Smurfit-Stone Container Corp – ‘424B3’ on 1/7/94

As of:  Friday, 1/7/94   ·   Accession #:  912057-94-38   ·   File #:  33-49857

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Prospectus   —   Rule 424(b)(3)
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Document/Exhibit                   Description                      Pages   Size 

 1: 424B3       Prospectus                                            81    584K 

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Information  contained in  this prospectus  supplement is  subject to completion
pursuant to Rule 424 under the Securities Act of 1933. A registration  statement
relating  to these securities has been  declared effective by the Securities and
Exchange Commission pursuant  to Rule 415  under the Securities  Act of 1933.  A
final  prospectus supplement  and accompanying  prospectus will  be delivered to
purchasers of these securities. This  preliminary prospectus supplement and  the
accompanying   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.   

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SUBJECT TO COMPLETION,
JANUARY 7, 1994 
PRELIMINARY PROSPECTUS SUPPLEMENT               FILED PURSUANT TO RULE 424(B)(3)

(To Prospectus Dated January   , 1994)                 REGISTRATION NO. 33-49857

21,000,000 SHARES                                                               
($.01 PAR VALUE)                                                                

[LOGO]                                                                          

COMMON STOCK                                                                    

Of the 21,000,000 shares  of Common Stock offered  hereby (the "Common  Stock"),
17,500,000  shares  are being  offered by  the U.S.  Underwriters in  the United
States and Canada (the "U.S. Offering"), and 3,500,000 shares are being  offered
by the International Underwriters in a concurrent international offering outside
the  United States  and Canada  (the "International  Offering," and collectively
with the  U.S. Offering,  the  "Common Stock  Offering"), subject  to  transfers
between  the U.S. Underwriters and the International Underwriters (collectively,
the "Underwriters"). The  public offering price  and the aggregate  underwriting
discount  per  share  are  identical  for  both  offerings.  See "Underwriting."
Concurrently with  the offering  of the  shares of  Common Stock  being  offered
hereby,  the  Company is  selling in  a public  offering (the  "Notes Offering")
$500,000,000 aggregate principal amount of  its   %  Senior Notes due 2001  (the
"Notes").  The  closing of  the  Common Stock  Offering  and the  Notes Offering
(collectively, the "Offerings") are conditional upon one another.               

The Common Stock  is listed  on the  New York  Stock Exchange  under the  symbol
"STO". On January 5, 1994, the last reported sale price for the Common Stock, as
reported  on the New York Stock  Exchange Composite Transactions Tape was $11.25
per share. See "Price Range of Common Stock and Dividend Policy."               

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  SECURI-
TIES  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.                                                 

                                                        [Enlarge/Download Table]

-------------------------------------------------------------------------------------------
                                                PRICE TO       UNDERWRITING   PROCEEDS TO  
                                                PUBLIC         DISCOUNT(1)    COMPANY(2)   
                                                                                           
Per Share.....................................  $              $              $            
Total(3)......................................  $              $              $            
-------------------------------------------------------------------------------------------
<FN>                                                                                       
(1) The  Company  has  agreed  to  indemnify  the  Underwriters  against certain           
    liabilities, including  liabilities under  the Securities  Act of  1933,  as           
    amended. See "Underwriting."                                                           
(2) Before  deducting offering expenses payable by  the Company, estimated to be           
    $250,000.                                                                              
(3) The  Company  has  granted  to  the  U.S.  Underwriters  and   International           
    Underwriters  30 day-options  to purchase  up to  an aggregate  of 3,150,000           
    additional shares of Common Stock at the Price to Public, less  Underwriting           
    Discount,  solely  to cover  over-allotments,  if any.  If  the Underwriters           
    exercise such  option  in full,  the  total Price  to  Public,  Underwriting           
    Discount  and Proceeds  to Company  will be  $      , $      ,  and $      ,           
    respectively. See "Underwriting."                                                      

The  Common  Stock  is  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 Common Stock  will be made against payment
therefor, 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 INTERNATIONAL LIMITED                                          
BEAR, STEARNS INTERNATIONAL LIMITED 
                                                 BANKERS TRUST INTERNATIONAL PLC

The date of this Prospectus Supplement is             , 1994                    

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

    THE  SHARES  OF COMMON  STOCK OFFERED  HEREBY  MAY NOT  BE OFFERED  OR SOLD,
DIRECTLY OR  INDIRECTLY, IN  THE  UNITED STATES  OR CANADA  OR  TO ANY  U.S.  OR
CANADIAN  PERSON AS PART OF THE INTERNATIONAL OFFERING. THE DISTRIBUTION OF THIS
PROSPECTUS SUPPLEMENT AND THE OFFERING OF THE SHARES OF COMMON STOCK IN  CERTAIN
JURISDICTIONS MAY BE RESTRICTED BY LAW. PERSONS WHO COME INTO POSSESSION OF THIS
PROSPECTUS  ARE REQUIRED BY THE COMPANY AND THE INTERNATIONAL MANAGERS TO INFORM
THEMSELVES ABOUT  AND  TO  OBSERVE  ANY  SUCH  RESTRICTIONS  INCLUDING,  WITHOUT
LIMITATION,  COMPLIANCE WITH THE  RESTRICTIONS ON DISTRIBUTION  OF THIS DOCUMENT
UNDER THE FINANCIAL SERVICES ACT 1986 AND  THE COMPANIES ACT 1985 OF THE  UNITED
KINGDOM.  SEE "UNDERWRITING."  THIS PROSPECTUS DOES  NOT CONSTITUTE  AN OFFER TO
SELL OR THE SOLICITATION OF AN OFFER TO BUY THE COMMON STOCK IN ANY JURISDICTION
IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.                                

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PROSPECTUS SUMMARY

    THIS  SUMMARY IS QUALIFIED  IN ITS ENTIRETY BY  THE DETAILED INFORMATION AND
FINANCIAL STATEMENTS,  INCLUDING  THE  NOTES  THERETO,  APPEARING  ELSEWHERE  OR
INCORPORATED  BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT AND IN THE ACCOMPANYING
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 SUPPLEMENT OR IN THE 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 

GENERAL                                                                         

    The  Company  is  a  major  international  pulp  and  paper  company engaged
principally in  the  production  and  sale of  paper,  packaging  products,  and
commodity  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. The Company also  believes that it is  one of the largest paper
companies in terms of annual tonnage produced. The Company produced 5.0  million
tons  and 4.9 million tons of unbleached  containerboard and kraft paper in 1992
and 1991,  respectively, which  accounted  for approximately  66% of  its  total
tonnage  produced  for  both  1992  and  1991.  The  Company  had  net  sales of
approximately $5.5 billion and $5.4 billion in 1992 and 1991, respectively.     

    The Company has  increased dramatically  in size  over the  past ten  years,
primarily  through four  major acquisitions,  including the  1989 acquisition of
Consolidated-Bathurst Inc. (a Canadian corporation, now renamed Stone  Container
(Canada)   Inc.  ("Stone  Canada")),  and   several  smaller  acquisitions.  The
acquisition of Stone  Canada increased the  Company's market share  in its  core
business  operations and provided the Company with the opportunity to pursue its
strategy to expand its production  capacity and sales in international  markets.
The  Company owns  or has  an interest  in 136  manufacturing facilities  in the
United States, 27 in Canada, 15 in  Germany, five in France, two in Belgium  and
one in each of the United Kingdom and the Netherlands. The facilities include 24
mills.  The Company also  maintains sales offices in  the United States, Canada,
the United Kingdom, Germany, Belgium, France, China and Japan.                  

RECENT DEVELOPMENTS                                                             

PROGRESS OF FINANCIAL PLAN                                              

    In 1993,  the Company  adopted  a financial  plan  designed to  enhance  the
Company's liquidity, reduce amortization under certain bank credit agreements of
the  Company and  Stone Canada (the  "Credit Agreements")  and improve financial
flexibility. The Company completed a major portion of its financial plan  during
1993  resulting in net proceeds to the Company and Stone Canada of approximately
$1.0 billion which the Company and Stone Canada used to repay indebtedness under
the Credit Agreements and fund operating losses and working capital needs. These
repayments satisfied the remaining September 1993 amortization of  approximately
$118  million,  the full  1994 amortization  of  approximately $409  million and
approximately $21  million  of the  March  1995 amortization  under  the  Credit
Agreements.  The Company had as  of January 5, 1994  $60.0 million available for
borrowing out of a total revolving credit commitment of $315.8 million.         

The transactions completed in 1993 were as follows:                     

 - the sale in June, 1993 of $150 million of the Company's 12 5/8%
   Senior Notes due  1998 and  a concurrent private  sale of  $250
   million   principal  amount   of  8   7/8%  Convertible  Senior
Subordinated Notes due 2000.                                

 - the public  offerings in  December 1993  by  Stone-Consolidated
Corporation, a newly created Canadian subsidiary            
   ("Stone-Consolidated"),  of  Cdn.  $231 million  of  its common
   stock (representing  25.4% of  its outstanding  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").
   Stone-Consolidated now  owns  all  of  the  Canadian  and  U.K.
   newsprint  and groundwood papers assets  of the Company and its
   subsidiaries. The net  proceeds paid  by Stone-Consolidated  to
   the Company and Stone Canada in connection with these offerings
approximated $490 million.                                  

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 - the  sale of the  Company's 49% equity  interest in Empaques de
   Carton Titan,  S.A.,  a Mexican  corrugated  container  company
   ("Titan"),  two  of the  Company's short  line railroads  and a
   specialty packaging plant in  Sheridan, Arkansas. The  proceeds
of these three transactions approximated $125 million.      

    In connection with the completion of the Stone-Consolidated Transaction, the
Company  also received approval from its bank  group to extend the maturity date
of its revolving credit facilities from March 1, 1994 to March 1, 1997.         

The final stages of the Company's current financial plan are as follows:

 - the Offerings, from which  the Company expects  to use the  net
   proceeds  to  (i)  prepay  approximately  $403  million  of the
   remaining 1995 and March  1996 required amortization under  the
   Credit  Agreements (including  amortization payments  under the
   Company's  revolving  credit  facilities  reducing  the   total
   commitments  thereunder  to approximately  $224  million); (ii)
   redeem at par approximately  $98 million plus accrued  interest
   of the Company's 13 5/8% Subordinated Notes due 1995; and (iii)
   repay  approximately $200  million of the  borrowings under the
   Company's revolving  credit  facilities  without  reducing  the
   commitments  thereunder  (or to  the  extent no  borrowings are
outstanding, the Company may retain the balance in cash).   

 - the completion of  a transaction involving  a favorable  energy
   supply  agreement relating  to the Company's  mill in Florence,
   South Carolina. The proceeds of this transaction are subject to
   the  execution  of  definitive  documentation  and   regulatory
   approval.  The gross  proceeds of  this transaction,  which are
   currently expected to be  approximately $100 million, would  be
   utilized  to  repay  borrowings under  the  Company's revolving
   credit facilities without  reducing commitments thereunder  (or
   to  the extent no  borrowings are outstanding,  the Company may
   retain the  balance  in  cash).  There  can  be  no  assurance,
   however,  that this transaction will be consummated or that the
   expected amount  of  proceeds  from such  transaction  will  be
received.                                                   

    The  completion of the Offerings will provide the Company with the following
benefits:                                                                       

 -repayment of  all major  amortization through  the end  of  1995
  (except  for revolving credit facilities relating to receivables
financings which the Company intends to extend or refinance). 

 - improvement of the Company's  liquidity by repaying  borrowings
   under  the revolving credit facility by $200 million (or to the
   extent no borrowings  are outstanding, the  Company may  retain
   the  balance in cash).  As of January 5,  1994, the Company had
   $60.0 million available for borrowing out of a total  revolving
credit commitment of $315.8 million.)                       

 - improvement  of  the  Company's  financial  flexibility through
   amendments to  the Credit  Agreements  (see "--  Amendments  to
Credit Agreements").                                        

PRODUCTS AND INDUSTRY TRENDS                                            

    The  markets for products sold by the Company are highly competitive and are
also sensitive to cyclical changes in industry capacity and in the economy, both
of which can significantly  influence selling prices  and thereby the  Company's
profitability. Although the Company has experienced declining product pricing in
all  of its product lines over the last several years, the Company believes that
market conditions  are  present  which  should permit  the  Company  to  realize
improved product pricing in most of its product lines.                          

    The  Company  implemented  a  $25  per  ton  price  increase  for linerboard
effective October 1, 1993, which raised the transaction price for the base grade
of linerboard to $325 per ton.  This increase will not, however, restore  prices
for  linerboard to the levels present at the beginning of 1993. In addition, the
Company is in  the process  of final  implementation of  a corrugated  container
price  increase. The Company currently expects  final implementation to occur in
the first quarter  of 1994.  As a result  of strengthening  demand, the  Company
announced  a further price increase  of $30 per ton  for linerboard effective in
January 1994. While the Company currently  believes that it will implement  this
price  increase  in  the early  part  of  1994, there  is  little  likelihood of
achieving the increase in January                                               

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1994. There can be no assurance that prices will continue to increase or even be
maintained at present levels, but the Company believes the demand for linerboard
and the converted products produced from linerboard are increasing.             

    Pricing conditions for newsprint and groundwood paper have been volatile  in
recent  years. While the  industry successfully implemented  a price increase in
1992,  efforts  to  maintain   an  additional  price   increase  in  1993   were
unsuccessful.  In  1993,  Stone-Consolidated  and  other  industry  participants
attempted to balance supply and demand by taking downtime at selected production
facilities. Stone-Consolidated announced a $47.50 per metric ton price  increase
for  newsprint effective March 1, 1994  in light of recent industry improvements
in supply and demand characteristics. Other major North American producers  have
announced  similar price  increases. There is  no assurance,  however, that such
price increases will be achieved as scheduled or at all.                        

    Market pulp  has also  experienced  volatile pricing  in recent  years.  The
Company  announced a price increase of $40 to  $80 per ton in the various grades
of market pulp effective January 1, 1994 in light of improved supply and  demand
characteristics  in  the  industry. There  is,  however,  significant world-wide
competition in this product line and no assurances can be given that such  price
increases will be realized or maintained.                                       

OPERATING PERFORMANCE                                                   

    The  Company will report a net loss for  the full year 1993, which loss will
be greater than the loss incurred for 1992. The Company anticipates that the net
loss for the fourth  quarter of 1993  will be within  the expectations of  paper
industry analysts. The losses incurred in 1993 and in the previous two years had
a  severe  negative impact  on the  Company's  liquidity. The  Company believes,
however, that the  implementation of its  financial plan significantly  improves
the  Company's liquidity. As of January  5, 1994, available borrowings under the
Company's revolving credit facilities were  $60.0 million and upon  consummation
of  the  Offerings,  the  Company's cash  and  available  borrowings  under such
facilities are expected to increase by approximately $200 million.              

    The Company believes that  demand for its  products has recently  increased.
Production of linerboard for October and November 1993 versus the similar period
in  1992  increased  9%. The  Company  also  increased its  sales  of corrugated
products (measured in terms  of footage sold) by  4.5% for October and  November
1993  versus  the  similar  period  in 1992.  The  production  of  newsprint and
groundwood papers increased  by 2.6% for  October and November  1993 versus  the
similar  periods in 1992. Production of  market pulp, however, declined 5.1% for
the comparable period.                                                          

AMENDMENTS TO CREDIT AGREEMENTS                                         

    In connection with the Offerings, the  Company is seeking amendments to  the
Credit  Agreements. The amendments, which  are conditional upon the consummation
of the Offerings  and the  prepayment of  a minimum  of $385  million under  the
Credit Agreements, contain the following provisions:                            

 -Permit  the repayment  of borrowings under  the revolving credit
  facilities without reducing  the commitments  thereunder (or  to
  the extent no borrowings are outstanding, the Company may retain
  the balance in cash) of up to $200 million with a portion of the
net proceeds from the Offerings.                              

 -Permit  the  redemption of  the  Company's 13  5/8% Subordinated
  Notes due  1995 with  a portion  of the  net proceeds  from  the
Common Stock Offering.                                        

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 - Amend  the  EBITDA  (as defined  under  the  Credit Agreements)
   covenant to require the Company  to meet the following  minimum
EBITDA levels:                                              

                                                                [Download Table]
                                                             
For the quarter ended 3/31/94.................   $ 20 million
For the two quarters ended 6/30/94............   $ 55 million
For the three quarters ended 9/30/94..........   $111 million
For the four quarters ended 12/31/94..........   $180 million
For the four quarters ended 3/31/95...........   $226 million
For the four quarters ended 6/30/95...........   $300 million
For the four quarters ended 9/30/95...........   $380 million
For the four quarters ended 12/31/95..........   $457 million
For the four quarters ended 3/31/96...........   $567 million
For the four quarters ended 6/30/96...........   $657 million
For the four quarters ended 9/30/96...........   $735 million
and each four quarter period thereafter.......   $822 million

 -  Replace  the  existing  cross-default  provisions  relating to
obligations of $10 million or more                                              
 of the Company's separately financed subsidiaries, Seminole Kraft
Corporation ("Seminole  Kraft") and  Stone Savannah  River Pulp  &  Paper       
 Corporation    ("Stone   Savannah"),    with   cross-acceleration
provisions.                                                     

 - Reset to zero as of January 1, 1994 the "dividend basket" under
   the Credit Agreements which permits payment of dividends on the
   Company's capital stock. The  dividend basket under the  Credit
   Agreements  as of  September 30, 1993  had a  deficit amount of
   $334.1 million. On an ongoing basis, the dividend basket  would
   be  increased by (a) 100% (rather  than the current 50%) of the
   cash proceeds of sales of Common Stock (other than proceeds  of
   the  Common Stock Offering, for  which no dividend credit would
   be received) and permitted preferred stock and (b) 75%  (rather
   than the current 50%) of Consolidated Net Income (as defined in
   the  Credit  Agreements)  from  January 1,  1994  and  would be
   decreased by 100% of Consolidated Net Losses (as defined)  from
   January  1,  1994. Additionally,  restrictions with  respect to
   dividends on the Series E Preferred Stock would be modified  to
   mirror  the  dividend  restrictions  in  the  Company's  Senior
   Subordinated Indenture dated as of March 15, 1992. This  should
   permit a higher dividend basket for payment of dividends on the
   Series  E Preferred Stock. See  "Description of Debt Securities
   -- Additional Terms of the Senior Subordinated Debt  Securities
-- Dividend Restrictions" in the accompanying Prospectus.   

 - Replace the current prohibition of investments in Stone Venepal
   (Celgar)  Pulp Inc. with  restrictions substantially similar to
   the restrictions  applicable  to  the  Company's  subsidiaries,
Stone Savannah and Seminole Kraft.                          

    For  a  more  complete description  of  the Credit  Agreements,  see "Credit
Agreements" in the accompanying Prospectus.                                     

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THE COMMON STOCK OFFERING 

                                                        [Enlarge/Download Table]
                                                                                                    
Common Stock to be Offered in the United                                                            
 States and Canada............................ 17,500,000 shares.                                   
Common Stock to be Offered Outside the United                                                       
 States and Canada............................ 3,500,000 shares.                                    
Common Stock to be Outstanding After the                                                            
 Offerings.................................... 92,159,622 shares.                                   
Use of Proceeds............................... The net proceeds, estimated at $       , will be used
                                               to repay the Company's  indebtedness and for  general
                                               corporate purposes. See "Use of Proceeds."           
New York Stock Exchange Symbol................ STO.                                                 

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SUMMARY FINANCIAL DATA

    The  following Statement of  Operations and Balance Sheet  Data for the five
years ended December  31, 1992  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
1992   consolidated  financial  statements  contains  an  explanatory  paragraph
referring to the  March 1,  1994 expiration  of the  Company's revolving  credit
facilities  and  the  Company's  financial  plan discussed  in  Note  10  to the
Company's 1992 consolidated financial  statements. Effective December 17,  1993,
the Company's revolving credit facilities were extended until March 1, 1997. The
summary  financial  data  for  the  nine months  ended  September  30,  1993 and
September 30, 1992 has  been derived from  the unaudited consolidated  financial
statements  included in  the Company's  Quarterly Reports  on Form  10-Q for the
quarters ended September 30, 1993 and 1992. The summary financial data does  not
purport  to  be indicative  of  the Company's  future  results of  operations or
financial position.                                                             

                                                        [Enlarge/Download Table]

                                         NINE MONTHS ENDED SEPTEMBER                                            
                                                     30,                                                        
                                         ---------------------------                                            
                                            1993           1992(B)                                              
                                         ----------       ----------                                            
                                          (IN THOUSANDS, EXCEPT PER                                             
                                           SHARE DATA AND RATIOS)                                               
                                                                                                                
STATEMENT OF OPERATIONS DATA:                                                                                   
  Net sales..........................    $3,816,509       $4,189,938                                            
  Cost of products sold..............     3,180,906        3,385,299                                            
  Selling, general and administrative                                                                           
   expenses..........................       404,844          406,066                                            
  Depreciation and amortization......       262,100          250,807                                            
  Income (loss) before interest                                                                                 
   expense, income taxes and                                                                                    
   cumulative effects of accounting                                                                             
   changes...........................       (35,567)         148,443                                            
  Interest expense...................       311,271          284,391                                            
  Income (loss) before income taxes                                                                             
   and cumulative effects of                                                                                    
   accounting changes................      (346,838)        (135,948)                                           
  Cumulative effect of change in                                                                                
   accounting for post retirement                                                                               
   benefits (net of income taxes)....       (39,544)              --                                            
  Cumulative effect of change in                                                                                
   accounting for income taxes.......            --          (99,527)                                           
  Net income (loss)..................      (272,994)        (192,762)                                           
  Income (loss) per common share                                                                                
   before cumulative effects of                                                                                 
   accounting changes................         (3.36)           (1.38)(d)                                        
  Net income (loss) per common                                                                                  
   share.............................         (3.92)           (2.78)(d)                                        
  Ratio of earnings to fixed                                                                                    
   charges...........................            (e)              (e)                                           
  Dividends paid per common share                                                                               
   (d)...............................            --       $     0.35                                            
  Average common shares                                                                                         
   outstanding.......................        71,159           70,983(d)                                         
BALANCE SHEET DATA (AT END OF                                                                                   
 PERIOD):                                                                                                       
  Working capital....................    $  190,622(g)    $  785,202                                            
  Property, plant and                                                                                           
   equipment-net.....................     3,431,491        3,791,588                                            
  Goodwill...........................       912,870        1,020,375                                            
  Total assets.......................     6,724,579        7,192,766                                            
  Long-term debt.....................     3,782,414(f)(g)  4,042,082(f)                                         
  Stockholders' equity...............       738,842        1,296,823                                            
OTHER DATA:                                                                                                     
  Net cash provided by (used in)                                                                                
   operating activities..............    $ (115,587)      $   46,457                                            
  Capital expenditures...............       100,665(h)       195,989(h)                                         
  Paperboard, paper and market pulp:                                                                            
    Produced (thousand tons).........         5,498            5,605                                            
    Converted (thousand tons)........         3,291            3,327                                            
  Corrugated shipments (billion sq.                                                                             
   ft.)..............................         39.80            39.30                                            
  Consolidated EBITDA (i)............       226,533          399,250                                            



                                                              YEAR ENDED DECEMBER 31,                           
                                         ------------------------------------------------------------------     
                                          1992(B)         1991          1990        1989(A)         1988        
                                         ----------    ----------    ----------    ----------    ----------     

                                                                                                                
STATEMENT OF OPERATIONS DATA:                                                                                   
  Net sales..........................    $5,520,655    $5,384,291    $5,755,858    $5,329,716    $3,742,489     
  Cost of products sold..............     4,473,746     4,285,612     4,421,930     3,893,842     2,618,062     
  Selling, general and administrative                                                                           
   expenses..........................       543,519       522,780       495,499       474,438       351,133(c)  
  Depreciation and amortization......       334,054       277,534(c)    257,041       237,047       148,072     
  Income (loss) before interest                                                                                 
   expense, income taxes and                                                                                    
   cumulative effects of accounting                                                                             
   changes...........................       156,788       379,314       609,873       825,722       657,757     
  Interest expense...................       386,122       397,357       421,667       344,693       108,262     
  Income (loss) before income taxes                                                                             
   and cumulative effects of                                                                                    
   accounting changes................      (229,334)      (18,043)      188,206       481,029       549,495     
  Cumulative effect of change in                                                                                
   accounting for post retirement                                                                               
   benefits (net of income taxes)....            --            --            --            --            --     
  Cumulative effect of change in                                                                                
   accounting for income taxes.......       (99,527)           --            --            --            --     
  Net income (loss)..................      (269,437)      (49,149)       95,420       285,828       341,786     
  Income (loss) per common share                                                                                
   before cumulative effects of                                                                                 
   accounting changes................         (2.49)(d)       (.78)(d)       1.56(d)       4.67(d)       5.58(d)
  Net income (loss) per common                                                                                  
   share.............................         (3.89)(d)       (.78)(d)       1.56(d)       4.67(d)       5.58(d)
  Ratio of earnings to fixed                                                                                    
   charges...........................            (e)           (e)          1.2           2.0           5.1     
  Dividends paid per common share                                                                               
   (d)...............................    $     0.35    $     0.71    $     0.71    $     0.70    $     0.35     
  Average common shares                                                                                         
   outstanding.......................        70,987(d)     63,207(d)     61,257(d)     61,223(d)     61,251(d)  
BALANCE SHEET DATA (AT END OF                                                                                   
 PERIOD):                                                                                                       
  Working capital....................    $  756,964    $  770,457    $  439,502    $  614,433    $  457,477(c)  
  Property, plant and                                                                                           
   equipment-net.....................     3,703,248     3,520,178     3,364,005     2,977,860     1,275,960     
  Goodwill...........................       983,499     1,126,100     1,160,516     1,089,817        29,786     
  Total assets.......................     7,026,973     6,902,852     6,689,989     6,253,708     2,395,038     
  Long-term debt.....................     4,104,982(f)  4,046,379(f)  3,680,513(f)  3,536,911(f)    765,150     
  Stockholders' equity...............     1,102,691     1,537,543     1,460,487     1,347,624     1,063,558     
OTHER DATA:                                                                                                     
  Net cash provided by (used in)                                                                                
   operating activities..............    $   85,557    $  210,498    $  451,579(c) $  315,196(c) $  453,556(c)  
  Capital expenditures...............       281,446(h)    430,131(h)    551,986(h)    501,723(h)    136,588     
  Paperboard, paper and market pulp:                                                                            
    Produced (thousand tons).........         7,517         7,365         7,447         6,772         4,729     
    Converted (thousand tons)........         4,373         4,228         4,241         3,930         3,344     
  Corrugated shipments (billion sq.                                                                             
   ft.)..............................         51.67         49.18         47.16         41.56         34.47     
  Consolidated EBITDA (i)............       490,842       656,848       866,914     1,062,769       805,829     
<FN>                                                                                                            
----------------------------------                                                                              
(a) The Company acquired Stone Canada in 1989.                                                                  
(b) Restated to  reflect  the  adoption of  Statement  of  Financial  Accounting                                
    Standards  No. 109, "Accounting for Income  Taxes" retroactive to January 1,                                
    1992.                                                                                                       
(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 nine months ended September 30, 1993 and 1992                                
    and  the years ended December  31, 1992 and 1991  were insufficient to cover                                
    fixed charges by $352.3 million, $172.1 million and $270.1 million and $94.6                                
    million, respectively.                                                                                      
(f) Includes approximately $539.1 million and $594.9 million as of September 30,                                
    1993 and  1992, respectively,  and $584.3  million, $573.3  million,  $471.2                                
    million  and $267.2 million  as of December  31, 1992, 1991,  1990 and 1989,                                
    respectively, of long-term debt of certain consolidated subsidiaries that is                                
    non-recourse to the parent.                                                                                 
(g) At September 30, 1993, $271 million of revolving credit facility  borrowings                                
    which  were  previously  due on  March  1,  1994 are  classified  as current                                
    maturities of long-term debt.                                                                               
(h) Includes approximately $12.4 million and  $63.8 million for the nine  months                                
    ended  September 30, 1993 and 1992,  respectively, and $79.1 million, $219.8                                
    million, $245.2 million  and $36.8 million  for 1992, 1991,  1990 and  1989,                                
    respectively, of expenditures financed through project financings.                                          
(i) "Consolidated  EBITDA" means  earnings before  interest, taxes, depreciation                                
    and amortization. EBITDA is not intended to represent cash flow or any other                                
    measure of  performance in  accordance with  GAAP. The  Consolidated  EBITDA                                
    presented  herein is different  than the EBITDA  definition in the Company's                                
    Credit  Agreements.  In  calculating  EBITDA  for  purposes  of  the  Credit                                
    Agreements,  Seminole  Kraft,  Stone  Savannah  and  Stone-Consolidated  are                                
    accounted for using the equity method of accounting. See "Credit Agreements"                                
    in the accompanying Prospectus.                                                                             

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RISK FACTORS

    BEFORE  INVESTING,  PROSPECTIVE  PURCHASERS OF  THE  NOTES  SHOULD CAREFULLY
CONSIDER THE RISK FACTORS  SET FORTH BELOW AND  THE OTHER INFORMATION SET  FORTH
AND INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS.                                                                     

SIGNIFICANT LEVERAGE AND DEBT SERVICE REQUIREMENTS; LIMITED LIQUIDITY           

    The  Company is  significantly leveraged  and will  continue to  be so after
completion  of   the  Offerings.   The  Company's   long-term  debt   to   total
capitalization  ratio was  74.3% at  September 30, 1993.  On a  pro forma basis,
after giving  effect to  the  Stone-Consolidated Transaction,  the sale  of  the
Company's  49% equity  interest in  Titan, and  the sale  by the  Company of its
interest in two short  line railroads (the  "1993 Fourth Quarter  Transactions")
and  the Offerings, and  the use of  the estimated net  proceeds therefrom, such
ratio at September 30, 1993 would have been approximately 71.8%. 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 1993 Fourth Quarter Transactions and the Offerings, the amounts of
long-term  debt  (excluding  capitalized   lease  obligations)  outstanding   at
September  30, 1993 maturing  during the next  five years and  thereafter are as
follows:                                                                        

                                                        [Enlarge/Download Table]

                                    THE COMPANY                                                   
                             EXCLUDING STONE SAVANNAH,        NON-RECOURSE                        
                                  SEMINOLE KRAFT             INDEBTEDNESS OF                      
                              AND STONE-CONSOLIDATED     CERTAIN SUBSIDIARIES(1)      TOTAL       
                            ---------------------------  -----------------------  -------------   
                                                       (IN MILLIONS)                              
                                                                                                  
Remainder of 1993.........        $           4.7              $      33.1        $        37.8   
1994......................                   17.6                     54.3                 71.9   
1995......................                  293.5(2)                  54.6                348.1(2)
1996......................                  302.4                     67.0                369.4   
1997......................                  774.4                     68.1                842.5   
1998......................                  458.0                    137.8                595.8   
Thereafter................                1,587.3                    576.9              2,164.2   
<FN>                                                                                              
------------------------------                                                                    
(1)   Includes   indebtedness   of   Stone   Savannah,   Seminole   Kraft    and                  
      Stone-Consolidated. See "-- Credit Agreement Restrictions."                                 
(2)   The  1995  maturities  include  $261.3  million  outstanding  under  Stone                  
      Financial  Corporation's  and  Stone  Fin  II  Receivables   Corporation's                  
      revolving  credit  facilities,  which  the Company  intends  to  extend or                  
      refinance.                                                                                  

    The  Company's  income  before  interest   expense  and  income  taxes   was
insufficient  to cover interest expense for  the nine months ended September 30,
1993 and 1992 and for the year ended December 31, 1992 by $346.8 million, $135.9
million and $229.3 million, respectively,  and will continue to be  insufficient
for at least 1994.                                                              

    The  Company's liquidity and financial  flexibility is adversely affected by
continued losses which have resulted in utilization of a significant portion  of
its  revolving credit facilities (for which the borrowing availability was $60.0
million as of January 5, 1994). The net proceeds from the Offerings will be used
to (i) prepay approximately  $403 million of the  remaining 1995 and March  1996
required   amortization  under  the  Credit   Agreements;  (ii)  redeem  at  par
approximately $98  million  plus  accrued  interest of  the  Company's  13  5/8%
Subordinated  Notes due 1995; and (iii)  repay approximately $200 million of the
borrowings under the Company's revolving credit facilities without reducing  the
commitments  thereunder (or  to the  extent no  borrowings are  outstanding, the
Company may retain the balance in cash).  See "Use of Proceeds." The Company  is
also  expecting to  improve its  liquidity and  financial flexibility  through a
transaction involving a favorable energy  supply agreement relating to its  mill
in Florence, South Carolina, the net proceeds of which would be applied to repay
borrowings  under the  revolving credit facilities  without reducing commitments
thereunder (or to  the extent  no borrowings  are outstanding,  the Company  may
retain  the balance  in cash).  There can  be no  assurance, however,  that this
transaction will be  consummated or that  the expected amount  of proceeds  from
such transaction will be received.                                              

    Notwithstanding  the improvements  in the Company's  liquidity and financial
flexibility which will result from the Offerings and which would result from the
proposed  energy  supply  contract  transaction,  unless  the  Company  achieves
sustained  price  increases  beyond current  levels  (including  announced price
increases  which  have  not  yet  been  fully  implemented  as  described  under
"Prospectus  Summary -- Recent  Developments -- Products  and Industry Trends"),
the Company will continue to incur net losses and a deficit in net cash provided
by operating                                                                    

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activities. Without such sustained 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 postponable 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.                                                       

    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  funds from  operations  or other  sources  or
refinance  or restructure maturing indebtedness. No  assurance can be given that
the Company will be successful in doing so.                                     

ADVERSE INDUSTRY CONDITIONS AND CYCLICAL PRODUCT PRICING                        

    The markets for  paper, packaging products  and commodity 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  the  Company's  profitability.  The  markets  for
containerboard and corrugated containers, which represent a substantial  portion
of  the Company's  net sales,  generally experienced  price declines  during the
period since 1990. The Company has, however, successfully implemented a $25  per
ton  price increase for containerboard  and is in the  process of implementing a
price increase  in corrugated  containers. The  Company expects  to realize  the
benefits  of such  price increase  in the first  quarter of  1994. Newsprint and
market  pulp  prices  have   also  fallen  substantially   since  1990  due   to
supply/demand imbalances. While newsprint prices generally increased in 1992, an
additional  price increase announced  in 1993 was  unsuccessful. The Company has
announced a price  increase for newsprint  effective March 1,  1994 in light  of
strengthening  demand  for newsprint.  Market  pulp prices,  which  had improved
modestly during 1992  from the low  prices of 1991,  began deteriorating in  the
fourth  quarter of 1992 and weakened further in 1993. The Company is also in the
process of implementing  price increases  effective January 1,  1994 for  market
pulp  of $40 to $80 per ton. There also can be no assurance that announced price
increases for the  Company's products can  be implemented, that  prices for  the
Company's products will not decline from current levels or that the Company will
not elect to take further economic downtime.                                    

RECENT LOSSES; NET CASH USED IN OPERATING ACTIVITIES                            

    The  Company incurred losses  of $233.5 million  (before taking into account
the cumulative effect of an accounting  change) and $273.0 million (taking  into
account  such  change) for  the  nine months  ended  September 30,  1993, $169.9
million (before  taking into  account  the cumulative  effect of  an  accounting
change)  and $269.4 million (taking into account  such change) in 1992 and $49.1
million in 1991. Net cash used  in operating activities totalled $115.6  million
for  the  nine months  ended  September 30,  1993,  while net  cash  provided by
operating activities totalled $46.5 million for the nine months ended  September
30,  1992. The Company expects the fourth quarter of 1993 will have a deficit in
net cash provided by  operating activities. The Company  expects to incur a  net
loss  for the quarter ending  December 31, 1993 that will  be less than the loss
reported for the  third quarter  of 1993. See  "Selected Consolidated  Financial
Data."  As a result of the net losses,  it has been necessary for the Company to
obtain various  amendments  and  waivers  of certain  covenants  in  the  Credit
Agreements.  See "Credit Agreements" in  the accompanying Prospectus. If current
pricing levels  for the  Company's products  do not  significantly improve,  the
Company will continue to incur losses. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Outlook" in the accompanying
Prospectus.                                                                     

CREDIT AGREEMENT RESTRICTIONS                                                   

    All  indebtedness under  the Credit Agreements  is secured  by a substantial
portion of the  assets of  the Company.  The Credit  Agreements contain  certain
restrictions on the Company, including requirements that the Company achieve and
maintain  certain  financial  ratios  (including  a  minimum  current  ratio, an
indebtedness ratio, minimum "EBITDA" (as defined in the Credit Agreements) and a
tangible net worth  test). The  restrictions also include,  among other  things,
limitations  on the ability of the  Company to incur additional indebtedness, to
create, incur or permit the existence  of certain liens, to make guarantees,  to
make  certain investments, to make  aggregate capital expenditures above certain
levels, to make certain payments with  respect to its outstanding stock, and  to

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enter  into certain types of transactions.  In particular, the Credit Agreements
currently  prohibit  investments  in  Stone  Venepal  (Celgar)  Pulp  Inc.,  and
Stone-Consolidated. A default by Stone-Consolidated of any of its obligations in
excess of $10 million constitutes a default under the Credit Agreements.        

    The  Credit  Agreements also  limit  in certain  specific  circumstances any
further investments by the  Company in two of  its subsidiaries, Seminole  Kraft
and  Stone Savannah. Stone Savannah and Seminole Kraft have incurred substantial
indebtedness  in  connection  with  project  financings  and  are  significantly
leveraged.  As  of September  30,  1993, Stone  Savannah  had $413.8  million in
outstanding indebtedness (including $280.1 million in secured indebtedness  owed
to   bank  lenders)  and  Seminole  Kraft  had  $179.8  million  in  outstanding
indebtedness (including  $117.5 million  in secured  indebtedness owed  to  bank
lenders).  The Company has entered into separate output purchase agreements with
each subsidiary which require  the Company to purchase  the output of the  mills
operated  by each subsidiary at rates which are above current market rates until
September 30, 1994 for  Seminole Kraft, until December  20, 1994 for  linerboard
production  at  Stone  Savannah and  until  November  14, 1995  for  market pulp
production at  Stone Savannah.  After such  dates, the  Company is  required  to
purchase  the respective productions at market prices for the remaining terms of
these agreements. 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 obtaining
additional sources  of  funds,  postponing  or  restructuring  of  debt  service
payments or refinancing of the indebtedness. In the event that such measures are
required  and are  not successful, and  such indebtedness is  accelerated by the
respective lenders  to Stone  Savannah or  Seminole Kraft,  the lenders  to  the
Company under various of its debt instruments will be entitled to accelerate the
indebtedness  owed  by the  Company.  The cross-acceleration  provisions  in the
Credit Agreements are effective upon the  completion of the Offerings. Prior  to
the  completion of the Offerings,  the Credit Agreements contained cross-default
provisions  similar  to  the   cross-default  provisions  mentioned  above   for
Stone-Consolidated Corporation.                                                 

    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 Agreements. Failure to achieve or maintain compliance
with  such  financial  ratio  tests  or  other  requirements  under  the  Credit
Agreements, 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
Agreements.  The  Company  has  successfully  sought  and  received  waivers and
amendments to its Credit Agreements on various occasions since entering into the
Credit Agreements. Most recently, the Credit Agreements were modified to  permit
the  earnings from the sale of the Company's interest in Titan to be included in
EBITDA (as defined in the Credit Agreements), solely for purposes of  satisfying
the  minimum  EBITDA requirement  for the  quarter ended  December 31,  1993. On
December 17, 1993,  the Company obtained  approval of amendments  to the  Credit
Agreements   in  connection   with  the   Stone-Consolidated  Transaction  which
permitted, among other things, Stone-Consolidated to grant liens on its property
to the holders of its 10.25% Senior Secured Notes due 2000 and the lenders under
its revolving credit facilities, and restricted Stone-Consolidated's ability  to
pay dividends on its capital stock.                                             

    In  connection with the Offerings, the Company is seeking further amendments
to the Credit Agreements which will,  upon the effective date of the  Offerings,
amend  the Credit Agreements including to  change certain financial covenants to
allow the  Company to  remain  in compliance  with  the Credit  Agreements.  See
"Recent  Developments -- Amendments to Credit Agreements." 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. See "Credit Agreements -- Covenants" in the accompanying Prospectus.   

FUTURE ACCESS TO THE CAPITAL MARKETS                                            

    Giving  effect to the Offerings, the Company  will have sold securities on a
number of occasions in the last two  years for total proceeds in excess of  $2.0
billion.  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.                                                               

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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.  Such regulation
requires  significant   capital  expenditures.   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 when implemented would
affect  directly many  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. See
"Management's Discussion  and Analysis  of Financial  Condition and  Results  of
Operations  -- Financial Condition and Liquidity -- Environmental Issues" in the
accompanying Prospectus. 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 ("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. The Company currently believes that
adequate provisions have been  established for these sites  and that such  costs
will  not, individually or in  the aggregate, have a  material adverse effect on
its financial position or future operating results.                             

DIVIDEND SUSPENSION; LIMITATIONS ON PAYMENT OF DIVIDENDS                        

    Due to limitations and restrictions imposed on the Company under the  Credit
Agreements,  certain indentures and the Company's recent net losses, the Company
was unable to  declare a  cash dividend  on its Common  Stock in  the third  and
fourth  quarters of  1992 and all  four quarters  of 1993. Whether  the Board of
Directors declares any  future cash dividends  on the Common  Stock will  depend
upon  the Company's future  earnings, financial condition  and capital needs and
other factors  deemed pertinent  by the  Board of  Directors. In  addition,  the
payment  of dividends on  the Common Stock  will be subject  to restrictions and
limitations contained  in the  Credit Agreements,  other credit  facilities  and
indentures and the Certificate of Incorporation.                                

    The  Company is  also currently prohibited  from paying  dividends under the
indenture dated as of  March 15, 1992  between the Company and  The Bank of  New
York, as trustee, relating to senior subordinated indebtedness. At September 30,
1993,  the dividend pool under the Company's Senior Subordinated Indenture dated
March 15, 1992  had a  deficit of  $136.1 million.  Such dividend  pool will  be
reduced  by  100% of  the net  losses for  the  fourth quarter  of 1993  and any
subsequent periods and increased by the  aggregate net proceeds received by  the
Company  from the issuance of Common Stock, including the Common Stock Offering.
At September  30, 1993,  the dividend  pool under  the Credit  Agreements had  a
deficit  of approximately  $334.1 million.  The dividend  pool under  the Credit
Agreements will be reset to zero as of January 1, 1994 pursuant to the amendment
to the  Credit Agreements  which will  be  effected at  the completion  of  this
offering  of  Common Stock.  See "Recent  Developments  -- Amendments  to Credit
Agreements."                                                                    

    The Company  is  also prohibited  from  paying  dividends on  its  Series  E
Preferred Stock and has not paid dividends on its Series E Preferred Stock since
May  15, 1993.  As of  December 31,  1993, accrued  and unpaid  dividends on the
Series E  Preferred  Stock  aggregated  $4.0  million.  Unless  full  cumulative
dividends  on the Series  E Preferred Stock  have been paid  or provided for, no
dividends may be paid on the Common Stock.  If the Company fails to pay any  six
quarterly  dividends on the  Series E Preferred  Stock, then the  holders of the
Series E Preferred Stock, voting  together as a class,  shall have the right  to
elect  two  directors to  be  added to  the  Company's board  of  directors. The
limitations contained  in the  Credit Agreements  pertaining to  the payment  of
future  Series E Preferred Dividends will be based upon the limitation contained
in the Company's Senior Subordinated Indenture dated March 15, 1992. See "Credit
Agreements," "Price Range of Common Stock and Dividend Policy" and  "Description
of Capital Stock -- Series E Preferred Stock."                                  

    The  Company does not intend to pay  any dividends on its Common Stock until
such dividends are permitted by the Credit Agreements, the applicable indentures
and the terms of the Series E Preferred  Stock and at such time as the Board  of
Directors  believes that  any such  payment will  not impair  the Company's cash
availability for operations and debt service.                                   

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DILUTION; CONVERSION OF CONVERTIBLE SECURITIES                                  

    The 8  7/8% Convertible  Senior Subordinated  Notes due  2000 (the  "8  7/8%
Notes")  are convertible into Common  Stock at a conversion  price of $11.55 per
shares, subject to adjustment in certain events. If all of the 8 7/8% Notes were
converted into Common  Stock, an  additional 21,645,022 shares  of Common  Stock
would  be issued. No prediction can  be made as to the  effect, if any, that the
conversion of the 8  7/8% Notes into Common  Stock or the fact  that the 8  7/8%
Notes  are outstanding  and unconverted  will have  on the  market price  of the
Common Stock prevailing from time to time.  The conversion of 8 7/8% Notes  into
Common  Stock  could adversely  affect prevailing  market  prices of  the Common
Stock. Certain other securities  of the Company are  convertible at much  higher
conversion  prices.  The  4,600,000  shares  of  Series  E  Preferred  Stock are
convertible at the option of  the holder into up  to 3,388,332 shares of  Common
Stock  at  a conversion  price of  $33.94, subject  to adjustment  under certain
conditions. The  Company's $115,000,000  aggregate principal  amount of  6  3/4%
Convertible  Subordinated Debentures due  2007 are convertible  at the option of
the holder into up to 3,388,332 shares of Common Stock at a conversion price  of
$33.94   per  share,  subject  to   adjustment  under  certain  conditions.  See
"Description of Capital Stock."                                                 

    Assuming no  conversion of  convertible securities,  the net  tangible  book
value  per share at  September 30, 1993  after giving effect  to the 1993 Fourth
Quarter Transactions and prior to giving effect to the Common Stock Offering was
approximately $(9.00) and the net tangible book value per share at September 30,
1993 after  giving effect  to the  estimated net  proceeds of  the Common  Stock
Offering at an assumed offering price of $11.25 per share and the receipt by the
Company  of  the estimated  proceeds  therefrom, is  approximately  $(4.54). The
amount of the increase in net tangible book value per share attributable to  the
estimated  cash  payments  to be  made  by  purchasers of  the  Common  Stock is
approximately $4.46 and  the amount of  the immediate dilution  from the  public
offering  price which will be  absorbed by such purchasers  is equivalent to the
public offering price since the net  tangible book value after giving effect  to
the Common Stock Offering is negative.                                          

    In  December  1993,  Stone-Consolidated  issued  Cdn.  $231  million  of  8%
Convertible Unsecured  Subordinated  Debentures  due  2003. If  all  of  the  8%
Convertible  Unsecured Subordinated Debentures due  2003 are converted to common
shares of Stone-Consolidated, the  Company's ownership of  the common shares  of
Stone-Consolidated  would  be reduced  from 74.6%  to  61.1% of  the outstanding
shares.                                                                         

ANTI-TAKEOVER PROVISIONS                                                        

    The Company's  Certificate of  Incorporation  and the  Series D  Rights  (as
defined)  issued pursuant to  the Rights Agreement  (as defined) contain certain
provisions that could make more difficult  or discourage a change in control  of
the Company. These provisions are designed to discourage situations in which the
Company  is forced to accept a proposal  for the takeover of the Company without
ample time  to  evaluate  the  proposal  and  appropriate  alternatives  and  to
encourage  anyone  contemplating  a  business combination  with  the  Company to
negotiate directly  with  the  Company  on  a  fair  and  equitable  basis.  See
"Description of Capital Stock." However, these provisions may discourage certain
takeover  proposals that  would permit  stockholders to  sell or  exchange their
equity securities of the Company for an amount that includes a premium over  the
then market price for such securities.                                          

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COMPANY PROFILE 

    The  following is  a profile  of the  Company's products,  markets, industry
position, manufacturing facilities and 1992 production and shipment figures:    

                                                        [Enlarge/Download Table]

                                                          INDUSTRY       MANUFACTURING    1992 PRODUCTION 
                                        MARKETS           POSITION         FACILITIES       & SHIPMENTS   
                                    ----------------  ----------------  ----------------  ----------------
                                                                                                          
PAPERBOARD AND    CONTAINERBOARD    A broad range of  Industry leader   Production at 16  4.425 million   
 PAPER PACKAGING  AND CORRUGATED    manufacturers of                    mills             short tons of   
                  CONTAINERS        consumable and                                        container-board 
                                    durable goods                       Converting at     produced        
                                    and other                           106 plants                        
                                    manufacturers of                                      51.7 billion    
                                    corrugated                                            square feet of  
                                    containers.                                           corrugated      
                                                                                          containers      
                                                                                          shipped         
                  KRAFT PAPER AND   Supermarket       Industry leader   Production at 6   563 thousand    
                  BAGS AND SACKS    chains and other                    mills             short tons of   
                                    retailers of                                          kraft paper     
                                    consumable                          Converting at 19  produced        
                                    products.                           plants                            
                                    Industrial and                                        689 thousand    
                                    consumer bags                                         short tons of   
                                    sold to the                                           paper bags and  
                                    food,                                                 sacks shipped   
                                    agricultural,                                                         
                                    chemical and                                                          
                                    cement                                                                
                                    industries,                                                           
                                    among others.                                                         
                  BOXBOARD,         Manufacturers of  A major position  Production at 2   81 thousand     
                  FOLDING CARTONS   consumable        in Europe; a      mills             short tons of   
                  AND OTHER         goods,            nominal position                    boxboard and    
                                    especially food,  in North America  Converting at 11  other paperboard
                                    beverage and                        plants            produced        
                                    tobacco                                                               
                                    products, and                                         80 thousand     
                                    other box                                             short tons of   
                                    manufacturers.                                        folding cartons 
                                                                                          and partitions  
                                                                                          shipped         
WHITE PAPER       NEWSPRINT         Newspaper         A major position  Production at 6   1.243 million   
 AND PULP                           publishers and                      mills             short tons      
                                    commercial                                            produced        
                                    printers.                                                             
                  UNCOATED          Producers of      A major position  Production at 2   381 thousand    
                  GROUNDWOOD PAPER  advertising                         mills             short tons      
                                    materials,                                            produced        
                                    magazines,                                                            
                                    directories and                                                       
                                    computer papers.                                                      
                  MARKET PULP       Manufacturers of  A major position  Production at 5   824 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 18  541 million     
                  AND VENEER        furniture         position in       mills             board feet of   
                                    industries.       North America                       lumber produced 
                                                                                          551 million     
                                                                                          square feet of  
                                                                                          plywood and     
                                                                                          veneer produced 

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STONE CONTAINER CORPORATION 
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1993

    Set forth below are the unaudited pro forma condensed consolidated statement
of operations of the Company for the  nine months ended September 30, 1993.  The
unaudited pro forma condensed consolidated statements of operations includes the
historical  results of  the Company and  gives effect  to the Stone-Consolidated
Transaction as if it had occurred as of January 1, 1993. THE PRO FORMA FINANCIAL
DATA DOES NOT PURPORT  TO BE INDICATIVE OF  THE COMPANY'S RESULTS OF  OPERATIONS
THAT  WOULD ACTUALLY HAVE  BEEN OBTAINED HAD  THE STONE-CONSOLIDATED TRANSACTION
BEEN COMPLETED AS OF  THE DATE OR  FOR 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 and the Company's Current Report
on Form 8-K dated January 3, 1994, which is incorporated by reference herein.   

                                                        [Enlarge/Download Table]

                                                              HISTORICAL                                             
                                                               (NOTE 1)                                  PRO FORMA   
                                                             NINE MONTHS                                NINE MONTHS  
                                                                ENDED         PRO FORMA ADJUSTMENTS        ENDED     
                                                            SEPTEMBER 30,           (NOTE 2)           SEPTEMBER 30, 
                                                                 1993          STONE-CONSOLIDATED           1993     
                                                            --------------    ---------------------    --------------
                                                                      (in millions, except per share data)           
                                                                                                                     
Net sales................................................   $  3,816.5        $                        $  3,816.5    
Operating Costs and Expenses                                                                                         
Cost of products sold....................................      3,180.9                                    3,180.9    
Selling, general and administrative expenses.............        404.8                                      404.8    
Depreciation and amortization............................        262.1                                      262.1    
Equity (income) loss from affiliates.....................          5.6                                        5.6    
                                                            --------------        -----                --------------
                                                               3,853.4                                    3,853.4    
                                                            --------------        -----                --------------
Loss from operations.....................................        (36.9)                                     (36.9)   
Interest expense.........................................       (311.3)            15.4(a)                 (330.1)   
                                                                                  (34.2)(b)                          
Other net................................................          1.3             (4.2)(c)                   3.9    
                                                                                    6.8(d)                           
                                                            --------------        -----                --------------
Loss before income taxes and cumulative effect of all                                                                
 accounting change.......................................       (346.9)           (16.2)                   (363.1)   
Credit for income taxes..................................       (113.4)            (7.8)(e)                (121.2)   
                                                            --------------        -----                --------------
Net loss before cumulative effect of an accounting                                                                   
 change..................................................   $   (233.5)       $    (8.4)               $   (241.9)   
                                                            --------------        -----                --------------
                                                            --------------        -----                --------------
Loss per share of common stock before cumulative effect                                                              
 of an accounting change.................................   $    (3.36)                                $    (3.48)   
                                                            --------------                             --------------
                                                            --------------                             --------------
Weighted average common shares outstanding...............         71.2                                       71.2    
                                                            --------------                             --------------
                                                            --------------                             --------------
<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.                                                                
    The pro forma condensed consolidated Statement of Operations gives effect to                                     
    the following pro forma adjustments as of January 1, 1993.                                                       

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                                                                [Download Table]
                                                                                
(2) Pro forma adjustments:                                                      
     (a) To record a reduction to  historical interest expense of $15.4  million
         as  a  result of  the assumed  repayment  of certain  Credit Agreements
         indebtedness.                                                          
     (b) To record pro forma interest expense  and amortization of debt fees  of
         $30.2  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 $4.0  million
         related to the Company's restated Credit Agreements.                   
     (c) To  increase the foreign exchange transaction losses by $4.2 million to
         reflect the  effects  of  foreign currency  revaluation  pertaining  to
         Stone-Consolidated's  U.S. 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. denominated debt
         that was repaid.                                                       
     (d) To  record  the  minority   interest  share  of   the  net  losses   of
         Stone-Consolidated  of $6.8 million for the nine months ended September
         30,  1993  based  on   the  pro  forma   statement  of  operations   of
         Stone-Consolidated.                                                    
     (e) To  record the adjustment to income taxes of $7.8 million pertaining to
         the interest expense adjustments recorded in note 2(a) and 2(b) and for
         the foreign exchange transaction loss adjustment recorded in note  2(c)
         using  the applicable U.S.  and Canadian statutory  income tax rates of
         39.6 percent and 35.0 percent. The  U.S. tax rates include the  effects
         of state income tax rates.                                             

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USE OF PROCEEDS 

    The  net  proceeds  to  the  Company from  the  Offerings  are  estimated to
aggregate $    million ($   million if  the Underwriters' over-allotment  option
with  respect to the Common Stock Offering  is exercised in full). Such proceeds
will be used  to repay  indebtedness of the  Company and  for general  corporate
purposes,  as set  forth below.  For further  information on  the interest rate,
maturity and  other  terms  with  respect to  the  Company's  indebtedness,  see
"Management's  Discussion  and Analysis  of Financial  Condition and  Results of
Operations -- Financial Condition and Liquidity" and "Credit Agreements" in  the
accompanying Prospectus.                                                        

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

                                                        [Enlarge/Download Table]

                                                                                                 (IN     
                                                                                              MILLIONS)  
                                                                                                         
SOURCES:                                                                                                 
  Notes.....................................................................................  $    500.0 
                                                                                             ------------
  Common Stock Offering.....................................................................       236.3 
                                                                                             ------------
TOTAL:......................................................................................  $    736.3 
                                                                                             ------------
                                                                                             ------------
USES:                                                                                                    
  Prepayment of Credit Agreements amortization..............................................  $    403.1 
  Redemption of 13 5/8% Subordinated Notes due 1995 (plus accrued interest).................       100.0 
  General Corporate Purposes (1)............................................................       233.2 
                                                                                             ------------
TOTAL:......................................................................................  $    736.3 
                                                                                             ------------
                                                                                             ------------
<FN>                                                                                                     
------------------------------                                                                           
(1) Includes  repayments  of borrowings  under  the revolving  credit facilities                         
    which can be reborrowed and fees and expenses of the Offerings.                                      

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PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY 

    The Company's Common Stock  is traded on the  New York Stock Exchange  under
the  symbol "STO." The quarterly per share  price ranges for the Common Stock on
the New York Stock Exchange and cash  dividends paid since January 1, 1990  were
as follows:                                                                     

                                                                [Download Table]

                                                                        CASH    
                                                HIGH          LOW     DIVIDEND  
                                              --------      --------  --------  
                                                                                
CALENDAR 1990                                                                   
First Quarter...............................  $25- 1/4      $20- 1/4    $.18    
Second Quarter..............................   22            16          .18    
Third Quarter...............................   17- 5/8       10          .18    
Fourth Quarter..............................   12- 7/8        8- 1/2     .18    
CALENDAR 1991                                                                   
First Quarter...............................  $19           $ 9         $.18    
Second Quarter..............................   24- 5/8       14- 1/4     .18    
Third Quarter...............................   22- 5/8       16- 7/8     .18    
Fourth Quarter..............................   26            17- 5/8     .18    
CALENDAR 1992                                                                   
First Quarter...............................  $32- 5/8      $24- 1/2    $.18    
Second Quarter..............................   29- 3/8       22- 1/2     .18    
Third Quarter (1)...........................   25- 3/8       14- 3/8       0    
Fourth Quarter..............................   19- 1/2       12- 1/2       0    
CALENDAR 1993                                                                   
First Quarter...............................  $19- 1/2      $13- 1/8    $  0    
Second Quarter..............................   14             6- 3/8       0    
Third Quarter...............................    9- 1/4        6- 1/2       0    
Fourth Quarter..............................   12- 3/8        6- 7/8       0    
CALENDAR 1994                                                                   
First Quarter through January 5, 1994.......   11- 1/4       10- 1/8            
<FN>                                                                            
------------------------                                                        
(1) On  September 15, 1992, the Company  paid a 2% stock dividend (approximately
    1.4 million shares) to record holders of  its Common Stock as of August  25,
    1992. The amounts set forth in the table for the periods prior to August 15,
    1992 have not been restated to reflect such stock dividend.                 

    On  January 5, 1994, the reported closing  price for the Common Stock on the
NYSE Composite Tape was $11.25 per share.                                       

    Due to limitations and restrictions imposed on the Company under the  Credit
Agreements  (including  those  described  below) and  the  Company's  recent net
losses, the Company was unable to declare a cash dividend on its Common Stock in
the third and fourth quarters of 1992 and all four quarters of 1993. Whether the
Board of  Directors declares  any future  cash dividends  will depend  upon  the
Company's  future  earnings, financial  condition  and capital  needs  and other
factors deemed  pertinent by  the Board  of Directors,  and will  be subject  to
restrictions  and limitations contained  in the Company's  Credit Agreements and
other credit facilities  and indentures.  See "Credit  Agreements." The  Company
does  not intend to pay  any dividends on its  Common Stock until such dividends
are permitted by the Credit Agreements and at such time as it believes that  any
such  payment will not impair the Company's cash availability for operations and
debt service.                                                                   

    The most  restrictive  limitation  on  the  payment  of  cash  dividends  is
currently contained in the Credit Agreements. The Credit Agreements provide that
the  Company's dividend  payments, distributions  or purchases  of any  class of
capital stock of the Company  or its subsidiaries cannot  exceed the sum of  $50
million,  plus (i) 50% of the consolidated  net income (as defined in the Credit
Agreements) of the Company  from April 1,  1991 to the date  of payment of  such
dividends,  minus (ii)  100% of  the consolidated  net loss  (as defined  in the
Credit Agreements) of the Company from April  1, 1991 to the date of payment  of
such   dividends,   plus   (iii)   50%   of   the   net   cash   proceeds   from

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sales of Common Stock or  certain preferred stock of  the Company from April  1,
1991  to  any date  of payment  of  such dividends.  The Credit  Agreements also
provide that,  with respect  to the  first cash  dividend to  be declared  after
September  1, 1992, such declaration cannot be made unless the unused portion of
the revolving  credit facilities  (net  of any  unused  portion required  to  be
reserved  for capital expenditures)  is at least  equal to $96  million plus the
amount of such cash dividend. At September 30, 1993, the dividend pool under the
Credit Agreements had  a deficit  of approximately $334.1  million. See  "Credit
Agreements."                                                                    

    Following  consummation of the Offerings, the dividend pool will be reset to
zero as  of January  1, 1994  and other  restrictions will  be liberalized.  See
"Recent Developments -- Amendments to Credit Agreements."                       

    The  Company is  also currently prohibited  from paying  dividends under the
Indenture dated as of  March 15, 1992  between the Company and  The Bank of  New
York,  as trustee relating to senior subordinated indebtedness. At September 30,
1993, the dividend pool under such  indenture was negative $136.1 million.  Such
dividend  pool will be reduced by 100% of  the net losses for the fourth quarter
of 1993 and any subsequent periods  and increased by the aggregate net  proceeds
received  by the Company from the issuance of Common Stock, including the Common
Stock  offering.  In  addition,  the   indentures  relating  to  the   Company's
outstanding  senior indebtedness, other senior subordinated indebtedness and the
13 5/8% Notes contain  restrictions on the Company's  ability to pay  dividends.
The  13 5/8% Subordinated Notes  due 1995 will be  redeemed from the proceeds of
the Common Stock  Offering. See  "Description of Debt  Securities --  Particular
Terms   of  the  Senior  Debt  Securities   --  Certain  Covenants  --  Dividend
Restrictions"  and  "--  Additional  Terms  of  the  Senior  Subordinated   Debt
Securities -- Dividend Restrictions" in the accompanying Prospectus.            

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CAPITALIZATION

    The  following  table  sets  forth  a summary  of  the  short-term  debt and
capitalization of the Company, on a consolidated basis at September 30, 1993, as
adjusted to  give  effect  to  the 1993  Fourth  Quarter  Transactions  and  the
application of the estimated net proceeds therefrom to reduce indebtedness under
the  Credit Agreements and as  further adjusted to give  effect to the Offerings
and  the  application  of  the  estimated  net  proceeds  therefrom  to   reduce
indebtedness.                                                                   

                                                        [Enlarge/Download Table]

                                                                                                SEPTEMBER 30, 1993                
                                                                                   ---------------------------------------------  
                                                                                                   AS ADJUSTED                    
                                                                                                       FOR           AS FURTHER   
                                                                                                     THE 1993       ADJUSTED FOR  
                                                                                                  FOURTH QUARTER        THE       
                                                                                     ACTUAL        TRANSACTIONS      OFFERINGS    
                                                                                   -----------    --------------    ------------  
                                                                                              (DOLLARS IN THOUSANDS)              
                                                                                                                                  
Short-term debt:                                                                                                                  
  Notes payable................................................................... $    12,116    $     12,116      $    12,116   
  Current maturities of long-term debt............................................     757,731          77,921           77,921   
                                                                                   -----------    --------------    ------------  
    Total short-term debt......................................................... $   769,847    $     90,037      $    90,037   
                                                                                   -----------    --------------    ------------  
                                                                                   -----------    --------------    ------------  
Long-term debt:                                                                                                                   
  Senior debt:                                                                                                                    
    Credit Agreements other than revolving credit facilities...................... $ 1,482,800    $  1,156,067(a)   $   854,931(b)
    Less: Current maturities......................................................    (408,810)        --               --        
    Revolving credit facilities...................................................     271,000         121,761(c)            --(d)
    Less: Current maturities......................................................    (271,000)             --(e)       --        
    12 5/8% Senior Notes due July 15, 1998........................................     150,000         150,000          150,000   
    11 7/8% Senior Notes due December 1, 1998.....................................     238,859         238,859          238,859   
        % Senior Notes due 2001...................................................          --              --          500,000   
    4% -- 11 5/8% fixed rate debt and other variable rate debt (including                                                         
     capitalized lease obligations)...............................................     279,948         307,355          307,355   
    Obligations under accounts receivable securitization programs.................     261,300         261,300          261,300   
  Less: Current maturities........................................................     (18,483)        (18,483)         (18,483)  
                                                                                   -----------    --------------    ------------  
    Total senior long-term debt...................................................   1,985,614       2,216,859        2,293,962   
                                                                                   -----------    --------------    ------------  
  Subordinated debt:                                                                                                              
    10 3/4% Senior Subordinated Notes due June 15, 1997...........................     150,000         150,000          150,000   
    11% Senior Subordinated Notes due August 15, 1999.............................     125,000         125,000          125,000   
    11 1/2% Senior Subordinated Notes due September 1, 1999.......................     230,000         230,000          230,000   
    10 3/4% Senior Subordinated Debentures due April 1, 2002......................     199,095         199,095          199,095   
    8 7/8% Convertible Senior Subordinated Notes due July 15, 2000................     248,429         248,429          248,429   
    13 5/8% Subordinated Notes due June 1, 1995...................................      98,114          98,114               --   
    12 1/8% Subordinated Debentures due September 15, 2001 (f)....................      92,110          92,110           92,110   
    6 3/4% Convertible Subordinated Debentures due February 15, 2007..............     115,000         115,000          115,000   
    Variable Rate Subordinated Note due January 16, 1994..........................       4,875           4,875            4,875   
  Less: Current maturities........................................................      (4,875)         (4,875)          (4,875)  
                                                                                   -----------    --------------    ------------  
    Total subordinated long-term debt.............................................   1,257,748       1,257,748        1,159,634   
                                                                                   -----------    --------------    ------------  
  Debt of consolidated subsidiaries (non-recourse to parent)......................     593,615         991,865          991,865   
  Less: Current maturities........................................................     (54,563)        (54,563)         (54,563)  
                                                                                   -----------    --------------    ------------  
    Total long-term debt of consolidated subsidiaries (non-recourse to parent)....     539,052         937,302          937,302   
                                                                                   -----------    --------------    ------------  
    Total long-term debt..........................................................   3,782,414       4,411,909        4,390,898   
                                                                                   -----------    --------------    ------------  
Stockholders' equity:                                                                                                             
  $1.75 Series E Cumulative Convertible Exchangeable Preferred Stock (4,600,000                                                   
   shares, $25 per share liquidation preference)..................................     114,983         114,983          114,983   
  Common Stock....................................................................     648,650         571,376(g)       793,185(h)
  Retained earnings...............................................................     219,020         238,020(i)       238,020   
  Foreign currency translation adjustment.........................................    (238,068)       (238,068)        (238,068)  
  Unamortized expense of restricted stock plan....................................      (5,723)         (5,723)          (5,723)  
                                                                                   -----------    --------------    ------------  
    Total stockholders' equity....................................................     738,862         680,588          902,397   
                                                                                   -----------    --------------    ------------  
    Total capitalization..........................................................   4,521,276       5,092,497        5,293,295   
                                                                                   -----------    --------------    ------------  
    Total short-term debt and capitalization...................................... $ 5,291,123    $  5,182,534      $ 5,383,332   
                                                                                   -----------    --------------    ------------  
                                                                                   -----------    --------------    ------------  

SEE FOOTNOTES ON THE FOLLOWING PAGE 

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------------------------------                                                  
(a)  Reflects the prepayment  of $326.7 million  as a result  of the 1993 Fourth
Quarter Transactions.                                                   

(b) Reflects the prepayment of approximately  $301.1 million as a result of  the
Offerings.                                                              

(c)  Reflects the  repayment of $149.2  million as  a result of  the 1993 Fourth
Quarter Transactions.                                                   

(d) Reflects the repayment of $121.8 million as a result of the Offerings.  Upon
    consummation of the Offerings, the Company will have no borrowings under its
total revolving credit facilities commitments of $224.0 million.        

(e) As a result of the December 17, 1993 amendment to the Credit Agreements, the
    maturity  of the Company's revolving credit facility was extended from March
1, 1994 to March 1, 1997.                                               

(f)   Obligations of  Stone-Southwest, Inc.,  a wholly-owned  subsidiary of  the
Company.                                                                

(g)  The Stone-Consolidated Transaction resulted in  a charge to Common Stock of
approximately $77.3 million.                                            

(h) The Common  Stock Offering assumes  the issuance of  21,000,000 shares at  a
    price  of  $11.25  per  share with  issuance  costs  of  approximately $14.4
million.                                                                

(i)   The 1993  Fourth Quarter  Transactions resulted  in an  after-tax gain  of
approximately $19.0 million.                                            

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UNDERWRITING

    Subject  to  the  terms  and  conditions  set  forth  in  the  International
Underwriting Agreement  among the  Company  and Salomon  Brothers  International
Limited,  Bear, Stearns  International Limited  and Bankers  Trust International
PLC, as  representatives (the  "International Representatives")  of the  several
International  Managers, the  Company has  agreed to  sell to  the International
Managers, and the International Managers have severally agreed to purchase,  the
respective amounts of the Common Stock set forth opposite their names below.    

                                                                [Download Table]

                                                                         Shares of  
International Manager                                                  Common Stock 
---------------------------------------------------------------------  -------------
                                                                                    
Salomon Brothers International Limited...............................               
Bear, Stearns International Limited..................................               
Bankers Trust International PLC......................................               
                                                                       -------------
      Total..........................................................      3,500,000
                                                                       -------------
                                                                       -------------

    The  International Underwriting  Agreement provides that  the obligations of
the International Managers are subject to certain conditions precedent and  that
the International Managers will be obligated to purchase all of the Common Stock
offered  in the International  Offering if any  is purchased. It  is a condition
precedent to  the International  Managers' obligations  to purchase  the  Common
Stock  offered  in  the  International Offering  pursuant  to  the International
Underwriting Agreement  that  the  sale  of  the  Notes  by  the  Company  occur
simultaneously.                                                                 

    The   International  Representatives  have  advised  the  Company  that  the
International Managers propose initially to  offer the Common Stock directly  to
the  public at  the public offering  price set forth  on the cover  page of this
Prospectus Supplement and to certain dealers at such price less a concession not
in excess of  $.   per share.  The International  Managers may  allow, and  such
dealers  may reallow, a  concession not in excess  of $.  per  share on sales to
certain other dealers. After the initial offering, the public offering price and
concessions to dealers may be changed.                                          

    The Company has granted to the International Managers and U.S.  Underwriters
options  to purchase up to an additional  525,000 shares and 2,625,000 shares of
Common Stock, respectively, solely to  cover over-allotments, if any. Either  or
both  options may be exercised at any time up  to 30 days after the date of this
Prospectus Supplement.                                                          

    The Company  has  entered  into  a  U.S.  Underwriting  Agreement  with  the
underwriters  of  the  U.S.  Offering ("U.S.  Underwriters")  providing  for the
concurrent offer  and sale  of 17,500,000  shares of  Common Stock  in the  U.S.
Offering.   The  offering   price  and  aggregate   underwriting  discounts  and
commissions per share for  the two Offerings are  identical. The closing of  the
International  Offering is a condition to the  closing of the U.S. Offering, and
vice versa. The representatives  of the U.S.  Underwriters are Salomon  Brothers
Inc, Bear, Stearns & Co. Inc., and BT Securities Corporation.                   

    The  International Managers and  the U.S. Underwriters  have entered into an
Agreement Between Underwriters and Managers pursuant to which each International
Manager has agreed that,  as part of  the distribution of  the shares of  Common
Stock  offered in the International Offering  and subject to certain exceptions,
(a) it is not purchasing any such shares  for the account of a U.S. or  Canadian
Person  (as defined below), (b) it has not  offered or sold, and will not offer,
sell, resell or deliver, directly or  indirectly, any shares of Common Stock  or
distribute  any prospectus relating to the Common  Stock to anyone other than an
International Person (as defined below) and (c)  any dealer to whom it may  sell
any  of the shares of Common Stock will  represent and agree that it will comply
with the restrictions set forth in (a) and (b) and will not offer, sell,  resell
or  deliver,  directly  or  indirectly,  any of  the  shares  or  distribute any
prospectus relating to  the Common Stock  to any  other dealer who  does not  so
represent and agree. In addition, pursuant to the Agreement Between Underwriters
and Managers, each U.S. Underwriter has                                         

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agreed  that, as part of the distribution  of the shares of Common Stock offered
in the U.S. Offering and subject to certain exceptions, (a) it is not purchasing
any such shares for the account of anyone other than a U.S. or Canadian  Person,
(b)  it has not  offered or sold, and  will not offer,  sell, resell or deliver,
directly or indirectly, any shares of Common Stock or distribute any  prospectus
relating  to the Common Stock to anyone other than a U.S. or Canadian Person and
(c) any dealer  to whom  it may  sell any  of the  shares of  Common Stock  will
represent  and agree that it will comply  with the restrictions set forth in (a)
and (b) and will not offer, sell, resell or deliver, directly or indirectly, any
of the shares or distribute any prospectus  relating to the Common Stock to  any
other  dealer who does not so represent  and agree. The foregoing limitations do
not apply  to  stabilization transactions  or  to transactions  among  the  U.S.
Underwriters  and the International  Managers pursuant to  the Agreement Between
Underwriters and  Managers. As  used herein,  "United States"  means the  United
States  of America (including the District of Columbia) and its territories, its
possessions and other areas subject to its jurisdiction, "Canada" means  Canada,
its   provinces,  territories,  possessions  and  other  areas  subject  to  its
jurisdiction, and "U.S. or Canadian Person"  means a citizen or resident of  the
United  States or Canada, a corporation,  partnership or other entity created or
organized in or under the laws of  the United States or Canada or any  political
subdivision  thereof, or any estate  or trust the income  of which is subject to
United States or Canadian income taxation, regardless of its source (other  than
a  foreign branch  of such  entity) and includes  any United  States or Canadian
branch of a person  other than a  U.S. or Canadian Person.  As used herein,  the
term  "International Person" means any person, corporation, partnership or other
entity which is not a U.S. or Canadian Person.                                  

    Pursuant to the Agreement  Between Underwriters and  Managers, sales may  be
made between the U.S. Underwriters and the International Managers of such number
of  shares of Common Stock as may be mutually agreed. The price of any shares so
sold shall be the  public offering price,  less an amount  not greater than  the
selling  concession.  To  the  extent  that there  are  sales  between  the U.S.
Underwriters and the International Managers,  pursuant to the Agreement  Between
Underwriters  and Managers, the number of shares initially available for sale by
the U.S. Underwriters or the International Managers may be more or less than the
amount specified on the cover page of the Prospectus Supplement.                

    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 Company has agreed that, for a period  of 180 days from the date of  the
issuance  of  the Common  Stock, 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 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 Common Stock (other  than the Common Stock
offered hereby) or (ii) enter into any agreement for or consummate the sale  of,
or publicly announce its intent to sell, any Common Stock (other than the Common
Stock offered hereby).                                                          

    Each  of the International Representatives and their affiliates 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  Bankers Trust
International PLC, is the agent and a  lender under the Credit Agreements. As  a
lender under the Company's credit facilities, Bankers Trust will receive its pro
rata  share  of  the  net proceeds  of  the  sale  of the  Notes  used  to repay
indebtedness under the Credit Agreements.  See "Use of Proceeds." Bankers  Trust
is  also the  indenture trustee  for the  Company's 11  1/2% Senior Subordinated
Notes due 1999.                                                                 

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CERTAIN UNITED STATES TAX CONSEQUENCES
TO NON-UNITED STATES HOLDERS

    The following is a discussion of  the material United States federal  income
and  estate tax  consequences of the  ownership and disposition  of Common Stock
applicable to Non-U.S.  Holders of such  Common Stock. In  general, a  "Non-U.S.
Holder"  is  a person  other than  (i)  a citizen  or resident  (as specifically
defined for United States federal income and estate tax purposes) of the  United
States;  (ii) a  corporation or partnership  created or organized  in the United
States or under  the laws  of the United  States or  of any State;  or (iii)  an
estate  or trust whose  income is includable  in gross income  for United States
federal income tax purposes regardless of its source. The discussion is based on
current law and is for general information only. The discussion does not address
aspects of federal taxation other than  income and estate taxation and does  not
address  all aspects of federal income  and estate taxation. The discussion does
not consider any specific facts or circumstances that may apply to a  particular
Non-U.S. Holder and does not address all aspects of United States federal income
tax  law that may be relevant to Non-U.S. Holders that may be subject to special
treatment  under  such  law   (for  example,  insurance  companies,   tax-exempt
organizations,   financial   institutions   or   broker-dealers).   Accordingly,
prospective investors  are urged  to consult  their tax  advisors regarding  the
United  States federal,  state, local and  non-U.S. current  and possible future
income and other tax consequences of  holding and disposing of shares of  Common
Stock.                                                                          

    DIVIDENDS.   In general, dividends paid to a Non-U.S. Holder will be subject
to United  States withholding  tax  at a  30 percent  rate  (or any  lower  rate
prescribed  by an  applicable tax treaty)  unless the  dividends are effectively
connected with a trade or business carried on by the Non-U.S. Holder within  the
United  States. Dividends effectively connected with such trade or business will
generally not be subject to withholding  (if the Non-U.S. Holder files  Internal
Revenue  Service ("IRS")  Form 4224  with the  payor of  the dividend)  and will
generally be subject  to United States  federal income tax  at ordinary  federal
income  tax rates. In the case of a Non-U.S. Holder which is a corporation, such
effectively connected income may be subject to the branch profits tax (which  is
generally  imposed on a foreign corporation  on the repatriation from the United
States of effectively connected earnings and  profits except to the extent  that
an  applicable tax  treaty provides otherwise).  Effectively connected dividends
may be subject to different treatment  under an applicable tax treaty  depending
on  whether such dividends are attributable  to a permanent establishment of the
Non-U.S. Holder in the  United States. To determine  the applicability of a  tax
treaty  providing for a lower rate of  withholding, dividends paid to an address
in a foreign country are generally presumed under current IRS regulations to  be
paid  to a resident of that country. Treasury regulations proposed in 1984 which
have not been finally adopted, however,  would require Non-U.S. Holders to  file
certain forms to obtain the benefit of any applicable tax treaty providing for a
lower  rate  of  withholding tax  on  dividends.  Such forms  would  contain the
holder's name and address and an  official statement by the competent  authority
in the foreign country (as designated in the applicable tax treaty) attesting to
the holder's status as a resident thereof.                                      

    SALE  OF COMMON STOCK.  Generally, a  Non-U.S. Holder will not be subject to
United States federal income  tax on any gain  realized upon the disposition  of
his  Common Stock unless (i) the Company is or has been during certain periods a
"U.S. real property holding corporation" for federal income tax purposes  (which
the Company does not believe that it is or is likely to become) and the Non-U.S.
Holder  held, directly  or indirectly  at any time  during the  five year period
ending on the date of disposition (or such shorter period that such shares  were
held),  more than 5  percent of the  Common Stock; (ii)  the gain is effectively
connected with a trade or business carried on by the Non-U.S. Holder within  the
United  States; (iii) the Common Stock is  disposed of by an individual Non-U.S.
Holder who holds  the Common  Stock as  a capital asset  and is  present in  the
United  States for 183 days  or more in the taxable  year of the disposition and
either the gain is attributable  to an office or  other fixed place of  business
maintained  by him in  the United States  or he has  a "tax home"  in the United
States; or (iv) the Non-U.S. Holder is subject to tax pursuant to the provisions
of United  States  tax law  applicable  to certain  United  States  expatriates.
Non-U.S.  Holders  should consult  applicable  treaties, which  may  exempt from
United States taxation gains realized upon the disposition of Common Stock.     

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    ESTATE TAX.  Common Stock owned or treated as owned by an individual at  the
time  of death will  be includable in  the individual's gross  estate for United
States federal  estate  tax  purposes,  unless  an  applicable  treaty  provides
otherwise, and may be subject to the United States federal estate tax.          

    BACK-UP  WITHHOLDING  AND INFORMATION  REPORTING.   The Company  must report
annually to the IRS and to each Non-U.S. Holder the amount of dividends paid to,
and the tax withheld  with respect to, each  Non-U.S. Holder. These  information
reporting requirements apply regardless of whether withholding was reduced by an
applicable  tax treaty.  Copies of  these information  returns may  also be made
available under the  provisions of  a specific treaty  or agreement  to the  tax
authorities  in  the  country  in  which  the  Non-U.S.  Holder  resides  or  is
established.  United  States  backup  withholding  tax  (which  generally  is  a
withholding tax imposed at the rate of 31 percent on certain payments to persons
that   fail  to  furnish  the  information  required  under  the  United  States
information reporting requirements) will generally  not apply to dividends  paid
on  Common Stock to  a Non-U.S. Holder  at an address  outside the United States
absent actual knowledge by the payor than the payee is not a Non-U.S. Holder.   

    The payment  of the  proceeds from  the disposition  of Common  Stock to  or
through  the United  States office  of a broker  will be  subject to information
reporting and backup withholding unless  the owner, under penalties of  perjury,
certifies,  among other  things, its status  as a Non-U.S.  Holder, or otherwise
establishes an exemption. The  payment of the proceeds  from the disposition  of
Common  Stock  to  or  through  a non-U.S.  office  of  a  non-U.S.  broker will
generally, except  as noted  below, not  be subject  to backup  withholding  and
information  reporting.  In  the  case  of  the  payment  of  proceeds  from the
disposition of Common  Stock through a  non-U.S. office  of a broker  that is  a
United  States person or  a "U.S. related  person," existing regulations require
information reporting on the payment unless the broker has documentary  evidence
in  its files that the owner  is a Non-U.S. Holder and  the broker has no actual
knowledge to the contrary. For  this purpose, a "U.S.  related person" is (i)  a
"controlled  foreign corporation" for United States federal income tax purposes,
or (ii) a foreign person 50% or more of whose gross income from all sources  for
the  three-year period ending with  the close of its  taxable year preceding the
payment (or for such part of the  period that the broker has been in  existence)
is  derived from activities that are effectively connected with the conduct of a
United States trade  or business.  Proposed regulations contain  a similar  rule
with respect to information reporting by a non-U.S. office of a broker that is a
United  States person or a U.S. related person. The existing regulations provide
that, although the issue is still under consideration, reportable payments  made
through  foreign offices of  a broker that is  a United States  person or a U.S.
related person  will  not  be  subject to  backup  withholding  until  otherwise
provided.  Proposed regulations state that backup  withholding will not apply to
such payments absent actual knowledge that the payee is a United States  person.
Any  amounts withheld  under the  backup withholding rules  from a  payment to a
Non-U.S. Holder will  be refunded  (or credited against  that Non-U.S.  Holder's
United  States federal income tax liability, if any), provided that the required
information is furnished to the IRS.                                            

    The backup withholding and information  reporting rules are currently  under
review  by the Treasury Department and their  application to the Common Stock is
subject to change.                                                              

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  approximately  15,900 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.         

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PROSPECTUS                                                                      

[LOGO] STONE CONTAINER CORPORATION

SENIOR DEBT SECURITIES

SENIOR SUBORDINATED DEBT SECURITIES 

SUBORDINATED DEBT SECURITIES

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

    Stone  Container Corporation (the "Company") may  offer from time to time in
one or more series up to $1 billion aggregate initial offering price of (i)  its
unsecured  debt securities (the  "Debt Securities"), which  may be either senior
(the "Senior Debt  Securities"), senior subordinated  (the "Senior  Subordinated
Debt  Securities") or  subordinated ("Subordinated  Debt Securities"),  and (ii)
shares of its  common stock (the  "Common Stock"). The  Debt Securities and  the
Common Stock (together, the "Securities") may be offered separately or together,
in  separate series, in amounts, at prices and  on terms to be determined at the
time of sale  and set forth  in one or  more supplements to  this Prospectus  (a
"Prospectus Supplement").                                                       

    The  Senior Debt Securities will  rank equally in right  of payment with all
other Senior Indebtedness (as defined)  of the Company. The Senior  Subordinated
Debt  Securities  will  be  subordinated  in  right  of  payment  to  all Senior
Indebtedness of  the  Company and  senior  in right  of  payment to  all  Junior
Subordinated Indebtedness (as defined). The Subordinated Debt Securities will be
subordinated  in right of payment to Senior Indebtedness and Senior Subordinated
Indebtedness (as  defined).  If  Debt Securities  are  offered,  the  Prospectus
Supplement  will  set forth  the terms  of such  Debt Securities,  including the
specific designation, aggregate principal amount, authorized denominations,  any
premium,  any  interest rate  (which may  be fixed  or variable),  maturity, any
interest payment dates, any optional or mandatory redemption terms, any  sinking
fund  provisions,  any subordination  or  conversion terms,  the  initial public
offering price and any other terms of the offering.                             

    If Common Stock  is offered, the  Prospectus Supplement will  set forth  the
number  of shares, the initial public offering  price and any other terms of the
offering.                                                                       

    This Prospectus also  relates to an  indeterminate number of  shares of  the
Company's   Common  Stock,  because  the  Company  may  elect  to  issue  Senior
Subordinated Debt Securities  that are  convertible into Common  Stock. If  such
convertible  Debt  Securities are  offered, the  Prospectus Supplement  will set
forth the terms by which such  Debt Securities offered thereby may be  converted
into shares of Common Stock.                                                    

    The  Securities may be sold  (i) through underwriting syndicates represented
by  managing  underwriters,  or  by  underwriters  without  a  syndicate,   such
underwriters  to  be  designated  at  the  time  of  sale;  (ii)  through agents
designated from time to  time; or (iii)  directly by the  Company. See "Plan  of
Distribution."  The names of any underwriters  or agents of the Company involved
in the sale of the Securities, and any applicable commissions or discounts, will
be set forth in the corresponding Prospectus Supplement. The net proceeds to the
Company from such sale  also will be set  forth in the corresponding  Prospectus
Supplement.                                                                     

    This  Prospectus may  not be used  to consummate sales  of Securities unless
accompanied by a Prospectus Supplement.                                         

    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. 

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

The date of this Prospectus is January 7, 1994. 

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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
Securities and  Exchange  Commission  (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 under the Securities Act of 1933, as amended (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.            

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE 

    The  following  documents which  have  been filed  by  the Company  with the
Commission are incorporated by reference in this Prospectus:                    

        (a) the Company's Annual Report on Form 10-K for the year ended December
    31, 1992, as amended by Form 8 dated April 9, 1993 and as further amended by
Form 10-K/A-1 dated June 24, 1993;                                      

        (b) the Company's Quarterly Report on  Form 10-Q for the quarters  ended
March 31, 1993, June 30, 1993 and September 30, 1993;                   

        (c)  the Company's  Current Reports on  Form 8-K dated  January 8, 1993,
    April 15, 1993, June 24,  1993, July 7, 1993,  July 26, 1993, September  30,
1993, January 3, 1994 and January 5, 1994; and                          

        (d)  the description of the Rights  (as defined herein) contained in the
    Company's Registration Statement on Form 8-A dated July 27, 1988, as amended
by Form 8 dated August 2, 1990.                                         

    All documents filed by the Company pursuant to Section 13(a), 14 or 15(d) of
the Exchange Act after the date of this Prospectus and prior to the  termination
of  the offering  of the  Securities contemplated hereby  shall be  deemed to be
incorporated by reference in this  Prospectus and to be  a part hereof from  the
date  of  filing  of  such  documents. Any  statement  contained  in  a document
incorporated by reference or deemed to be incorporated by reference herein shall
be deemed to be modified  or superseded for all  purposes of this Prospectus  to
the  extent  that a  statement  contained herein  or  in any  subsequently filed
document which also is  incorporated or deemed to  be incorporated by  reference
herein  modifies or supersedes such statement. Any such statement so modified or
superseded shall  not  be  deemed,  except as  so  modified  or  superseded,  to
constitute a part of this Prospectus.                                           

    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, 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.                                

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THE COMPANY 

GENERAL                                                                         
    The  Company  is  a  major  international  pulp  and  paper  company engaged
principally in  the  production  and  sale  of  paper,  packaging  products  and
commodity  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. The Company also  believes that it is  one of the largest paper
companies in terms of annual tonnage produced. The Company produced 5.0  million
tons  and 4.9 million tons of unbleached  containerboard and kraft paper in 1992
and 1991,  respectively, which  accounted  for approximately  66% of  its  total
tonnage  produced  for  both  1992  and  1991.  The  Company  had  net  sales of
approximately $5.5 billion and $5.4 billion  in 1992 and 1991, respectively.  As
used  herein,  the  term  "Company" includes  Stone  Container  Corporation, its
subsidiaries and its affiliates, except as the context otherwise may require.   

    The Company has  increased dramatically  in size  over the  past ten  years,
primarily  through four  major acquisitions,  including the  1989 acquisition of
Consolidated-Bathurst Inc. (a Canadian corporation, now renamed Stone  Container
(Canada)   Inc.  ("Stone  Canada")),  and   several  smaller  acquisitions.  The
acquisition of Stone  Canada increased the  Company's market share  in its  core
business  operations and provided the Company with the opportunity to pursue its
strategy to expand its production capacity and sales in international markets.  

OPERATIONS                                                                      
    The following table presents actual  annual mill production capacity of  the
Company at December 31, 1992 and at December 31, 1991:                          

                                                        [Enlarge/Download Table]

                                                             PAPERBOARD AND PAPER                                            
                                                                                   WHITE PAPER AND PULP                      
                                                                  PACKAGING                                     TOTAL        
                                                             --------------------  --------------------  --------------------
                                                               1992       1991       1992       1991       1992       1991   
                                                             ---------  ---------  ---------  ---------  ---------  ---------
                                                                             (IN THOUSANDS OF SHORT TONS)(A)                 
                                                                                                                             
United States..............................................      4,572      4,456        847        838      5,419      5,294
Canada.....................................................        436        414      1,783      1,730      2,219      2,144
Europe.....................................................        310        294        306        315        616        609
Other......................................................         58         45     --         --             58         45
                                                             ---------  ---------  ---------  ---------  ---------  ---------
                                                                 5,376      5,209      2,936      2,883      8,312      8,092
                                                             ---------  ---------  ---------  ---------  ---------  ---------
<FN>                                                                                                                         
------------------------                                                                                                     
(a)  Includes  25%  of  production  capacity  of the  Celgar  mill,  49%  of the                                             
     facilities of Empaques de Carton Titan, S.A. and 100% of Seminole Kraft and                                             
     Stone Savannah River mills.                                                                                             

    The paperboard  and  paper  packaging  segment  of  the  Company's  business
includes  the  manufacture of  linerboard, corrugating  medium and  kraft paper,
among other products. Linerboard and corrugating medium are the basic  materials
used  in the manufacture of corrugated containers. Kraft paper is primarily used
to  produce  paper  bags  and  sacks.  The  Company's  principal  customers  for
linerboard,  corrugating  medium and  kraft paper  are its  corrugated container
division and  its bag  divisions. In  1992 and  1991, those  divisions  consumed
approximately  88% and 87%, respectively,  of the Company's aggregate production
of linerboard, corrugating medium and kraft paper.                              

    The Company has more  than 100 board  converting operations, which  produced
and  shipped approximately 51.7 billion square feet and 49.2 billion square feet
of corrugated containers in 1992 and 1991, respectively. Corrugated shipments by
U.S. facilities were approximately 12% of  the total U.S. industry shipments  in
both 1992 and 1991. Corrugated containers are sold in a broad range of markets. 

    The  Company operates  19 kraft  paper converting  facilities, which shipped
approximately 689 thousand tons  and 735 thousand tons  of paper bags and  sacks
nationwide   in  1992  and  1991,   respectively.  These  shipments  represented
approximately 34% and  35% of  the total U.S.  industry shipments  for 1992  and
1991,  respectively. The Company believes that  it is the leading North American
producer of paper  bags and  sacks. Kraft paper  is converted  at the  Company's
plants  into grocery  bags and  sacks, merchandise  bags and  multiwall shipping
sacks. Grocery                                                                  

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bags and sacks are  sold primarily to supermarket  chains; merchandise bags  are
sold  primarily to retailers of consumer  products; and multiwall shipping sacks
are sold to the agricultural, chemical and cement industries, among others.     

    Wood fiber, particularly  from wood  chips, and waste  paper constitute  the
basic  raw materials for linerboard, corrugating medium, unbleached kraft paper,
newsprint, 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, 1992, the
Company had approximately  14 thousand  and 343  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 (formerly  Waste
Management  of  North  America) have  formed  a joint  venture,  Paper Recycling
International, L.P., which will assist the  Company in the procurement of  waste
fiber.                                                                          

    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.                                         

    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.                                                    

    As of December 31, 1992, the Company had approximately 31,200 employees,  of
whom  approximately 21,900 were  employees of U.S.  operations and the remainder
were  employees  of  foreign  operations.   Of  those  in  the  United   States,
approximately 13,900 are union employees.                                       

    At  March 1,  1993, the Company's  founders and individual  members of their
families, in the aggregate but not as a group, owned approximately 13.5  million
shares  of the  Company's Common  Stock, constituting  approximately 19%  of the
approximately 71 million then-outstanding shares of Common Stock.               

    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.

USE OF PROCEEDS 

    Unless otherwise specified in the Prospectus Supplement, the net proceeds to
be received by the Company from the sale of the Securities will be used to repay
indebtedness outstanding under the Company's  Credit Agreements or to  refinance
certain indebtedness as permitted thereunder. The terms of the Credit Agreements
require,  except in certain circumstances, the application of proceeds resulting
from an  offering of  the Securities  to be  applied against  indebtedness  then
outstanding thereunder. See "Credit Agreements." Pending use for these purposes,
the  Company may invest proceeds  from the sale of  the Securities in short-term
marketable securities.                                                          

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SELECTED CONSOLIDATED FINANCIAL DATA

    The following selected Statement  of Operations and  Balance Sheet Data  for
the five years ended December 31, 1992 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
1992   consolidated  financial  statements  contains  an  explanatory  paragraph
referring to the  March 1,  1994 expiration  of the  Company's revolving  credit
facilities  and  the  Company's  financial  plan discussed  in  Note  10  to the
Company's 1992 consolidated financial  statements. Effective December 17,  1993,
the Company's revolving credit facilities were extended until March 1, 1997. The
selected  financial information for the nine months ended September 30, 1993 and
September 30, 1992 has  been derived from  the unaudited consolidated  financial
statements  included in  the Company's  Quarterly Reports  on Form  10-Q for the
quarters ended September 30, 1993 and 1992. The selected consolidated  financial
data  does  not purport  to be  indicative  of the  Company's future  results of
operations or financial position.                                               

                                                        [Enlarge/Download Table]

                                      NINE MONTHS ENDED SEPTEMBER 30,                                                  
                                     ---------------------------------                                                 
                                           1993            1992(A)                                                     
                                     ----------------   --------------                                                 
                                                                                                                       
                                      (IN THOUSANDS, EXCEPT PER SHARE                                                  
                                             DATA AND RATIOS)                                                          
STATEMENT OF OPERATIONS DATA:                                                                                          
  Net sales........................  $3,816,509         $4,189,938                                                     
  Cost of products sold............   3,180,906          3,385,299                                                     
  Selling, general and                                                                                                 
   administrative expenses.........     404,844            406,066                                                     
  Depreciation and amortization....     262,100            250,807                                                     
  Income (loss) before interest                                                                                        
   expense, income taxes and                                                                                           
   cumulative effects of accounting                                                                                    
   changes.........................     (35,567)           148,443                                                     
  Interest expense.................     311,271            284,391                                                     
  Income (loss) before income taxes                                                                                    
   and cumulative effects of                                                                                           
   accounting changes..............    (346,838)          (135,948)                                                    
  Cumulative effect of change in                                                                                       
   accounting for post retirement                                                                                      
   benefits (net of income taxes)..     (39,544)            --                                                         
  Cumulative effect of change in                                                                                       
   accounting for income taxes.....      --                (99,527)                                                    
  Net income (loss)................    (272,994)          (192,762)                                                    
  Income (loss) per common share                                                                                       
   before cumulative effects of                                                                                        
   accounting changes..............       (3.36)             (1.38)(d)                                                 
  Net income (loss) per common                                                                                         
   share...........................       (3.92)             (2.78)(d)                                                 
  Ratio of earnings to fixed                                                                                           
   charges.........................          (e)                (e)                                                    
  Dividends paid per common share                                                                                      
   (d).............................      --                  $0.35                                                     
  Average common shares                                                                                                
   outstanding.....................      71,159             70,983(d)                                                  
BALANCE SHEET DATA (AT END OF                                                                                          
 PERIOD):                                                                                                              
  Working capital..................  $  190,622(g)      $  785,202                                                     
  Property, plant and                                                                                                  
   equipment -- net................   3,431,491          3,791,588                                                     
  Goodwill.........................     912,870          1,020,375                                                     
  Total assets.....................   6,724,579          7,192,766                                                     
  Long-term debt...................   3,782,414(f)(g)    4,042,082(f)                                                  
  Stockholders' equity.............     738,842          1,296,823                                                     
OTHER DATA:                                                                                                            
  Net cash provided by (used in)                                                                                       
   operating activities............  $ (115,587)        $   46,457                                                     
  Capital expenditures.............     100,665(h)         195,989(h)                                                  
  Paperboard, paper and market                                                                                         
   pulp:                                                                                                               
    Produced (thousand tons).......       5,498              5,605                                                     
    Converted (thousand tons)......       3,291              3,327                                                     
  Corrugated shipments (billion sq.                                                                                    
   ft.)............................       39.80              39.30                                                     



                                                                  YEAR ENDED DECEMBER 31,                              
                                     ----------------------------------------------------------------------------------

                                        1992(A)            1991             1990           1989(B)            1988     

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

                                                                                                                       

STATEMENT OF OPERATIONS DATA:                                                                                          
  Net sales........................  $5,520,655       $5,384,291       $5,755,858       $5,329,716       $3,742,489    

  Cost of products sold............   4,473,746        4,285,612        4,421,930        3,893,842        2,618,062    

  Selling, general and                                                                                                 
   administrative expenses.........     543,519          522,780          495,499          474,438          351,133(c) 

  Depreciation and amortization....     334,054          277,534(c)       257,041          237,047          148,072    

  Income (loss) before interest                                                                                        
   expense, income taxes and                                                                                           
   cumulative effects of accounting                                                                                    
   changes.........................     156,788          379,314          609,873          825,722          657,757    

  Interest expense.................     386,122          397,357          421,667          344,693          108,262    

  Income (loss) before income taxes                                                                                    
   and cumulative effects of                                                                                           
   accounting changes..............    (229,334)         (18,043)         188,206          481,029          549,495    

  Cumulative effect of change in                                                                                       
   accounting for post retirement                                                                                      
   benefits (net of income taxes)..      --               --               --               --               --        

  Cumulative effect of change in                                                                                       
   accounting for income taxes.....     (99,527)          --               --               --               --        

  Net income (loss)................    (269,437)         (49,149)          95,420          285,828          341,786    

  Income (loss) per common share                                                                                       
   before cumulative effects of                                                                                        
   accounting changes..............       (2.49)(d)         (.78)(d)         1.56(d)          4.67(d)          5.58(d) 

  Net income (loss) per common                                                                                         
   share...........................       (3.89)(d)         (.78)(d)         1.56(d)          4.67(d)          5.58(d) 

  Ratio of earnings to fixed                                                                                           
   charges.........................          (e)              (e)             1.2              2.0              5.1    

  Dividends paid per common share                                                                                      
   (d).............................       $0.35            $0.71            $0.71            $0.70            $0.35    

  Average common shares                                                                                                
   outstanding.....................      70,987(d)        63,207(d)        61,257(d)        61,223(d)        61,251(d) 

BALANCE SHEET DATA (AT END OF                                                                                          
 PERIOD):                                                                                                              
  Working capital..................  $  756,964       $  770,457       $  439,502       $  614,433       $  457,477(c) 

  Property, plant and                                                                                                  
   equipment -- net................   3,703,248        3,520,178        3,364,005        2,977,860        1,275,960    

  Goodwill.........................     983,499        1,126,100        1,160,516        1,089,817           29,786    

  Total assets.....................   7,026,973        6,902,852        6,689,989        6,253,708        2,395,038    

  Long-term debt...................   4,104,982(f)     4,046,379(f)     3,680,513(f)     3,536,911(f)       765,150    

  Stockholders' equity.............   1,102,691        1,537,543        1,460,487        1,347,624        1,063,558    

OTHER DATA:                                                                                                            
  Net cash provided by (used in)                                                                                       
   operating activities............  $   85,557       $  210,498       $  451,579(c)    $  315,196(c)    $  453,556(c) 

  Capital expenditures.............     281,446(h)       430,131(h)       551,986(h)       501,723(h)       136,588    

  Paperboard, paper and market                                                                                         
   pulp:                                                                                                               
    Produced (thousand tons).......       7,517            7,365            7,447            6,772            4,729    

    Converted (thousand tons)......       4,373            4,228            4,241            3,930            3,344    

  Corrugated shipments (billion sq.                                                                                    
   ft.)............................       51.67            49.18            47.16            41.56            34.47    

<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 nine  months ended September  30, 1993 and                                       
     1992 and the years  ended December 31, 1992  and 1991 were insufficient  to                                       
     cover  fixed charges by  $352.3 million, $172.1  million and $270.1 million                                       
     and $94.6 million, respectively.                                                                                  
(f)  Includes approximately $539.1  million and $594.9  million as of  September                                       
     30, 1993 and 1992, respectively, and $584.3 million, $573.3 million, $471.2                                       
     million  and $267.2 million as  of December 31, 1992,  1991, 1990 and 1989,                                       
     respectively, of long-term debt  of certain consolidated subsidiaries  that                                       
     is non-recourse to the parent.                                                                                    
(g)  At September 30, 1993, $271 million of revolving credit facility borrowings                                       
     which  were  previously due  on  March 1,  1994  are classified  as current                                       
     maturities of long-term debt.                                                                                     
(h)  Includes approximately $12.4 million and $63.8 million for the nine  months                                       
     ended  September 30, 1993 and 1992, respectively, and $79.1 million, $219.8                                       
     million, $245.2 million and  $36.8 million for 1992,  1991, 1990 and  1989,                                       
     respectively, of expenditures financed through project financings.                                                

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

    THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE
SELECTED  HISTORICAL FINANCIAL  DATA AND  THE HISTORICAL  CONSOLIDATED FINANCIAL
STATEMENTS (AND  RELATED  NOTES) OF  THE  COMPANY INCLUDED  OR  INCORPORATED  BY
REFERENCE IN THIS PROSPECTUS.                                                   

GENERAL                                                                         

    The  Company's major products are  containerboard and corrugated containers,
newsprint and  market  pulp.  The  markets for  paper,  packaging  products  and
commodity  pulp  sold by  the Company  are highly  competitive and  sensitive to
industry capacity and  cyclical changes  in the economy  that can  significantly
impact  selling prices and the Company's  profitability. The Company's sales and
operating results have, in  recent years, been more  sensitive to price  changes
than to changes in sales volume.                                                

    The  markets for containerboard and corrugated containers, which represent a
substantial portion  of the  Company's net  sales, generally  experienced  price
declines  in the period 1990  through the third quarter  of 1993 (except for one
increase  in  August  1991),  and,  despite  increasing  industry-wide  capacity
utilization  (which is now at approximately the same level as 1989), the Company
was unable to implement announced price increases for these products in 1992  or
for  the  first nine  months of  1993.  In prior  periods, comparable  levels of
capacity utilization supported higher product pricing.                          

    Additions to  industry-wide  capacity  for newsprint  and  market  pulp  and
declines  in demand for  such products during  the past three  years have led to
supply/demand imbalances that  have contributed  to depressed  prices for  these
products.  The newsprint industry, which began discounting sales prices in 1990,
was adversely affected  by progressively increasing  price discounts  throughout
1991  and most of 1992,  although such discounts were  partially reversed in the
fourth quarter  of  1992 and  the  first quarter  of  1993 when  discounts  were
reduced. During this time, new production capacity in the industry came on line,
approximating  two  million  tons  annually,  representing  an  approximate  12%
increase in capacity. At the same time, U.S. consumption of newsprint fell,  due
to declines in readership and ad linage. As prices fell, certain high cost paper
machines,  representing  approximately 1.2  million tons  and located  mostly in
Canada, were shut down. Market pulp  prices, which had improved modestly  during
1992  from the low prices of 1991,  began deteriorating in the fourth quarter of
1992 and have weakened further in 1993.                                         

    If current pricing levels  for the Company's  products do not  significantly
improve, the Company will continue to incur net losses.                         

    Due  to the  industry conditions  described above  and the  Company's highly
leveraged  capital  structure  and  related  interest  expense  associated  with
indebtedness  incurred to finance  the acquisition of  Stone Canada, the Company
has incurred net losses in each of the last two years and the first nine  months
of  1993 and expects to  incur a net loss  for the full year  1993. In 1992, the
Company suspended payment of cash dividends on its Common Stock. The Company  is
pursuing  a financial plan  that is intended to  enhance the Company's liquidity
and  increase  its  financial  flexibility.  See  "--  Financial  Condition  and
Liquidity -- Outlook."                                                          

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RESULTS OF OPERATIONS                                                           

                                                                [Download Table]

                                              NINE MONTHS ENDED SEPTEMBER 30,    
                                          ---------------------------------------
                                                 1993                1992*       
                                          ------------------   ------------------
                                                    PERCENT              PERCENT 
                                                      NET                  NET   
                                          AMOUNT    OF SALES   AMOUNT    OF SALES
                                          -------   --------   -------   --------
                                                   (DOLLARS IN MILLIONS)         
                                                                                 
Net sales...............................  $3,816.5    100.0%   $4,189.9    100.0%
Cost of products sold...................  3,180.9      83.3    3,385.3      80.8 
Selling, general and administrative                                              
 expenses...............................    404.8      10.6      406.0       9.7 
Depreciation and amortization...........    262.1       6.9      250.8       6.0 
Equity loss from affiliates.............      5.6        .1        1.7     --    
                                          -------   --------   -------   --------
Income (loss) from operations...........    (36.9)      (.9)     146.1       3.5 
Interest expense........................   (311.3)     (8.2)    (284.4)     (6.7)
Other, net..............................      1.3     --           2.4     --    
                                          -------   --------   -------   --------
Loss before income taxes and cumulative                                          
 effects of                                                                      
 accounting changes.....................   (346.9)     (9.1)    (135.9)     (3.2)
Credit for income taxes.................   (113.4)     (3.0)     (42.7)     (1.0)
                                          -------   --------   -------   --------
Loss before cumulative effects of                                                
 accounting changes.....................   (233.5)     (6.1)     (93.2)     (2.2)
Cumulative effect of change in                                                   
 accounting for postretirement benefits                                          
 (net of income taxes of $23.3).........    (39.5)     (1.0)     --        --    
Cumulative effect of change in                                                   
 accounting for income taxes............    --        --         (99.5)     (2.4)
                                          -------   --------   -------   --------
Net loss................................  $(273.0)     (7.1)   $(192.7)     (4.6)
                                          -------   --------   -------   --------
                                          -------   --------   -------   --------
<FN>                                                                             
------------------------                                                         
*Restated to reflect adoption of Statement of Financial Accounting Standards No. 
 109, "Accounting for Income Taxes" ("SFAS 109") retroactive to January 1, 1992. 

    NINE MONTHS ENDED SEPTEMBER 30, 1993 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1992                                                                        

    The  net loss for the third quarter of  1993 was $99.2 million, or $1.42 per
share of common stock, compared  to the net loss of  $43.2 million, or $.64  per
share of common stock for the third quarter of 1992.                            

    For the nine months ended September 30, 1993, the loss before the cumulative
effect  of a  change in  the accounting  for postretirement  benefits other than
pensions was $233.5 million, or $3.36 per share of common stock. The adoption of
Statement  of   Financial  Accounting   Standards   No.  106   "Accounting   for
Postretirement  Benefits Other than Pensions" ("SFAS 106"), effective January 1,
1993, resulted in a one-time, non-cash cumulative effect charge of $39.5 million
net of income taxes or $.56 per share  of common stock, resulting in a net  loss
of  $273.0 million or $3.92 per share of common stock. For the nine months ended
September 30, 1992, the restated loss  before the cumulative effect of a  change
in  the accounting  for income taxes  was $93.2  million, or $1.38  per share of
common stock. The adoption of SFAS 109, which the Company adopted retroactive to
January 1, 1992, resulted  in a one-time, non-cash  cumulative effect charge  of
$99.5  million, or $1.40 per share of  common stock, resulting in a restated net
loss of $192.7 million, or $2.78 per share of common stock. The Company's income
tax benefit  for the  nine months  ended  September 30,  1993 includes  a  third
quarter  adjustment for the retroactive increase  in the U.S. federal income tax
rate and  an  enacted  decrease  in  German tax  rates,  the  effects  of  which
substantially  offset each other,  and a second  quarter favorable adjustment of
approximately $5  million  which reflects  the  effect  of a  reduction  in  the
Canadian statutory income tax rate.                                             

    The  increases in the losses before the cumulative effects of the accounting
changes were  primarily due  to lower  average selling  prices for  most of  the
Company's  products. Additionally, the Company's  operating results for the 1993
third quarter were  negatively impacted by  market-related production  downtime.
The  mills involved have  all resumed production and  are currently operating at
normal levels.                                                                  

PAPERBOARD AND PAPER PACKAGING:                                                 

    Net sales for the  three and nine  months ended September  30, 1993 for  the
paperboard  and paper packaging segment decreased  14.4 percent and 9.7 percent,
respectively over the comparable prior year periods. This                       

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decrease was due in part  to the exclusion of  sales for the Company's  European
folding  carton  operations which  earlier this  year were  merged into  a joint
venture and  accordingly  is  now  accounted for  under  the  equity  method  of
accounting.  Sales from these operations were approximately $48 million and $136
million for the third quarter and first nine months of 1992, respectively. Sales
for 1993 were approximately  $60 million prior to  the merger in May.  Excluding
the  effect of  the joint venture,  sales for  the third quarter  and first nine
months decreased  10.6  percent  and  7.6 percent  from  the  year  ago  periods
reflecting  lower sales  of paperboard,  corrugated containers,  kraft paper and
paper bags and sacks.  The sales decreases for  paperboard reflect both  reduced
sales  volume and  lower average  selling prices  while the  sales decreases for
kraft paper and  paper bags and  sacks were mainly  attributable to lower  sales
volume.  Sales of  corrugated containers for  the third quarter  and nine months
ended September 30, 1993,  as compared to the  prior year periods, decreased  as
sales volume increases were offset by lower average selling prices, particularly
during the third quarter.                                                       

    Shipments  of  corrugated containers,  including the  Company's proportional
share of the shipments by its foreign affiliates, were 13.6 billion square  feet
in  the third quarter  of 1993, compared  with 13.3 billion  square feet for the
comparable prior year  period. For the  first nine months  of 1993, the  Company
shipped  39.8 billion square  feet of corrugated  containers, compared with 39.3
billion square feet shipped during the  first nine months of 1992. Shipments  of
paper  bags and sacks were 156 thousand tons and 459 thousand tons for the three
and nine month periods ended September 30, 1993, respectively, compared with 177
thousand tons and 522 thousand tons shipped during the comparable 1992 periods. 

    Production of containerboard and  kraft paper for the  three and nine  month
periods  ended September  30, 1993, including  100 percent of  the production at
Seminole Kraft Corporation ("Seminole")  and Stone Savannah  River Pulp &  Paper
Corporation  ("Stone Savannah  River"), was 1.17  million tons  and 3.58 million
tons, respectively, compared to 1.23 million tons and 3.75 million tons produced
during the comparable prior year periods.                                       

    Operating income for  the paperboard and  paper packaging segment  decreased
70.8  percent  and 49.0  percent  for the  three  months and  nine  months ended
September 30, 1993, respectively, as compared to the corresponding 1992 periods.
The decreases were  mainly attributable to  reduced operating margins  primarily
resulting  from lower average  selling prices for  containerboard and corrugated
containers.                                                                     

WHITE PAPER AND PULP:                                                           

    Net sales for the third quarter and first nine months of 1993 for the  white
paper  and pulp segment  decreased 24.1 percent  and 11.2 percent, respectively,
from the prior year periods, primarily  due to significant declines in sales  of
market pulp. Additionally, decreases in newsprint sales, particularly during the
1993  third quarter,  contributed to the  lower sales.  Partially offsetting the
sales decreases  for market  pulp  and newsprint  were  increases for  sales  of
groundwood paper. The sales declines for market pulp were primarily attributable
to  significantly lower average selling prices.  Reduced sales volume during the
1993 periods also contributed  to the lower market  pulp sales. The decrease  in
newsprint   sales  for  the  third  quarter   of  1993,  as  compared  with  the
corresponding prior year  period, resulted primarily  from reduced sales  volume
and  unfavorable  foreign  exchange  translation  effects  attributable  to  the
stronger U.S.  dollar, which  more  than offset  the  impact of  higher  average
selling prices. For the nine months ended September 30, 1993, sales of newsprint
decreased  slightly from  the year  ago period  as foreign  exchange translation
effects more  than offset  the impact  of higher  average selling  prices and  a
slight  volume increase. The 1993 sales  increases for groundwood paper over the
comparable 1992 periods were primarily due to significant volume increases which
more than offset the effects of lower average selling prices.                   

    Production of newsprint, market pulp and groundwood paper for the three  and
nine  months ended September 30, 1993, including 25 percent of the production at
the Company's affiliated market pulp mill in British Columbia, was 610  thousand
tons  and 1.86 million  tons, compared with  633 thousand tons  and 1.79 million
tons produced during the comparable prior year periods.                         

    Operating losses for the third quarter and first nine months of 1993 for the
white  paper  and  pulp  segment  increased  59.6  percent  and  74.3   percent,
respectively,  from  the  previous year  periods  due to  the  reduced operating
margins primarily resulting from the significantly lower average selling  prices
for  market  pulp.  Lower  average  selling  prices  for  groundwood  paper also
contributed to the reduced earnings. While average selling prices for  newsprint

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improved  over  the prior  year periods  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 third quarter and first nine  months
of  1993  increased over  the  comparable 1992  periods  mainly as  a  result of
improved demand and a  tighter 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.   

Comparative Results of Operations                                               

                                                        [Enlarge/Download Table]

                                                   YEAR ENDED DECEMBER 31,                    
                                --------------------------------------------------------------
                                       1992                  1991                  1990       
                                ------------------    ------------------    ------------------
                                           PERCENT               PERCENT               PERCENT
                                           OF NET                OF NET                OF NET 
                                AMOUNT      SALES     AMOUNT      SALES     AMOUNT      SALES 
                                -------    -------    -------    -------    -------    -------
                                                    (DOLLARS IN MILLIONS)                     
                                                                                              
Net sales.....................  $5,521      100.0%    $5,384      100.0%    $5,756      100.0%
Cost of products sold.........   4,474       81.0      4,285       79.6      4,422       76.8 
Selling, general and                                                                          
 administrative expenses......     544        9.9        523        9.7        496        8.6 
Depreciation and                                                                              
 amortization.................     334        6.0        278        5.1        257        4.5 
Equity (income) loss from                                                                     
 affiliates...................       5         .1         (1)      --           (7)       (.1)
                                -------    -------    -------    -------    -------    -------
Income from operations........     164        3.0        299        5.6        588       10.2 
Interest expense..............    (386)      (7.0)      (397)      (7.4)      (422)      (7.3)
Other, net....................      (7)       (.1)        80        1.5         22         .4 
                                -------    -------    -------    -------    -------    -------
Income (loss) before income                                                                   
 taxes and cumulative effect                                                                  
 of an accounting change......    (229)      (4.1)       (18)       (.3)       188        3.3 
Provision (credit) for income                                                                 
 taxes........................     (59)      (1.0)        31         .6         93        1.6 
                                -------    -------    -------    -------    -------    -------
Income (loss) before                                                                          
 cumulative effect............    (170)      (3.1)       (49)       (.9)        95        1.7 
Cumulative effect of change in                                                                
 accounting for income taxes..     (99)      (1.8)      --         --         --         --   
                                -------    -------    -------    -------    -------    -------
Net income (loss).............  $ (269)      (4.9)    $  (49)       (.9)    $   95        1.7 
                                -------    -------    -------    -------    -------    -------
                                -------    -------    -------    -------    -------    -------

1992 COMPARED WITH 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  net loss of  $49 million,  or $.78  per
common  share, for 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 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  a $7.9  million pretax  charge  relating to  the write-down  of  an
investment.  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 and  the
adoption  of SFAS 109 effective January  1, 1992. 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.                                     

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Segment Data                                                                    

                                                        [Enlarge/Download Table]

                                                          YEAR ENDED DECEMBER 31,                            
                               ------------------------------------------------------------------------------
                                         1992                                                                
                               ------------------------             1991                       1990          
                                              INCOME      ------------------------   ------------------------
                                              (LOSS)                                                         
                                              BEFORE                                                         
                                           INCOME TAXES                                                      
                                               AND                                                           
                                            CUMULATIVE                   INCOME                     INCOME   
                                           EFFECT OF AN                  (LOSS)                     (LOSS)   
                                            ACCOUNTING                   BEFORE                     BEFORE   
                               NET SALES      CHANGE      NET SALES   INCOME TAXES   NET SALES   INCOME TAXES
                               ---------   ------------   ---------   ------------   ---------   ------------
                                                               (IN MILLIONS)                                 
                                                                                                             
Paperboard and paper                                                                                         
 packaging.................... $4,185.7    $     322.1    $4,037.7    $     355.8    $4,202.4    $     494.6 
White paper and pulp..........  1,078.3          (87.0)    1,115.8           84.1     1,276.3          155.2 
Other.........................    303.0           12.0       275.3           (6.0)      321.8            0.9 
Intersegment..................    (46.3)        --           (44.5)        --           (44.6)        --     
                               ---------   ------------   ---------   ------------   ---------   ------------
                                5,520.7          247.1     5,384.3          433.9     5,755.9          650.7 
Interest expense..............                  (386.1)                    (397.4)                    (421.7)
Foreign currency transaction                                                                                 
 gains (losses)...............                   (15.0)                       4.9                        1.0 
General corporate and                                                                                        
 miscellaneous (net)..........                   (75.3)                     (59.4)                     (41.8)
                               ---------   ------------   ---------   ------------   ---------   ------------
    Total..................... $5,520.7    $    (229.3)   $5,384.3    $     (18.0)   $5,755.9    $     188.2 
                               ---------   ------------   ---------   ------------   ---------   ------------
                               ---------   ------------   ---------   ------------   ---------   ------------

Segment and Product Line Sales Data                                             

                                                        [Enlarge/Download Table]

                                         NET SALES                                                                       
                                ----------------------------                       PERCENTAGE CHANGE                     
                                                              -----------------------------------------------------------
                                  YEAR ENDED DECEMBER 31,                                                                
                                                                      1992 VS 1991                   1991 VS 1990        
                                ----------------------------  ----------------------------   ----------------------------
                                  1992      1991      1990    SALES REVENUE   SALES VOLUME   SALES REVENUE   SALES VOLUME
                                --------  --------  --------  -------------   ------------   -------------   ------------
                                   (DOLLARS IN MILLIONS)                                                                 
                                                                                                                         
Paperboard and paper                                                                                                     
 packaging:                                                                                                              
  Corrugated containers.......  $  2,234  $  2,094  $  2,104       6.7%           4.1%            (.5)%          3.6%    
  Paperboard and kraft                                                                                                   
   paper......................     1,032       996     1,109       3.6            1.3           (10.2)          (1.8)    
  Paper bags and sacks........       634       677       723      (6.4)          (6.3)           (6.4)          (7.0)    
  Folding cartons.............       178       166       150       7.2             .1            10.7            6.9     
  Other.......................       108       105       116       2.9             nm            (9.5)            nm     
                                --------  --------  --------                                                             
      Total paperboard and                                                                                               
       paper packaging........     4,186     4,038     4,202       3.7             nm            (3.9)            nm     
                                --------  --------  --------                                                             
White paper and pulp:                                                                                                    
  Newsprint...................       538       660       741     (18.5)          (2.5)          (10.9)          (8.7)    
  Market pulp.................       312       229       308      36.2           30.3           (25.6)          (5.8)    
  Groundwood paper............       219       227       227      (3.5)           9.8           --              (1.6)    
  Other.......................         9     --        --           nm             nm           --             --        
                                --------  --------  --------                                                             
      Total white paper and                                                                                              
       pulp...................     1,078     1,116     1,276      (3.4)            nm           (12.5)            nm     
                                --------  --------  --------                                                             
  Other.......................       303       275       322      10.2             nm           (14.6)            nm     
  Intersegment................       (46)      (45)      (44)      2.2             nm             2.3             nm     
                                --------  --------  --------                                                             
    Total net sales...........  $  5,521  $  5,384  $  5,756       2.5             nm            (6.5)            nm     
                                --------  --------  --------                                                             
<FN>                                                                                                                     
------------------------------                                                                                           
nm = not meaningful                                                                                                      

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.                                   

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    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.  See  also  "--
Financial Condition and Liquidity -- Outlook."                                  

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. Net sales  for groundwood paper decreased slightly as
lower average selling prices more than offset volume increases for this product.
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.  The
increase  in  1992  market  pulp sales  mainly  resulted  from  volume increases
associated with  sales  generated from  the  Stone 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. See
also "-- Financial Condition and Liquidity -- Outlook."                         

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  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 continue to keep raw material costs high.                 

1991 Compared with 1990                                                         

    Net  sales for 1991 were $5.4 billion, a decrease of 6.5% from a record $5.8
billion for 1990. The Company  recorded a net loss for  1991 of $49 million,  or
$.78  per common  share, compared  to net  income of  $95 million,  or $1.56 per
common share for 1990. All per share amounts have been adjusted to reflect a  2%
Common  Stock dividend issued  September 15, 1992.  Lower average selling prices
for most of  the Company's  products was the  major factor  contributing to  the
sales decrease and the net loss for 1991. Additionally, reduced sales volume for
certain  products had  an unfavorable  effect on 1991  net sales  and results of
operations.                                                                     

    The 1991 results  included a $41.8  million pretax gain  resulting from  the
settlement  and termination  of a Canadian  supply contract and  a $17.5 million
pretax gain from an involuntary conversion relating to a boiler explosion at the
Company's Missoula, Montana  linerboard mill. Partially  offsetting these  gains
was  a  $6  million pretax  charge  for  reorganization costs  at  the Company's
Canadian subsidiary  and  a $4  million  write-down on  certain  de-commissioned
assets  at the  Company's Jacksonville, Florida  mill. Also  contributing to the
1991 net loss was a $31  million income tax provision, which resulted  primarily
from  non-deductible depreciation and amortization,  together with taxes payable
by certain foreign subsidiaries at rates in excess of the U.S. statutory rate.  

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PAPERBOARD AND PAPER PACKAGING:                                                 

    The 1991 net sales for the paperboard and paper packaging segment  decreased
3.9%  as sales declines  for paperboard, paper  bags and sacks,  kraft paper and
corrugated containers more than offset a sales increase for folding cartons.    

    Net sales  of  corrugated containers  decreased  slightly from  1990  as  an
overall  decrease in average  selling prices of  corrugated containers more than
offset sales volume increases.                                                  

    Net sales  of  paper  bags  and sacks  decreased  primarily  due  to  volume
decreases resulting from the effects of increased competition.                  

    Net sales of paperboard and kraft paper decreased from 1990 primarily due to
lower  average  selling  prices.  Additionally,  a  reduction  in  sales  volume
contributed to the sales decrease for these products.                           

    Operating income for  the paperboard and  paper packaging segment  decreased
28.1%  from 1990 due primarily to reduced operating margins resulting from lower
average selling  prices  of  linerboard and  corrugating  medium.  Additionally,
average  selling  prices of  most  converted products  declined.  1991 operating
income for  this  segment  included  the $17.5  million  pretax  gain  from  the
involuntary  conversion  relating  to  the  boiler  explosion  at  the Company's
Missoula, Montana  linerboard mill  and  the $4  million write-down  on  certain
de-commissioned  assets at  the Company's Jacksonville,  Florida mill. Operating
income for 1990 reflected a $5.3 million gain from the sale of timberlands.     

WHITE PAPER AND PULP:                                                           

    The 1991 net  sales for the  white paper and  pulp segment decreased  12.5%,
primarily  as  a result  of declines  in  newsprint and  market pulp  sales. The
decrease in newsprint sales  resulted primarily from  lower sales volume,  which
was  partially due to significant down-time taken by the Company in an effort to
improve the  short-term balance  of  supply and  demand. Lower  average  selling
prices  also contributed  to the  decrease in  newsprint sales.  The decrease in
market pulp  sales  resulted mainly  from  significantly lower  average  selling
prices.                                                                         

    Operating  income for  the white paper  and pulp segment  for 1991 decreased
45.8% as  compared  with  1990,  primarily  due  to  reduced  operating  margins
resulting  from the previously mentioned declines  in average selling prices for
market pulp and newsprint. Operating income for this segment included the  $41.8
million  pretax gain resulting from the settlement and termination of a Canadian
supply contract and a $4.2 million pretax charge, which represents an allocation
of the previously mentioned $6 million provision for reorganization costs at the
Company's Canadian subsidiary.                                                  

OTHER:                                                                          

    Net sales and operating  income for the other  segment decreased from  1990,
mainly  due to the general economic downturn  in the U.S. building market during
1991, which  resulted in  less demand  for the  Company's U.S.  lumber and  wood
products. Additionally, environmental concerns in the Pacific Northwest kept raw
material costs high for this segment.                                           

FINANCIAL CONDITION AND LIQUIDITY                                               

    The  Company's working capital ratio was 1.1  to 1 at September 30, 1993 and
1.8 to 1 at December 31, 1992, as restated to reflect the adoption of SFAS  109.
The decrease was mainly due to an increase in current maturities of $573 million
which,  in accordance  with the  terms of  the respective  debt instruments, are
payable on or before September 30,  1994. A significant portion of the  increase
in current maturities was attributable to $271 million ($309 million at November
9,  1993) of borrowings outstanding under the revolving credit facilities which,
prior to the  December 17,  1993 amendment to  the U.S.  Credit Agreement  which
extended  the expiration of  such revolving credit facilities  to March 1, 1997,
were originally scheduled to  mature March 1,  1994. The Company's  consolidated
long-term  debt to total capitalization ratio  was 74.3 percent at September 30,
1993 and 69.2 percent at December 31, 1992, as restated to reflect the  adoption
of SFAS 109. 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  indebtedness ratio, as  defined in  the
Credit Agreement, was 79.6 percent at September 30, 1993.                       

    The  Company  and  Stone Canada  have  entered into  bank  credit agreements
(collectively,  the  "Credit  Agreements")  consisting  of  (i)  two   term-loan
facilities  with outstanding borrowings in the  aggregate of $1.11 billion as of

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September 30, 1993, (ii)  an additional term loan  (the "Additional Term  Loan")
with  outstanding borrowings at September 30, 1993 of $371 million and (iii) two
revolving credit facilities  with aggregate  commitments of  $400 million  (less
amounts  outstanding,  if  any,  under  Canadian  lines  of  credit)  and  total
outstanding borrowings thereunder  of $271  million at September  30, 1993.  The
Company  is the borrower under  one of the term  loans, the Additional Term Loan
and one  of the  revolving  credit facilities  (collectively, the  "U.S.  Credit
Agreement")  and Stone  Canada is  the borrower  under the  other term  loan and
revolving credit  facility.  At  September  30, 1993,  the  Company  had  unused
borrowing availability of $128 million under the revolving credit facilities. At
November  9, 1993,  the Company had  borrowing availability  under its revolving
credit facilities of approximately $88 million.  The term loans (other than  the
Additional  Term Loan) and the revolving  credit facilities had weighted average
interest rates for the nine months ended September 30, 1993 of 8.37 percent  and
5.62 percent, respectively. The weighted average interest rate on the Additional
Term Loan for the nine months ended September 30, 1993 was 6.30 percent.        

    In  October 1993, the Company sold,  prior to their expiration date, certain
of its U.S. dollar denominated cross  currency swaps associated with the  Credit
Agreement  borrowings of Stone  Canada. The net  proceeds totalled approximately
$26 million, the substantial portion of which was used to repay borrowings under
the  Company's  revolving   credit  facilities,   thereby  restoring   borrowing
availability thereunder.                                                        

    On  July 6, 1993  the Company sold  $150 million principal  amount of 12 5/8
percent Senior Notes due 1998 ("the 12 5/8 percent Senior Notes") and sold  $250
million  principal amount of 8 7/8 percent Convertible Senior Subordinated Notes
due 2000 ("the 8  7/8 percent Convertible Senior  Subordinated Notes"). The  net
proceeds  of approximately  $386 million  from the  sale of  the 12  5/8 percent
Senior Notes and  the concurrent sale  of the 8  7/8 percent Convertible  Senior
Subordinated  Notes were used to repay  borrowings under the Company's revolving
credit facilities, thereby restoring borrowing availability thereunder.         

    The Credit Agreements  contain covenants that  include, among other  things,
requirements  to  maintain  certain  financial  tests  and  ratios  and  certain
restrictions and  limitations,  including  those  on  capital  expenditures  and
dividend  payments. The Credit Agreements  also contain cross default provisions
relating to the non-recourse debt of the consolidated affiliates.  Additionally,
the  Company's  Credit Agreements  limit the  application  of the  proceeds from
certain financings and asset sales to amortization payments, except in specified
circumstances. See "Credit Agreements."                                         

OPERATING ACTIVITIES:                                                           

    Net cash used in operating activities was $115.6 million for the nine months
ended September 30, 1993 compared to  net cash provided by operating  activities
of $46.5 for the comparable period of 1992. The 1992 period included $43 million
of  cash  received from  the  settlement and  termination  of a  Canadian supply
contract. Excluding  the receipt  of such  cash, the  Company's cash  flow  from
operations  for the first nine months of  1993 decreased $119.1 million over the
prior year period.  This decrease primarily  resulted from the  increase in  the
1993  loss  before the  non-cash, cumulative  effects  of accounting  changes as
compared with the prior year period along with decreases in accounts payable and
other current liabilities. These decreases in cash flow were partially offset by
favorable effects of changes in accounts and notes receivable and inventories.  

FINANCING ACTIVITIES:                                                           

    During the  first nine  months  of 1993,  outstanding borrowings  under  the
Company's  revolving credit facilities increased  approximately $14 million. The
net increase in borrowings takes into account the July 6, 1993 repayment of $386
million of  revolving credit  borrowings and  subsequent reborrowing  under  the
credit  facility.  Such  excess borrowings  were  primarily used  to  repay $110
million of the  September 1993 bank  term amortization and  to provide cash  for
operations and general corporate purposes.                                      

    On  July 26, 1993, due to a  restrictive provision in the indenture 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 Debentures due April 1, 2002, the Board of Directors did not
declare  the scheduled August 15, 1993 quarterly  dividend of .4375 per share on
the Series E Cumulative Convertible Exchangeable Preferred Stock (the "Series  E
Cumulative  Preferred Stock"), nor will it pay  future dividends on the Series E
Cumulative Preferred  Stock  until  the Company  generates  income,  or  effects
certain  sales of capital stock, to  replenish the dividend "pool" under various
of its debt instruments. As of September 30, 1993, accumulated dividends on  the
Series  E Cumulative Preferred Stock amounted to  $2.0 million. In the event the
Company does not                                                                

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pay a dividend on the Series E Cumulative Preferred Stock for six quarters,  the
Series  E Cumulative  Preferred Stock  holders would have  a right  to elect two
members to the Company's Board of Directors until the full dividends accumulated
on such Series E Cumulative Preferred Stock  have been declared and paid or  set
apart for payment.                                                              

INVESTING ACTIVITIES:                                                           

    Capital  expenditures for  the nine month  period ended  September 30, 1993,
(including capitalized interest of $8.1 million), totalled approximately  $100.7
million,  of which approximately $12.4 million  was funded from existing project
financing facilities  related to  the major  reconfiguration and  paper  machine
rebuild at Seminole.                                                            

    Also  during the nine months ended September 30, 1993, the Company purchased
an additional  6,152  shares  of  common stock  of  Stone  Savannah  River.  The
Company's  ownership in  the common  stock of Stone  Savannah River  is now 91.0
percent.                                                                        

ENVIRONMENTAL ISSUES:                                                           

    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 $24 million in 1992 and the  Company
anticipates   that  1993  and  1994   environmental  capital  expenditures  will
approximate  $44  million  and  $74  million,  respectively.  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. Future  environmental
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.                                                           

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. SFAS 112 is required to be  adopted no later than the first  quarter
of  1994.  Upon adoption  of this  standard,  any catch-up  obligation is  to be
reported as a  cumulative effect of  an accounting change  in the Statements  of
Operations.  While the effect of  this standard has yet  to be determined, it is
currently anticipated that  SFAS 112 will  not have a  material impact upon  the
Company's financial statements.                                                 

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CREDIT AGREEMENTS 

    THE  FOLLOWING IS SUMMARY  OF THE PRINCIPAL TERMS  AND CONDITIONS OF CERTAIN
BANK CREDIT AGREEMENTS OF THE COMPANY AND  STONE CANADA AND IS QUALIFIED IN  ITS
ENTIRETY  BY REFERENCE  TO THE  DEFINITIVE AGREEMENTS  AND INSTRUMENTS GOVERNING
SUCH INDEBTEDNESS,  COPIES  OF WHICH  CONSTITUTE  EXHIBITS TO  THE  REGISTRATION
STATEMENT  OF WHICH THIS PROSPECTUS  IS A PART OR  ARE EXHIBITS TO THE COMPANY'S
REPORTS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, AND ARE  INCORPORATED
BY REFERENCE INTO THIS PROSPECTUS.                                              

GENERAL                                                                         

    The   Credit  Agreements  consist  of  (i)  two  term-loan  facilities  with
outstanding borrowings in the aggregate amount of $877.7 million as of  December
21,  1993, (ii) an additional term loan (the "Additional Term Loan") (previously
a multiple-draw facility) with  outstanding borrowings at  December 21, 1993  of
$292.9  million  and  (iii)  two  revolving  credit  facilities  with  aggregate
commitments of $315.8 million (less amounts outstanding, if any, under  Canadian
lines  of credit). The Company is the borrower  under one of the term loans, the
Additional Term Loan and one  of the revolving credit facilities  (collectively,
the  "U.S. Credit Agreement") and  Stone Canada is the  borrower under the other
term loan and revolving  credit facility. Proceeds of  the Additional Term  Loan
borrowings  were used solely  to repay regularly  scheduled amortization of term
loans under the U.S. Credit Agreement. The term loans (other than the Additional
Term Loan) and  the revolving  credit facilities had  weighted average  interest
rates  for  the  nine  months  ended September  30,  1993  of  8.37%  and 5.62%,
respectively. The weighted average interest rate on the Additional Term Loan was
6.3% for the nine months ended September 30, 1993.                              

    The Company as of September 30,  1993 also had $261.3 million of  borrowings
outstanding  with certain lenders pursuant to two receivables financing programs
permitted by the Credit Agreements.                                             

    Effective December 17, 1993, the Credit Agreements were amended and restated
(the "Third Restated Agreement"), with the unanimous consent of the bank  group,
to,  among other things, extend the  maturity of the revolving credit facilities
until March 1,  1997 and  reduce over  a three  year period  the revolving  loan
commitments,  revise various financial covenants  to provide greater flexibility
to the Company, increase  interest rate margins,  mortgage or pledge  additional
collateral,  permit the Company  to retain 25  percent of the  net proceeds from
future sales  of equity  securities, permit  the Company  to retain  50  percent
(maximum  $100 million in  the aggregate) of  the net proceeds  from any sale or
disposition of certain designated investments, and various other changes.       

    The Credit Agreements generally  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 of the Credit Agreements, as restated.           

MATURITIES AND MANDATORY PREPAYMENTS                                            

    The term loans under the Credit Agreements and the Additional Term Loan  are
scheduled to be paid in installments due March 31 and September 30 of each year.
Each installment of $204.5 million is applied ratably to the aggregate principal
amount  of the  term loans, the  Additional Term Loan,  the aggregate commitment
amounts (in  the case  of the  revolving credit  facilities) and  the  aggregate
amount  of  net letter  of credit  obligations  relating to  a letter  of credit
providing credit support for industrial revenue bonds issued by Florence County,
South Carolina. The amount  applied to the net  letter of credit obligations  is
required  to be  used to fund  a cash collateral  account in favor  of the banks
participating in the letter of credit.                                          

    A portion of  the amortization  payments required by  the Credit  Agreements
will  be ratably  applied to reduce  outstanding borrowings  under the revolving
credit  facilities  and  permanently  reduce  the  commitments  thereunder.  The
revolving  credit facilities under  the Credit Agreements  terminate on March 1,
1997, unless extended by agreement of the lenders, at which time all outstanding
indebtedness under such revolving credit facilities  would have to be repaid  or
refinanced.                                                                     

    Mandatory  prepayments under the Credit Agreements are required in the event
that the Company has excess cash flow  (as defined in the Credit Agreements)  or
receives proceeds from the issuance of certain debt or equity securities or from
the  sale of certain material assets. By reason of an amendment contained in the
Third Restated Agreement, 75  percent of the net  proceeds from the offering  of
equity securities by the Company must be applied in                             

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chronological order to the next regularly scheduled amortization payments except
that  the Additional Term  Loan does not receive  any amortization payments from
sales of equity securities. Twenty-five percent of the net proceeds of an equity
offering may be retained by the Company.                                        

    Through prepayments  in  1993,  the  Company has  satisfied  its  March  and
September, 1994 amortization requirements under the Credit Agreements.          

INTEREST RATES                                                                  

    The  Credit Agreements permit  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. At December
17, 1993, the interest  rate options available to  the Company and Stone  Canada
under  term loan and revolving credit borrowings were (i) U.S. or Canadian prime
rate plus a  borrowing margin of  2%, (ii) CD  rate plus a  borrowing margin  of
3  1/8%, and (iii) Eurodollar rate plus a borrowing margin of 3%. In the case of
Stone Canada, there is  also an option of  selecting a banker's acceptance  rate
plus a borrowing margin of 3%. Upon achievement of specified indebtedness ratios
and   interest  coverage  ratios,   the  borrowing  margins   will  be  reduced.
Additionally, the Company pays a 3/8%  commitment fee on the unused portions  of
the revolving credit facilities.                                                

    The  Company has also paid  to the banks amendment  fees of 100 basis points
calculated on the aggregate term loan and commitment amounts in connection  with
the execution of the Third Restated Agreement.                                  

HEDGING REQUIREMENTS                                                            

    The  Credit Agreements required that the Company hedge a portion of the U.S.
dollar-based borrowings to protect against  increases in market interest  rates.
At September 30, 1993, the Company was a party to an interest rate swap contract
related  to $150 million of  such borrowings. The effect  of this contract is to
fix the  interest rate  at approximately  12.9%  on $150  million. The  swap  is
scheduled  to expire no later  than March 22, 1994.  Upon the expiration of this
contract, the interest  rate on  these borrowings  will be  the rates  described
above unless a new hedging arrangement is entered into.                         

SECURITY                                                                        

    Loans under the Credit Agreements are secured by a mortgage on the Company's
mill  in  Florence,  South  Carolina,  and a  pledge  of  the  stock  of various
subsidiaries of  the Company,  including Stone  Southwest, Inc.  and Stone  Mill
Operating  Corporation. Stone Southwest,  Inc. owns mills  in Snowflake, Arizona
and Panama City,  Florida, and Stone  Mill Operating Corporation  owns mills  in
Coshocton, Ohio, Missoula, Montana, Ontonagon, Michigan, and York, Pennsylvania.
The  Company has also  pledged to the lenders  all of the  common stock of Stone
Financial Corporation  and  Stone Fin  II  Receivables Corporation  and  certain
subordinated  notes payable to the Company. All of the stock of Stone Canada has
also been pledged to  the lenders under the  Credit Agreements. The Company  has
guaranteed  the  obligations of  Stone  Canada as  a  borrower under  the Credit
Agreements. The Company and its subsidiary, Stone Bag Corporation, have  granted
mortgages  and security interests on approximately 47 box or bag plants owned or
leased by the Company  or Stone Bag Corporation  in the United States,  together
with  all  fixed assets  located  at such  plants  and have  granted  a security
interest in inventories owned by the Company and Stone Bag Corporation.         

    Pursuant to the Third  Restated Agreement effective  December 17, 1993,  the
bank group obtained mortgages on the Uncasville, Connecticut mill owned by Stone
Connecticut Paperboard Corporation, the Coshocton, Ohio mill owned by Stone Mill
Operating  Corporation and the Pontiac mill  owned by Stone Canada. Stone Canada
also pledged 100% of the shares of Stone-Consolidated Corporation owned by Stone
Canada and executed a  limited recourse guaranty  of the Company's  indebtedness
under  the Credit Agreements. Stone Bag and Stone Connecticut have also executed
limited recourse  guarantees  of the  Company's  indebtedness under  the  Credit
Agreements.  Certain  other security  interests were  also  granted to  the bank
group.                                                                          

COVENANTS                                                                       

    The Credit Agreements  contain covenants that  include, among other  things,
requirements to maintain certain financial tests and ratios (including a minimum
current   ratio,  an  indebtedness  ratio,  an   EBITDA  test,  and  a  tangible

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net worth test)  and certain  restrictions and limitations,  including those  on
capital  expenditures,  changes  in  control, payments  of  dividends,  sales of
assets,  lease  payments,  investments,   additional  borrowings,  mergers   and
purchases of stock and assets.                                                  

CONSOLIDATED TANGIBLE NET WORTH                                         

    The  Third Restated Agreement requires that  the Company have a consolidated
tangible net worth at  the end of each  calendar quarter, less certain  excluded
investments,  at  least equal  to the  greater  of 50%  of (a)  the consolidated
tangible net  worth of  the Company  as of  March 1,  1989 and  (b) the  highest
consolidated  tangible net worth  of the Company  as of the  end of any calendar
quarter ending after March 1, 1989.                                             

EBITDA REQUIREMENT                                                      

    The Third Restated Agreement requires that the Company have earnings  before
interest, taxes, depreciation and amortization (as defined in the Third Restated
Agreement) equal to or greater than                                             

                                                        [Enlarge/Download Table]
                                                                                        
For the quarter ended December 31, 1993..........................................  $50.0
For the two quarters ended March 31, 1994........................................ $145.0
For the three quarters ended June 30, 1994....................................... $240.0
For the four quarters ended September 30, 1994................................... $325.0
For the four quarters ended December 31, 1994.................................... $380.0
For the four quarters ended March 31, 1995....................................... $465.0
For the four quarters ended June 30, 1995........................................ $545.0
For the four quarters ended September 30, 1995................................... $640.0
For the four quarters ended December 31, 1995.................................... $700.0
For the four quarters ended March 31, 1996....................................... $745.0
For the four quarters ended June 30, 1996........................................ $790.0
For the four quarters ended September 30, 1996................................... $835.0
For the four quarters ended December 31, 1996 and each four quarter period              
 thereafter...................................................................... $880.0

    On  December 29,  1993, the  banks amended  the Third  Restated Agreement to
permit the  earnings from  the sale  of the  Company's interest  in Empaques  de
Carton  Titan, S.A., a  Mexican corrugated container company,  to be counted for
purposes of satisfying  the minimum  EBITDA requirement solely  for the  quarter
ended December 31, 1993.                                                        

INDEBTEDNESS RATIO                                                      

    The  Company is currently  required to have an  indebtedness ratio (ratio of
total consolidated indebtedness  to consolidated tangible  net worth plus  total
consolidated  indebtedness, as such terms are  defined in the Credit Agreements)
not exceeding (i)  81% at  the end  of each calendar  month ending  on or  after
September  30, 1993 and ending prior to December 31, 1993; (ii) 81.5% at the end
of each calendar month ending on or after December 31, 1993 and ending prior  to
March  31, 1995;  (iii) 81.0% at  the end of  each calendar month  ending on and
after March 31, 1995 and ending prior to June 30, 1995; (iv) 80.0% at the end of
each calendar  month ending  on and  after June  30, 1995  and ending  prior  to
September  30, 1995; (v)  79.0% at the end  of each calendar  month ending on or
after September 30, 1995 and  ending prior to December  31, 1995; (vi) 78.0%  at
the  end of each calendar month ending on  or after December 31, 1995 and ending
prior to March 31, 1996; (vii) 76.0% at the end of each calendar month ending on
and after March 31, 1996 and ending prior to June 30, 1996; (viii) 74.0% at  the
end  of each calendar month ending on or after June 30, 1996 and ending prior to
September 30, 1996; (ix) 72.0%  at the end of each  calendar month ending on  or
after  September 30, 1996 and ending prior to  December 31, 1996; and (x) 68% at
the end of each calendar month ending on or after December 31, 1996.            

    At September 30, 1993, the Company's actual indebtedness ratio (as  defined)
was 79.6%.                                                                      

RESTRICTIONS ON INVESTMENTS IN SUBSIDIARIES AND GUARANTEES; CROSS-DEFAULTS      

    The  U.S.  Credit Agreement  contains prohibitions  on investments  in Stone
Venepal (Celgar) Pulp, Inc., a  Canadian federal corporation, and the  Company's
subsidiary,  Stone-Consolidated Corporation. The Credit Agreements also restrict
further investments  in  two  of  the  Company's  subsidiaries,  Seminole  Kraft
Corporation  and Stone Savannah  River Pulp & Paper  Corporation. The Company is
also  not  permitted  to   guarantee  the  indebtedness  of   Stone-Consolidated
Corporation  and  there are  restrictions on  other  guarantees. There  are also
restrictions on                                                                 

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transactions with affiliates which are  wholly-owned subsidiaries. Any event  of
default  or  default  with  respect to  a  Subsidiary's  indebtedness  for money
borrowed having an aggregate principal amount of $10 million or more constitutes
an event of default under the Credit Agreements.                                

RESTRICTIONS ON DIVIDENDS                                               

    The U.S. 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  $50  million  plus  (i)  50%  of  the
consolidated  net income  (as defined by  the Credit Agreements)  of the Company
from April 1, 1991 to the date of payment of such dividends, minus (ii) 100%  of
the  consolidated net loss (as defined by  the Credit Agreements) of the Company
from April 1, 1991 to the date of payment of such dividend plus (iii) 50% of any
net cash proceeds from sales of Common  Stock or certain preferred stock of  the
Company  from April 1, 1991 to the date of payment of such dividends. The Credit
Agreements also provide  that, with  respect to the  first cash  dividend to  be
declared  after September  1, 1992, such  declaration cannot be  made unless the
unused portion of  the revolving credit  facilities (net of  any unused  portion
required  to be reserved for capital expenditures only) is at least equal to $96
million plus the amount of such cash dividend.                                  

    At September 30, 1993, the dividend pool under the U.S. Credit Agreement had
a deficit of  approximately $334.1 million.  The dividend pool  will be  further
reduced  by  100% of  the  consolidated net  loss of  the  Company that  will be
reported for the fourth quarter of 1993. The dividend pool will be increased  by
50%  of any net cash proceeds from the sale of Common Stock or certain preferred
stock of the Company.                                                           

    In addition, the indentures relating  to the Debt Securities and  indentures
relating  to the Company's outstanding  senior subordinated indebtedness and the
13 5/8% Subordinated Notes due 1995  also restrict the payment of dividends  and
distributions.  See "Description of  Debt Securities --  Particular Terms of the
Senior Debt Securities --  Certain Covenants --  Dividend Restrictions" and  "--
Additional  Terms  of  the  Senior  Subordinated  Debt  Securities  --  Dividend
Restrictions."                                                                  

RESTRICTIONS ON INCURRENCE OF INDEBTEDNESS                              

    The Credit Agreements  restrict the incurrence  of additional  indebtedness,
subject  to certain exceptions. The U.S. Credit Agreement permits the Company to
undertake accounts receivable securitization financings  of up to $500  million,
the  initial net proceeds of which are required to be used to reduce outstanding
term loans. The  Company has instituted  two accounts receivable  securitization
financings  of $365 million of which balances of $261.3 million were outstanding
as of September 30, 1993.  The Company may incur  an additional $135 million  in
securitization financings under the Credit Agreements although no new program is
currently contemplated.                                                         

    In  addition, the Company's indentures relating  to the Debt Securities also
restricts  the  incurrence  of  additional  indebtedness,  subject  to   certain
exceptions.  See  "Description of  Debt Securities  --  Particular Terms  of the
Senior Debt Securities -- Certain  Covenants -- Limitation on Future  Incurrence
of Indebtedness."                                                               

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DESCRIPTION OF DEBT SECURITIES

    The following description sets forth certain general terms and provisions of
the  Debt  Securities  to  which  any  Prospectus  Supplement  may  relate.  The
particular terms of the Debt Securities offered by any Prospectus Supplement and
the extent, if  any, to  which such  general provisions  may apply  to the  Debt
Securities so offered will be described in the Prospectus Supplement relating to
such Debt Securities.                                                           

    The  Debt Securities may be  issued from time to time  in one or more series
and will  constitute either  Senior Debt  Securities, Senior  Subordinated  Debt
Securities  or  Subordinated Debt  Securities.  Senior Debt  Securities  will be
issued under an Indenture dated as of  November 1, 1991, as supplemented by  the
First  Supplemental  Indenture  dated as  of  June  23, 1993  (the  "Senior Debt
Securities Indenture"), between the Company and The Bank of New York, as trustee
(the "Senior Debt Securities Trustee"). The Senior Subordinated Debt  Securities
will  be issued  under an  Indenture (the  "Senior Subordinated  Debt Securities
Indenture") to  be entered  into  by the  Company  and Norwest  Bank  Minnesota,
National  Association,  as  Trustee (the  "Senior  Subordinated  Debt Securities
Trustee"). The Subordinated Debt  Securities will be  issued under an  Indenture
(the  "Subordinated  Debt  Securities Indenture")  dated  as of  March  15, 1992
between the Company and The Bank of New York, as trustee (the "Subordinated Debt
Securities  Trustee").  The  Senior   Debt  Securities  Indenture,  the   Senior
Subordinated  Debt  Securities Indenture  and  the Subordinated  Debt Securities
Indenture  are  referred   to  herein  individually   as  an  "Indenture"   and,
collectively,  as the "Indentures," and the  Senior Debt Securities Trustee, the
Senior Subordinated Debt Securities Trustee and the Subordinated Debt Securities
Trustee are referred to herein individually as to the "Trustee" and collectively
as the  "Trustees."  A  copy of  each  Indenture  is filed  or  incorporated  by
reference as an exhibit to the Registration Statement.                          

    The following summaries of certain provisions of the Debt Securities and the
Indentures  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 Indentures,
including the definitions  therein of certain  terms. Certain capitalized  terms
herein are defined in the Indentures.                                           

GENERAL                                                                         

The Debt Securities will be unsecured obligations of the Company.       

    The  Indentures  do  not  limit  the  aggregate  principal  amount  of  Debt
Securities which may be issued thereunder  and provide that Debt Securities  may
be issued thereunder from time to time in one or more series.                   

    Reference  is  made  to  the  Prospectus  Supplement  relating  to  the Debt
Securities being  offered  (the  "Offered Debt  Securities")  for,  among  other
things,  the  following  terms  thereof:  (1)  the  title  of  the  Offered Debt
Securities; (2) the aggregate principal  amount of the Offered Debt  Securities;
(3)  the date or dates on which the Offered Debt Securities will mature; (4) the
rate or rates (which may  be fixed or variable) per  annum at which the  Offered
Debt  Securities will bear interest  and the date from  which such interest will
accrue; (5) the dates  on which such  interest will be  payable and the  Regular
Record  Dates for such Interest Payment Dates;  (6) the dates, if any, on which,
and the price or prices at which,  the Offered Debt Securities may, pursuant  to
any  mandatory or optional  sinking fund provisions, be  redeemed by the Company
and other detailed terms and provisions of such sinking funds; (7) the terms and
conditions,  if  any,  pursuant  to  which  the  Offered  Debt  Securities   are
convertible  into Common Stock; and  (8) the date, if  any, after which, and the
price or  prices at  which, the  Offered Debt  Securities may,  pursuant to  any
optional  redemption provisions, be redeemed at the  option of the Company or of
the Holder thereof  and other  detailed terms  and provisions  of such  optional
redemption.  For  a description  of the  terms of  the Offered  Debt Securities,
reference must be made to both the Prospectus Supplement relating thereto and to
the description of Debt Securities set forth herein.                            

    Debt Securities which are convertible into  Common Stock may only be  issued
under the Senior Subordinated Debt Securities Indenture.                        

    Unless  otherwise indicated  in the Prospectus  Supplement relating thereto,
the principal of, and  any premium or interest  on, the Offered Debt  Securities
will  be  payable, and  the  Offered Debt  Securities  will be  exchangeable and
transfers thereof will be registrable, at  the Place of Payment, 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 Security
Register.                                                                       

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    Unless otherwise indicated  in the Prospectus  Supplement relating  thereto,
the  Offered Debt Securities  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  Offered  Debt Securities,  but the  Company  may require  payment of  a sum
sufficient to cover any tax or  other governmental charge payable in  connection
therewith.                                                                      

RANKING                                                                         

    The Senior Debt Securities will rank PARI PASSU in right of payment with all
other  Senior Indebtedness (as defined) of  the Company. The Senior Subordinated
Debt Securities will (i) be subordinate in right of payment to all existing  and
future Senior Indebtedness of the Company, (ii) be senior in right of payment to
all  existing and future Junior Subordinated Indebtedness (as defined) and (iii)
rank PARI  PASSU  in  right of  payment  with  all existing  and  future  Senior
Subordinated  Indebtedness (as  defined). The Subordinated  Debt Securities will
(i) be  subordinate  in right  of  payment to  all  existing and  future  Senior
Indebtedness  and Senior Subordinated Indebtedness and (ii) rank PARI PASSU upon
liquidation with all existing and future Junior Subordinated Indebtedness.      

    A  substantial  portion  of  the  Company's  assets  currently  secure   the
borrowings  outstanding under  the Credit Agreements,  which are  a component of
Senior Indebtedness. At July 29, 1993, the Company, together with Stone  Canada,
had  $1.601  billion  of  term-loan  borrowings  outstanding  under  the  Credit
Agreements plus approximately $101 million  in borrowings outstanding under  the
revolving credit facilities available under the Credit Agreements.              

    The  Debt Securities are obligations exclusively of the Company. Because the
operations of the Company are currently conducted primarily by subsidiaries, the
Company's cash flow and consequent ability  to service debt, including the  Debt
Securities,  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 Debt  Securities  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.                                                        

    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  to
participate  in  the distribution  of  or proceeds  from  those assets)  will be
effectively 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.  The  12  1/8% Subordinated
Debentures due  September  15, 2001  of  Stone Southwest,  Inc.,  a  significant
wholly-owned  Subsidiary of the Company, have  been guaranteed on a subordinated
basis by  the  Company.  At  September 30,  1993,  approximately  $92.1  million
principal  amount of such 12 1/8% Subordinated Debentures due September 15, 2001
was outstanding.                                                                

BOOK-ENTRY DEBT SECURITIES                                                      

    The Debt Securities of  a series may be  issued in whole or  in part in  the
form  of one or more Global Securities that will be deposited with, or on behalf
of, a  Depositary ("Depositary")  or its  nominee identified  in the  applicable
Prospectus  Supplement. In such  a case, one  or more Global  Securities will be
issued in a denomination or aggregate  denomination equal to the portion of  the
aggregate  principal amount of  outstanding Debt Securities of  the series to be
represented by such Global Security or Global Securities. Unless and until it is
exchanged in whole or in part for  Debt Securities in registered form, a  Global
Security may not be registered for transfer or exchange except as a whole by the
Depositary  for such  Global Security to  a nominee  of such Depositary  or by a
nominee of  such  Depositary to  such  Depositary  or another  nominee  of  such
Depositary  or by such Depositary or any  nominee to a successor Depositary or a
nominee of such successor Depositary  and except in the circumstances  described
in the applicable Prospectus Supplement.                                        

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    The specific terms of the depositary arrangement with respect to any portion
of  a series of Debt  Securities to be represented by  a Global Security will be
described in the applicable Prospectus Supplement. The Company expects that  the
following provisions will apply to depositary arrangements.                     

    Unless  otherwise specified  in the  applicable Prospectus  Supplement, Debt
Securities which are to be represented by a Global Security to be deposited with
or on behalf of a Depositary will be represented by a Global Security registered
in the name of such Depositary or its nominee. Upon the issuance of such  Global
Security,  and the  deposit of  such Global  Security with  or on  behalf of the
Depositary for  such  Global  Security,  the  Depositary  will  credit,  on  its
book-entry registration and transfer system, the respective principal amounts of
the  Debt  Securities represented  by such  Global Security  to the  accounts of
institutions  that  have   accounts  with   such  Depositary   or  its   nominee
("participants").  The  accounts  to  be  credited  will  be  designated  by the
underwriters or agents of such Debt  Securities or, if such Debt Securities  are
offered  and  sold  directly  by  the  Company,  by  the  Company.  Ownership of
beneficial interests in such Global Security will be limited to participants  or
Persons  that may hold  interests through participants.  Ownership of beneficial
interests by participants  in such  Global Security will  be shown  on, and  the
transfer  of  that ownership  interest will  be  effected only  through, records
maintained by the Depositary or its nominee for such Global Security.  Ownership
of  beneficial interests  in such Global  Security by Persons  that hold through
participants will  be shown  on, and  the transfer  of that  ownership  interest
within  such participant  will be effected  only through,  records maintained by
such participant. The laws of some jurisdictions require that certain purchasers
of securities take physical  delivery of such  securities in certificated  form.
The  foregoing  limitations and  such laws  may impair  the ability  to transfer
beneficial interests in such Global Securities.                                 

    So long as  the Depositary for  a Global  Security, or its  nominee, is  the
registered  owner of such  Global Security, such Depositary  or such nominee, as
the case may be, will be considered  the sole owner or Holder of the  Securities
represented  by  such  Global Security  for  all purposes  under  the applicable
Indenture. Unless otherwise specified  in the applicable Prospectus  Supplement,
owners  of beneficial interests in such Global  Security will not be entitled to
have  Debt  Securities  of  the  series  represented  by  such  Global  Security
registered  in their names, will not receive  or be entitled to receive physical
delivery of Debt Securities of such series in certificated form and will not  be
considered  the Holders thereof for any purposes under the applicable Indenture.
Accordingly, each Person owning  a beneficial interest  in such Global  Security
must  rely on  the procedures  of the Depositary  and, if  such Person  is not a
participant, on the procedures of the participant through which such Person owns
its interest, to exercise any rights of a Holder under the applicable Indenture.
The Company understands that under  existing industry practices, if the  Company
requests  any action  of Holders or  an owner  of a beneficial  interest in such
Global Security  desires to  give any  notice or  take any  action a  Holder  is
entitled  to give or  take under the applicable  Indenture, the Depositary would
authorize the  participants  to  give  such notice  or  take  such  action,  and
participants  would authorize beneficial owners owning through such participants
to give  such  notice or  take  such action  or  would otherwise  act  upon  the
instructions of beneficial owners owning through them.                          

    Principal  of and  any premium  and interest  on a  Global Security  will be
payable in the manner described in the applicable Prospectus Supplement.        

PARTICULAR TERMS OF THE SENIOR DEBT SECURITIES

    The following description of the  Senior Debt Securities sets forth  certain
general  terms  and  provisions  of  the Senior  Debt  Securities  to  which any
Prospectus Supplement  may  relate. The  particular  terms of  the  Senior  Debt
Securities offered by any Prospectus Supplement and the extent, if any, to which
such  general provisions may apply to the Senior Debt Securities so offered will
be  described  in  the  Prospectus  Supplement  relating  to  such  Senior  Debt
Securities.                                                                     

CERTAIN COVENANTS                                                               

MAINTENANCE OF SUBORDINATED CAPITAL BASE                                

    The Senior Debt Securities Indenture provides that, subject to the exception
described  in the  third 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 Senior Debt  Securities of each series,  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                                                        

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fiscal year), make an  offer to all  Holders of Senior  Debt Securities of  each
such  series to purchase (a  "Deficiency Offer") 10% of  the principal amount of
Senior Debt Securities  of each such  series 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 Senior Debt Securities
of  each such series 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.                                                        

    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  Senior Debt Securities  of the  applicable series in
respect of the Deficiency Offer (which notice shall contain all instructions and
materials necessary to enable  such Holders to  tender Senior Debt  Securities).
Senior  Debt Securities 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  accept for payment  Senior
Debt  Securities of each applicable series 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 Senior Debt Securities  as
shall  have been tendered, and deposit with the Paying Agent money sufficient to
pay the purchase price of all such Senior Debt Securities or portions thereof so
accepted. If  the aggregate  principal  amount of  such Senior  Debt  Securities
tendered  exceeds  the Deficiency  Offer Amount,  the  Company shall  select the
Senior Debt Securities 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  Senior Debt Securities 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 Senior
Debt Securities of the same  series as, and equal  in principal amounts to,  any
unpurchased  portion of the Senior Debt Securities 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 Senior Debt Securities 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 in an aggregate principal amount greater  than
$25  million,  then,  in  lieu  of  the making  of  a  Deficiency  Offer  in the
circumstances set  forth  above,  (i)  the interest  rate  on  the  Senior  Debt
Securities  of each applicable series 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 as set forth on the face of the Senior Debt Security (the "Initial Interest
Rate") and (y) the sum of (A) the basis points specified in the applicable Board
Resolution  or supplemental indenture  for purposes of  this reset provision and
(B) the  highest  of  the  treasury rates  specified  in  the  applicable  Board
Resolution  or supplemental indenture for purposes of this reset provision, (ii)
on the first Interest Payment Date  following the Reset Date, the interest  rate
on  the Senior Debt Securities of each such  series, as reset on the Reset Date,
shall increase by 50  basis points, and  (iii) the interest  rate on the  Senior
Debt  Securities of each such series shall  further increase by an additional 50
basis points  on  each succeeding  Interest  Payment Date.  Notwithstanding  the
foregoing,  in no event shall the interest rate on the Senior Debt Securities of
any such series at any  time exceed the Initial Interest  Rate by more than  200
basis points. If the Company's Subordinated Capital Base falls below $1 billion,
the Company would be in default of certain covenants in the Credit Agreements as
in effect on the date hereof.                                                   

    Once  the interest rate on the Senior Debt Securities of any series 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 Senior Debt
Securities of each such                                                         

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series 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 Senior Debt Securities of  each such series 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 Senior Debt  Securities 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 in an aggregate principal amount greater than $25 million.     

    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
Senior  Debt Securities of  the applicable series such  notice setting forth the
Reset Rate. The Company shall notify the Trustee and the Holders of such  Senior
Debt  Securities promptly when the interest rate on such Debt Securities returns
to the Initial Interest Rate as set forth above.                                

    With respect to any Deficiency Offer, the Company intends to comply with the
requirements of Section  14(e) and Rule  14e-1 under the  Exchange Act, if  then
applicable.                                                                     

LIMITATION ON FUTURE INCURRENCE OF INDEBTEDNESS                         

    The Senior Debt Securities 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 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.                                                                     

DIVIDEND RESTRICTIONS                                                   

    The Senior Debt Securities 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 with  respect to  any
series  of the Senior Debt  Securities 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 the date of the
Senior Debt Securities Indenture 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) exceed
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                                                                    

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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  the date  of the  Senior Debt  Securities Indenture, 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 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  the date of  the
Senior  Debt Securities Indenture, 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 Senior  Debt  Securities Indenture,  if the
Company or any  Subsidiary shall create,  incur, assume or  suffer to exist  any
Lien  upon any  of the  assets of  the Company  or a  Subsidiary of  the Company
(whether such  assets  are owned  at  the date  of  the Senior  Debt  Securities
Indenture  or thereafter  acquired) as  a security  for (1)  any Indebtedness or
other obligation (whether unconditional or contingent) of the Company that ranks
PARI PASSU  with  the  Senior  Debt Securities  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 Senior  Debt Securities  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 Senior Debt
Securities 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 Senior Debt Securities  Indenture,
the  Company will not guarantee the Indebtedness  of any Subsidiary and will not
permit any Subsidiary (including Stone  Savannah River Pulp & Paper  Corporation
and Seminole Kraft Corporation) to guarantee (i) any Indebtedness of the Company
that  ranks PARI PASSU with the Senior Debt Securities, (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 Senior Debt  Securities 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  the date  of the  Senior Debt
Securities Indenture 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 Senior Debt Securities 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
(including  Stone Savannah  River Pulp  & Paper  Corporation and  Seminole Kraft
Corporation) of Indebtedness or other                                           

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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 the date  of the Senior
Debt Securities Indenture, plus $250 million and less the proceeds from the sale
of all Senior Debt Securities issued from time to time that are applied to repay
Indebtedness under the Credit  Agreements); (7) any guaranty  by the Company  of
Indebtedness  of any Restricted Subsidiary outstanding on the date of the Senior
Debt Securities Indenture which is not subordinated to any Indebtedness of  such
Restricted  Subsidiary,  and  any  renewal  extension  or  refinancing  of  such
Indebtedness permitted by the Senior Debt Securities 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 Senior Debt  Securities 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 Senior Debt Securities Indenture;
(10)  any  guaranty by  the Company  or  a Subsidiary  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  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 Senior Debt  Securities Indenture provides  that so long  as any of  the
Senior  Debt Securities are Outstanding, (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 the date of the
Senior Debt  Securities Indenture  (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  Senior Debt Securities  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                                

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

    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  Amount) 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.                                                   

    Notice  of  an Asset  Disposition Offer  shall  be mailed  on behalf  of the
Company by the Trustee to  all Holders of Senior  Debt Securities 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 5 Business Days before the Asset Disposition Payment
Date.                                                                           

    On the Asset Disposition Payment Date, the Company shall accept for  payment
Senior  Debt  Securities  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 Senior  Debt Securities as
shall have been tendered, and deposit with the Paying Agent money sufficient  to
pay  the purchase  price of  all Senior Debt  Securities or  portions thereof so
accepted. If the aggregate principal  amount of Senior Debt Securities  tendered
exceeds  the Asset Disposition Offer Amount, the Company shall select the Senior
Debt Securities 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
Senior Debt Securities 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  Senior Debt
Security of  the  applicable  series  and  equal  in  principal  amount  to  any
unpurchased  portion of the  Senior Debt Security  surrendered. The Company will
publicly announce the results of the Asset Disposition Offer.                   

    With respect to any Asset Disposition  Offer, the Company intends to  comply
with the requirements of Section 14(e) and Rule 14e-1 under the Exchange Act, if
applicable.                                                                     

RESTRICTIONS ON MERGERS AND CONSOLIDATIONS AND SALES OF ASSETS          

    The  Senior Debt  Securities Indenture provides  that the  Company shall not
consolidate with, 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                                                                         

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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 or  any State thereof  or the District  of Columbia and  expressly
assumes,  by an indenture supplemental to  the Senior Debt Securities Indenture,
all the obligations  of the  Company under the  Senior Debt  Securities and  the
Senior Debt Securities Indenture; (2) immediately before and after giving effect
to  such transaction, no Event  of Default, and no  Default, with respect to the
Senior Debt Securities shall  have occurred and  be continuing; (3)  immediately
after  giving effect to such transaction on a  pro forma basis, but prior to any
purchase accounting adjustments resulting from the transaction, 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  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
under the covenant contained in the Senior Debt Securities Indenture restricting
the incurrence of Indebtedness; PROVIDED, HOWEVER, that this clause (4) shall be
inapplicable if (a) such transaction would result in the occurrence of a  Change
of  Control or (b) immediately  prior to giving effect  to such transaction, 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 on  a pro forma basis (but prior to  any
purchase   accounting   adjustments   resulting  from   the   transaction),  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;  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  Senior  Debt  Securities  Indenture.
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 the rating ascribed to
the Senior Debt Securities of any  series by Standard and Poor's Corporation  or
Moody's  Investors Service, Inc. shall be lower  than the rating ascribed to the
Senior Debt Securities of  any series prior to  the public announcement of  such
transaction, then the Company shall make an offer for the Senior Debt Securities
of  each  series  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 secure the due and punctual payment of
the  principal  of,  and  premium,  if any,  and  interest  on  the  Senior Debt
Securities of each series 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 Senior
Debt Securities 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 Senior Debt  Securities 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 Senior Debt Securities                                               

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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 Senior  Debt Securities without  giving rise to  an
event of default under such Specified Bank Debt.                                

    As  of September 30, 1993, approximately $1.7 billion of Specified Bank Debt
was outstanding.                                                                

    Promptly upon satisfaction of either one of the obligations described above,
the Company shall mail a notice to each Holder of Senior Debt Securities of each
applicable series in respect of the Change of Control Offer (which notice  shall
contain  all  instructions and  materials necessary  to  enable such  Holders to
tender Senior Debt Securities).  All Senior Debt  Securities of each  applicable
series  tendered will be accepted for payment  on a date (the "Change of Control
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 accept for  payment
Senior  Debt Securities of  each applicable series  or portions thereof tendered
pursuant to the Change of Control Offer, and deposit with the Paying Agent money
sufficient to  pay the  purchase price  of all  Senior Debt  Securities of  each
applicable  series  or  portions thereof  so  accepted. The  Paying  Agent shall
promptly mail  or  deliver to  the  Holder of  Senior  Debt Securities  of  each
applicable  series 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 Senior Debt Security of  the same series as, and
equal in  principal  amount to,  any  unpurchased  portion of  the  Senior  Debt
Security  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. With respect to any Change of Control Offer, the
Company  intends to comply with the requirements of Section 14(e) and Rule 14e-1
under the Exchange Act, if then applicable.                                     

RANKING OF SENIOR DEBT SECURITIES                                               

    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 Debt Securities.  The Senior Debt Securities  are
senior  to  the Company's  $150 million  aggregate principal  amount of  10 3/4%
Senior Subordinated Notes due  June 15, 1997,  $125 million aggregate  principal
amount  of  11% Senior  Subordinated  Notes due  August  15, 1999,  $230 million
aggregate principal amount of 11 1/2% Senior Subordinated Notes due September 1,
1999, $200 million  aggregate principal  amount of 10  3/4% Senior  Subordinated
Debentures  due April 1, 2002, $250 million aggregate principal amount of 8 7/8%
Convertible Senior Subordinated Notes due  July 15, 2000, $98 million  aggregate
principal  amount  of 13  5/8% Subordinated  Notes  due June  1, 1995,  and $115
million aggregate 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  Senior  Debt  Securities
Indenture  with respect to Senior Debt Securities  of any series: (1) failure to
pay interest on any Senior Debt Security of that series when due, continued  for
30 days; (2) failure to pay the principal of (or premium, if any, on) any Senior
Debt  Securities  of  that  series  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 as described under "Change of Control" above or otherwise; (3)
failure to  observe  or  perform  any  other  covenant,  warranty  or  agreement
contained  in the Senior  Debt Securities of  that series or  in the Senior Debt
Securities Indenture (other than a  covenant, agreement or warranty included  in
the  Senior  Debt Securities  Indenture solely  for the  benefit of  Senior Debt
Securities other than  that series),  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   Senior    Debt

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Securities of that series; (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  Senior  Debt
Securities of that series; (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; and (7) any other Event of Default  with
respect  to Senior  Debt Securities of  that series specified  in the Prospectus
Supplement relating thereto.                                                    

    The Senior Debt Securities Indenture provides that the Trustee shall, within
30 days after the occurrence of any Default or Event of Default with respect  to
Senior Debt Securities of any series, give the Holders of Senior Debt Securities
of  that series 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  Senior Debt Securities  of any  series, 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 Senior Debt Securities of that series.               

    If  an Event of Default with respect to Senior Debt Securities of any series
(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  Senior Debt Securities of  that series, by notice  in
writing  to the Company (and to the Trustee  if given by the Holders of at least
25% in aggregate amount of Senior  Debt Securities of that series), may  declare
the  unpaid principal of and accrued interest to the date of acceleration on all
the Outstanding Senior  Debt Securities  of that series  to be  due and  payable
immediately  and, upon any such declaration,  the Senior Debt Securities of that
series 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 Senior  Debt Securities  of any  series ipso  facto  becomes
immediately  due and payable without any declaration or other act on the part of
the Trustee or any Holder of any Senior Debt Security of that series.           

    Any such declaration with  respect to Senior Debt  Securities of any  series
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 Senior Debt Securities of  that series) may be waived by the
Holders of a  majority of the  principal amount of  the Outstanding Senior  Debt
Securities,   upon  the  conditions  provided  in  the  Senior  Debt  Securities
Indenture.                                                                      

    The  Senior  Debt  Securities  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  with respect  to Senior Debt  Securities of  any series in
performing such covenants of which the signers may have knowledge.              

MODIFICATION OF SENIOR DEBT SECURITIES INDENTURE; WAIVER                        

    The Senior Debt Securities 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 Senior Debt Securities Indenture and (ii)  to make any change that does  not
materially  adversely  affect  the  interests  of  any  Holder  of  Senior  Debt
Securities of  any  series.  In  addition,  under  the  Senior  Debt  Securities
Indenture,  certain  rights and  obligations of  the Company  and the  rights of
Holders of the Senior  Debt Securities may  be modified by  the Company and  the
Trustee  with  the written  consent of  the Holders  of at  least a  majority in
principal amount  of  the Outstanding  Senior  Debt Securities  of  each  series
affected thereby; but no extension of the maturity of any Senior Debt Securities
of  any series,  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 Senior  Debt Securities  of any series,

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other modification in the terms  of payment of the  principal of or interest  on
any  Senior  Debt  Securities of  any  series,  or reduction  of  the percentage
required  for  modification,  will  be  effective  against  any  Holder  of  any
Outstanding  Senior Debt  Security of  any series  affected thereby  without his
consent. The  Senior Debt  Securities  Indenture does  not limit  the  aggregate
amount of Senior Debt Securities of the Company which may be issued thereunder. 

    The Holders of a majority in principal amount of the Outstanding Senior Debt
Securities  of  any series  may  on behalf  of the  Holders  of all  Senior Debt
Securities of that series waive, insofar as that series is concerned, compliance
by the Company with certain restrictive covenants of the Senior Debt  Securities
Indenture.  The Holders of not  less than a majority  in principal amount of the
Outstanding Senior Debt Securities of any series may on behalf of the Holders of
all Senior Debt Securities  of that series  waive any past  Event of Default  or
Default  under the Senior Debt Securities Indenture with respect to that series,
except an Event of Default  or a Default in the  payment of the principal of  or
premium,  if any, or any interest on any  Senior Debt Security of that series or
in respect  of a  provision which  under the  Senior Debt  Securities  Indenture
cannot  be  modified  or amended  without  the  consent of  the  Holder  of each
Outstanding Senior Debt Security of that series affected.                       

SATISFACTION AND DISCHARGE OF SENIOR DEBT SECURITIES INDENTURE; DEFEASANCE      

    The Company may terminate its  substantive obligations in respect of  Senior
Debt  Securities  of  any  series  by  delivering  all  Outstanding  Senior Debt
Securities of that series  to the Trustee for  cancellation and paying all  sums
payable  by  it on  account  of principal  of and  interest  on all  Senior Debt
Securities  of  that  series  or  otherwise.  The  Company  may  terminate   its
substantive  obligations  in respect  of Senior  Debt  Securities of  any series
(except for its obligations to  pay the principal of  (and premium, if any,  on)
and  the interest on the Senior Debt Securities of any series) 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 Senior  Debt Securities of that  series, (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  Senior
Debt  Securities of  that series  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 Senior Debt Securities Indenture. In addition, the Company may terminate all
of its  substantive obligations  in respect  of Senior  Debt Securities  of  any
series  (including its obligations to pay the principal of (and premium, if any,
on) and interest on the Senior Debt Securities of any series) 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 Senior  Debt Securities of that  series, (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 Senior  Debt Securities of that
series 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  Senior Debt Securities  Indenture, to  such effect, and
(iii) complying with  certain other requirements  set forth in  the Senior  Debt
Securities Indenture.                                                           

THE TRUSTEE                                                                     

    The  Bank of New York, a New  York banking corporation, is the Trustee under
the Senior Debt Securities Indenture.                                           

    The Company maintains normal commercial  banking relations with The Bank  of
New  York, which is  also a lender  under the Credit  Agreements and the Trustee
under the Subordinated  Debt Securities  Indenture and other  indentures of  the
Company.                                                                        

CERTAIN DEFINITIONS                                                             

    For  purposes of the Senior Debt Securities 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

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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 Company,  then such  Person shall be
deemed to be an "Acquiring Person."                                             

    "ASSET DISPOSITION"  means  any sale, transfer 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 or  other disposition  by  a
Restricted  Subsidiary to the Company or  to another Restricted Subsidiary or by
the Company to a Restricted Subsidiary, any sale, transfer or other  disposition
of  defaulted  Receivables  for  collection  or  any  sale,  transfer  or  other
disposition in the  ordinary course  of business,  but shall  include any  sale,
transfer  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.                                                                    

    "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) 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.                                                               

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    "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 purchase  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 as follows: (1) in respect of (a) revolving credit facilities under the
Credit Agreements and (b) revolving  credit, revolving Receivables purchases  or
other similar arrangements the use of the proceeds of which is restricted solely
to  the payment of Indebtedness of the Company or any Restricted Subsidiary, the
interest expense attributable  to the principal  amounts outstanding  thereunder
during  such period, in accordance with the terms thereof; and (2) in respect of
all other revolving  credit, revolving Receivables  purchases and other  similar
arrangements,  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 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 any restrictions
contained in the instruments relating to the 12 1/8% Subordinated Debentures due
September  15, 2001 of Stone  Southwest, Inc.) 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. 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 the date of
the Senior Debt Securities Indenture.                                           

    "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 the date of the Senior Debt Securities
Indenture, or (b) subsequently becomes a member of such                         

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Board of Directors and whose nomination  for election or election to such  Board
of  Directors is  recommended or  approved by  resolution of  a majority  of the
Continuing Directors or who 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., Manufacturers  Hanover Trust  Company (now  Chemical Bank)  and The  First
National  Bank  of Chicago,  as co-agents  for  such financial  institutions, as
amended, modified, refinanced or  extended from time to  time (the "U.S.  Credit
Agreement"),  (ii) the credit agreement, dated as of March 1, 1989, by and among
Stone-Consolidated Inc., the financial  institutions signatory thereto,  Bankers
Trust  Company, as  agent for such  financial institutions,  and Citibank, N.A.,
Manufacturers Hanover Trust Company (now  Chemical Bank) and The First  National
Bank  of  Chicago, as  co-agents for  such  financial institutions,  as amended,
modified, refinanced,  or  extended from  time  to time  (the  "Canadian  Credit
Agreement") and (iii) the revolving credit agreement, dated as of March 1, 1989,
by  and  among  Stone-Consolidated Inc.,  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 or extended from time to time (the "Canadian Revolver").   

    "GAAP"   means generally accepted accounting  principles, as in effect as of
the date  of  the Senior  Debt  Securities Indenture  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 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 as follows: (a) in respect of (1)
revolving credit  facilities under  the Credit  Agreements and  (2)  commitments
under other                                                                     

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revolving  credit, revolving Receivables purchases or other similar arrangements
the use of  the proceeds  of which  is restricted  primarily to  the payment  of
Indebtedness of the Company or any Restricted Subsidiary permitted by the Senior
Debt  Securities Indenture, the principal amounts outstanding thereunder at such
date; and  (b) in  respect  of commitments  under  all other  revolving  credit,
revolving  Receivables purchases and other  similar arrangements, the amounts of
such commitments as of the date of determination.                               

"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 Debt Securities of any series 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 the Senior Debt Securities 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                                                                       

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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,  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 the  date  of  the  Senior Debt  Securities  Indenture  (approximately  $2.52
billion),  PLUS $250 million, and LESS the  proceeds from the sale of all Senior
Debt Securities issued from time to time that are applied to repay  Indebtedness
under  the Credit  Agreements; (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; and  (c) any  Indebtedness under  Senior Debt
Securities the proceeds of which shall  be used to repay Indebtedness under  the
Credit  Agreements within five Business Days  after any such issuance; PROVIDED,
HOWEVER, that:                                                                  

        (1) the aggregate  principal amount  permitted to  be outstanding  under
    clause  (a)  shall be  reduced  by the  aggregate  amount of  any subsequent
    repayments or prepayments of any Senior Indebtedness (other than the  Senior
    Debt  Securities) out  of the  proceeds of  Asset Dispositions  as described
    under "LIMITATION ON  ASSET DISPOSITIONS"  above 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  (x) the principal amount  outstanding under the  Credit
    Agreements  on  the date  of  the Senior  Debt  Securities Indenture  net of
    subsequent reductions thereof, and (B) the aggregate amount permitted to  be
    incurred  under  clause  (b)  shall  be  reduced  by  the  principal  amount
    outstanding under  the  Pledge and  Administration  Agreement, dated  as  of
    August  15, 1991, between Stone Financial Corporation and Castlewood Funding
    Corporation (the  "Castlewood Agreement")  on the  date of  the Senior  Debt
Securities Indenture 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-Consolidated Group may incur,
    assume or guarantee any Indebtedness under clauses (i)(a) and (i)(b)  above:
    (A)  under any revolving credit facilities of Restricted Subsidiaries in the
    Stone-Consolidated Group entered into pursuant to this clause (i) for  which
    the aggregate amount committed thereunder does not exceed an amount equal to
    (x)  the  aggregate amount  committed  as of  the  date of  the  Senior Debt
    Securities  Indenture   under  the   revolving   credit  facility   of   the
    Stone-Consolidated  Group (the "Canadian Revolver")  contained in the Credit
    Agreements, PLUS  (y)  an  amount  not exceeding  $200  million  to  finance
    increases  after the  date of  the Senior  Debt Securities  Indenture in the
    working capital of Restricted Subsidiaries in the Stone-Consolidated  Group,
    LESS  (z) the principal  amount outstanding on  the date of  the Senior Debt
    Securities  Indenture  under  the  Canadian  Revolver  (net  of   subsequent
reductions thereof),                                                    

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    (B)  as to  which an officer  of the  Company shall have  determined in good
    faith (which  determination shall  be  evidenced by  a certificate  of  such
    officer)  that such Indebtedness is for a bona fide business purpose of such
    Restricted Subsidiary  and that  during the  term of  such Indebtedness  the
    taxable  income  (before deduction  of interest  expense) against  which the
    interest expense for  such Indebtedness  can be deducted  is not  reasonably
    anticipated  to be  significantly less  than the  aggregate interest expense
    which can be deducted against such taxable income or (C) which is  currently
    outstanding  under the term loan facility of the U.S. Credit Agreement, such
    Indebtedness incurred, assumed or guaranteed under this clause (C) to be  in
    a  principal amount not exceeding (x) the principal amount outstanding as of
    the date  of  the Senior  Debt  Securities  Indenture under  the  term  loan
    facility under the U.S. Credit Agreement LESS (y) the proceeds from the sale
    of  all Senior Debt Securities issued from  time to time that are applied to
repay such term loan facility;                                          

(ii) Permitted Subordinated Indebtedness;                               

(iii) Permitted Refinancing Indebtedness;                               

(iv) Permitted Stone-Consolidated Indebtedness;                         

(v) Permitted Existing Indebtedness of an Acquired Person;              

    (vi) Indebtedness incurred  for the  purpose of acquiring  Capital Stock  of
another  Person, 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  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 Obligations,  Currency  Agreements  or Commodities
Agreements relating to Indebtedness  that was not incurred  in violation of  the
terms of the Senior Debt Securities 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 the date of the  Senior Debt Securities Indenture; 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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    (ii) Liens upon property or assets acquired or constructed by such Person or
any  Affiliate  after  the  date  of the  Senior  Debt  Securities  Indenture or
constituting improvements after the date of the Senior Debt Securities Indenture
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;"                    

    (iv) Liens covering property subject to any Capitalized Lease Obligation  or
other  lease  which  was  not  entered into  in  violation  of  the  Senior Debt
Securities 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 Senior  Debt Securities
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 Senior Debt Securities 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  Senior Debt  Securities 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;

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    (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 the date of the Senior Debt Securities Indenture; 

    (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  the date of the Senior Debt  Securities Indenture LESS (y) the proceeds from
the sale of all Senior Debt Securities issued from time to time that are 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 the date of the Senior
Debt Securities  Indenture  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 Senior Debt Securities 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
the  date of the Senior Debt Securities  Indenture (or any extension, renewal or
refinancing thereof); and                                                       

  (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);                                                                     

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                                           

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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 the  date of the  Senior
Debt Securities Indenture (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
the date of the Senior Debt Securities Indenture (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
is incurred after the date of  the Senior Debt Securities Indenture (other  than
solely as Permitted Indebtedness).                                              

    "PERMITTED  STONE-CONSOLIDATED  INDEBTEDNESS"    means  Indebtedness  of the
Company or a Restricted Subsidiary  in the Stone-Consolidated Group  outstanding
pursuant  to lines of credit in an aggregate principal amount not to exceed U.S.
$100 million  (of which  not more  than Canadian  $60 million,  or such  greater
amount  as may  be determined  and evidenced in  the manner  specified in clause
(4)(B) to the proviso to clause (i) of the definition of Permitted Indebtedness,
may be owed by Restricted Subsidiaries  in the Stone-Consolidated 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 of  the
Senior  Debt  Securities Indenture  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 the date  of the Senior Debt  Securities
Indenture  (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  weighted
average  life  that is  shorter than  that  then remaining  for the  Senior Debt
Securities then  Outstanding or  a  maturity that  is  earlier than  the  latest
maturity of the Senior Debt Securities 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 latest  maturity
date  of  the Senior  Debt  Securities of  any  series 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 Senior  Debt Securities  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 date of the
Senior Debt Securities  Indenture or  thereafter created,  incurred, assumed  or
guaranteed  by  the  Company  in  compliance  with  the  Senior  Debt Securities
Indenture, (ii)  obligations  of  the  Company related  to  the  termination  of
Interest Swap Obligations, Currency Agreements or Commodities                   

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Agreements pertaining to Indebtedness described under clause (i) above and (iii)
principal of or interest on the Senior Debt Securities. 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.                                                      

    "SPECIFIED  BANK  DEBT"    means (i)  all  Indebtedness  and  other monetary
obligations owing now or  hereafter by the Company  under the Credit  Agreements
and  the Company's guaranty of any  Indebtedness or other monetary obligation of
any of its  Subsidiaries under the  Credit Agreements or  any credit  facilities
with the banks signatory to the Credit Agreements (or with banks affiliated with
such banks) so long as such facilities are related to the Credit Agreements (the
"Guaranteed  Related  Bank  Facilities");  and (ii)  Indebtedness  owing  now 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 Credit Agreements or Guaranteed Related Bank Facilities
(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 Senior  Debt Securities 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-CONSOLIDATED   GROUP"    means  Stone-Consolidated  Inc.  (now  Stone
Container (Canada) Inc.)  and its Subsidiaries  existing as of  the date of  the
Senior Debt Securities 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  the  date of  the  Senior  Debt Securities  Indenture  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 Senior Debt  Securities then Outstanding  or a maturity
that is earlier  than the  latest maturity of  the Senior  Debt Securities  then
Outstanding  of any series;  (b) redeemable stock  of the Company  that does not
constitute Redeemable  Stock  and  (c)  the principal  amount  of  the  12  1/8%
Subordinated  Debenture due September 15, 2001 of the Stone Southwest, Inc., the
11 1/2% Senior Subordinated Notes due September  1, 1999 of the Company and  the
13  5/8% Subordinated Notes due June 1,  1995 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 13 5/8% Subordinated Notes  due June 1, 1995 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 Senior Debt  Securities 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
Senior Debt Securities 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 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 Senior
Debt                                                                            

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Securities  Indenture  (other  than  the  covenant  referred  to  in  the second
paragraph of "Limitation  on Future Liens  and Guaranties" above),  "Subsidiary"
shall  not include  Stone Savannah  River Pulp  & Paper  Corporation or Seminole
Kraft Corporation, each a Delaware corporation.                                 

    "UNRESTRICTED SUBSIDIARY"  means a Subsidiary of the Company which has  been
designated  as  an "Unrestricted  Subsidiary" for  purposes  of the  Senior Debt
Securities 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 Person. 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 Senior Debt Securities Indenture.                                     

PARTICULAR TERMS OF THE SENIOR
SUBORDINATED DEBT SECURITIES AND
SUBORDINATED DEBT SECURITIES

    The following description of the Senior Subordinated Debt Securities and the
Subordinated  Debt Securities sets forth the general terms and provisions of the
Senior Subordinated Debt Securities or Subordinated Debt Securities to which any
Prospectus Supplement may  relate. Additional terms  of the Senior  Subordinated
Debt   Securities  and  the  Subordinated  Debt  Securities,  respectively,  are
described below. The specific terms  of the Senior Subordinated Debt  Securities
or  Subordinated Debt  Securities offered by  any Prospectus  Supplement and the
extent, if any, to which such general provisions may apply will be described  in
the  Prospectus Supplement relating to  such Senior Subordinated Debt Securities
or Subordinated Debt Securities.                                                

    For purposes of the description  of the Senior Subordinated Debt  Securities
and the Subordinated Debt Securities under the captions "Particular Terms of the
Senior   Subordinated  Debt   Securities  and   Subordinated  Debt  Securities,"
"Additional Terms of  the Senior Subordinated  Debt Securities" and  "Additional
Terms  of  the Subordinated  Debt Securities,"  certain  defined terms  have the
following meanings:                                                             

    "SENIOR INDEBTEDNESS" means the principal of, interest on and other  amounts
due  on (i) Indebtedness of the Company, whether outstanding on the dates of the
Senior  Subordinated  Debt  Securities   Indenture  or  the  Subordinated   Debt
Securities  Indenture or thereafter created,  incurred, assumed or guaranteed by
the Company in compliance with the Senior Subordinated Debt Securities Indenture
or the Subordinated Debt Securities Indenture, for money borrowed from banks  or
other  financial  institutions,  including, without  limitation,  money borrowed
under the Credit  Agreements and  any refinancings or  refundings thereof;  (ii)
Indebtedness  of the  Company, whether  outstanding on  the dates  of the Senior
Subordinated Debt  Securities  Indenture  or the  Subordinated  Debt  Securities
Indenture  or thereafter created, incurred, assumed or guaranteed by the Company
in compliance  with the  Senior Subordinated  Debt Securities  Indenture or  the
Subordinated  Debt  Securities  Indenture,  which  is  not  Senior  Subordinated
Indebtedness or Junior Subordinated Indebtedness; and (iii) Indebtedness of  the
Company  under  interest  rate swaps,  caps  or similar  hedging  agreements and
foreign   exchange   contracts,   currency   swaps   or   similar    agreements.
Notwithstanding  anything to the contrary  in the foregoing, Senior Indebtedness
shall not  include: (a)  Indebtedness of  or  amounts owed  by the  Company  for
compensation  to employees, or for goods  or materials purchased in the ordinary
course of business, or  for services, or  (b) Indebtedness of  the Company to  a
subsidiary of the Company.                                                      

    "INDEBTEDNESS" means, with respect to any person, (i) any obligation of such
person to pay the principal of, premium, if any, interest on (including interest
accruing  on  or  after  the  filing  of  any  petition  in  bankruptcy  or  for
reorganization relating  to  the  Company,  whether or  not  a  claim  for  such
post-petition  interest is allowed in such proceeding), 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 (whether or  not the recourse  of the lender  is to  the
whole  of the assets of such person or only to a portion thereof), (B) evidenced
by  a  note,  debenture  or  similar  instrument  (including  a  purchase  money
obligation)  given in connection with the  acquisition of any property or assets
(other than inventory  or similar property  acquired in the  ordinary course  of
business),  including securities, (C) for goods, materials or services purchased
in the ordinary                                                                 

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course of business, (D) for any letter of credit or performance bond in favor of
such person, or (E)  for the payment  of money relating  to a Capitalized  Lease
Obligation;  (ii) any liability of others of the kind described in the preceding
clause (i), which  the person  has guaranteed or  which is  otherwise its  legal
liability;  (iii) any  obligation secured  by a  Lien to  which the  property or
assets of  such person  are  subject, whether  or  not the  obligations  secured
thereby  shall have been  assumed by or  shall otherwise be  such person's legal
liability; and (iv) any  and all deferrals,  renewals, extensions and  refunding
of,  or amendments, modifications  or supplements to, any  liability of the kind
described in any  of the preceding  clauses (i),  (ii) or (iii).  The amount  of
Indebtedness  of any person at any date shall be the outstanding balance at such
date of  all unconditional  obligations  as described  above, plus  the  maximum
amount  of any contingent obligations  as described above, in  each case at such
date.                                                                           

    "SENIOR  SUBORDINATED  INDEBTEDNESS"  means  Indebtedness  of  the   Company
(whether  outstanding on  the dates of  the Senior  Subordinated Debt Securities
Indenture or the Subordinated Debt  Securities 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 in  right  of
payment  to the Senior Indebtedness and senior in right of payment to the Junior
Subordinated Indebtedness.                                                      

    "JUNIOR  SUBORDINATED  INDEBTEDNESS"  means  Indebtedness  of  the   Company
(whether  outstanding on  the dates of  the Senior  Subordinated Debt Securities
Indenture or the Subordinated Debt  Securities 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 in  right  of
payment to the Senior Indebtedness and the Senior Subordinated Indebtedness.    

CHANGE IN CONTROL                                                               

    Upon  the occurrence of a  Change in Control (the  "Change in Control Date")
and subject to the requirements of the next succeeding sentence, each Holder  of
Senior  Subordinated Debt Securities or  Subordinated Debt Securities shall have
the right, at the Holder's option, to require the Company to purchase all or any
part (provided that the principal amount must be $1,000 or an integral  multiple
thereof)  of such Holder's  Senior Subordinated Debt  Securities or Subordinated
Debt Securities pursuant to  the offer described below  (the "Change in  Control
Offer") at a purchase price equal to 101% of the principal amount of such Senior
Subordinated  Debt Securities or  Subordinated Debt Securities  plus accrued and
unpaid interest, if any, to the date  of such purchase. It shall be a  condition
precedent to such right of any Holder to require the purchase of any such Senior
Subordinated Debt Securities or Subordinated Debt Securities that prior thereto,
and prior to giving the notice to Holders provided below, the Company shall have
first  (1) repaid in  full in cash all  Specified Bank Debt  or (2) obtained the
requisite consent of holders of such Specified Bank Debt to permit the  purchase
of such Senior Subordinated Debt Securities or Subordinated Debt Securities.    

    Promptly  upon  satisfaction  of  either  one  of  the  conditions precedent
described above, the Company shall mail a notice (which notice shall contain all
instructions  and  materials  necessary  to  enable  Holders  to  tender  Senior
Subordinated  Debt Securities or Subordinated Debt Securities) to each Holder of
Senior Subordinated  Debt Securities  or Subordinated  Debt Securities  of  each
applicable  series. All Senior Subordinated Debt Securities or Subordinated Debt
Securities of each applicable series tendered will be accepted for payment on  a
date which shall be no earlier than 30 days nor later than 40 days from the date
such notice is mailed (the "Change in Control Payment Date").                   

    On  the Change in Control Payment Date, the Company shall accept for payment
Senior Subordinated  Debt Securities  or Subordinated  Debt Securities  of  each
applicable series or portions thereof tendered pursuant to the Change in Control
Offer,  and deposit with the applicable Paying Agent money sufficient to pay the
purchase price of all Senior  Subordinated Debt Securities or Subordinated  Debt
Securities  of  each  applicable series  or  portions thereof  so  accepted. The
applicable Paying Agent shall promptly mail  or deliver to the Holder of  Senior
Subordinated  Debt Securities or Subordinated Debt Securities of each applicable
series so accepted payment  in an amount  equal to the  purchase price, and  the
applicable  Trustee shall promptly  authenticate and mail  or make available for
delivery to such Holder a new Senior Subordinated Debt Security or  Subordinated
Debt  Security of  the same  series as,  and equal  in principal  amount to, any
unpurchased portion of  the Senior  Subordinated Debt  Security or  Subordinated
Debt Security surrendered. The Company will publicly announce the results of the
Change in Control Offer.                                                        

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    Whether   a  Change  in  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 in Control  provisions. With respect to any Change  in
Control  Offer, the Company  intends to comply with  the requirements of Section
14(e), Rule 14e-1 and Rule 13e-4 under the Exchange Act, if then applicable.    

    The Change  in Control  purchase  feature of  the Senior  Subordinated  Debt
Securities  and the  Subordinated Debt  Securities may  in certain circumstances
make more  difficult or  discourage a  takeover of  the Company  and, thus,  the
removal  of  incumbent  management.  The  Change  in  Control  purchase feature,
however, is not the result of  management's knowledge of any specific effort  to
accumulate  shares of Common Stock or to  obtain control of the Company by means
of a merger,  tender offer,  solicitation or  otherwise, or  part of  a plan  by
management to adopt a series of anti-takeover provisions. Instead, the Change in
Control  purchase feature  is a  standard term  contained in  other similar debt
offerings. Change  in  control  provisions  are also  contained  in  the  Credit
Agreements and other indentures.                                                

    If  a Change in  Control were to occur,  there can be  no assurance that the
required condition precedent to a Holder's right to require the purchase of  the
Senior  Subordinated  Debt Securities  or Subordinated  Debt Securities  will be
satisfied. In addition, there  can be no assurance  that the Company would  have
sufficient  funds  to  pay  the  required  purchase  price  for  all  the Senior
Subordinated Debt Securities  or Subordinated  Debt Securities  tendered by  the
Holders  thereof. The Company's ability to purchase the Senior Subordinated Debt
Securities or Subordinated Debt Securities tendered upon a Change in Control may
be limited by the terms of its then-existing borrowing and other agreements. The
subordination provisions of  the Senior Subordinated  Debt Securities  Indenture
and  the Subordinated  Debt Securities  Indenture may  limit the  ability of the
Company to purchase the Senior Subordinated Debt Securities or Subordinated Debt
Securities if  an event  of default  has  occurred with  respect to  the  Senior
Indebtedness.   See  "--  Additional  Terms  of  the  Senior  Subordinated  Debt
Securities -- Subordination" and "--  Additional Terms of the Subordinated  Debt
Securities -- Subordination."                                                   

    As  of September 30, 1993, approximately $1.7 billion of Specified Bank Debt
was outstanding.                                                                

    Because the  definitions  of  "Change in  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 in Control. 

    Other provisions of the Senior Subordinated Debt Securities Indenture or the
Subordinated Debt  Securities Indenture  may be  applicable in  the event  of  a
highly leveraged transaction by the Company. See "Description of Debt Securities
--  Particular Terms of the Senior Subordinated Debt Securities and Subordinated
Debt Securities  -- Restrictions  on  Mergers and  Consolidations and  Sales  of
Assets"  and "-- Additional Terms of  the Senior Subordinated Debt Securities --
Minimum Net  Worth Interest  Rate Adjustment."  The Board  of Directors  of  the
Company may not unilaterally waive these provisions.                            

    For  purposes of the  Senior Subordinated Debt  Securities Indenture and the
Subordinated Debt Securities Indenture, the definitions of "Change in  Control,"
"Acquiring  Person,"  "Continuing  Director"  and  "Specified  Bank  Debt"  have
identical meanings  as  the  definitions  used in  the  Senior  Debt  Securities
Indenture except for references to the specific Debt Securities being issued and
the  applicable  Indenture. See  "Description of  Debt Securities  -- Particular
Terms of the Senior Debt Securities -- Certain Definitions."                    

RESTRICTIONS ON MERGERS AND CONSOLIDATIONS AND SALES OF ASSETS                  

    The Company  shall  not consolidate  with,  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                                                                 

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the  laws of the United States or any  State thereof or the District of Columbia
and expressly assumes,  by indentures  supplemental to  the Senior  Subordinated
Debt  Securities Indenture or the Subordinated Debt Securities Indenture, as the
case may be, all  the obligations of the  Company under the Senior  Subordinated
Debt  Securities or Subordinated  Debt Securities, as  the case may  be, and the
respective Indentures; (2) immediately  before and after  giving effect to  such
transaction  or  series of  related transactions,  no Event  of Default,  and no
Default, with respect to the Senior Subordinated Debt Securities or Subordinated
Debt Securities, as the case may be, 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 Net Worth of  the Company (or of  the surviving, consolidated or  transferee
entity  if the  Company is not  continuing) shall be  at least equal  to the Net
Worth of the Company  immediately before such transaction  or series of  related
transactions;  and  (4)  the Company  shall  have  delivered to  the  Trustee an
Officer's Certificate  and  an  Opinion  of  Counsel,  each  stating  that  such
consolidation,   merger  or  sale,  assignment,   transfer  or  lease  and  such
supplemental indentures  comply with  the  Senior Subordinated  Debt  Securities
Indenture or the Subordinated Debt Securities Indenture, as the case may be.    

EVENTS OF DEFAULT AND NOTICE THEREOF                                            

    The  following  are Events  of Default  under  the Senior  Subordinated Debt
Securities Indenture or the Subordinated Debt Securities Indenture, as the  case
may  be, with respect to the Senior Subordinated Debt Securities or Subordinated
Debt Securities  of  any  series:  (1)  failure to  pay  interest  on  any  Debt
Securities  of that series when  due, continued for 30  days; (2) failure to pay
the principal of (or  premium, if any,  on) any Debt  Securities of that  series
when  due and payable at Maturity, upon  redemption or otherwise; (3) failure to
observe or perform any  other covenant, warranty or  agreement contained in  the
Debt  Securities of  that series  or in the  applicable Indenture  (other than a
covenant, agreement or warranty included in the applicable Indenture solely  for
the  benefit of Debt Securities  of a series other  than that series), continued
for a period  of 60  days after  notice has  been given  to the  Company by  the
applicable  Trustee or Holders of at least  25% in aggregate principal amount of
the Outstanding Debt  Securities of  that series; (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, unless cured within 15 days after
notice has been given to the Company by the applicable Trustee or Holders of  at
least  25% in aggregate  principal amount of the  Outstanding Debt Securities of
that series; (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; and (7) any other Event of Default with respect to Debt
Securities  of  that  series  specified in  the  Prospectus  Supplement relating
thereto.                                                                        

    Both of  the  applicable Indentures  provides  that the  applicable  Trustee
shall,  within 30 days after  the occurrence of any  Default or Event of Default
with respect to Debt Securities of any series issued under such Indenture,  give
the  Holders of Debt Securities of that series 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 Debt Securities of
any series, the applicable 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 applicable  Trustee in good faith determine that
the withholding of such  notice is in  the interest of the  Holders of the  Debt
Securities of that series.                                                      

    If  an  Event  of  Default  with respect  to  the  Senior  Subordinated Debt
Securities or Subordinated  Debt Securities  of any  series (other  than due  to
events  of bankruptcy, insolvency  or reorganization) occurs  and is continuing,
the applicable Trustee  or the Holders  of at least  25% in aggregate  principal
amount  of the Outstanding Debt Securities of  that series, by notice in writing
to the Company  (and to the  applicable Trustee if  given by the  Holders of  at
least  25% in aggregate principal amount of the Debt Securities of that series),
may declare  the  unpaid  principal of  and  accrued  interest to  the  date  of
acceleration on all the Outstanding Debt Securities of that series to be due and
payable  immediately and, upon any such declaration, the Debt Securities of that
series 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 Senior  Subordinated Debt  Securities or  Subordinated  Debt

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Securities  of any series IPSO FACTO becomes immediately due and payable without
any declaration or other act on the part of the applicable Trustee or any Holder
of any Senior Subordinated Debt Security  or Subordinated Debt Security of  that
series.                                                                         

    Any  such declaration with respect to Senior Subordinated Debt Securities or
Subordinated Debt Securities of  any series 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 Debt Securities of that
series) may be waived by  the Holders of a majority  of the principal amount  of
the  Outstanding Debt Securities of that series, upon the conditions provided in
the applicable Indenture.                                                       

    The Senior Subordinated Debt Securities Indenture and the Subordinated  Debt
Securities Indenture provide that the Company shall periodically file statements
with  the  Trustees regarding  compliance  by the  Company  with certain  of the
respective covenants thereof and shall specify any Event of Default or  Defaults
with  respect  to  Senior  Subordinated  Debt  Securities  or  Subordinated Debt
Securities of any series, in performing such covenants, of which the signers may
have knowledge.                                                                 

MODIFICATION OF THE INDENTURES; WAIVER                                          

    The Indentures applicable to the Senior Subordinated Debt Securities and the
Subordinated Debt Securities may be modified  by the Company and the  applicable
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 applicable Indenture and  (ii) to make any  change that does not  materially
adversely  affect the interests of  any Holder of Debt  Securities of any series
issued under such Indenture. In addition, under both of the Indentures,  certain
rights  and obligations of the  Company and the rights  of Holders of the Senior
Subordinated Debt Securities or Subordinated Debt Securities may be modified  by
the  Company and the applicable Trustee with  the written consent of the Holders
of at least a majority in  aggregate principal amount of the Outstanding  Senior
Subordinated  Debt  Securities or  Subordinated Debt  Securities of  each series
affected thereby; but no  extension of the maturity  of any Senior  Subordinated
Debt  Securities or Subordinated Debt Securities of any series, 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 Senior Subordinated Debt  Securities or Subordinated  Debt Securities of  any
series issued under the applicable Indenture, other modification in the terms of
payment  of  the principal  of,  or interest  on,  any Senior  Subordinated Debt
Securities or Subordinated Debt  Securities of any series,  or reduction of  the
percentage  required for modification,  will be effective  against any Holder of
any Outstanding Senior Subordinated Debt Security or Subordinated Debt  Security
of any series issued under the applicable Indenture and affected thereby without
his  consent.  Neither of  the Indentures  limits the  aggregate amount  of Debt
Securities of the Company which may be issued thereunder.                       

    The Holders of a majority in  aggregate principal amount of the  Outstanding
Senior  Subordinated  Debt Securities  or  Subordinated Debt  Securities  of any
series may on behalf of the Holders of all Debt Securities of that series waive,
insofar as that  series is  concerned, compliance  by the  Company with  certain
restrictive  covenants of the applicable Indenture. The Holders of not less than
a majority in aggregate principal amount of the Outstanding Senior  Subordinated
Debt  Securities or Subordinated Debt Securities of  any series may on behalf of
the Holders  of all  Debt Securities  of that  series waive  any past  Event  of
Default  or Default under the applicable  Indenture with respect to that series,
except an Event of Default or a Default  in the payment of the principal of,  or
premium,  if any, or  any interest on any  Debt Securities of  that series or in
respect of a provision which under  the applicable Indenture cannot be  modified
or  amended without the consent of the  Holder of each Outstanding Debt Security
of that series affected.                                                        

DEFEASANCE                                                                      

    The Company may terminate its  substantive obligations in respect of  Senior
Subordinated  Debt  Securities or  Subordinated  Debt Securities  of  any series
(except for its obligations to  pay the principal of  (and premium, if any,  on)
and  the interest on the Debt Securities  of that series) by (i) depositing with
the applicable Trustee, under the terms of an irrevocable trust agreement, money
or  United  States  Government  Obligations  sufficient  to  pay  all  remaining
indebtedness  on  the Debt  Securities of  that series,  (ii) delivering  to the
applicable Trustee either  an Opinion  of Counsel or  a ruling  directed to  the
applicable  Trustee from  the Internal  Revenue Service  to the  effect that the
Holders of the Debt Securities of that series will not recognize income, gain or
loss for federal income tax                                                     

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purposes as a result of such  deposit and termination of obligations, and  (iii)
complying with certain other requirements set forth in the applicable Indenture.
In  addition, the  Company may terminate  all of its  substantive obligations in
respect  of  Senior  Subordinated  Debt  Securities  or  the  Subordinated  Debt
Securities of any series (including its obligations to pay the principal of (and
premium,  if any, on) and interest on the Debt Securities of that series) by (i)
depositing with the applicable Trustee, under the terms of an irrevocable  trust
agreement,  money or United States Government  Obligations sufficient to pay all
remaining indebtedness on the Debt Securities of that series, (ii) delivering to
the applicable Trustee either a ruling  directed to the applicable Trustee  from
the  Internal  Revenue  Service to  the  effect  that the  Holders  of  the Debt
Securities of that series  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 applicable Indenture, to such effect,  and
(iii)  complying with  certain other  requirements set  forth in  the applicable
Indenture.                                                                      

THE TRUSTEES                                                                    

    Norwest Bank  Minnesota,  National Association,  is  the Trustee  under  the
Senior  Subordinated Debt Securities Indenture, and The  Bank of New York is the
Trustee under the Subordinated Debt Securities Indenture.                       

    The Company maintains normal commercial  banking relations with The Bank  of
New  York, which is  also a lender  under the Credit  Agreements and the Trustee
under the Senior Debt Securities Indenture and other indentures of the  Company.
In addition, Norwest Bank Minnesota, National Association, is the trustee of the
indenture relating to the 8 7/8% Convertible Notes.                             

ADDITIONAL TERMS OF THE SENIOR SUBORDINATED 
DEBT SECURITIES 

    The following terms apply solely to the Senior Subordinated Debt Securities.
See   "Description  of  Debt  Securities  --  Particular  Terms  of  the  Senior
Subordinated Debt Securities and Subordinated  Debt Securities" for other  terms
which  are  also  applicable to  the  Senior Subordinated  Debt  Securities. The
particular terms  of the  Senior  Subordinated Debt  Securities offered  by  any
Prospectus  Supplement and the extent, if  any, to which such general provisions
may apply  to  the  Senior  Subordinated Debt  Securities  so  offered  will  be
described in the Prospectus Supplement relating to such Senior Subordinated Debt
Securities.                                                                     

SUBORDINATION                                                                   

    The payment of the principal of, interest on or any other amounts due on the
Senior  Subordinated Debt Securities will be subordinated in right of payment to
the prior payment in full of all Senior Indebtedness of the Company. No  payment
on  account of principal of, redemption of, interest on or any other amounts due
on the Senior Subordinated Debt Securities and no redemption, purchase or  other
acquisition  of the Senior  Subordinated Debt Securities may  be made unless (i)
full payment  of  amounts  then  due  for  principal,  sinking  funds,  interest
(including  interest  accruing  on  or  after  the  filing  of  any  petition in
bankruptcy or for reorganization relating to the Company, whether or not a claim
for such  post-petition  interest is  allowed  in such  proceeding),  penalties,
reimbursement  or indemnification amounts,  fees and expenses,  and of all other
amounts then due on all Senior Indebtedness have been made or duly provided  for
pursuant  to the terms of the instrument governing such Senior Indebtedness, and
(ii) at the time for, or immediately  after giving effect to, any such  payment,
redemption,  purchase  or other  acquisition, there  shall  not exist  under any
Senior Indebtedness or any agreement  pursuant to which any Senior  Indebtedness
has been issued, any default which shall not have been cured or waived and which
shall  have  resulted  in the  full  amount  of such  Senior  Indebtedness being
declared due and payable. In  addition, the Senior Subordinated Debt  Securities
Indenture  provides that  if the holders  of any Senior  Indebtedness notify the
Company and the Senior Subordinated Debt  Securities Trustee that a default  has
occurred  giving the holders of such Senior Indebtedness the right to accelerate
the maturity thereof, no payment on account of principal, sinking fund or  other
redemption,  interest or any  other amounts due on  the Senior Subordinated Debt
Securities and  no  purchase, redemption  or  other acquisition  of  the  Senior
Subordinated  Debt Securities will be made for the period (the "Payment Blockage
Period") commencing on the date notice is received and ending on the earlier  of
(A)  the date on which such event of  default shall have been cured or waived or
(B) 180 days from  the date notice is  received. Notwithstanding the  foregoing,
only  one payment blockage notice  with respect to the  same event of default or
any other events of default existing and known to the person giving such  notice
at the time of such notice on the same                                          

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issue  of Senior Indebtedness may be given  during any period of 360 consecutive
days. No new Payment Blockage Period may  be commenced by the holders of  Senior
Indebtedness  during any  period of  360 consecutive  days unless  all events of
default which triggered the preceding Payment Blockage Period have been cured or
waived. The Senior Subordinated  Debt Securities Indenture provisions  described
in  this paragraph, however, do not prevent  the Company from making a mandatory
redemption payment, if  any, with Senior  Subordinated Debt Securities  acquired
prior  to the happening of  such a default as  described in this paragraph. Upon
any distribution of its assets  in connection with any dissolution,  winding-up,
liquidation  or reorganization of  the Company or  acceleration of the principal
amount due on  the Senior Subordinated  Debt Securities because  of an Event  of
Default,  all Senior Indebtedness must be paid in full before the Holders of the
Senior Subordinated Debt Securities are entitled to any payments whatsoever.    

    The Senior  Subordinated Debt  Securities Indenture  does not  restrict  the
amount  of  Senior Indebtedness  or  other indebtedness  of  the Company  or any
subsidiary  of  the  Company,  except  that  the  Company  may  not  incur   any
Indebtedness  which is  senior to  the Senior  Subordinated Debt  Securities but
subordinate to Senior Indebtedness.  As of July 12,  1993, the Company's  Senior
Indebtedness aggregated approximately $2.6 billion.                             

    As a result of these subordination provisions, in the event of the Company's
insolvency,  holders  of the  Senior  Subordinated Debt  Securities  may recover
ratably less than general creditors of the Company.                             

    The payment of the  principal of, interest  on or any  other amounts due  on
Junior Subordinated Indebtedness will be subordinated in right of payment to the
prior payment in full of the Senior Subordinated Debt Securities.               

    The  Senior Subordinated Debt Securities are subordinate to the indebtedness
under the Credit Agreements, the Company's 11 7/8% Senior Notes due December  1,
1998  and the  12 5/8%  Senior Notes  due July  15, 1998  and are  senior to the
Company's 13 5/8% Subordinated Notes due June 1, 1995 and its 6 3/4% Convertible
Subordinated Debentures  due February  15, 2007.  The Senior  Subordinated  Debt
Securities  will rank PARI PASSU in right  of payment to all existing and future
Senior Subordinated  Indebtedness,  including  with  the  Company's  outstanding
10 3/4% Senior Subordinated Notes due June 15, 1997, its 11% Senior Subordinated
Notes  due August 15, 1999, the 11  1/2% Senior Subordinated Notes due September
1, 1999, the 8 7/8% Convertible Senior Subordinated Notes due July 15, 2000, and
its 10 3/4% Senior Subordinated Debentures due April 1, 2002.                   

MINIMUM NET WORTH INTEREST RATE ADJUSTMENT                                      

    The Senior Subordinated Debt Securities Indenture requires that if a  series
of  Senior Subordinated  Debt Securities  so provides  and if  the Company's Net
Worth is below $500 million (the "Minimum Net  Worth") as at the end of any  two
consecutive fiscal quarters (the last day of the second such fiscal quarter, the
"Failure  Date"), then  (i) the  interest rate  on the  Senior Subordinated Debt
Securities shall be  reset as  of the  first day  of the  second fiscal  quarter
following  the Failure Date (the  "Reset Date") to a  rate per annum (the "Reset
Rate") equal to the greater of (x) the initial interest rate as set forth on the
cover page of the respective Prospectus Supplement (the "Initial Interest Rate")
or (y) the sum of  (A) the basis points  specified in the respective  Prospectus
Supplement  for purposes  of this  reset provision, and  (B) the  highest of the
treasury rates specified in the respective Prospectus Supplement for purposes of
this reset provision,  (ii) on  the first  Interest Payment  Date following  the
Reset  Date, the  interest rate on  the Senior Subordinated  Debt Securities, as
reset on  the Reset  Date, shall  increase by  50 basis  points, and  (iii)  the
interest  rate on the Senior Subordinated Debt Securities shall further increase
by an  additional 50  basis points  on each  succeeding Interest  Payment  Date.
Notwithstanding  anything in the foregoing, in  no event shall the interest rate
on the  Senior Subordinated  Debt  Securities at  any  time exceed  the  Initial
Interest Rate by more than 200 basis points. However, if the Company's Net Worth
is  equal to or  above the Minimum  Net Worth as  of the last  day of any fiscal
quarter subsequent to  the Failure Date,  then the interest  rate on the  Senior
Subordinated Debt Securities shall return to the Initial Interest Rate as of the
first  day of the  second following fiscal  quarter. If the  Company's Net Worth
shall thereafter be less than  the Minimum Net Worth as  of the last day of  any
two consecutive subsequent fiscal quarters, then the interest rate on the Senior
Subordinated  Debt  Securities  shall  again be  adjusted  as  provided  in this
paragraph.                                                                      

    "NET WORTH" means the  amount which, in  conformity with generally  accepted
accounting  principles ("GAAP") consistently  applied, would be  set forth under
the caption "stockholders'  equity" (or  any like caption)  on the  consolidated
balance  sheet of the  Company, exclusive of  amounts attributable to Redeemable
Stock. If the                                                                   

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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,  then Net Worth shall  mean the Net  Worth
the  Company would have had if the  Company had continued to use those generally
accepted accounting principles employed at December 31, 1991.                   

    If a Reset  Rate has been  established for a  series of Senior  Subordinated
Debt  Securities, it will be described  in the Prospectus Supplement relating to
such Senior Subordinated Debt Securities.                                       

DIVIDEND RESTRICTIONS                                                           

    The Senior Subordinated Debt Securities 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 with respect to any series of the Senior Subordinated Debt Securities
or  (b) the 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 the date of the Senior Subordinated Debt Securities Indenture 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  June
30,  1993  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 June  30, 1993
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 the
date of  the Senior  Subordinated Debt  Securities Indenture,  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 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  the  date  of  the  Senior
Subordinated Debt Securities Indenture, 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.               

    "CONSOLIDATED NET INCOME" of the Company means, for any period for which the
determination thereof is to be made, the net income (or loss) of the Company and
its subsidiaries  on a  consolidated basis  for such  period taken  as a  single
accounting period, determined in accordance with GAAP; PROVIDED that there shall
be  excluded therefrom  (i) the  net income  (or loss)  of any  person (a "joint
venture") in  which any  other person  (other than  the Company  or any  of  its
subsidiaries) has a joint equity interest, except to the extent of the amount of
dividends  or other  distributions actually  paid to the  Company or  any of its
subsidiaries by such joint venture 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 subsidiary  of the Company or  is
merged into or consolidated with the                                            

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Company  or any of its subsidiaries or  that person's assets are acquired by the
Company or any of its  subsidiaries, (iii) the net  income of any subsidiary  of
the  Company  to the  extent that  the  declaration or  payment of  dividends or
similar distributions  by that  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 subsidiary, 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 the  Company  or  a
subsidiary  of  the  Company 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 the Company or a subsidiary of the Company.             

ADDITIONAL TERMS OF THE SUBORDINATED DEBT SECURITIES

    The following terms apply  solely to the  Subordinated Debt Securities.  See
"Description  of Debt Securities -- Particular  Terms of the Senior Subordinated
Debt Securities and Subordinated Debt Securities" for other terms which are also
applicable to  the Subordinated  Debt Securities.  The particular  terms of  the
Subordinated  Debt  Securities  offered  by any  Prospectus  Supplement  and the
extent, if any, to which such  general provisions may apply to the  Subordinated
Debt  Securities  so  offered will  be  described in  the  Prospectus Supplement
relating to such Subordinated Debt Securities.                                  

SUBORDINATION                                                                   

    The payment of the principal of, interest on or any other amounts due on the
Subordinated Debt Securities  will be subordinated  in right of  payment to  the
prior  payment  in  full  of all  Senior  Indebtedness  and  Senior Subordinated
Indebtedness of the Company. No payment  on account of principal of,  redemption
of, interest on or any other amounts due on the Subordinated Debt Securities and
no redemption, purchase or other acquisition of the Subordinated Debt Securities
may  be made unless (i) full payment  of amounts then due for principal, sinking
funds, interest  (including interest  accruing on  or after  the filing  of  any
petition in bankruptcy or for reorganization relating to the Company, whether or
not  a claim  for such  post-petition interest  is allowed  in such proceeding),
penalties, reimbursement or indemnification amounts,  fees and expenses, and  of
all  other amounts then  due on all Senior  Indebtedness and Senior Subordinated
Indebtedness have been made or  duly provided for pursuant  to the terms of  the
instrument   governing   such   Senior  Indebtedness   or   Senior  Subordinated
Indebtedness, and (ii) at the time  for, or immediately after giving effect  to,
any  such payment,  redemption, purchase or  other acquisition,  there shall not
exist under any  Senior Indebtedness,  Senior Subordinated  Indebtedness or  any
agreements  pursuant  to which  any Senior  Indebtedness or  Senior Subordinated
Indebtedness has been  issued, any default  which shall not  have been cured  or
waived  and  which  shall  have  resulted in  the  full  amount  of  such Senior
Indebtedness or Senior Subordinated Indebtedness being declared due and payable.
In addition, the  Subordinated Debt  Securities Indenture provides  that if  the
Holders  of any Senior  Indebtedness or Senior  Subordinated Indebtedness notify
the Company and  the Subordinated  Debt Securities  Trustee that  a default  has
occurred  giving the holders of such  Senior Indebtedness or Senior Subordinated
Indebtedness the right to accelerate the maturity thereof, no payment on account
of principal, sinking fund  or other redemption, interest  or any other  amounts
due  on the  Subordinated Debt Securities  and no purchase,  redemption or other
acquisition of the Subordinated Debt Securities will be made for the period (the
"Subordinated Payment  Blockage  Period")  commencing  on  the  date  notice  is
received  and ending  on the  earlier of  (A) the  date on  which such  event of
default shall have been cured or waived or (B) 270 days from the date notice  is
received.  Notwithstanding the foregoing, only  one payment blockage notice with
respect to the same event of default or any other events of default existing and
known to the person giving  such notice at the time  of such notice on the  same
issue  of Senior Indebtedness  or Senior Subordinated  Indebtedness may be given
during any period of 360 consecutive days. No new Subordinated Payment  Blockage
Period  may  be  commenced  by  the holders  of  Senior  Indebtedness  or Senior
Subordinated Indebtedness during any period  of 360 consecutive days unless  all
events  of default which  triggered the preceding  Subordinated Payment Blockage
Period have been  cured or  waived. The Subordinated  Debt Securities  Indenture
provisions described in this paragraph, however, do not prevent the Company from
making a mandatory redemption payment, if any, with Subordinated Debt Securities
acquired  prior  to  the  happening  of such  a  default  as  described  in this
paragraph.  Upon  any  distribution  of  its  assets  in  connection  with   any
dissolution,  winding-up,  liquidation  or  reorganization  of  the  Company  or
acceleration of the                                                             

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principal amount due on the Subordinated Debt Securities because of an Event  of
Default,  all Senior Indebtedness  and Senior Subordinated  Indebtedness must be
paid in full before the Holders of the Subordinated Debt Securities are entitled
to any payments whatsoever.                                                     

    As a result of these subordination provisions, in the event of the Company's
insolvency, holders of the Subordinated Debt Securities may recover ratably less
than general creditors of the Company.                                          

    The Subordinated Debt Securities are subordinate in right of payment to  all
existing  and future Senior Indebtedness and Senior Subordinated Indebtedness of
the Company,  including  the  indebtedness  under  the  Credit  Agreements,  the
Company's  11 7/8% Senior Notes  due December 1, 1998,  its 12 5/8% Senior Notes
due July 15, 1998, its 10 3/4% Senior Subordinated Notes due June 15, 1997,  its
11%  Senior  Subordinated  Notes  due  August  15,  1999,  its  11  1/2%  Senior
Subordinated Notes  due  September  1,  1999,  its  8  7/8%  Convertible  Senior
Subordinated  Notes  due  July 15,  2000  and  its 10  3/4%  Senior Subordinated
Debentures due April 1,  2002. The Subordinated Debt  Securities will rank  PARI
PASSU upon liquidation with the Company's 13 5/8% Subordinated Notes due June 1,
1995 and its 6 3/4% Convertible Subordinated Debentures due February 15, 2007.  

DESCRIPTION OF CAPITAL STOCK

    THE  FOLLOWING STATEMENTS WITH  RESPECT TO THE CAPITAL  STOCK OF THE COMPANY
ARE  SUBJECT  TO  THE  DETAILED  PROVISIONS  OF  THE  COMPANY'S  CERTIFICATE  OF
INCORPORATION,  AS AMENDED  (THE "CERTIFICATE OF  INCORPORATION"), INCLUDING THE
CERTIFICATE OF  DESIGNATIONS FOR  EACH OF  THE SERIES  E CUMULATIVE  CONVERTIBLE
EXCHANGEABLE  PREFERRED STOCK (THE "SERIES E  PREFERRED STOCK") AND THE SERIES F
CUMULATIVE CONVERTIBLE  EXCHANGEABLE PREFERRED  STOCK (THE  "SERIES F  PREFERRED
STOCK") AND BY-LAWS, AS AMENDED (THE "BY-LAWS"). THESE STATEMENTS DO NOT PURPORT
TO  BE COMPLETE, OR TO GIVE FULL EFFECT TO THE PROVISIONS OF STATUTORY OR COMMON
LAW, AND ARE SUBJECT TO,  AND ARE QUALIFIED IN  THEIR ENTIRETY BY REFERENCE  TO,
THE  TERMS OF THE CERTIFICATE OF  INCORPORATION, THE CERTIFICATE OF DESIGNATIONS
OF EACH OF THE SERIES E AND SERIES F PREFERRED STOCK AND THE BY-LAWS.           

GENERAL                                                                         

    The Certificate of Incorporation authorizes the  issuance of a total of  210
million  shares of all  classes of stock, of  which 10 million  may be shares of
preferred stock, par value $.01 per share, and 200 million may be shares of  the
Common  Stock, par value  $.01 per share.  At July 13,  1993, approximately 71.2
million  shares  of   Common  Stock   were  outstanding.   The  Certificate   of
Incorporation  authorizes  the  Company's  Board  of  Directors,  without  first
obtaining approval of  the holders of  Common Stock or  any series of  preferred
stock,  to provide for the issuance of any  or all shares of the preferred stock
in one or more series,  and to fix the voting  powers, full or limited, and  the
designations, preferences and relative, participating, optional or other special
rights,  and any qualifications, limitations or restrictions thereof, applicable
to the shares  to be  included in any  such series  as may be  permitted by  the
General  Corporation Law of  the State of  Delaware. As of  the date hereof, 4.6
million shares  of Series  E Preferred  Stock are  outstanding. In  addition,  2
million  shares of Series D Junior Participating Preferred Stock, par value $.01
per share, of the Company (the "Series D Preferred Stock") have been  authorized
and reserved for issuance in connection with the Series D Rights described below
and  up to 400,000 shares  of Series F Preferred  Stock have been authorized and
reserved for issuance upon the occurrence of certain specified events  described
in "Series F Preferred Stock" below.                                            

COMMON STOCK                                                                    

DIVIDEND RIGHTS                                                         

    Subject  to  the  rights of  the  holders  of any  shares  of  the Company's
preferred stock which  may at  the time be  outstanding, holders  of the  Common
Stock are entitled to receive, to the extent permitted by law, such dividends as
may be declared from time to time by the Board of Directors out of funds legally
available therefor.                                                             

VOTING RIGHTS                                                           

    Each holder of Common Stock is entitled to one vote for each share of Common
Stock  registered  in such  holder's name  on the  books of  the Company  on all
matters submitted to  a vote of  stockholders. Except as  otherwise provided  by
law, the holders of shares of the Common Stock vote as one class. The holders of
shares  of the Common Stock have  cumulative voting rights under the Certificate
of Incorporation such that in all elections for directors, each holder  entitled
to  vote thereat is entitled to as many votes as is equal to the number of votes
which                                                                           

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such holder would be entitled to cast for the election of directors with respect
to such holder's shares multiplied by the number of directors to be elected, and
such holder may cast all of such  votes for a single director or may  distribute
them among any two or more of them as such holder may see fit.                  

LIQUIDATION RIGHTS AND OTHER PROVISIONS                                 

    The  Company has  granted its  lenders security  interests in  a substantial
portion of  the Company's  assets under  the Credit  Agreements and  other  debt
agreements.  See "Credit Agreements."  Subject to the  prior rights of creditors
and the holders of  any preferred stock  which may be  outstanding from time  to
time,  the holders  of the Common  Stock are entitled  to share PRO  RATA in the
distribution of any remaining assets in the event of liquidation, dissolution or
winding up of  the Company. The  shares of Common  Stock are not  liable to  any
calls or assessments and have no conversion rights or redemption or sinking fund
provisions.  The Transfer Agent and Registrar for  the Common Stock is The First
National Bank of Chicago.                                                       

CHANGE IN CONTROL                                                       

    The Certificate of  Incorporation and  the Rights Agreement  dated July  25,
1988, as amended (the "Rights Agreement"), between the Company and First Chicago
Trust  Company  of  New  York,  as  Rights  Agent,  contain  certain  provisions
(described below)  that could  make more  difficult or  discourage a  change  in
control of the Company. Such provisions are designed to discourage situations in
which the Company is forced to accept a proposal for the takeover of the Company
without  ample time to evaluate the proposal and appropriate alternatives and to
encourage anyone  contemplating  a  business combination  with  the  Company  to
negotiate directly with the Company on a fair and equitable basis.              

SERIES D RIGHTS                                                         

    Each  share  of Common  Stock  has associated  with  it one  preferred share
purchase right  (the  "Series  D  Right")  permitting  the  holder  to  purchase
approximately one-hundredth of a share of the Company's Series D Preferred Stock
at  an exercise  price of  $130 per share,  subject to  certain adjustments. The
terms of the Series  D Rights are set  forth in a Rights  Agreement dated as  of
July  25, 1988, as amended,  between the Company and  The First National Bank of
Chicago, as Rights Agent (the "Rights Agreement").                              

    The Series D Rights are not  exercisable and are transferable only with  the
related  Common Stock certificates.  The Series D  Rights become exercisable and
separately transferable  ten days  after a  person or  group (excluding  certain
entities  including members  of the  Stone family) acquires  15% or  more of the
outstanding shares of the Common  Stock or ten business  days after a person  or
group  (excluding  certain  entities  including  members  of  the  Stone family)
announces a tender offer or exchange  offer that would, if completed, result  in
ownership  by such person or  group of 15% or more  of the outstanding shares of
the Common Stock. Thereafter, the Series D Rights will trade separately from the
Common Stock.                                                                   

    After the  Series  D  Rights  become  exercisable,  if  a  person  or  group
(excluding  certain entities including members of the Stone family) acquires 15%
or more  of the  outstanding  shares of  the Common  Stock  and the  Company  is
acquired  in a merger  or other business combination  transaction, each Series D
Right will entitle  its holder  (other than the  acquiring person  or group)  to
purchase,  at the Series D 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 Series  D Right's  then-current exercise  price. In  addition, in  the
event  that a person  or group (excluding certain  entities including members of
the Stone family) acquires 15% or more  of the outstanding shares of the  Common
Stock,  each holder  of a  Series D  Right (other  than the  acquiring person or
group) will be entitled  to purchase the  number of shares  of the Common  Stock
having  a market value of twice the  then-current exercise price of the Series D
Right.                                                                          

    Under certain circumstances, the Series D Rights may be redeemed at a  price
of  $.01 per  Series D Right.  The Series D  Rights will expire  in August 1998,
unless earlier redeemed by the Company.                                         

    The Rights Agreement generally provides that a Series D Right will be issued
in connection with each share of Common  Stock (i) issued prior to the  earliest
of the Distribution Date (as defined in the Rights Agreement) or the redemption,
exchange  or expiration of the  Series D Rights or  (ii) issued at certain other
times pursuant to certain options, warrants or convertible securities.          

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SUPERMAJORITY VOTE REQUIREMENTS                                         

    The Certificate of Incorporation provides  that the affirmative vote of  the
holders  of at least 66 2/3% of the  voting power of the then outstanding shares
of capital stock of the  Company entitled to vote  generally in the election  of
directors  (the  "Voting Stock")  is  required to  authorize  (a) any  merger or
consolidation of the Company  with or into any  other corporation (other than  a
Subsidiary  of the Company)  or (b) the sale  (other than to  the Company or its
Subsidiaries) of all or substantially all of  the assets of the Company and  its
Subsidiaries  taken  as a  whole.  For purposes  of  the foregoing  paragraph, a
"Subsidiary" is any corporation more than 50% of the voting securities of  which
are owned by the Company.                                                       

SERIES E PREFERRED STOCK                                                        

    There  are 4.6  million shares  of Series  E Preferred  Stock authorized and
outstanding on the  date hereof.  The Series E  Preferred Stock  is entitled  to
cumulative  cash preferential dividends  of $1.75 per  share, per annum, payable
quarterly, and has a  liquidation preference of $25  per share plus accrued  and
unpaid  dividends. Unless  full cumulative dividends  on the  Series E Preferred
Stock have been paid or payment has been provided for, no dividends (other  than
dividends in shares of Common Stock or other capital stock ranking junior to the
Series  E Preferred Stock in the payment of dividends) shall be paid or declared
and set aside for payment  or other distribution made  upon the Common Stock  or
any  other capital stock of  the Company ranking junior or  on a parity with the
Series E Preferred Stock as to dividends.                                       

    The Series E Preferred Stock is exchangeable,  in whole but not in part,  at
the  option of the Company,  on any dividend date  commencing February 15, 1994,
for the Company's 7% Convertible  Subordinated Exchange Debentures due  February
15, 2007 (the "Exchange Debentures") at an exchange rate of $25 principal amount
of  Exchange Debentures for each share of Series E Preferred Stock so exchanged.
The Exchange  Debentures entitle  the holders  thereof to  convert the  Exchange
Debentures into shares of Common Stock.                                         

    The  Series E Preferred Stock is redeemable by the Company, in whole but not
in part, on and after February 16, 1996, at $26.50 per share, if redeemed during
the 12  month period  commencing February  15, 1996,  and thereafter  at  prices
declining to $25 per share on and after February 15, 2002, together with accrued
and  unpaid dividends to the  date of redemption. The  Series E Preferred Stock,
unless previously exchanged or  redeemed by the Company,  is convertible at  the
option  of the  holder thereof  at any  time into  shares of  Common Stock  at a
conversion price  of  $33.94 per  share  (as of  the  date hereof),  subject  to
adjustment under certain conditions.                                            

    If  the Company  fails to pay  any six  quarterly dividends on  the Series E
Preferred Stock,  then the  holders  of the  Series  E Preferred  Stock,  voting
together  as a class with  all other outstanding classes  or series of preferred
stock ranking junior to  or on a  parity with the Series  E Preferred Stock  and
entitled  to vote thereon, have the right to  elect two directors to be added to
the Company's  Board  of  Directors.  Such  voting  rights  continue  until  all
dividends  in arrears on such stock have  been paid or provided for. Without the
approval of at least two-thirds of the outstanding shares of Series E  Preferred
Stock,  the Company may not issue any capital stock ranking senior to the Series
E Preferred Stock as to payment of  dividends or in distribution of assets  upon
liquidation  or make any change which  adversely affects the preferences, rights
or powers of the Series E Preferred Stock.                                      

SERIES F PREFERRED STOCK                                                        

    The Company has authorized  400,000 shares of Series  F Preferred Stock,  no
shares  of which  have been issued  or are  outstanding on the  date hereof. The
terms of the Series F Preferred Stock are identical to the terms of the Series E
Preferred Stock, except  with respect  to the  amount of  dividend and  dividend
payment  dates, the liquidation preference, the optional redemption schedule and
redemption prices, the conversion rate at which Series F Preferred Stock may  be
converted  into shares of Common  Stock and the exchange  rate at which Series F
Preferred Stock may be exchanged by the Company for Exchange Debentures.        

    The Series F Preferred Stock, if issued, will be entitled to cumulative cash
preferential dividends of $7 per share, per annum, payable quarterly, will  have
a  liquidation preference of  $100 per share plus  accrued and unpaid dividends,
will rank on a parity with the  Series E Preferred Stock with respect to  rights
to receive dividends and distributions upon liquidation and has identical voting
rights  as  the  Series E  Preferred  Stock.  The Series  F  Preferred  Stock is
exchangeable for the Company's Exchange Debentures which in turn are convertible
into shares of Common Stock.                                                    

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    The Series F Preferred Stock will be redeemable by the Company, in whole but
not in part, on and  after 48 months from the  date of issuance, at $104.20  per
share,  if redeemed  during the  12 month  period commencing  on such  date, and
thereafter at prices declining to  $100 per share on  and after the 120th  month
from  issuance,  together  with accrued  and  unpaid  dividends to  the  date of
redemption. The Series F  Preferred Stock will be  convertible at the option  of
the  holder thereof at any time into shares of Common Stock at a conversion rate
of 5.4283 shares of Common  Stock per share of Series  F Preferred Stock (as  of
the date hereof), subject to adjustment under certain conditions.               

    The  Company has entered into an agreement  with Venezolana de Pulpa y Papel
("Venepal"), a Venezuelan pulp and  paper company, whereby Venepal's  investment
in  the Celgar pulp mill  represented by 50% of  the outstanding common stock of
Stone Venepal (Celgar) Pulp Inc. ("SVCPI") can be exchanged for shares of Series
F Preferred Stock. The exchange would occur  at Venepal's option as a result  of
certain  specific conditions  relating to  operations of  the Celgar  pulp mill,
which is 50% owned by  SVCPI. The Company may at  its option elect to honor  the
exchange obligation with a cash payment to Venepal. Based upon Venepal's initial
investment  in  SVCPI,  212,903 shares  of  Series  F Preferred  Stock  would be
issuable in the event  Venepal was eligible to  exercise, and did exercise,  its
option.  The  number  of shares  issuable  to  Venepal upon  exchange  is  to be
determined based upon (i) the value of Venepal's investment in SVCPI at the time
of such exchange and (ii)  the market price of the  Common Stock at the time  of
such exchange.                                                                  

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PLAN OF DISTRIBUTION

    The  Company may sell Securities to  or through underwriters or dealers, and
also may sell  Securities directly to  one or more  other purchasers or  through
agents.  The Prospectus Supplement  sets forth the names  of any underwriters or
agents involved in the sale of the Securities and any applicable commissions  or
discounts.                                                                      

    Underwriters,  dealers or agents may offer and sell the Securities from time
to time in one  or more transactions at  a fixed price or  prices, which may  be
changed,  or at market prices prevailing at  the time of sale, at prices related
to such prevailing market prices or at negotiated prices. In connection with the
sale of  Securities, underwriters  or  agents may  be  deemed to  have  received
compensation  from  the  Company  in  the  form  of  underwriting  discounts  or
commissions and may also receive  commissions from purchasers of the  Securities
for  whom they may act as agent.  Underwriters or agents may sell the Securities
to or through dealers and such dealers  may receive compensation in the form  of
discounts,  concessions or commissions from the underwriters or commissions from
the purchasers for whom they may act as agent.                                  

    The Debt Securities,  when first  issued, will have  no established  trading
market.  Any underwriters or agents to or  through whom Debt Securities are sold
by the Company  for public  offering and  sale may make  a market  in such  Debt
Securities,  but such underwriters or agents will  not be obligated to do so and
may discontinue any market making at  any time without notice. No assurance  can
be given as to the liquidity of the trading market for any Debt Securities.     

    If  so indicated  in the  Prospectus Supplement,  the Company  may authorize
underwriters, dealers or other persons acting as the Company's agents to solicit
offers by certain institutions to purchase Securities from the Company  pursuant
to  contracts providing for payment and  delivery on a future date. Institutions
with which such  contracts may  be made  include commercial  and savings  banks,
insurance  companies,  pension  funds,  investment  companies,  educational  and
charitable institutions and others, but in  all cases such institutions must  be
approved  by  the  Company. The  obligations  of  any purchaser  under  any such
contract will be subject  to the condition that  the purchase of the  Securities
shall  not  at  the  time  of  delivery be  prohibited  under  the  laws  of the
jurisdiction to which such purchaser  is subject. The underwriters, dealers  and
such  other persons will not have any  responsibility in respect of the validity
or performance of such contracts. The  Prospectus Supplement will set forth  the
commission payable for solicitation of such contracts.                          

    Any  underwriters, dealers  or agents  participating in  the distribution of
Securities may be deemed to be underwriters under the Act, and any discounts and
commissions received by them and  any profit realized by  them on resale of  the
Securities  may be deemed to be underwriting discounts and commissions under the
Act. Underwriters, dealers or agents  may be entitled, under agreements  entered
into with the Company, to indemnification against or contribution toward certain
civil liabilities, including liabilities under the Act.                         

VALIDITY OF THE SECURITIES

    The  validity of the securities  offered hereby will be  passed upon for the
Company by  Leslie T.  Lederer, Vice  President, Secretary  and Counsel  of  the
Company (who owns approximately 15,900 shares of Common Stock).                 

EXPERTS 

    The financial statements incorporated in this Prospectus by reference to the
Company's  Annual Report on Form  10-K for the year  ended December 31, 1992, as
amended by Form 8 dated  April 9, 1993 and as  further amended by Form  10-K/A-1
dated  June 24, 1993, have been so incorporated in reliance on the report (which
contains an explanatory paragraph referring to  the March 1, 1994 expiration  of
the  Company's  revolving credit  facilities  and the  Company's  financial plan
discussed in  Note 10  to the  Company's consolidated  financial statements)  of
Price  Waterhouse, independent accountants, given on  the authority of said firm
as experts in auditing and accounting.                                          

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NO  DEALER, SALESPERSON  OR ANY  OTHER PERSON  HAS BEEN  AUTHORIZED TO  GIVE ANY
INFORMATION OR TO  MAKE ANY  REPRESENTATIONS OTHER  THAN THOSE  CONTAINED IN  OR
INCORPORATED  BY REFERENCE  IN THIS PROSPECTUS  SUPPLEMENT OR  THE PROSPECTUS IN
CONNECTION WITH THE  OFFER MADE  BY THIS PROSPECTUS  SUPPLEMENT AND  PROSPECTUS,
AND,  IF GIVEN OR MADE,  SUCH 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  SUPPLEMENT AND 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   SUPPLEMENT.  THIS  PROSPECTUS  SUPPLEMENT  AND  PROSPECTUS  DO  NOT
CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY JURISDICTION 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  ANY PERSON  TO WHOM  IT IS
UNLAWFUL TO MAKE SUCH SOLICITATION.                                             
------------------------

TABLE OF CONTENTS 

                                                                [Download Table]

                                                  PAGE   
                                                ---------
                                                         
                  PROSPECTUS SUPPLEMENT                  
Prospectus Summary............................        S-3
Risk Factors..................................        S-9
Pro Forma Condensed Consolidated Statement of            
 Operations...................................       S-15
Use of Proceeds...............................       S-17
Price Range of Common Stock and Dividend                 
 Policy.......................................       S-18
Capitalization................................       S-20
Underwriting..................................       S-22
Certain United States Tax Consequences To                
 Non-United States Holders....................       S-24
Legal Matters.................................       S-25
                       PROSPECTUS                        
Available Information.........................          2
Incorporation of Certain Documents by                    
 Reference....................................          2
The Company...................................          3
Use of Proceeds...............................          4
Selected Consolidated Financial Data..........          5
Management's Discussion and Analysis of                  
 Financial Condition and Results of                      
 Operations...................................          6
Credit Agreements.............................         15
Description of Debt Securities................         19
Description of Capital Stock..................         50
Plan of Distribution..........................         54
Validity of the Securities....................         54
Experts.......................................         54

21,000,000 SHARES                                                               

[LOGO] STONE CONTAINER CORPORATION COMMON STOCK                                 
($.01 PAR VALUE)                                                                

SALOMON BROTHERS INTERNATIONAL LTD.                                             
BEAR, STEARNS INTERNATIONAL LIMITED                                             
BANKERS TRUST INTERNATIONAL PLC                                                 

PROSPECTUS SUPPLEMENT                                                           

DATED          , 1994                                                           

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘424B3’ Filing		Date		First		Last			Other Filings
		2/15/07		21		78
		4/1/02		21		76
		2/15/02		78
		9/15/01		21		66
		7/15/00		21		76
		9/1/99		21		76
		8/15/99		21		76
		12/1/98		21		76			8-K
		7/15/98		21		76
		6/15/97		21		76
		3/1/97		5		41
		12/31/96		43					10-K,  10-K405/A,  11-K
		9/30/96		43					10-Q
		6/30/96		43					10-Q,  8-K
		3/31/96		43					10-Q
		2/16/96		78
		2/15/96		78
		12/31/95		43					10-K,  11-K
		11/14/95		12					10-Q
		9/30/95		43					10-Q
		6/30/95		43					10-Q,  11-K
		6/1/95		21		76
		3/31/95		43					10-Q
		12/31/94		43					10-K405,  11-K
		12/20/94		12
		9/30/94		12		43			10-Q
		6/30/94		43					10-Q,  11-K
		3/31/94		43					10-Q
		3/22/94		42
		3/1/94		5		80
		2/15/94		78
		1/16/94		21
Filed on:		1/7/94		2		27			424B3,  8-K
		1/5/94		2		28
		1/3/94		16		28
		1/1/94		6		20
		12/31/93		11		43			10-K,  11-K
		12/29/93		43
		12/21/93		41
		12/17/93		9		42
		11/9/93		38		39
		10/1/93		5
		9/30/93		7		69
		8/15/93		39
		7/29/93		46
		7/26/93		28		39
		7/13/93		76
		7/12/93		73
		7/7/93		28
		7/6/93		39
		6/30/93		28		74
		6/24/93		28		80
		6/23/93		45
		5/15/93		13
		4/15/93		28
		4/9/93		28		80
		3/31/93		28
		3/1/93		30
		1/8/93		28
		1/1/93		16		33
		12/31/92		9		80
		9/30/92		9		33
		9/15/92		9		37
		9/1/92		20		44
		8/25/92		19
		8/15/92		19
		3/15/92		7		45
		1/1/92		9		35
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