably require.

(c) All Restoration shall be completed within 360 days from the
receipt of the Insurance Proceeds or Condemnation Proceeds from the relevant
Casualty or Condemnation, PROVIDED that, in the event that the Company enters
into a binding Commitment to Restore the relevant Collateral within six months
from such receipt, the Company shall have 24 months from such receipt to
complete the Restoration, which shall be carried out with due diligence.

(d) In the event that any Condemnation Proceeds or Insurance
Proceeds, as the case may be, remain on deposit in the Cash Collateral Account
following payment of all costs in connection with the Restoration of a
Collateral Property to substantially its prior value and general utility, such
funds shall remain on deposit in the Cash Collateral Account and will be made
available by the Trustee to the Company from time to time either (i) for the
construction of improvements at any Collateral Property, which shall become
subject to the first ranking Lien of the Trustee (subject to Permitted
Collateral Liens) in accordance with substantially the same procedures set forth
in paragraph (b) above or (ii) for the purchase of additional Collateral to be
made subject to a first ranking Lien of the Trustee (subject to Permitted
Collateral Liens) in accordance with substantially the same procedures set forth
in Section 1015. In the event that any funds of the Company other than
Insurance Proceeds or Condemnation Proceeds deposited by the Company in the Cash
Collateral Account for purposes of completing the relevant Work in accordance
with Section 1610(b)(2) hereof remain at such time, such funds shall be returned
to the Company. In the event that, following a Partial Collateral Loss
resulting from a Condemnation, it is determined by the engineering firm engaged
pursuant to Section 1610(b)(1) that Restoration of the relevant Collateral
Property is impossible or impracticable or that the Condemnation did not
materially and adversely affect the then current or anticipated operations of
the Collateral Property, the Condemnation Proceeds may be used in their entirety
to purchase Replacement Collateral, in accordance with substantially the same
procedures set forth in Section 1015.

(e) EVENT OF DEFAULT: If an Event of Default has occurred and is
continuing under this Indenture, the First Mortgage Notes or any Security
Document, the Trustee may, notwithstanding anything herein contained, apply any
Insurance Proceeds, Condemnation Proceeds, proceeds from business interruption
insurance deposited in the Cash Collateral Account pursuant to Section 1609(H),
or any amounts held by it or held in the Cash Collateral Account, to the
satisfaction of the Company's obligations under this Indenture. If an event has
occurred

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which, with the passage of time after notice, may become an Event of Default,
the Trustee shall be entitled to hold any such proceeds or amounts pending
expiry of the notice period.

SECTION 1611. INSPECTION.

The Company shall, and shall cause each of its Restricted Subsidiaries
to, permit authorized representatives of the Trustee (i) to inspect and obtain
copies of all records and documents relating to the properties of the Company or
its Subsidiaries constituting Collateral in the possession of any federal, state
or municipal authorities and shall sign or cause to be signed any documents
required for this purpose, and (ii) to visit and inspect the properties of the
Company or its Restricted Subsidiaries constituting Collateral, and any or all
books, records and documents in the possession of the Company relating to the
Collateral, and to make copies and take extracts therefrom and to visit and
inspect the Collateral, all upon reasonable prior notice and at such reasonable
times during normal business hours and as often as may be reasonably requested.

SECTION 1612. FAILURE TO MAKE CERTAIN PAYMENTS.

If the Company shall fail to perform any of the covenants contained in
this Article Sixteen, including, without limitation, the Company's covenants to
pay the premiums in respect of all required insurance coverages, and such
failure shall continue after any applicable notice and grace period, the Trustee
may, but shall not be obligated to, and shall have no liability whatsoever for
its failure to, make advances to perform such covenant on the Company's behalf,
and all sums so advanced shall be immediately due and payable by the Company and
shall bear interest at a rate which shall equal the highest interest rate then
applicable under this Indenture. Neither the provisions of this Section 1612
nor any action taken by the Trustee pursuant to the provisions of this Section
1612 shall prevent any such failure to observe any covenant contained in this
Indenture or the Security Documents from constituting a Default or an Event of
Default.

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<PAGE>

This Indenture may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.

IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed, and their respective corporate seals to be hereunto affixed
and attested, all as of the day and year first above written.

STONE CONTAINER CORPORATION

By:________________________
Name:
Title:

[SEAL]
Attest:

____________________________
Name:
Title:

NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION

______________________, as Trustee

By:_______________________________
Name:
Title:

[CORPORATE SEAL]
Attest:

____________________________
Name:
Title:

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<PAGE>
STATE OF ILLINOIS )
) SS.:
COUNTY OF COOK )

On the ____ day of ________, 1994, before me personally came
____________, to me known, who, being by me duly sworn, did depose and say that
he is _______________________, one of the parties described in and which
executed the foregoing instrument; that he knows the seal of said corporation;
that the seal affixed to said instrument is such corporate seal, that it was so
affixed by authority of the Board of Directors of said corporation; and that he
signed his name thereto by like authority.

_______________________________
My commission expires:

<PAGE>
STATE OF NEW YORK )
) SS.:
COUNTY OF NEW YORK )

On the ____ day of ________, 1994, before me personally came
_____________, to me known, who, being by me duly sworn, did depose and say that
he is _________ of _________________, one of the parties described in and which
executed the foregoing instrument; that he knows the seal of said bank; that the
seal affixed to said instrument is such corporate seal; that it was so affixed
by authority of the Board of Directors of said bank; and that he signed his name
thereto by like authority.

_______________________________

My Commission Expires:

<PAGE>

Exhibit 4(t)
DRAFT
September 27, 1994

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

STONE CONTAINER CORPORATION,
as Issuer

THE BANK OF NEW YORK,
as Trustee

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

Indenture

Dated as of October __, 1994

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

up to $200,000,000

__% Senior Notes due 2004

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

STONE CONTAINER CORPORATION

Reconciliation and tie between Trust Indenture Act of 1939
and Indenture, dated as of October __, 1994

Trust Indenture Indenture Section
Act Section

Section 310(a)(1). . . . . . . . . . . . . . 609
(a)(2). . . . . . . . . . . . . . . . . . 609
(a)(3). . . . . . . . . . . . . . . . . . Not Applicable
(a)(4). . . . . . . . . . . . . . . . . . Not Applicable
(a)(5). . . . . . . . . . . . . . . . . . 609
(b) . . . . . . . . . . . . . . . . . . . 608, 610
(c) . . . . . . . . . . . . . . . . . . . Not Applicable
Section 311(a) . . . . . . . . . . . . . . . 613
(b) . . . . . . . . . . . . . . . . . . . 613
(b)(2). . . . . . . . . . . . . . . . . . 703(a), 703(b)
Section 312(a) . . . . . . . . . . . . . . . 701, 702(a)
(b) . . . . . . . . . . . . . . . . . . . 702(b)
(c) . . . . . . . . . . . . . . . . . . . 702(c)
Section 313(a) . . . . . . . . . . . . . . . 703(a)
(b) . . . . . . . . . . . . . . . . . . . 703(b)
(c) . . . . . . . . . . . . . . . . . . . 703(a), 703(b)
(d) . . . . . . . . . . . . . . . . . . . 703(b)
Section 314(a)(1) . . . . . . . . . . . . . 704
(a)(2). . . . . . . . . . . . . . . . . 704
(a)(3). . . . . . . . . . . . . . . . . 704
(a)(4). . . . . . . . . . . . . . . . . 1011
(b) . . . . . . . . . . . . . . . . . . Not Applicable
(c)(1). . . . . . . . . . . . . . . . . . 102
(c)(2). . . . . . . . . . . . . . . . . . 102
(c)(3). . . . . . . . . . . . . . . . . . Not Applicable
(d) . . . . . . . . . . . . . . . . . . . 1009
(e) . . . . . . . . . . . . . . . . . . . 102
(f) . . . . . . . . . . . . . . . . . . . Not Applicable
Section 315(a) . . . . . . . . . . . . . . . 601(a)
(b) . . . . . . . . . . . . . . . . . . . 602, 703(a)
(c) . . . . . . . . . . . . . . . . . . . 601(b)
(d) . . . . . . . . . . . . . . . . . . . 601(c)
(d)(1). . . . . . . . . . . . . . . . . . 601(a), 601(c)
(d)(2). . . . . . . . . . . . . . . . . . 601(c)
(d)(3). . . . . . . . . . . . . . . . . . 601(c)
(e) . . . . . . . . . . . . . . . . . . . 514
Section 316(a) . . . . . . . . . . . . . . 101
(a)(1)(A) . . . . . . . . . . . . . . . . 512
(a)(1)(B) . . . . . . . . . . . . . . . . 502, 513
(a)(2). . . . . . . . . . . . . . . . . . Not Applicable
(b) . . . . . . . . . . . . . . . . . . . 508

____________________

NOTE: This reconciliation and tie shall not, for any purpose, be deemed to be a
part of this Indenture.
<PAGE>

Section 317(a)(1). . . . . . . . . . . . . . 503
(a)(2). . . . . . . . . . . . . . . . . . 504
(b) . . . . . . . . . . . . . . . . . . . 1003
(c) . . . . . . . . . . . . . . . . . . . 104(c)
Section 318(a) . . . . . . . . . . . . . . . 107

____________________

NOTE: This reconciliation and tie shall not, for any purpose, be deemed to be a
part of this Indenture.

3
<PAGE>

TABLE OF CONTENTS(1)

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

Page

Parties. . . . . . . . . . . . . . . . . . . . . . . .
Recitals of the Company. . . . . . . . . . . . . . . .

ARTICLE ONE
Definitions and Other Provisions of General Application

Section 101. Definitions:

1991 Indenture
Acquiring Person . . . . . . . . . . . .
Act. . . . . . . . . . . . . . . . . . .
Affiliate. . . . . . . . . . . . . . . .
Asset Disposition. . . . . . . . . . . .
Asset Disposition Offer. . . . . . . . .
Asset Disposition Offer Amount . . . . .
Asset Disposition Payment Date . . . . .
Authenticating Agent . . . . . . . . . .
Authority. . . . . . . . . . . . . . . .
Bankruptcy Law . . . . . . . . . . . . .
Board of Directors . . . . . . . . . . .
Board Resolution . . . . . . . . . . . .
Business Day . . . . . . . . . . . . . .
Capital Stock. . . . . . . . . . . . . .
Capitalized Lease Obligation . . . . . .
Castlewood Agreement . . . . . . . . . .
Change of Control. . . . . . . . . . . .
Change of Control Date; Change of
Control Offer; Change of Control
Payment Date . . . . . . . . . . . . .
Commission . . . . . . . . . . . . . . .
Commodities Agreement. . . . . . . . . .
Company. . . . . . . . . . . . . . . . .
Company Request; Company Order . . . . .
Consolidated Amortization Expense. . . .
Consolidated Cash Flow Available for
Fixed Charges. . . . . . . . . . . . .
Consolidated Depreciation Expense. . . .
Consolidated Free Cash Flow. . . . . . .
Consolidated Income Tax Expense. . . . .
Consolidated Interest Coverage Ratio . .
Consolidated Interest Expense. . . . . .
Consolidated Net Income. . . . . . . . .

____________________

(1) NOTE: This table of contents shall not, for any purpose, be deemed to be a
part of this Indenture.

i
<PAGE>

Page

Consolidated Net Worth . . . . . . . . .
Continental Guaranty . . . . . . . . . .
Continuing Director. . . . . . . . . . .
Corporate Trust Office . . . . . . . . .
corporation. . . . . . . . . . . . . . .
covenant defeasance. . . . . . . . . . .
Credit Agreements. . . . . . . . . . . .
Currency Agreement . . . . . . . . . . .
Custodian. . . . . . . . . . . . . . . .
Default. . . . . . . . . . . . . . . . .
Defaulted Interest . . . . . . . . . . .
defeasance . . . . . . . . . . . . . . .
Deficiency Amount. . . . . . . . . . . .
Deficiency Date. . . . . . . . . . . . .
Deficiency Offer . . . . . . . . . . . .
Deficiency Offer Amount. . . . . . . . .
Deficiency Payment Date. . . . . . . . .
dollars; $ . . . . . . . . . . . . . . .
Event of Default . . . . . . . . . . . .
Exchange Act . . . . . . . . . . . . . .
First Mortgage Note Indenture. . . . . .
Five Year Treasury Rate. . . . . . . . .
GAAP . . . . . . . . . . . . . . . . . .
Holder; Securityholder . . . . . . . . .
Indebtedness . . . . . . . . . . . . . .
Indenture. . . . . . . . . . . . . . . .
Initial Interest Rate. . . . . . . . . .
Interest Payment Date. . . . . . . . . .
Interest Swap Obligations. . . . . . . .
Issue Date . . . . . . . . . . . . . . .
Lien . . . . . . . . . . . . . . . . . .
Maturity . . . . . . . . . . . . . . . .
Minimum Subordinated Capital Base. . . .
New Credit Agreement . . . . . . . . . .
Officer. . . . . . . . . . . . . . . . .
Officer's Certificate. . . . . . . . . .
Opinion of Counsel . . . . . . . . . . .
Ordinary Course of Business Liens. . . .
Outstanding. . . . . . . . . . . . . . .
Paying Agent . . . . . . . . . . . . . .
Permitted Existing Indebtedness of an
Acquired Person. . . . . . . . . . . .
Permitted Indebtedness . . . . . . . . .
Permitted Liens. . . . . . . . . . . . .
Permitted Refinancing Indebtedness . . .
Permitted Stone Canada
Indebtedness . . . . . . . . . . . . .
Permitted Subordinated Indebtedness. . .
Person . . . . . . . . . . . . . . . . .

ii
<PAGE>

Page

Place of Payment . . . . . . . . . . . .
Predecessor Senior Note. . . . . . . . .
Rate Determination Period. . . . . . . .
Receivables. . . . . . . . . . . . . . .
Record Date. . . . . . . . . . . . . . .
Redeemable Stock . . . . . . . . . . . .
Redemption Date. . . . . . . . . . . . .
Redemption Price . . . . . . . . . . . .
Register; Registrar. . . . . . . . . . .
Reset Date . . . . . . . . . . . . . . .
Reset Rate . . . . . . . . . . . . . . .
Responsible Officer. . . . . . . . . . .
Restricted Payment . . . . . . . . . . .
Restricted Subsidiary. . . . . . . . . .
Seminole . . . . . . . . . . . . . . . .
Senior Indebtedness. . . . . . . . . . .
Senior Notes . . . . . . . . . . . . . .
Seven Year Treasury Rate . . . . . . . .
Special Record Date. . . . . . . . . . .
Specified Bank Debt. . . . . . . . . . .
Stated Maturity. . . . . . . . . . . . .
Stone Canada . . . . . . . . . . . . . .
Stone Canada Group . . . . . . . . . . .
Stone Southwest. . . . . . . . . . . . .
Subordinated Capital Base. . . . . . . .
Subordinated Indebtedness. . . . . . . .
Subsidiary . . . . . . . . . . . . . . .
Ten Year Treasury Rate . . . . . . . . .
Trustee. . . . . . . . . . . . . . . . .
Trust Indenture Act. . . . . . . . . . .
Two Year Treasury Rate . . . . . . . . .
U.S. Government Obligations. . . . . . .
Unrestricted Subsidiary. . . . . . . . .
Vice President . . . . . . . . . . . . .

Section 102. Compliance Certificates and Opinions . .

Section 103. Form of Documents Delivered
to Trustee . . . . . . . . . . . . . .

Section 104. Acts of Holders. . . . . . . . . . . . .

Section 105 Notices, etc., to Trustee and Company. .

Section 106. Notice to Holders; Waiver. . . . . . . .

Section 107. Conflict with Trust Indenture Act. . . .

iii
<PAGE>

Page

Section 108. Effect of Headings and
Table of Contents. . . . . . . . . . .

Section 109. Successors and Assigns . . . . . . . . .

Section 110. Separability Clause. . . . . . . . . . .

Section 111. Benefits of Indenture. . . . . . . . . .

Section 112. Governing Law. . . . . . . . . . . . . .

Section 113. Legal Holidays . . . . . . . . . . . . .

Section 114. No Recourse Against Others . . . . . . .

Section 115. Incorporation by Reference
to Trust Indenture Act . . . . . . . .

ARTICLE TWO
Senior Note Forms

Section 201. Forms Generally. . . . . . . . . . . . .

Section 202. Form of Face of Senior Note. . . . . . .

Section 203. Form of Reverse of Senior Note . . . . .

Section 204. Form of Trustee's Certificate of
Authentication . . . . . . . . . . . .

Section 205. CUSIP Number . . . . . . . . . . . . . .

ARTICLE THREE
The Senior Notes

Section 301. Title and Terms. . . . . . . . . . . . .

Section 302. Denominations. . . . . . . . . . . . . .

Section 303. Execution, Authentication, Delivery
and Dating . . . . . . . . . . . . . .

Section 304. Temporary Senior Notes . . . . . . . . .

Section 305. Registration, Registration of Transfer
and Exchange . . . . . . . . . . . . .

iv
<PAGE>

Page

Section 306. Mutilated, Destroyed, Lost and Stolen
Senior Notes . . . . . . . . . . . . .

Section 307. Payment of Interest; Interest Rights
Preserved. . . . . . . . . . . . . . .

Section 308. Persons Deemed Owners. . . . . . . . . .

Section 309. Cancellation . . . . . . . . . . . . . .

Section 310. Computation of Interest. . . . . . . . .

ARTICLE FOUR
Satisfaction and Discharge

Section 401. Satisfaction and Discharge of
Indenture. . . . . . . . . . . . . . .

Section 402. Application of Trust Money . . . . . . .

ARTICLE FIVE
Remedies

Section 501. Events of Default. . . . . . . . . . . .

Section 502. Acceleration of Maturity; Rescission
and Annulment. . . . . . . . . . . . .

Section 503. Collection of Indebtedness and Suits
for Enforcement by Trustee . . . . . .

Section 504. Trustee May File Proofs of Claim . . . .

Section 505. Trustee May Enforce Claims Without
Possession of Senior Notes . . . . . .

Section 506. Application of Money Collected . . . . .

Section 507. Limitation on Suits. . . . . . . . . . .

Section 508. Unconditional Right of Holders to
Receive Principal, Premium and
Interest . . . . . . . . . . . . . . .

Section 509. Restoration of Rights and Remedies . . .

Section 510. Rights and Remedies Cumulative . . . . .

v
<PAGE>

Page

Section 511. Delay or Omission Not Waiver . . . . . .

Section 512. Control by Holders . . . . . . . . . . .

Section 513. Waiver of Past Defaults. . . . . . . . .

Section 514. Undertaking for Costs. . . . . . . . . .

Section 515. Waiver of Stay or Extension Laws . . . .

ARTICLE SIX
The Trustee

Section 601. Certain Duties and Responsibilities
of the Trustee . . . . . . . . . . . .

Section 602. Notice of Defaults . . . . . . . . . . .

Section 603. Certain Rights of Trustee. . . . . . . .

Section 604. Not Responsible for Recitals or
Issuance of Senior Notes . . . . . . .

Section 605. May Hold Senior Notes. . . . . . . . . .

Section 606. Money Held in Trust. . . . . . . . . . .

Section 607. Compensation and Reimbursement . . . . .

Section 608. Disqualification; Conflicting
Interests. . . . . . . . . . . . . . .

Section 609. Corporate Trustee Required;
Eligibility. . . . . . . . . . . . . .

Section 610. Resignation and Removal; Appointment of
Successor. . . . . . . . . . . . . . .

Section 611. Acceptance of Appointment by
Successor. . . . . . . . . . . . . . .

Section 612. Merger, Conversion, Consolidation or
Succession to Business . . . . . . . .

Section 613. Preferential Collection of Claims
Against Company. . . . . . . . . . . .

Section 614. Appointment of Authenticating Agent. . .

vi
<PAGE>

Page

ARTICLE SEVEN
Holders' Lists and Reports by Trustee and Company

Section 701. Company to Furnish Trustee Names and
Addresses of Holders . . . . . . . . .

Section 702. Preservation of Information;
Communications to Holders. . . . . . .

Section 703. Reports by Trustee . . . . . . . . . . .

Section 704. Reports by Company . . . . . . . . . . .

ARTICLE EIGHT
Consolidation, Merger, Lease, Sale or Transfer

Section 801. When Company May Merge, etc. . . . . . .

Section 802. Senior Notes to Be Secured in
Certain Events . . . . . . . . . . . .

Section 803. Officer's Certificate;
Opinion of Counsel . . . . . . . . . .

Section 804. Successor Corporation Substituted. . . .

ARTICLE NINE
Supplements to the Indenture

Section 901. Supplemental Indentures Without Consent of
Holders. . . . . . . . . . . . . . . .

Section 902. Supplemental Indentures with Consent of
Holders. . . . . . . . . . . . . . . .

Section 903. Execution of Supplemental Indentures . .

Section 904. Effect of Supplemental Indentures. . . .

Section 905. Conformity with Trust Indenture Act. . .

Section 906. Reference in Senior Notes to
Supplemental Indentures. . . . . . . . .

vii
<PAGE>

Page

ARTICLE TEN
Covenants

Section 1001. Payment of Principal, Premium and
Interest . . . . . . . . . . . . . . .

Section 1002. Maintenance of Office or Agency. . . . .

Section 1003. Money for Senior Notes Payments
to Be Held in Trust. . . . . . . . . . .

Section 1004. Corporate Existence. . . . . . . . . . .

Section 1005. Payment of Taxes and Other Claims. . . .

Section 1006. Restriction on Dividends . . . . . . . .

Section 1007. Limitation on Future Liens and
Guaranties . . . . . . . . . . . . . .

Section 1008. Limitation on Future Incurrence of
Indebtedness . . . . . . . . . . . . .

Section 1009. Limitation on Asset Dispositions . . . .

Section 1010. Maintenance of Properties. . . . . . . .

Section 1011. Compliance Certificates. . . . . . . . .

Section 1012. Waiver of Stay, Extension or Usury
Laws . . . . . . . . . . . . . . . . .

Section 1013. Change of Control. . . . . . . . . . . .

Section 1014. Waiver of Certain Covenants. . . . . . .

ARTICLE ELEVEN
Maintenance of Subordinated Capital Base

Section 1101. Maintenance of Subordinated Capital
Base . . . . . . . . . . . . . . . . .

Section 1102. Alternative Interest Rate Adjustment . .

ARTICLE TWELVE
Redemption of Senior Notes

Section 1201. Election to Redeem; Notice to Trustee. .

viii
<PAGE>

Page

Section 1202. Selection by Trustee of the First
Mortgage Notes to Be Redeemed. . . . . .

Section 1203. Notice of Redemption . . . . . . . . . .

Section 1204. Deposit of Redemption Price. . . . . . .

Section 1205. Senior Notes Payable on
Redemption Date. . . . . . . . . . . .

Section 1206. Senior Notes Redeemed in Part. . . . . .

ARTICLE THIRTEEN
Defeasance And Covenant Defeasance

Section 1301. Applicability of Article; Company's
Option to Effect Defeasance or
Covenant Defeasance. . . . . . . . . .

Section 1302. Defeasance and Discharge . . . . . . . .

Section 1303. Covenant Defeasance. . . . . . . . . . .

Section 1304. Conditions to Defeasance or Covenant
Defeasance . . . . . . . . . . . . . .

Section 1305. Deposited Money and Government
Obligations to be Held in Trust;
Other Miscellaneous Provisions . . . .

ix
<PAGE>

INDENTURE, dated as of October __, 1994, between STONE CONTAINER
CORPORATION, a corporation duly organized and existing under the laws of the
State of Delaware (herein called the "Company"), having its principal office at
Chicago, Illinois, and The Bank of New York, a New York banking corporation, as
Trustee (herein called the "Trustee") having its Corporate Trust office at
101 Barclay Street, New York, New York 10286, United States of America.

RECITALS OF THE COMPANY

The Company has duly authorized the creation of an issue of its ___%
Senior Notes due 2004 (the "Senior Notes"), of substantially the tenor and
amount hereinafter set forth, and to provide therefor the Company has duly
authorized the execution and delivery of this Indenture.

All things necessary to make the Senior Notes, when executed by the
Company and authenticated and delivered by the Trustee hereunder and duly issued
by the Company, the valid obligations of the Company, and to make this Indenture
a valid agreement of the Company, in accordance with its terms, have been done.

NOW, THEREFORE, THIS INDENTURE WITNESSETH:

For and in consideration of the premises and the purchase of the
Senior Notes by the Holders (as hereinafter defined) thereof, it is mutually
covenanted and agreed, for the equal and proportionate benefit of all Holders as
follows:

ARTICLE ONE

DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION

SECTION 101. DEFINITIONS.

For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:

(1) the terms defined in this Article have the meanings assigned to
them in this Article and include the plural as well as the singular;

(2) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein;

(3) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP;

(4) the word "including" (and with correlative meaning "include")
means including, without limiting the generality of, any description
preceding such term; and
<PAGE>

(5) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision.

Certain terms, used principally in Article Six, are defined in that
Article.

"Act", when used with respect to any Holder, has the meaning specified
in Section 104.

2
<PAGE>

"Asset Disposition" means any sale, transfer, sale-leaseback or other
disposition of (i) shares of Capital Stock of a Restricted Subsidiary (other
than directors' qualifying shares) or (ii) property or assets of the Company or
any Restricted Subsidiary (other than a sale, transfer or other disposition of
Receivables and other assets or property described in clause (vi) of the
definition of Permitted Liens pursuant to a Receivables sale constituting
Indebtedness pursuant to clause (ii) of the definition thereof); PROVIDED,
HOWEVER, that an Asset Disposition shall not include any sale, transfer, sale-
leaseback or other disposition of (a) Collateral (as defined in the First
Mortgage Note Indenture while the ___% First Mortgage Notes due 2002 of the
Company are outstanding), (b) the shares, property or assets referred to in
clause (i) and (ii) by a Restricted Subsidiary to the Company or to another
Restricted Subsidiary or by the Company to a Restricted Subsidiary, (c) of
defaulted Receivables for collection or (d) in the ordinary course of business,
but shall include any sale, transfer, sale-leaseback or other disposition by the
Company or a Restricted Subsidiary to an Unrestricted Subsidiary of the shares,
property or assets referred to in clauses (i) and (ii). The designation by the
Company of a Subsidiary of the Company as an "Unrestricted Subsidiary" shall
constitute an Asset Disposition of such Subsidiary's property and assets net of
its liabilities, unless the transfer of property and assets to such Subsidiary
has previously constituted an Asset Disposition.

"Asset Disposition Offer" shall have the meaning provided in Section
1009(c).

"Asset Disposition Offer Amount" shall have the meaning provided in
Section 1009(a).

"Asset Disposition Payment Date" shall have the meaning provided in
Section 1009(c).

"Authenticating Agent" means any Person authorized by the Trustee to
act on behalf of the Trustee to authenticate Senior Notes.

"Authority" means any federal, state, municipal or local government or
quasi-governmental agency or authority.

3
<PAGE>
"Bankruptcy Law" means Title 11, U.S. Code or any similar federal or
state law for the relief of debtors.

4
<PAGE>

"Castlewood Agreement" has the meaning specified in clause (2) of the
proviso to clause (i) of the definition of Permitted Indebtedness.

"Change of Control" means any event by which (i) an Acquiring Person
has become such or (ii) Continuing Directors cease to comprise a majority of the
members of the Board of Directors of the Company.

"Change of Control Date", "Change of Control Offer" and "Change of
Control Payment Date" shall have the respective meanings provided in Section
1013.

"Company" means the Person named as the "Company" in the first
paragraph of this Indenture until a successor corporation shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor corporation.

5
<PAGE>

"Consolidated Free Cash Flow" means, for any period, (a) the sum of
the amounts for such period of (i) Consolidated Net Income, (ii) Consolidated
Depreciation Expense and (iii) Consolidated Amortization Expense, MINUS (b) the
sum of (i) Restricted Payments during such period, (ii) net reduction during
such period in Indebtedness of the Company and its Restricted Subsidiaries
(other than as a result of Asset Dispositions, Collateral Asset Dispositions (as
defined in the First Mortgage Note Indenture) or Collateral Loss Events (as
defined in the First Mortgage Note Indenture)) and (iii) the excess (but not the
deficit) of capital expenditures of the Company and its Restricted Subsidiaries
for such period not financed pursuant to clause (vi) of the definition of
Permitted Indebtedness over Consolidated Depreciation Expense.

"Consolidated Income Tax Expense" means, for any period, the aggregate
of the income tax expense of the Company and its Restricted Subsidiaries for
such period, determined on a consolidated basis in accordance with GAAP.

"Consolidated Interest Coverage Ratio" means, for any period, the
ratio of (i) Consolidated Cash Flow Available for Fixed Charges to (ii)
Consolidated Interest Expense.

6
<PAGE>

revolving Receivables purchases or other similar arrangements, whether or not
such amounts were actually outstanding during such period, in accordance with
the terms thereof, in each case on a consolidated basis in accordance with GAAP.

"Consolidated Net Income" means, for any period, the net income (or
loss) of the Company and its Restricted Subsidiaries on a consolidated basis for
such period taken as a single accounting period, determined in accordance with
GAAP; PROVIDED, HOWEVER, that: (a) there shall be excluded therefrom (i) the
net income (or loss) of any Person (other than the Company) which is not a
Restricted Subsidiary, EXCEPT to the extent of the amounts of dividends or other
distributions actually paid in cash or tangible property or tangible assets
(such property or assets to be valued at their fair market value net of any
obligations secured thereby) to the Company or any of its Restricted
Subsidiaries by such Person during such period, (ii) EXCEPT to the extent
includable pursuant to the foregoing clause (i), the net income (or loss) of any
Person accrued prior to the date it becomes a Restricted Subsidiary or is merged
into or consolidated with the Company or any of its Restricted Subsidiaries or
that Person's property or assets are acquired by the Company or any of its
Restricted Subsidiaries, (iii) the net income of any Restricted Subsidiary to
the extent that the declaration or payment of dividends or similar distributions
by that Restricted Subsidiary of that income is not at the time permitted by
operation of the terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to that
Restricted Subsidiary (other than any restrictions contained in the instruments
relating to the 12-1/8% Subordinated Debentures due September 15, 2001 of Stone
Southwest) and (iv) the excess (but not the deficit), if any, of (x) any gain
which must be treated as an extraordinary item under GAAP or any gain realized
upon the sale or other disposition of any asset that is not sold in the ordinary
course of business or of any Capital Stock of a Restricted Subsidiary over (y)
any loss which must be treated as an extraordinary item under GAAP or any loss
realized upon the sale or other disposition of any asset that is not sold in the
ordinary course of business or of any Capital Stock of a Restricted Subsidiary;
and (b) there shall be included therein the amount of cash realized by the
Company or any of its Restricted Subsidiaries during such period on account of
dividends or other distributions theretofore paid in other than cash or tangible
property or tangible assets by a Person which is not a Restricted Subsidiary.

7
<PAGE>

attributable to Redeemable Stock (at such time as no Indebtedness is outstanding
under the 1991 Indenture, excluding the effects of foreign currency translation
adjustments). If the Company has changed one or more of the accounting
principles used in the preparation of its financial statements because of a
change mandated by the Financial Accounting Standards Board or its successor,
then Consolidated Net Worth shall mean the Consolidated Net Worth the Company
would have had if the Company had continued to use those generally accepted
accounting principles employed on November 1, 1991.

"Continental Guaranty" means the Guaranty dated as of October 7, 1983
between The Continental Group, Inc. and the Company, as amended from time to
time.

"Continuing Director" means any member of the Board of Directors,
while such person is a member of such Board of Directors, who is not an
Acquiring Person, or an Affiliate or associate of an Acquiring Person or a
representative of an Acquiring Person or of any such Affiliate or associate and
who (a) was a member of the Board of Directors prior to November 1, 1991, or (b)
subsequently became or becomes a member of such Board of Directors and whose
nomination for election or election to such Board of Directors was or is
recommended or approved by resolution of a majority of the Continuing Directors
or who was or is included as a nominee in a proxy statement of the Company
distributed when a majority of such Board of Directors consists of Continuing
Directors.

"Corporate Trust Office" means the office of the Trustee at which at
any particular time its corporate trust business shall be principally
administered, which office at the date hereof is located at 101 Barclay Street,
New York, New York 10286, United States of America.

"corporation" includes corporations, associations, companies, business
trusts and limited partnerships.

"covenant defeasance" has the meaning specified in Section 1303.

8
<PAGE>

Company, as agent for such financial institutions, and Citibank, N.A., Chemical
Bank (as successor by merger to Manufacturers Hanover Trust Company) and The
First National Bank of Chicago, as co-agents for such financial institutions, as
amended, modified, refinanced (including, without limitation, by the New Credit
Agreement) or extended from time to time and (iii) the revolving credit
agreement, dated as of March 1, 1989, by and among Stone Canada, the financial
institutions signatory thereto, BT Bank of Canada, as administrative agent, The
Bank of Nova Scotia, as payment agent, and Bankers Trust Company, as collateral
agent, as amended, modified, refinanced (including, without limitation, by the
New Credit Agreement) or extended from time to time.

"Custodian" means any receiver, trustee, assignee, liquidator,
sequestrator or similar official under any Bankruptcy Law.

"Default" means any event which is, or after notice or passage or time
or both would be, an Event of Default.

"Defaulted Interest" has the meaning specified in Section 307.

"defeasance" has the meaning specified in Section 1302.

"Deficiency Amount" shall have the meaning provided in Section
1009(b).

"Deficiency Date" shall have the meaning provided in Section 1101(a).

"Deficiency Offer" shall have the meaning provided in Section 1101(a).

"Deficiency Offer Amount" shall have the meaning provided in Section
1101(a).

"Deficiency Payment Date" shall have the meaning provided in Section
1101(c)(2).

"dollars" and "$" means lawful money of the United States of America.

"Event of Default" has the meaning specified in Section 501.

9
<PAGE>

"Exchange Act" means the Securities and Exchange Act of 1934, as
amended from time to time, and the rules and regulations promulgated thereunder.

"First Mortgage Note Indenture" means the indenture dated the date
hereof between the Company and Norwest Bank Minnesota, National Association, as
Trustee, as amended and supplemented from time to time after the date hereof.

"Five Year Treasury Rate" means the arithmetic average (rounded to the
nearest basis point) of the weekly average per annum yield to maturity values
adjusted to constant maturities of five years, for the Rate Determination Period
as determined from the yield curves of the most actively traded marketable
United States Treasury fixed interest rate securities (x) constructed daily by
the United States Treasury Department (i) as published by the Federal Reserve
Board in its Statistical Release H.15(519), "Selected Interest Rates," which
weekly average yield to maturity values currently are set forth in such
Statistical Release under the caption "U.S. Government Securities-Treasury
Constant Maturities-5 Year" or (ii) if said Statistical Release H.15(519) is not
then published, as published by the Federal Reserve Board in any release
comparable to its Statistical Release H.15(519) or (iii) if the Federal Reserve
Board shall not then be publishing a comparable release, as published in any
official publication or release of any other United States Government Department
or agency or (y) if the United States Treasury Department shall not then be
constructing such yield curves, then as constructed by the Federal Reserve Board
or any other United States Government Department or agency and published as set
forth in (x) above. However, if the Five Year Treasury Rate cannot be
determined as provided above, then the Five Year Treasury Rate shall mean the
arithmetic average (rounded to the nearest basis point) of the per annum yields
to maturity for each Business Day during the Rate Determination Period of all of
the issues of actively trading issues of non-interest bearing United States
Treasury fixed interest rate securities with a maturity of not less than 57
months nor more than 63 months from such Business Day (1) as published in THE
WALL STREET JOURNAL or (2) if THE WALL STREET JOURNAL shall cease such
publication, based on average asked prices (or yields) as quoted by each of
three United States Government securities dealers of recognized national
standing selected by the Company.

"GAAP" means generally accepted accounting principles, as in effect as
of November 1, 1991 in the United States of America, set forth in the opinions
and pronouncements of the Accounting Principles Board of the American Institute
of Certified Public Accountants and statements and pronouncements of the
Financial Accounting Standards Board or in such other statements by such other
entity as is approved by a significant segment of the accounting profession.

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"Holder" or "Securityholder" means a Person in whose name a Senior
Note is registered in the Register.

"Indebtedness" means (without duplication), with respect to any
Person, (i) any obligation of such Person to pay the principal of, premium, if
any, interest on, penalties, reimbursement or indemnification amounts, fees,
expenses or other amounts relating to any indebtedness, and any other liability,
contingent or otherwise, of such Person (A) for borrowed money or the deferred
purchase price of property or services (excluding trade payables and payables,
indebtedness, obligations and other liabilities of the Company to any Restricted
Subsidiary or of any Restricted Subsidiary to the Company or to any other
Restricted Subsidiary), whether or not the recourse of the lender is to the
whole of the assets of such Person or only to a portion thereof; (B) for any
letter of credit for the account of such Person supporting other obligations of
such Person described in this definition; or (C) for the payment of money
relating to a Capitalized Lease Obligation; (ii) the unrecovered investment of a
purchaser (other than the Company or any of its Restricted Subsidiaries) of such
Person's Receivables pursuant to a Receivables purchase facility or otherwise
(whether or not characterized as a sale of such Receivables or a secured loan,
but excluding any disposition of Receivables in connection with a disposition of
fixed assets or a business of such Person and any disposition of defaulted
Receivables for collection), together with any obligation of such Person to pay
any discount, interest, fees, indemnification amounts, penalties, recourse on
account of the uncollectability of Receivables, expenses or other amounts in
connection therewith; (iii) any obligation of another Person (other than a
Restricted Subsidiary of such Person) of the kind described in the preceding
clause (i) or (ii), which the Person has guaranteed or which is otherwise its
legal liability; (iv) any obligation of another Person (other than a Restricted
Subsidiary of such Person) of the kind described in the preceding clause (i) or
(ii) secured by a Lien to which the property or assets of such Person are
subject, whether or not the obligation secured thereby shall have been assumed
by or shall otherwise be such Person's legal liability; and (v) any renewals,
extensions or refundings of any of the foregoing described in any of the
preceding clauses (i), (ii), (iii) and (iv). The "amount" or "principal amount"
of Indebtedness of any Person at any date, as used herein, shall be the
outstanding principal amount at such date of all unconditional Indebtedness, the
maximum principal amount of any contingent Indebtedness or the unrecovered
purchaser's investment in a sale of Receivables, in each case at such date and
without taking into account any premium, interest, penalties, reimbursement or
indemnification amounts, fees, expenses or other amounts (other than principal
or unrecovered purchaser's investment) in respect thereof; PROVIDED, HOWEVER,
that (y) with respect to Indebtedness described in clause (iv) above, the amount
of Indebtedness shall be the lesser of (a) the

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amount of the Indebtedness of such other Person that is secured by the property
or assets of such Person and (b) the fair market value of the property or assets
securing such Indebtedness, and (z) with respect to revolving credit, revolving
Receivables purchases or other similar arrangements, the amount of Indebtedness
thereunder shall be the amounts of such commitments as of the date of
determination.

"Initial Interest Rate", when used with respect to any Senior Note,
means the initial rate of interest to be borne by such Senior Note as stated on
the face thereof.

"Interest Payment Date" means the Stated Maturity of an installment of
interest on any Senior Note.

"Issue Date" means October __, 1994.

"Maturity", when used with respect to any Senior Note, means the date
on which the principal of such Senior Note or an installment of the principal
becomes due and payable as therein or herein provided, whether at the Stated
Maturity or by declaration of acceleration, call for redemption or otherwise.

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