Document:

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                                                                    Exhibit 10.3

                                                                  EXECUTION COPY

                            ASSET PURCHASE AGREEMENT

                                 BY AND BETWEEN

                         DURANGO GEORGIA CONVERTING LLC

                                       AND

                           STONE CONTAINER CORPORATION

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

                            Dated as of May 16, 2001
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                                TABLE OF CONTENTS

                                                                            Page

ARTICLE I       DEFINITIONS...................................................1

       1.1.     Certain Defined Terms.........................................1
       1.2.     Certain Rules of Construction.................................8

ARTICLE II      PURCHASE AND SALE.............................................8

       2.1.     Purchase and Sale.............................................8
       2.2.     Assumed Liabilities...........................................9
       2.3.     Purchase Price ..............................................10
       2.4.     Purchase Price Adjustment....................................10
       2.5.     Allocation of Purchase Price.................................11
       2.6.     Taxes........................................................11
       2.7.     The Closing..................................................12

ARTICLE III     REPRESENTATIONS AND WARRANTIES OF THE SELLER.................12

       3.1.     Organization; Power..........................................12
       3.2.     Authorization, Effect of Agreement...........................13
       3.3.     Subsidiaries.................................................13
       3.4.     Consents.....................................................13
       3.5.     Financial Statements.........................................13
       3.6.     Conduct in the Ordinary Course; Absence of Certain
                Changes, Events and Conditions...............................14
       3.7.     No Undisclosed Liabilities...................................16
       3.8.     Title to Assets..............................................16
       3.9.     Permits......................................................16
       3.10.    Real Property................................................17
       3.11.    Compliance with Laws.........................................17
       3.12.    Contracts....................................................18
       3.13.    No Violations................................................19
       3.14.    Intellectual Property........................................19
       3.15.    Litigation...................................................20
       3.16.    Employee Benefit Plans.......................................20
       3.17.    Tax Matters..................................................20
       3.18.    Environmental Matters........................................21
       3.19.    Labor Matters................................................22
       3.20.    Receivables..................................................22
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       3.21.    Inventories..................................................22
       3.22.    Certain Interests............................................23
       3.23.    Brokers......................................................23

ARTICLE IV      REPRESENTATIONS AND WARRANTIES OF THE BUYER..................24

       4.1.     Organization; Power..........................................24
       4.2.     Authorization; Effect of Agreement...........................24
       4.3.     Consents.....................................................24
       4.4.     No Violations................................................24
       4.5.     Litigation...................................................25
       4.6.     Availability of Funds........................................25
       4.7.     Brokers......................................................25

ARTICLE V       COVENANTS OF THE SELLER......................................25

       5.1.     Action by the Seller.........................................25
       5.2.     Conduct of the Eastman Division's Business...................25
       5.3.     Access.......................................................26
       5.4.     Publicity....................................................26
       5.5.     Notices of Certain Events....................................26
       5.6.     Exclusivity..................................................26
       5.7.     Closing of the McDowell Division.............................27

ARTICLE VI      COVENANTS OF THE BUYER.......................................27

       6.1.     Action by the Buyer..........................................27
       6.2.     Publicity....................................................27
       6.3.     Confidentiality..............................................27
       6.4.     Notice.......................................................27

ARTICLE VII     ADDITIONAL COVENANTS.........................................28

       7.1.     Further Assurances...........................................28
       7.2.     Books and Records............................................28
       7.3.     Insurance....................................................28
       7.4.     Payments from Third Parties..................................28
       7.5.     Tax Matters..................................................28
       7.6.     Covenant Not to Compete......................................28
       7.7.     Assignment of Accounts Receivable and Other Receivables
                and Finished Goods Inventory.................................29

ARTICLE VIII    CONDITIONS TO THE BUYER'S OBLIGATIONS........................30
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       8.1.     Representations and Warranties; Performance..................30
       8.2.     Consents.....................................................30
       8.3.     Absence of Certain Proceedings...............................30
       8.4.     Opinion of Counsel...........................................30
       8.5.     Release of Encumbrances......................................30
       8.6.     Transition Services Agreement................................30
       8.7.     Permits......................................................31
       8.8.     Bill of Sale.................................................31

ARTICLE IX      CONDITIONS TO THE SELLER'S OBLIGATIONS.......................31

       9.1.     Representations and Warranties; Performance..................31
       9.2.     Absence of Certain Proceedings...............................31
       9.3.     Releases.....................................................31
       9.4.     Paper Supply Agreement.......................................31
       9.5.     Opinion of Counsel...........................................31

ARTICLE X       EMPLOYMENT AND EMPLOYEE BENEFITS ARRANGEMENTS................32

       10.1.    Retained Employees; Terminations on Closing Date.............32
       10.2.    Employment of Sales Personnel................................32
       10.3.    Employment of Retained Employees and Disabled Employees......33
       10.4.    Employee Benefit Plans.......................................34
       10.5.    WARN Act.....................................................35
       10.6.    Worker's Compensation........................................36
       10.7.    Transition Services Agreement................................36
       10.8.    Liabilities, Indemnity and Payments with Respect to
                Retained Employees and Designated Sales Personnel............36

ARTICLE XI      TERMINATION..................................................38

       11.1.    Termination and Abandonment..................................38
       11.2.    Effect of Termination........................................38

ARTICLE  XII    SURVIVAL AND INDEMNIFICATION.................................38

       12.1.    Survival.....................................................38
       12.2.    Indemnification by the Seller................................39
       12.3.    Indemnification by the Buyer.................................42
       12.4.    Procedure for Indemnification................................42
       12.5.    Payment......................................................43
       12.6.    Adjustment Amounts...........................................43
       12.7.    Limitation on Seller's Indemnification.......................43
       12.8.    Exclusivity..................................................43
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       12.9.    Tax Treatment................................................44
       12.10.   Guarantee....................................................44

ARTICLE XIII    MISCELLANEOUS................................................44

       13.1.    Fees and Expenses............................................44
       13.2.    Amendments...................................................44
       13.3.    Entire Agreement.............................................44
       13.4.    Assignment, Binding Effect; Benefit..........................44
       13.5.    Headings.....................................................45
       13.6.    Governing Law; Arbitration...................................45
       13.7.    Notices......................................................46
       13.8.    Counterparts.................................................47
       13.9.    Bulk Transfer Laws...........................................47
       13.10.   Schedules....................................................47
       13.11.   Severability.................................................47

SCHEDULES

Schedule 2.1(h)    Permits
Schedule 2.1(i)    Contracts
Schedule 2.4       Closing Statement
Schedule 2.5       Allocation of Purchase Price
Schedule 3.4       Consents
Schedule 3.5       Financial Statements
Schedule 3.6       Conduct in  the  Ordinary Course; Absence of Certain Changes,
                   Events and Conditions
Schedule 3.7       No Undisclosed Liabilities
Schedule 3.8       Title to Assets
Schedule 3.9       Permits
Schedule 3.10      Leases
Schedule 3.11      Compliance with Laws
Schedule 3.12(a)   Material Contracts
Schedule 3.12(b)   Material Contracts (Enforceability)
Schedule 3.12(c)   Material Contracts (Breach/Default)
Schedule 3.13      No Violations
Schedule 3.14      Intellectual Property
Schedule 3.15      Litigation
Schedule 3.16      Employee Benefit Plans
Schedule 3.18(a)   Environmental Matters
Schedule 3.18(b)   Environmental Permits
Schedule 3.19      Labor Matters
Schedule 3.21      Inventories
Schedule 3.22      Certain Interests
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Schedule 5.2       Conduct of the Eastman Division's Business
Schedule 7.6       Multiwall Bag Customers
Schedule 10.1(a)   List of Employees
Schedule 10.1(b)   Non-Retained Employees
Schedule 10.2      Designated Sales Personnel
Schedule 10.4      Employment, Consulting, Retention and Severance Agreements

EXHIBITS

Exhibit A-1        Form of Trademark Assignment
Exhibit A-2        Form of Assignment of Lease and Note Financing Agreement
Exhibit A-3        Form of Assignment of Note
Exhibit A-4        Form of Assignment of Warehouse Lease
Exhibit A-5        Form of Assignment of Contracts
Exhibit A-6        Form of Quitclaim Deed
Exhibit B-1        Lease and Note Financing Agreement
Exhibit B-2        Warehouse Lease
Exhibit C          Form of Opinion of Seller's Counsel (White & Case LLP)
Exhibit D          Form of Transition Services Agreement
Exhibit E          Form of Paper Supply Agreement
Exhibit F          Form of Opinion of Buyer's Counsel (E. Timothy Holstein)
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                            ASSET PURCHASE AGREEMENT

          This  Asset  Purchase  Agreement,  dated  as of  May  16,  2001  (this
"Agreement"),  by and between Durango Georgia Converting LLC, a Delaware limited
liability company (the "Seller"),  and Stone Container  Corporation,  a Delaware
corporation (the "Buyer"). The Buyer and the Seller are referred to collectively
herein as the "Parties."

                              W I T N E S S E T H:
                              - - - - - - - - - -

          WHEREAS,  the Seller owns and  operates a  multi-wall  bag  converting
facility located in Eastman,  Georgia (the "Eastman  Division") and a multi-wall
bag converting facility located in Memphis, Tennessee (the "McDowell Division");
and

          WHEREAS,  upon the terms and subject to the  conditions  contained  in
this Agreement,  the Seller desires to sell to the Buyer,  and the Buyer desires
to purchase from the Seller, the Eastman Division and certain customer lists and
contracts associated with the McDowell Division;

          NOW,  THEREFORE,  in  consideration  of  the  mutual  representations,
warranties,  covenants and agreements  contained in this Agreement,  the Parties
hereby agree as follows:

                                    ARTICLE I

                                   DEFINITIONS

          1.1.  Certain Defined Terms. As used in this Agreement,  the following
terms shall have the following meanings:

          "Acquired Assets" shall have the meaning set forth in Section 2.1.

          "Action" shall mean any action,  suit,  claim,  arbitration,  inquiry,
proceeding or investigation by or before any court or Governmental Authority.

          "Affiliate"  shall mean, with respect to any Person,  any other Person
directly or indirectly controlling,  controlled by, or under common control with
such Person.  A Person shall be deemed to control  another Person if such Person
possesses, directly or indirectly, the power to direct or cause the direction of
the management and policies of such other Person,  whether through the ownership
of voting securities, by contract or otherwise.

          "Agreement" shall have the meaning set forth in the Preamble.

          "Ancillary  Documents"  shall mean the Paper Supply  Agreement and the
Transition Services Agreement.

          "Arbiter" shall have the meaning set forth in Section 2.4(b).
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          "Assumed  Liabilities"  shall  have the  meaning  set forth in Section
2.2(a).

          "Business Day" shall mean any day that is not a Saturday,  a Sunday or
other day on which banks are required or  authorized  by law to be closed in New
York, New York.

          "Business Intellectual  Property" shall mean all patents,  trademarks,
servicemarks,  tradenames and copyrights and each  registration  and application
for any of the foregoing owned,  used or held by the Seller for use primarily or
exclusively  in  connection  with the  conduct of the  business  of the  Eastman
Division.

          "Buyer" shall have the meaning set forth in the Preamble.

          "Buyer  Indemnitees"  shall  have the  meaning  set  forth in  Section
12.2(a).

          "Buyer Material  Adverse Effect" shall mean a material  adverse effect
on (a) the business,  operations,  results of operations or condition (financial
or  otherwise)  of the  Buyer or (b) the  ability  of the Buyer to  perform  its
obligations under this Agreement or the Ancillary Documents or to consummate the
transactions contemplated hereby or thereby.

          "Claimant" shall have the meaning set forth in Section 13.6(b)(ii).

          "Claims   Notice"   shall  have  the  meaning  set  forth  in  Section
12.2(b)(ii)(A).

          "Closing" shall have the meaning set forth in Section 2.7.

          "Closing Date" shall have the meaning set forth in Section 2.7.

          "Closing  Statement"  shall  have the  meaning  set  forth in  Section
2.4(a).

          "COBRA" shall mean the Consolidated Omnibus Budget  Reconciliation Act
of 1985, as amended.

          "Code" shall mean the Internal Revenue Code of 1986, as amended.

          "Commercially  Reasonable" shall have the meaning set forth in Section
12.2(b)(i)(A).

          "Consents"  shall mean any consent,  approval,  authorization or other
order of, or action or  exemption  by, or filing  with or  notification  of, any
Governmental Authority or third party.

          "Contract" shall mean any agreement,  contract,  instrument,  license,
lease, sublease, or binding understanding, arrangement or commitment.

          "Deferral Period" shall have the meaning set forth in Section 10.2(a).

          "Designated  Sales  Personnel"  shall  have the  meaning  set forth in
Section 10.2(a).
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          "Eastman Division" shall have the meaning set forth in the Recitals.

          "Employee  Benefit Plan" shall mean any: (a)  "employee  benefit plan"
within the meaning of Section 3(3) of the Employee  Retirement  Income  Security
Act of 1974, as amended  ("ERISA");  (b) bonus,  stock option,  stock  purchase,
restricted stock,  incentive,  fringe benefit,  voluntary employees' beneficiary
associations under Section 501(c)(9) of the Code,  profit-sharing,  pension,  or
retirement, deferred compensation,  medical, life, disability,  accident, salary
continuation,   severance,  accrued  leave,  vacation,  sick  pay,  sick  leave,
supplemental retirement and unemployment benefit plans (whether or not insured);
and  (c)  employment,  consulting,   termination,  and  severance  contracts  or
agreements,  in each case  maintained  or  contributed  to by the  Seller or its
Affiliates on behalf of Employees or directors of the Eastman Division.

          "Employees"  shall  mean all  current  employees  (including  those on
layoff,  disability  or  leave  of  absence,  whether  paid or  unpaid),  former
employees and retired employees of the Eastman Division.

          "Encumbrance"  shall  mean  any  lien,  security  interest,  mortgage,
pledge, adverse claim, title defect or other encumbrance.

          "Environmental  Laws"  shall  mean  the  Comprehensive   Environmental
Response,  Compensation and Liability Act, 42 U.S.C.  Sections 9601 et seq., the
Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C.ss.ss.11001
et seq., the Resource Conservation and Recovery Act, 42 U.S.C.ss.ss.6901 et seq.
("RCRA"),  the ---- Toxic Substances Control Act, 15  U.S.C.ss.ss.2601  et seq.,
the Federal  Insecticide,  Fungicide,  and Rodenticide Act, 7 U.S.C.ss.ss.136 et
seq.,  the Clean  Air Act,  42  U.S.C.ss.ss.7401  et seq.,  the Clean  Water Act
(Federal Water  Pollution  Control Act), 33  U.S.C.ss.ss.1251  et seq., the Safe
Drinking Water Act, 42  U.S.C.ss.ss.300f  et seq., the  Occupational  Safety and
Health Act, 29 U.S.C.ss.ss.641,  et seq., the Hazardous Materials Transportation
Act,  49  U.S.C.ss.ss.1801,  et seq.,  the  rules  and  regulations  promulgated
pursuant  to  any  of  the  above   statutes,   and  any  other  Laws  governing
Environmental  Matters, as the same have been amended and as in effect as of the
Closing Date.

          "Environmental  Matters"  shall  mean  any  matter  arising  out of or
relating to pollution,  Hazardous  Materials,  or protection of the environment,
natural resources, human health or safety of employees.

          "Environmental  Permits" shall mean all Permits issued, granted, given
or otherwise made available by or under any Governmental  Authority  pursuant to
applicable Environmental Laws.

          "Excluded   Assets"  shall  mean:  (a)  all  cash,  cash  equivalents,
securities,  bank accounts and insurance policies and rights thereunder; (b) all
assets  or  properties  of the  Seller  that  are not  used  or held  for use in
connection with the Eastman Division; (c) all rights of the Seller arising under
this  Agreement  or the  transactions  contemplated  hereby;  (d) all  assets or
properties of the Seller that are sold or otherwise  disposed of in the ordinary
course of business,  consistent with the Seller's obligations  hereunder,  or as
otherwise  permitted  by this  Agreement  during the period from the date hereof
until the  Closing  Date;  (e) all  intercompany  receivables  (other than those
arising  through  product  sales);   (f)  all  accounts   receivable  and  other
<PAGE>

receivables over ninety (90) days past due; (g) all refunds,  credits and claims
for  refunds  of any  Taxes of the  Seller  or any of its  Affiliates  except as
otherwise  provided in Section 2.6;  and (h) all items of Business  Intellectual
Property which incorporate  "Eastman," "Durango," "Gilman,"  "Converting" or any
derivation in whole or in part thereof, individually or in combination.

          "Facility"  shall mean any real property or leasehold  operated by the
Seller in connection with the Eastman Division.

          "Financial  Statements"  shall have the  meaning  set forth in Section
3.5(a).

          "Governmental Authority" shall mean any governmental,  administrative,
public or self-regulatory body or authority.

          "Governmental  Order"  shall  mean any  order,  judgment,  injunction,
decree or stipulation entered by or with a Governmental Authority.

          "Hazardous  Materials"  shall mean any substance or material  which is
defined as, or considered  to be, a "hazardous  waste,"  "hazardous  substance,"
"pollutant,"  "extremely  hazardous  substance," "toxic  substance,"  "hazardous
material,"  "oil," or  "contaminant"  under any  Environmental  Law, or which is
otherwise  regulated by any Environmental Laws,  including,  without limitation,
petroleum and petroleum  products,  including  crude oil and fractions  thereof,
natural gas, radioactive materials,  polychlorinated  biphenyls and asbestos and
asbestos containing material.

          "Income Tax" shall mean any federal,  state,  local or foreign  income
tax,  including any interest,  penalty or addition thereto,  whether disputed or
not.

          "Indebtedness"  of  any  Person  shall  mean  at  any  date,   without
duplication,  (a) all  obligations  of such Person for borrowed  money,  (b) all
obligations  of such Person  evidenced  by bonds,  debentures,  notes or similar
instruments,  (c) all  obligations  of such Person to pay the deferred  purchase
price of property or services, except trade accounts payable or accruals arising
in the ordinary course of business, (d) all obligations of such Person as lessee
that are capitalized in accordance with applicable generally accepted accounting
principles,  (e) all  Indebtedness  of others  secured by an  Encumbrance on any
asset of such  Person,  whether  or not such  Indebtedness  is  assumed  by such
Person,  and (f) all  obligations  of such Person in the nature of guarantees of
the obligations described in clauses (a) through (e) above of any other Person.

          "Indemnifiable Environmental Losses" shall mean any Losses relating to
Environmental Matters which are indemnifiable under Section 12.2.

          "Indemnitee"  shall have the  meaning set forth in the  definition  of
"Losses."

          "Indemnitor"  shall have the  meaning set forth in the  definition  of
"Losses."

          "Interim  Employment  Period"  shall  have the  meaning  set  forth in
Section 10.3(a).
<PAGE>

          "Knowledge"  shall mean,  with respect to any Person,  the  knowledge,
after  reasonable  investigation,  of any executive  officer or director of such
Person and, in the case of the Seller, Lee Tompkins,  the General Manager of the
Eastman  Division  and,  for  purposes  of  Section  3.18,  Brent  Hanson,   the
Environmental  Manager of the Seller, and Wayne Brooks, the shipping  supervisor
of the Eastman Division.

          "Law" shall mean any federal,  state,  local or foreign statute,  law,
ordinance,  regulation, rule, judgment,  injunction,  decree, code, order, other
requirement or rule of law.

          "Lease and Note Financing Agreement" means that certain Lease and Note
Financing Agreement among The Development  Authority of Dodge County, as Lessor,
Gilman Paper Company,  as Lessee and Gilman Paper Company, as owner of the Note,
dated August 1, 1988, recorded in Deed Book 320, Page 258 and as transferred and
assigned by Assignment  of Lease dated  January 14, 1999,  recorded in Deed Book
320, Page 318.

          "Leased  Real  Property"  shall have the  meaning set forth in Section
3.10(b).

          "Leases"  means  the  Lease  and  Note  Financing  Agreement  and  the
Warehouse Lease. ------ "Loss" or "Losses" shall mean all claims, losses (net of
any  third  party  insurance   recovery  ----  ------  received),   liabilities,
obligations,  payments,  actual damages,  judgments,  fines,  penalties,  Taxes,
amounts  paid in  settlement,  and any related  costs and  expenses  (including,
without limitation, interest which may be imposed in connection therewith, costs
and expenses of investigation,  and remediation,  actions,  suits,  proceedings,
demands,   assessments  and  reasonable  fees  and   disbursements  of  counsel,
environmental  consultants  and other  experts)  incurred by the Person  seeking
indemnification  (the  "Indemnitee")  (whether relating to claims asserted by or
against  third  parties  or to claims  asserted  against  the  Person  providing
indemnification (the "Indemnitor")).

          "Material  Contracts"  shall  have the  meaning  set forth in  Section
3.12(a).

          "McDowell Division" shall have the meaning set forth in the Recitals.

          "Note" shall mean that certain  Industrial  Development  Revenue Note,
dated October 20, 1988, made by The Development Authority of Dodge County in the
aggregate principal amount of $3,000,000 in favor of Gilman Paper Company.

          "Notice" shall have the meaning set forth in Section 12.4.

          "Notification"   shall   have  the   meaning   set  forth  in  Section
12.2(b)(i)(B).

          "Officer"  shall  mean each  Senior or  Executive  Vice  President  or
President or director of the Seller or the Eastman Division.

          "Paper Supply  Agreement"  shall have the meaning set forth in Section
9.4.
<PAGE>

          "Parties" shall have the meaning set forth in the Preamble.

          "Permit"  shall  mean any  permit,  license or  authorization  issued,
granted  or given or  otherwise  made  available  by or under  any  Governmental
Authority.

          "Permitted  Encumbrances"  shall  mean (a)  Encumbrances  set forth on
Schedule  3.8,  (b)  liens  of  Taxes  not yet due  and  payable  or due but not
delinquent or being  contested in good faith by appropriate  proceedings and (c)
Encumbrances  which  individually  or in the aggregate  could not  reasonably be
expected to have a Seller Material Adverse Effect.

          "Person" shall mean any individual,  firm,  corporation,  partnership,
limited liability  company,  trust, joint venture,  association,  unincorporated
organization, Governmental Authority or other entity.

          "Preliminary Amount" shall mean US$15,555,000.

          "Purchase  Price" shall mean the amount of the current assets included
in the  Acquired  Assets as at the  Closing  Date less the amount of the current
liabilities  included in the Assumed Liabilities as at the Closing Date, in each
case as set forth on the  Closing  Statement  that is  deemed to be final,  plus
$4,653,000.

          "Purchase  Price  Adjustment"  shall mean the  difference  between the
Preliminary  Amount  and the  Purchase  Price,  whether a positive  or  negative
number.

          "Purchase  Price  Allocation"  shall  have the  meaning  set  forth in
Section 2.5.

          "Reference  Balance Sheet" shall have the meaning set forth in Section
3.5(a).

          "Request" shall have the meaning set forth in Section 13.6(b)(ii).

          "Respondent" shall have the meaning set forth in Section 13.6(b)(ii).

          "Response Action" shall mean any action to investigate,  test, monitor
or remediate any Hazardous Materials.

          "Retained  Employees"  shall  have the  meaning  set forth in  Section
10.1(a).

          "Seller" shall have the meaning set forth in the Preamble.

          "Seller Indemnitees" shall have the meaning set forth in Section 12.3.

          "Seller  Material Adverse Effect" shall mean a material adverse effect
on (a) the business,  operations,  results of operations or condition (financial
or  otherwise)  of the  Eastman  Division  or (b) the  ability  of the Seller to
perform its  obligations  under this Agreement or the Ancillary  Documents or to
consummate the transactions contemplated hereby or thereby.

          "Seller's  401(k)  Plan"  shall have the  meaning set forth in Section
10.4(e).
<PAGE>

          "Straddle Taxes" shall have the meaning set forth in Section 2.6(a).

          "Subsidiary" shall mean any Person,  with respect to which a specified
Person owns 50% or more of the capital  stock or other equity  interests of such
Person,  the holders of which are generally entitled to vote for the election of
the board of  directors  or other  governing  body of such  Person,  directly or
through one or more Subsidiaries.

          "Tangible  Personal  Property"  shall mean all  machinery,  equipment,
vehicles,  office  furniture,  tools and other tangible  property owned, used or
held by the Seller for use  primarily  or  exclusively  in  connection  with the
business of the Eastman Division.

          "Tax or  Taxes"  shall  mean any  taxes,  assessments,  duties,  fees,
levies, imposts,  deductions,  withholdings or other governmental charges of any
nature  whatsoever  imposed by any taxing  authority of any country or political
subdivision of any country, including any interest, penalties,  additions to tax
or additional amounts imposed by any taxing authority with respect thereto.

          "Tax Return"  shall mean any return,  declaration,  report,  claim for
refund or  information  return or  statement  relating to Taxes,  including  any
schedule or attachment thereto.

          "Third-Party Claim" shall have the meaning set forth in Section 12.4.

          "Transfer  Taxes" shall mean all transfer,  documentary,  sales,  use,
stamp,  registration  and other  similar  Taxes and fees  (including  penalties,
interest  and  additions  to tax  attributable  thereto  and costs and  expenses
relating to such Taxes).

          "Transferred  Employee"  shall have the  meaning  set forth in Section
10.3(g).

          "Transition  Services  Agreement"  shall have the meaning set forth in
Section 8.6.

          "U.S.  GAAP" shall mean United States  generally  accepted  accounting
principles  applied on a basis consistent with the past practices of the Eastman
Division.

          "Warehouse  Lease" means that certain Lease  Agreement dated March 29,
1999 between James H. Pruett, Jr., as "Landlord" and Gilman Paper Company, a New
Hampshire corporation,  as "Tenant," recorded in Deed Book 341 pages 237-242, as
amended by Amendment to Lease  Agreement  dated December 1, 1999 and recorded in
Deed Book 341, pages 243-244 and as  transferred  and assigned by Assignment and
Assumption Agreement and Consent dated as of December 18, 1999, recorded in Deed
Book 373, Page 324-327.

          "WARN  Act"  shall  mean  the   Worker   Adjustment   and   Retraining
Notification Act of 1988, as amended.

          1.2. Certain Rules of Construction.

          (a) When used herein, the words "hereof," "herein" and "hereunder" and
words of similar  import shall refer to this Agreement as a whole and not to any
<PAGE>

particular  provision of this Agreement.  References to the Preamble,  Recitals,
Articles,  Sections,  Schedules  or  Exhibits  shall refer  respectively  to the
Preamble, Recitals, Articles, Sections, Schedules or Exhibits of this Agreement,
unless otherwise expressly provided.

          (b) When used herein, the terms "include", "includes", and "including"
are not limiting.

          (c) Unless the context  requires  otherwise,  derivative  forms of any
term defined herein shall have a comparable meaning to that of such term.

          (d) When a Party's consent is required hereunder, such Party's consent
may be granted or withheld in such Party's  sole  discretion,  unless  otherwise
specified.

                                   ARTICLE II

                                PURCHASE AND SALE

          2.1.  Purchase and Sale.  Upon the terms and subject to the conditions
of this Agreement, the Seller shall sell, convey,  transfer,  assign and deliver
to the Buyer, and the Buyer shall purchase from the Seller, at the Closing,  all
of the Seller's right, title and interest in, to and under all of the assets and
properties  constituting the Eastman Division (other than the Excluded  Assets),
along with the customer lists and customer  contracts of the McDowell  Division,
(each and all of such  assets and  properties  being  herein  referred to as the
"Acquired Assets"), including, without limitation, all right, title and interest
of the Seller in, to and under the following:

               (a) all Tangible Personal Property;

               (b) all raw materials, inventories, including inventories of work
          in  process,  samples and  finished  goods,  spare parts and  supplies
          relating to manufacturing equipment, products and supplies owned, used
          or held by the Seller for use primarily or  exclusively  in connection
          with the business of the Eastman Division;

               (c) all Leased Real Property;

               (d) all claims,  deposits,  prepayments,  refunds,  and rights of
          recovery, set off and recoupment;

               (e)  all  accounts,  notes  and  other  receivables  (other  than
          accounts  receivable and other  receivables over ninety (90) days past
          due  and   intercompany   receivables,   except   those   intercompany
          receivables arising through product sales);

               (f) the Note;

               (g) all Business Intellectual Property;
<PAGE>

               (h) all rights arising or otherwise  relating to any period on or
          after the Closing Date in respect of all Permits set forth on Schedule
          2.1(h);

               (i) all rights arising or otherwise  relating to any period on or
          after  the  Closing  Date in  respect  of all  Contracts  set forth on
          Schedule 2.1(i); and

               (j) all of the  Seller's  files,  papers,  documents  and records
          relating  primarily  or  exclusively  to the Eastman  Division and the
          business of the McDowell Division included in the Acquired Assets, and
          all other  miscellaneous  assets of the Seller  relating  primarily or
          exclusively  to the Eastman  Division,  wherever  located,  including,
          without  limitation,  credit,  sales  and  accounting  records,  price
          sheets, catalogues and sales literature,  books, processes,  formulae,
          manufacturing data, advertising material, stationery, office supplies,
          forms,  catalogues,  manuals,   correspondence,   production  records,
          environmental  records,  employment  records and any other information
          reduced to writing  relating  primarily or  exclusively to the Eastman
          Division.

          2.2. Assumed Liabilities.  (a) The Buyer shall assume on and as of the
Closing Date, and shall thereafter pay, perform and discharge when due (or cause
to be paid,  performed and discharged  when due), the following  liabilities and
obligations  of the  Seller,  relating  to or arising  out of the conduct of the
Eastman Division's business (collectively, the "Assumed Liabilities"):

               (i) all  liabilities  and  obligations  of the Seller  arising or
          otherwise relating to any period on or after the Closing Date under or
          primarily  related to the  Contracts  and the Permits  included in the
          Acquired Assets;

               (ii) all accounts payable of the Seller in respect of the Eastman
          Division (in each case, other than intercompany payables, except those
          arising through product sales);

               (iii) all liabilities and obligations  relating to employment and
          employee  benefit  arrangments  assumed by the Buyer  under  Article X
          hereof; and

               (iv)  all  other  accrued  current  liabilities  of  the  Eastman
          Division.

          (b) The Buyer  shall not  assume or be  responsible  for the  payment,
performance  and  discharge of any  obligations  or  liabilities  of the Seller,
whether  or not  relating  to the  Eastman  Division,  other  than  the  Assumed
Liabilities.  Specifically,  without limiting the foregoing, the Buyer shall not
assume:

               (i) any Action  pending as of the Closing  Date,  notwithstanding
          the  disclosure  thereof in the Schedules  hereto,  or any  subsequent
          Action arising out of or relating to any such pending Action;

               (ii) any  liability  arising out of or  relating to the  Excluded
          Assets;
<PAGE>

               (iii) any  liability  of the Seller for any Income  Taxes for any
          periods  prior to or at the  Closing,  whether or not  relating to the
          Eastman Division;

               (iv) any  obligation or liability  arising from product  warranty
          claims,  with  respect to products  sold or  services  rendered by the
          Seller on or prior to the Closing Date; and

               (v) any other  obligation  or  liability  other than the  Assumed
          Liabilities arising prior to the Closing Date.

          2.3.  Purchase  Price  . The  Buyer  shall  pay to the  Seller  or its
designees at the Closing the Preliminary  Amount by wire transfer of immediately
available  funds to an account  specified  in writing by the Seller to the Buyer
not less than three Business Days prior to the Closing Date.

          2.4. Purchase Price Adjustment.  (a) As promptly as practicable but in
any event within 45 days  following the Closing  Date,  the Seller shall prepare
and deliver to the Buyer an unaudited  statement,  substantially  in the form of
Schedule 2.4,  setting forth the current assets  included in the Acquired Assets
and current  liabilities  included in the Assumed  Liabilities as at the Closing
Date  (the  "Closing  Statement").  The  Closing  Statement  shall  be  prepared
(including,  without  limitation,  the  taking  of  inventory)  using  the  same
accounting  methods,  policies,   practices  and  procedures,   with  consistent
classification,   judgments,   and  estimation  methodology,   as  used  in  the
preparation of the Financial Statements, except that the Closing Statement shall
not include (i) any current Tax assets or any current Tax  liabilities,  or (ii)
any LIFO reserve or any intercompany profit on inventory reserve,  except to the
extent  included on the balance sheet of the Seller as at September 30, 2000. In
preparing the Closing Statement, (x) storeroom inventory and spare parts will be
determined  on the  day  immediately  preceding  the  Closing  Date  and (y) all
inventory  shall be valued  based on the lower of market  value or the  Seller's
cost of such inventory.

          (b) The Buyer shall have 15 days after receiving the Closing Statement
to accept the Closing  Statement  or to object to all or any part of the Closing
Statement,  setting  forth the bases for its  objections.  If the Buyer does not
notify the Seller in writing of any objections to the Closing  Statement  within
such 15 days, the Closing Statement shall be deemed to be final,  conclusive and
binding  upon the  Parties.  If the Buyer  notifies the Seller in writing of any
objections  to the  Closing  Statement  within such 15 days,  the Parties  shall
negotiate  in good faith to resolve  such  objections.  If such  objections  are
resolved within 15 days following the Seller's  receipt of written notice of the
<PAGE>

Buyer's  objections,  the Buyer and the Seller shall  jointly  prepare a revised
Closing Statement which shall be deemed to be final, conclusive and binding upon
the Parties.  If the Buyer and the Seller are unable to resolve such  objections
within such 15 days, then as promptly as  practicable,  the Buyer and the Seller
shall retain Arthur Andersen (the "Arbiter") (i) to review the Closing Statement
and the Buyer's objections and (ii) to prepare a revised Closing Statement based
upon its review and deliver such revised Closing  Statement to the Buyer and the
Seller within 30 days of the date of its retention.

          (c) If the Arbiter is retained, the Closing Statement delivered by the
Arbiter to the Buyer and the Seller shall be deemed to be final,  conclusive and
binding upon the Parties, absent manifest error. The fees, costs and expenses of
the  Arbiter  shall be borne  equally by the Buyer and the  Seller.  The Arbiter
shall make  available  to the Buyer and the Seller its work papers  generated in
connection with the preparation or review of the Closing Statement.

          (d) If the Purchase Price exceeds the  Preliminary  Amount,  the Buyer
shall pay to the Seller the dollar  amount of the Purchase  Price  Adjustment in
accordance  with the  provisions  of  paragraph  (e) of this Section 2.4. If the
Purchase Price is less than the Preliminary  Amount, the Seller shall pay to the
Buyer the dollar amount of the Purchase Price  Adjustment in accordance with the
provisions of paragraph (e) of this Section 2.4.

          (e) Any amount payable as the Purchase Price  Adjustment shall be paid
by wire  transfer of  immediately  available  funds to an account  designated in
writing  by  the  Buyer  or the  Seller,  as  the  case  may  be.  The  payments
contemplated  in this  Section  2.4(e)  shall be made on the third  Business Day
following the date on which the Closing Statement is deemed to be final.

          2.5.  Allocation of Purchase Price. The Seller and the Buyer shall use
their  reasonable best efforts to agree upon an allocation of the Purchase Price
and other relevant items (the "Purchase Price  Allocation") for Federal,  state,
local and foreign  tax  purposes on or prior to the  Closing,  which  allocation
shall be annexed as Schedule 2.5 of this  Agreement  at the Closing.  The Seller
shall deliver to the Buyer a proposed allocation of the Purchase Price and other
relevant items for the Seller's review and approval and the Buyer shall promptly
review and approve or disapprove of such allocation. If the Buyer and the Seller
agree upon an allocation pursuant to this Section 2.5, neither the Buyer nor the
Seller shall take any position inconsistent with such allocation,  except as may
be required by law,  without the consent of the other Party.  The Purchase Price
Allocation determined in accordance with this Section 2.5 shall be appropriately
adjusted to reflect any  subsequent  adjustment to the Purchase Price based upon
the  particular  tax  asset to which  such  adjustment  relates.  Such  adjusted
Purchase Price  Allocation  shall be determined in a manner  consistent with the
procedures set forth in this Section 2.5.

          2.6.  Taxes.  (a) Taxes  that are  imposed  on a  periodic  basis with
respect to the Eastman  Division and the Acquired Assets and are payable for any
taxable  period that begins before but ends after the Closing  Date,  other than
Taxes based on (or measured by) net income ("Straddle Taxes"),  shall (i) in the
case of any sales,  use,  employment,  payroll and other similar  Straddle Taxes
which are based on or related to sales, receipts or disbursements,  be allocated
between the Seller and the Buyer based upon the amount which would be payable if
<PAGE>

the relevant  taxable  period ended on the Closing Date, and (ii) in the case of
all other Straddle Taxes (including real property and personal  property Taxes),
be allocated  between the Seller and the Buyer based upon the relative number of
days in the portion of the taxable  period up to and  including the Closing Date
and the relative number of days in the portion of the taxable period  subsequent
to the Closing Date.  Any refund or credit of Straddle  Taxes shall be allocated
between  the  Seller  and the Buyer in a manner  consistent  with the  preceding
sentence.  In the case of any Straddle  Taxes  prepaid by the Seller,  the Buyer
shall pay to the Seller at the  Closing,  the Seller's  allocable  share of such
Straddle Taxes.  In the case of all other Straddle Taxes,  the Party paying such
Straddle Taxes shall provide a written notice to the other Party  indicating the
amount of such Straddle Taxes so paid  (including a copy of any return  relating
to, and evidence of payment of, such Straddle  Taxes) and such other Party shall
promptly  pay to the paying  Party such other  Party's  allocable  share of such
Straddle Taxes.

          (b) All Transfer Taxes incurred in connection with the consummation of
the  transactions  contemplated  by this Agreement shall be borne equally by the
Seller and the Buyer. The Seller shall prepare and timely file all necessary tax
returns and other  documentation  with respect to all such Transfer  Taxes.  The
Buyer shall  reasonably  cooperate with the Seller in the preparation and filing
of any such tax returns and other documentation.

          2.7. The Closing. The closing of the transactions contemplated by this
Agreement (the  "Closing")  shall take place at the offices of White & Case LLP,
200 South Biscayne Boulevard, Miami, Florida 33131, at 10:00 A.M. local time, on
May 29,  2001,  or at such other  place,  time  and/or  date as the  Parties may
mutually agree (the date of the Closing,  the "Closing  Date").  At the Closing,
(a) the Seller shall deliver to the Buyer the various certificates,  instruments
and documents  referred to in Article  VIII,  (b) the Buyer shall deliver to the
Seller the  various  certificates,  instruments  and  documents  referred  to in
Article IX, (c) the Seller  shall  execute,  acknowledge  (if  appropriate)  and
deliver to the Buyer (i) assignments, substantially in the forms of Exhibits A-1
through A-5, (ii) a quitclaim  deed,  substantially  in the form of Exhibit A-6,
and (ii) such other instruments of sale,  transfer  conveyance and assignment as
the Buyer may reasonably request,  (d) the Buyer shall execute,  acknowledge (if
appropriate)  and deliver to the Seller such  instruments  of  assumption as the
Seller may reasonably request,  and (e) the Buyer will pay the Purchase Price to
the Seller.

                                   ARTICLE III

                  REPRESENTATIONS AND WARRANTIES OF THE SELLER

          The Seller represents and warrants to the Buyer as follows:

          3.1.  Organization;  Power. The Seller is a limited  liability company
duly  organized,  validly  existing and in good  standing  under the laws of the
State of Delaware,  and has all requisite  limited  liability  company power and
authority  to carry on its  business as it is now being  conducted,  to execute,
deliver and perform this Agreement and the Ancillary Documents, to carry out its
obligations   hereunder  and  thereunder  and  to  consummate  the  transactions
contemplated hereby and thereby.  The Seller is duly licensed or qualified to do
business and is in good standing in each  jurisdiction  in which the  properties
<PAGE>

owned or leased by it or the operation of its business  makes such  licensing or
qualification necessary, except to the extent that the failure to be so licensed
or qualified would not adversely affect the ability of the Seller to conduct the
business as currently  conducted or to carry out its obligations  under,  and to
consummate the  transactions  contemplated  by, this Agreement and the Ancillary
Documents.

          3.2. Authorization,  Effect of Agreement. The execution,  delivery and
performance  by the Seller of this  Agreement and the Ancillary  Documents,  the
performance  by the Seller of its  obligations  hereunder and thereunder and the
consummation by the Seller of the transactions  contemplated  hereby and thereby
have been duly authorized by all requisite  limited  liability company action on
the part of the Seller.  This Agreement has been, and upon its execution each of
the Ancillary Documents shall have been, duly and validly executed and delivered
by the Seller. This Agreement constitutes (assuming due authorization, execution
and  delivery  by the  Buyer),  and upon  its  execution  each of the  Ancillary
Documents will constitute (assuming due authorization  execution and delivery by
all  parties  other than the  Seller),  a valid and  binding  obligation  of the
Seller,  enforceable  against the Seller in accordance with its terms, except to
the  extent  that  such   enforceability  (i)  may  be  limited  by  bankruptcy,
insolvency,  reorganization,  moratorium  or  other  similar  laws  relating  to
creditors'  rights  generally,  and (ii) is  subject to  general  principles  of
equity.

          3.3.  Subsidiaries.  There are no  Subsidiaries of the Seller included
within the Eastman Division.

          3.4.  Consents.  Except as set forth on  Schedule  3.4,  no Consent is
required to be obtained or made by the Seller in connection  with the execution,
delivery  and  performance  by the  Seller of this  Agreement  or the  Ancillary
Documents or the consummation by it of the transactions  contemplated  hereby or
thereby.

          3.5. Financial  Statements.  (a) The Seller has delivered to the Buyer
(i) the unaudited  combined  statements of net assets of the Eastman Division as
of  December  31,  1999,  December  31, 1998 and  December  31,  1997;  (ii) the
unaudited  combined  statements of revenues and expenses of the Eastman Division
for each of the years ended  December 31,  1999,  December 31, 1998 and December
31, 1997;  (iii) an unaudited  combined balance sheet of the Eastman Division as
of September 30, 2000 (the  "Reference  Balance  Sheet");  and (iv) an unaudited
statement of revenues and expenses of the Eastman  Division for the period ended
September 30, 2000 (collectively,  with the notes and supplementary  information
thereto, the "Financial  Statements"),  copies of which are included on Schedule
3.5.  Except  as set  forth on  Schedule  3.5 or in the  notes to the  Financial
Statements,  the Financial  Statements (x) were prepared in accordance  with the
books of account  and other  financial  records  of the  Eastman  Division,  (y)
present fairly the combined financial condition and results of operations of the
Eastman Division as of the dates thereof or for the periods covered thereby, (z)
have been prepared in accordance with U.S. GAAP and (xx) include all adjustments
(consisting  only of normal  recurring  accruals)  that are necessary for a fair
presentation  of the  financial  condition  and the  results  of the  operations
(subject,  in the case of the statements  referred to in clauses (iii) and (iv),
to normal year-end adjustments) of the Eastman Division as of the dates therefor
or for the periods covered thereby.

          (b) The books of account  and other  financial  records of the Eastman
Division are in all material respects complete and correct.
<PAGE>

          3.6.  Conduct in the  Ordinary  Course;  Absence  of Certain  Changes,
Events and  Conditions.  Except as permitted or  contemplated by this Agreement,
since September 30, 2000 (a) the Eastman  Division has conducted its business in
all material  respects in the ordinary  and usual  course  consistent  with past
practice and there has not been any  development or combination of  developments
that,  individually or in the aggregate,  could reasonably be expected to have a
Seller Material Adverse Effect and (b) the Seller has not:

               (i) permitted or allowed any of the assets or properties  used or
          held for use in connection with the Eastman Division (whether tangible
          or  intangible)  to  be  subjected  to  any  Encumbrance,  except  for
          Permitted Encumbrances;

               (ii) except as set forth on Schedule  3.6,  permitted the Eastman
          Division to enter into any  Contract  creating  any  liability  of the
          Eastman  Division in excess of $100,000 that has not been satisfied as
          of the date hereof, other than in the ordinary course of business;

               (iii)  permitted  the  Eastman   Division  to  make  any  capital
          investment  in, any loan to, or any  acquisition  of the securities or
          assets, of any other Person outside the ordinary course of business;

               (iv)  permitted  the Eastman  Division  to delay or postpone  the
          payment of any accounts  payable or  liabilities  outside the ordinary
          course of business;

               (v) made any  capital  expenditure  or  contract  for any capital
          expenditure  in  connection  with the  Eastman  Division  in excess of
          $100,000 individually or $500,000 in the aggregate;

               (vi)  issued  any sales  orders or  otherwise  agreed to make any
          purchases in connection with the Eastman  Division,  other than in the
          ordinary course of business, involving exchanges in value in excess of
          $50,000 individually or $250,000 in the aggregate;

               (vii) sold, transferred, leased, subleased, licensed or otherwise
          disposed  of  any  properties  or  assets  used  or  held  for  use in
          connection  with  the  Eastman  Division,   real,  personal  or  mixed
          (including,  without  limitation,  leasehold  interests and intangible
          assets) having a value in excess of $50,000  individually  or $250,000
          in the  aggregate,  other  than the sale of  inventories  or  obsolete
          equipment in the ordinary course of business;

               (viii)  except as set forth on Schedule  3.6,  hired or agreed to
          hire any  individual  with a salary,  wages or other  compensation  in
          excess of  $100,000,  increased  the  wages,  salaries,  compensation,
          pension or other benefits payable, or to become payable by the Eastman
          Division,  to any of its  officers,  employees  or agents,  including,
          without  limitation,  any bonus  payments or severance or  termination
          pay, other than increases in wages and salaries required by employment
<PAGE>

          arrangements  existing on the date hereof or otherwise in the ordinary
          course of business;

               (ix) allowed any Permit or  Environmental  Permit that was issued
          or  relates  to the  Eastman  Division  or  otherwise  relates  to any
          Acquired  Asset to lapse or  terminate  or  failed  to renew  any such
          Permit  or  Environmental  Permit  or any  insurance  policy  that  is
          scheduled to terminate or expire prior to the Closing Date, except for
          any lapse, termination or failure to renew that individually or in the
          aggregate  could not reasonably be expected to have a Seller  Material
          Adverse Effect;

               (x) materially amended,  modified or consented to the termination
          of any  Material  Contract  or any of the  Eastman  Division's  rights
          thereunder to the extent  arising or otherwise  relating to any period
          on or after the Closing Date;

               (xi) terminated,  discontinued,  closed or disposed of any plant,
          facility or other business operation relating to the Eastman Division,
          or  laid  off any  employees  (other  than  layoffs  of  less  than 50
          employees in any six-month  period in the ordinary  course of business
          consistent  with past practice) or implemented  any early  retirement,
          separation  or program  providing  early  retirement  window  benefits
          within the meaning of Section  1.401(a)-4 of the Treasury  Regulations
          promulgated  under Section 401 of the Code or announced or planned any
          such action or program for the future;

               (xii)   permitted   to  lapse  or  go   abandoned   any  Business
          Intellectual  Property (or any  registration  or grant  thereof or any
          application  relating  thereto) to which, or under which,  the Eastman
          Division has any right, title, interest or license,  except for lapses
          that individually or in the aggregate could not reasonably be expected
          to have a Seller Material Adverse Effect;

               (xiii) suffered any casualty loss or material damage with respect
          to any of the  Acquired  Assets which has a  replacement  cost of more
          than  $100,000,  whether  or not such loss or damage  shall  have been
          covered by insurance;

               (xiv)  changed  any  accounting  practices  (including,   without
          limitation,  any change in depreciation  or  amortization  policies or
          rates) used with respect to the Eastman Division; or

               (xv) agreed, whether in writing or otherwise,  to take any of the
          actions  specified  in this  Section  3.6 or  granted  any  options to
          purchase,  rights of first refusal, rights of first offer or any other
          similar  rights  or  contracts  with  respect  to any  of the  actions
          specified in this Section 3.6.

          3.7. No  Undisclosed  Liabilities.  The Seller does not have any debt,
obligation or other liability of any kind or nature, whether absolute,  accrued,
contingent,  fixed or otherwise,  or whether due or to become due, affecting the
<PAGE>

Eastman Division or any Acquired Asset,  other than liabilities (i) reflected or
reserved against on the Reference Balance Sheet, (ii) disclosed on Schedule 3.7,
(iii)  incurred  or arising  since the date of this  Agreement  in the  ordinary
course of business of the Eastman  Division or (iv) that are not material to the
Eastman Division.

          3.8.  Title to Assets.  (a) The Seller  owns,  leases or has the legal
right to use the  Acquired  Assets.  Except as set forth on  Schedule  3.8,  the
Seller  has  good  and  marketable  title to all of the  properties  and  assets
included in the  Acquired  Assets which it purports to own  (including,  without
limitation,  those  properties and assets  included in the Acquired Assets which
are  reflected as owned by the Seller on the balance  sheet as of September  30,
2000  included in the Financial  Statements,  except for  properties  and assets
sold,  consumed or otherwise  disposed of in the ordinary  course of business or
otherwise as permitted by this  Agreement  since  September 30, 2000) or, in the
case of the Leased Real Property and any other leased  property  included in the
Acquired Assets,  valid and subsisting leasehold interests in such property free
and clear of all Encumbrances  other than the encumbrances set forth on Schedule
3.8 and Permitted Encumbrances.

          (b) The Acquired Assets  constitute all properties,  assets and rights
which are  necessary  to conduct the  business  of the  Eastman  Division in the
manner conducted as of the date hereof, and the Tangible Personal Property is in
such physical condition and state of repair, ordinary wear and tear excepted, as
to enable  the Buyer to  conduct  the  operations  of the  Eastman  Division  as
currently conducted without material disruption after the Closing.

          (c)  Immediately  following the Closing (and assuming the obtaining of
all  Consents),  the Buyer will own, free and clear of all  Encumbrances  (other
than Permitted  Encumbrances  and  Encumbrances  imposed at the direction of the
Buyer), or lease,  under valid and subsisting leases, the interest of the Seller
in, to and under the Acquired Assets.

          3.9.  Permits.  The Seller has all Permits  that are  required for the
operation of the Eastman Division as presently conducted or for the ownership of
the Acquired  Assets,  except where the absence  thereof  individually or in the
aggregate  could not  reasonably be expected to have a Seller  Material  Adverse
Effect.  The Seller has not  received any written  notice from any  Governmental
Authority revoking, canceling,  rescinding,  materially modifying or refusing to
renew any Permit or advising of violations  under any Law which  individually or
in the aggregate could  reasonably be expected to have a Seller Material Adverse
Effect.  Except  as set  forth on  Schedule  3.9,  the  Eastman  Division  is in
compliance with the Permits and the  requirements  of the Permits,  except where
the  failure to comply  therewith  individually  or in the  aggregate  could not
reasonably be expected to have a Seller Material  Adverse  Effect.  Schedule 3.9
identifies all material Permits that are  nontransferable  or which will require
the consent of any  Governmental  Authority in the event of the  consummation of
the transactions contemplated by this Agreement.

          3.10.  Real Property.  (a) As of the date hereof,  the Seller does not
own any real property in respect of the Eastman  Division,  but has the right to
purchase the Project (as defined in the Lease and Note  Financing  Agreement) in
fee  simple in  accordance  with  Section  8.2 of the  Lease and Note  Financing
Agreement.
<PAGE>

          (b) The  only  leases  of real  property  in  respect  of the  Eastman
Division (the "Leased Real Property") to which the Seller is a party on the date
hereof are the Lease and Note Financing  Agreement and the Warehouse Lease. Each
of the Leases  attached  hereto as Exhibits B-1 and B-2 is the entire Lease with
respect to the premises  described  therein and there are no amendments or other
modifications  of such  Leases.  Each  Lease is in full  force  and  effect  and
represents the entire agreement  between the respective  landlord and the Seller
with respect to the use and occupancy of such Leased Real Property. In addition,
the Seller has performed  each of its  obligations  under the Leases and has not
(i) received any notice of  cancellation  or  termination  under any such Lease,
(ii) received any notice of a breach or default  under such Lease,  which breach
or default  has not been  cured,  and (iii)  other than as set forth on Schedule
3.10,  granted to any other Person any rights,  adverse or otherwise,  under any
such Lease.

          (c) The original  lessee under the Lease and Note Financing  Agreement
was Gilman Paper  Company,  a New Hampshire  corporation.  All right,  title and
interest of such lessee in and to the Lease and Note  Financing  Agreement  were
assigned to the Seller  pursuant to an  Assignment  of Lease dated as of January
14,  1999.  The  original  owner of the Note was  Gilman  Paper  Company,  a New
Hampshire  Corporation.  The Note was  assigned  to the  Seller  pursuant  to an
Assignment dated as of January 14, 1999. The original lessee under the Warehouse
Lease was Gilman Paper  Company,  a Georgia  corporation.  All right,  title and
interest  of such  lessee in and to the  Warehouse  Lease were  assigned  to the
Seller  pursuant to an Assignment and Assumption  Agreement and Consent dated as
of December 18, 1999.

          (d) (i) The  Seller  has  received  no notice of any  condemnation  or
eminent  domain  proceedings  relating  to the  Facility,  (ii) to the  Seller's
Knowledge, there are no such contemplated or threatened proceedings with respect
to the Facility,  and (iii) the Seller has received no notice of default  under,
violation of, or breach of any of the  covenants,  restrictions,  rights-of-way,
licenses,  agreements, or easements affecting title to or relating to use of the
Facility which, in the case of clauses (i) through (iii) above, could reasonably
be expected to have a Seller Material Adverse Effect. The Seller has received no
notice of, nor to the Seller's Knowledge is there, any, fence dispute,  boundary
dispute,  boundary line question,  water dispute, or drainage dispute concerning
or affecting  the Facility  which could  reasonably be expected to have a Seller
Material Adverse Effect.

          (e)  There  are no  defaults  under  the Note nor any  prepayments  or
interest owing thereon.

          3.11.  Compliance with Laws. Except as set forth on Schedule 3.11, the
Eastman  Division is in compliance with all applicable Laws, in each case, as in
effect as of the date  hereof,  except  where the  failure  to comply  therewith
individually  or in the  aggregate  could not  reasonably  be expected to have a
Seller Material Adverse Effect.

          3.12. Contracts. (a) Schedule 3.12(a) sets forth a list of each of the
following Contracts of the Eastman Division (such Contracts, being the "Material
Contracts"):

               (i) each  Contract  for the purchase of  inventory,  spare parts,
          other  materials  or personal  property  with any  supplier or for the
<PAGE>

          furnishing of services to the Seller related to the Eastman  Division:
          (A) under the terms of which the Seller is likely to pay or  otherwise
          give  consideration  of more than $100,000 in the  aggregate  over the
          remaining  term of such  Contract  and (B) which cannot be canceled by
          the Seller without penalty and without more than 90 days' notice;

               (ii) each  Contract for the sale of  inventory or other  personal
          property or for the  furnishing  of services by the Seller  related to
          the  Eastman  Division:  (A) under  the  terms of which the  Seller is
          likely to pay or otherwise give consideration of more than $100,000 in
          the aggregate  over the remaining  term of such Contract and (B) which
          cannot be canceled by the Seller without penalty and without more than
          90 days' notice;

               (iii)   all   broker,   distributor,    dealer,    manufacturer's
          representative,  franchise,  agency, sales promotion, market research,
          marketing consulting and advertising  contracts related to the Eastman
          Division:  (A) under the terms of which the Seller is likely to pay or
          otherwise  give  consideration  of more than $50,000 in the  aggregate
          over the  remaining  term of such  Contract  and (B)  which  cannot be
          canceled by the Seller without  penalty and without more than 90 days'
          notice;

               (iv) all  management  Contracts  and Contracts  with  independent
          contractors or consultants  (or similar  arrangements)  related to the
          Eastman Division: (A) under the terms of which the Seller is likely to
          pay or  otherwise  give  consideration  of more  than  $50,000  in the
          aggregate  over the  remaining  term of such  Contract  and (B)  which
          cannot be canceled by the Seller without penalty and without more than
          90 days' notice;

               (v) each  Contract  relating to the  operation of the Leased Real
          Property:  (A) under the terms of which the Seller is likely to pay or
          otherwise  give  consideration  of more than $100,000 in the aggregate
          over the  remaining  term of such  Contract  and (B)  which  cannot be
          canceled by the Seller without  penalty and without more than 90 days'
          notice;

               (vi) all  Contracts  relating  any  Indebtedness  of the  Eastman
          Division;

               (vii) all  Contracts  related to the  Eastman  Division  with any
          Governmental Authority to which the Seller is a party;

               (viii) all Contracts  related to the Eastman  Division that limit
          or purport to limit the  ability of the  Eastman  Division  to compete
          with any  Person or in any  geographic  area or during  any  period of
          time;

               (ix) all  Contracts  related to the Eastman  Division  between or
          among the Seller or any Affiliate of the Seller; and
<PAGE>

               (x) all Contracts  related to the Eastman  Division which are not
          made in the ordinary course of business, and which are material to the
          conduct of the Eastman Division's business.

          (b) Except as disclosed on Schedule 3.12(b),  each Material  Contract:
(i) is valid and binding  and  enforceable  against  the  Seller,  except to the
extent that such  enforceability  (A) may be limited by bankruptcy,  insolvency,
reorganization,  moratorium or other similar laws relating to creditors'  rights
generally,  and (B) is subject to general principles of equity,  (ii) is in full
force and effect,  and (iii) upon consummation of the transactions  contemplated
by this Agreement,  except to the extent that any Consents set forth on Schedule
3.4 are not obtained, shall continue in full force and effect without penalty or
other adverse consequence. The Seller is not in breach of, or default under, any
Material Contract,  except for breaches or defaults which individually or in the
aggregate  could not  reasonably be expected to have a Seller  Material  Adverse
Effect.

          (c)  Except  as  disclosed  on  Schedule  3.12(c),   to  the  Seller's
Knowledge,  no other  party to any  Material  Contract  is in breach  thereof or
default thereunder, except for breaches or defaults which individually or in the
aggregate  could not  reasonably be expected to have a Seller  Material  Adverse
Effect.

          3.13.  No  Violations.  Except  as set  forth on  Schedule  3.13,  the
execution,  delivery and  performance  by the Seller of this  Agreement  and the
Ancillary  Documents  and the  consummation  by the  Seller of the  transactions
contemplated  hereby and thereby will not,  with or without the giving of notice
or the lapse of time, or both, (a) violate, conflict with or result in breach of
any provisions of the Certificate of Formation or the Limited  Liability Company
Agreement of the Seller,  (b) conflict  with or violate any Law or  Governmental
Order  applicable to the Seller or any of its respective  assets,  properties or
businesses,  including,  without limitation, the Acquired Assets and the Eastman
Division,  or (c) assuming  the  obtaining of all Consents set forth on Schedule
3.4,  conflict  with,  result in any breach of,  constitute  a default (or event
which  with the  giving  of  notice or lapse of time,  or both,  would  become a
default)  under,  or give to others  any right of  termination  or  acceleration
under,  or result in the  creation  of any  Encumbrance  on any of the  Acquired
Assets  pursuant to, any Contract to which the Seller is a party or by which any
of the Acquired Assets is bound or affected, other than Permitted Encumbrances.

          3.14.  Intellectual  Property.  Schedule 3.14 sets forth a list of all
items of Business Intellectual  Property.  Except as disclosed on Schedule 3.14,
or except as could not reasonably be expected to have a Seller Material  Adverse
Effect: (a) the Seller owns or possesses rights to use all Business Intellectual
Property and the Closing will not affect the Buyer's  rights to use the Business
Intellectual  Property;  (b) the Seller has not  received  notice from any third
party  questioning  the  validity of any Business  Intellectual  Property or the
Eastman  Division's  title thereto;  and (c) the conduct of the Eastman Division
does not infringe upon any  intellectual  property rights of third parties.  The
Seller has not licensed or entered into any  agreement or otherwise  granted any
third party any rights in or to the Business Intellectual Property.

          3.15.  Litigation.  Except as set forth on  Schedule  3.15 (which with
respect to each Action disclosed  therein sets forth the parties,  nature of the
<PAGE>

proceeding and status  thereof),  there are no pending Actions by or against the
Seller  affecting any of the Acquired Assets or the Eastman Division (or, to the
Seller's  Knowledge,  threatened to be brought against the Seller).  None of the
matters disclosed on Schedule 3.15 could reasonably be expected to have a Seller
Material  Adverse Effect or could reasonably be expected to affect the legality,
validity or enforceability of this Agreement or the Ancillary Documents. Neither
the  Eastman  Division  nor  any  of  the  Acquired  Assets  is  subject  to any
Governmental  Order  (nor,  to  the  Seller's  Knowledge,  are  there  any  such
Governmental  Orders  threatened  to be imposed by any  Governmental  Authority)
which could reasonably be expected to have a Seller Material Adverse Effect.

          3.16.  Employee  Benefit Plans. (a) Schedule 3.16 sets forth a list of
each Employee  Benefit Plan. No Employee  Benefit Plan is subject to Title IV of
ERISA.

          (b)(i) The  execution of this  Agreement and the  consummation  of the
transactions  contemplated hereby do not constitute a triggering event under any
Employee  Benefit Plan which will result in any  acceleration  of the payment or
vesting of any benefits to any Employee or in any increase in benefits  provided
under the Employee Benefit Plans; (ii) no liability,  claim, action, litigation,
audit,  examination,  investigation or administrative  proceeding has been made,
commenced or, to the Seller's Knowledge, threatened with respect to any Employee
Benefit  Plan (other than routine  claims for  benefits  payable in the ordinary
course)  which  could  result in a  material  liability  for which  Buyer  could
reasonably expected to be liable.

          (c) The Seller has delivered or caused to be delivered to the Buyer or
its counsel true and complete  copies of each Employee  Benefit  Plan,  together
with all amendments thereto, and, to the extent applicable,  all current summary
plan descriptions.

          3.17.  Tax  Matters.  (a) The Seller has filed all Tax Returns that it
was  required to file,  and has paid all Taxes due,  with respect to the Eastman
Division and the Acquired Assets except where the failure to file Tax Returns or
to pay Taxes could not reasonably be expected to have a Seller Material  Adverse
Effect. The Seller has not paid any ad valorem taxes with respect to the Eastman
Division  or the  Acquired  Assets,  and no such taxes are due or payable by the
Seller.

          (b)  Neither  the  Seller  nor any of its  Affiliates  has  waived any
statute of limitations  in respect of Taxes relating to the Eastman  Division or
the Acquired  Assets or agreed to any  extension of time with respect to any Tax
assessment  or  deficiency  relating  to the Eastman  Division  or the  Acquired
Assets.

          (c)  Neither  the Seller nor any of its  Affiliates  is a party to any
Income Tax allocation or sharing agreement which relates to the Eastman Division
or the Acquired Assets.

          3.18.  Environmental  Matters.  (a)  Except as set  forth in  Schedule
3.18(a) or except for such of the following as  individually or in the aggregate
could not reasonably be expected to have a Seller Material  Adverse Effect:  (i)
the Eastman  Division and the Acquired  Assets are, and since December 17, 1999,
have been in compliance with all applicable  Environmental Laws; (ii) the Seller
has all Environmental  Permits required under applicable  Environmental Laws for
<PAGE>

the operation of the Eastman Division as presently conducted;  (iii) all of such
Environmental  Permits  are in full  force  and  effect;  (iv)  to the  Seller's
Knowledge,  all past  non-compliance  with  Environmental  Laws or Environmental
Permits by the  Eastman  Division  has been  resolved  or  remedied  without any
pending, ongoing or future obligation, cost or liability; (v) the Seller has not
received any order or notice or other  communication with respect to the Eastman
Division or the Acquired Assets from any (A) Governmental Authority,  (B) Person
purporting  to act pursuant to any citizen suit  provision of any  Environmental
Law, (C) current or prior owner or operator of any Facility,  or (D) other third
party; in each case alleging injury to human health or the  environment,  damage
to property, or the violation of or failure to comply with any Environmental Law
or  Environmental  Permit;  (vi)  there  are no  pending  or,  to  the  Seller's
Knowledge,  threatened  Actions,  in each  case  relating  to any  Environmental
Matters with respect to the Eastman Division or the Acquired Assets; (vii) there
has been no release of any Hazardous  Materials into the  environment  (A) at or
from any  Acquired  Assets,  including,  without  limitation,  the  Leased  Real
Property,  or (B) at or from any  other  location  where  the  Eastman  Division
generated,  transported, stored or disposed of Hazardous Materials; in each case
requiring  investigation,  remediation  or other action under any  Environmental
Law; (viii) none of the Acquired  Assets,  including,  without  limitation,  the
Leased Real Property and the improvements and equipment thereon,  contains,  and
since December 17, 1999,  has contained any (A) asbestos or  asbestos-containing
materials,  (B)  polychlorinated  biphenyls,  (C) underground storage tanks, (D)
septic systems or drywells,  (E) pits, ponds,  sumps,  lagoons or (F) landfills,
dumps, or other disposal  areas;  (ix) to the Seller's  Knowledge,  there are no
environmental  conditions,  facts or circumstances which are reasonably expected
to give rise to or result in any environmental claim,  liability,  loss, damage,
cost or expense of whatever kind or nature with respect to the Eastman  Division
or the Acquired Assets; (x) the Seller is not required to maintain any financial
guaranties or other financial assurances with respect to the Eastman Division or
the  Acquired  Assets  pursuant  to  Environmental  Laws;  (xi) to the  Seller's
Knowledge, there is no requirement currently promulgated under any Environmental
Law or  Environmental  Permit that is reasonably  expected to result in material
liability for the Eastman Division or the Acquired Assets;  (xii) the Seller has
removed the  underground  spill  containment  tank at the Facility in accordance
with all applicable Laws, including, without limitation, applicable requirements
for  post-removal  sampling and proper disposal of all materials  resulting from
the removal work, and has provided the Buyer with copies of all analytical  data
and reports  developed in  connection  with the removal  work;  and (xiii) since
December 17, 1999, no hazardous  waste,  as that term is defined in RCRA and its
implementing regulations or by comparable Laws of the State of Georgia, or other
Hazardous  Material  has been  spilled  or  released  in the  underground  spill
containment tank.

          (b) The  Seller  has made  available  to the Buyer  true and  complete
copies of any reports,  studies,  analyses,  assessment reports,  audit reports,
tests, monitoring and other information in the possession of the Seller, in each
case relating to any Environmental  Matters with respect to the Eastman Division
and the Acquired Assets.  Schedule 3.18(b) contains a true, correct and complete
description  of all  pending  or  existing  Environmental  Permits  required  by
Environmental Laws with respect to the Eastman Division and the Acquired Assets.

          3.19.  Labor Matters.  Except as set forth on Schedule 3.19 and except
as may  result  from  the  permitted  announcement  of  the  execution  of  this
Agreement:  (a) the Seller is not a party to any collective bargaining agreement
or other  labor union  contract  applicable  to persons  employed by the Eastman
<PAGE>

Division and currently,  to the Seller's Knowledge,  there are no organizational
campaigns,  petitions or other unionization  activities seeking recognition of a
collective  bargaining unit which could  reasonably be expected to have a Seller
Material Adverse Effect; (b) there are no controversies,  strikes,  slowdowns or
work stoppages  pending or, to the Seller's  Knowledge,  threatened  between the
Eastman Division and any of its respective  employees,  and the Eastman Division
has not  experienced  any such  controversy,  strike,  slowdown or work stoppage
within the past twelve  months;  (c) the Eastman  Division  has not  breached or
otherwise  failed to comply with the provisions of any collective  bargaining or
union  contract  and there are no  grievances  outstanding  against  the Eastman
Division under any such agreement or contract which could have a Seller Material
Adverse  Effect;  (d) there  are no unfair  labor  practice  complaints  pending
against the Eastman  Division  before the National Labor  Relations Board or any
other Governmental  Authority  involving employees of the Eastman Division which
could reasonably be expected to have a Seller Material  Adverse Effect;  and (e)
the Eastman  Division is  currently,  and since  December 17, 1999,  has been in
compliance  in all material  respects with all  applicable  Laws relating to the
employment  of  labor,  including  those  related  to wages,  hours,  collective
bargaining  and  the  payment  and  withholding  of  taxes  as  required  by the
appropriate  Governmental Authority and has withheld and paid to the appropriate
Governmental  Authority  or  are  holding  for  payment  not  yet  due  to  such
Governmental Authority all amounts required to be withheld from employees of the
Eastman  Division  and is not liable for any material  arrears of wages,  taxes,
penalties or other sums for failure to comply with any of the foregoing.

          3.20.  Receivables.  Except to the extent, if any, reserved for on the
Reference Balance Sheet, all accounts receivable and other receivables reflected
on the Reference Balance Sheet arose from, and the accounts receivable and other
receivables  existing on the Closing  Date will have  arisen  from,  the sale of
inventory or services to Persons not affiliated with the Eastman Division and in
the ordinary  course of the business of the Eastman  Division.  All  receivables
reflected on the Reference  Balance Sheet or arising from the date thereof until
the Closing  (subject to the reserve  for bad debts,  if any,  reflected  on the
Reference  Balance Sheet or the Closing  Statement  (which reserves shall not be
proportionately  greater than the reserves  reflected on the  Reference  Balance
Sheet)) are or will be good and have been or will be collected or are or will be
collectible  through  the use of  commercially  reasonable  collection  efforts,
without resort to litigation or extraordinary  collection  activity,  within 120
days of the Closing Date.

          3.21.  Inventories.  (a) Subject to amounts  reserved  therefor on the
Reference  Balance Sheet, the values at which all inventories are carried on the
Reference  Balance Sheet reflect the inventory  valuation  policy of the Eastman
Division of stating such  inventories  at the lower of cost  (determined  on the
last-in,  first-out  method) or market  value.  Except as set forth on  Schedule
3.21, the Eastman Division has good and marketable title to the inventories free
and clear of all Encumbrances other than Permitted Encumbrances. The inventories
do not consist of any items held on consignment.  The Eastman  Division is under
no  obligation  or  liability  with  respect  to  accepting  returns of items of
inventory or merchandise  in the  possession of its customers  other than in the
ordinary course of business consistent with past practice.  No clearance sale of
the  inventories  has been  conducted  since  September  30,  2000.  The Eastman
Division has not acquired or committed to acquire or  manufacture  inventory for
sale which is not of a quality and quantity usable in the ordinary course of the
business of Eastman Division,  nor has the Eastman Division changed the price of
any  inventory  except for (i) price  reductions to reflect any reduction in the
cost thereof to the Eastman Division,  (ii) reductions and increases  responsive
to normal competitive conditions and consistent with the Eastman Division's past
<PAGE>

sales  practices and (iii) increases to reflect any increase in the cost thereof
to the Eastman Division.

          (b) The  inventories  are in good and  merchantable  condition  in all
material  respects,  are suitable and usable for the purposes for which they are
intended  and are in a  condition  such  that  they can be sold in the  ordinary
course of the business of the Eastman Division.

          (c) The finished goods  inventories are supported by binding  purchase
orders,  are in good and  merchantable  condition and have been  manufactured in
accordance  with the  specifications  contained in any purchase  orders  related
thereto, and the Seller has not been advised by any customer that such inventory
will not be accepted.

          3.22.  Certain  Interests.  Except as set forth on Schedule  3.22,  no
Officer of the Seller or the  Eastman  Division  and no  relative  or spouse (or
relative  of such  spouse)  who resides  with,  or is a  dependent  of, any such
Officer:

          (a) has any direct or indirect  financial  interest in any competitor,
supplier or customer of the Eastman  Division  (other than the interests of such
Persons in Durango Paper Company and its Affiliates);  provided,  however,  that
ownership of shares representing less than 5% of the outstanding voting power of
any  competitor,  supplier  or  customer,  which  are  listed  on  any  national
securities exchange or traded actively in the national  over-the-counter market,
shall not be deemed to be a "financial  interest"  so long as the Person  owning
such securities has no other  connection or relationship  with such  competitor,
supplier or customer; or

          (b) owns,  directly  or  indirectly,  in whole or in part,  or has any
other  interest in any tangible or intangible  property which the Seller uses or
has used in the conduct of the business of the Eastman Division or otherwise, or
has  any  other  business  relationship  (as  lessor,  supplier,   customer,  or
otherwise), with the Eastman Division.

          3.23.  Brokers.  Except  for the  fees  payable  to  Banc  of  America
Securities LLC, which are the sole  responsibility of the Seller, the Seller has
not paid or become obligated to pay any fee or commission to any broker, finder,
or intermediary in connection with the  transactions  contemplated  hereby.  The
Buyer shall not, through the transfer of the Acquired Assets,  the assumption of
the Assumed  Liabilities  or otherwise,  have any  obligations in respect of any
such fees or commissions.

                                   ARTICLE IV

                   REPRESENTATIONS AND WARRANTIES OF THE BUYER

          The Buyer represents and warrants to the Seller as follows:

          4.1.  Organization;  Power. The Buyer is a corporation duly organized,
validly  existing and in good standing under the laws of the jurisdiction of its
incorporation  and has all requisite  corporate  power and authority to carry on
<PAGE>

its business as it is now being conducted, to execute,  deliver and perform this
Agreement and the Ancillary  Documents,  to carry out its obligations  hereunder
and  thereunder  and to  consummate  the  transactions  contemplated  hereby and
thereby.

          4.2. Authorization;  Effect of Agreement. The execution,  delivery and
performance by the Buyer of this Agreement and each of the Ancillary  Documents,
the performance by the Buyer of its obligations hereunder and thereunder and the
consummation by the Buyer of the  transactions  contemplated  hereby and thereby
have been duly authorized by all requisite  corporate  action on the part of the
Buyer.  This  Agreement has been,  and upon its execution  each of the Ancillary
Documents shall have been, duly and validly executed and delivered by the Buyer.
This Agreement constitutes  (assuming due authorization,  execution and delivery
by the Seller),  and upon its  execution  each of the Ancillary  Documents  will
constitute  (assuming  due  authorization  execution and delivery by all parties
other than the Buyer), a valid and binding obligation of the Buyer,  enforceable
against the Buyer in accordance  with its terms,  except to the extent that such
enforceability  (i) may be limited by  bankruptcy,  insolvency,  reorganization,
moratorium or other similar laws relating to creditors'  rights  generally,  and
(ii) is subject to general principles of equity.

          4.3.  Consents.  No Consent is  required to be obtained or made by the
Buyer in connection with the execution, delivery and performance by the Buyer of
this  Agreement  or the  Ancillary  Documents or the  consummation  by it of the
transactions contemplated hereby or thereby.

          4.4. No  Violations.  The execution,  delivery and  performance by the
Buyer of this Agreement and the Ancillary  Documents and the consummation by the
Buyer of the  transactions  contemplated  hereby and thereby  will not,  with or
without  the  giving  of  notice or the  lapse of time,  or both,  (a)  violate,
conflict  with or result in the breach of any  provision of the  Certificate  of
Incorporation  or By-laws of the Buyer, (b) conflict with, or violate any Law or
Governmental  Order  applicable  to the Buyer or any of its  respective  assets,
properties  or  businesses,  or (c)  assuming  the  obtaining  of all  Consents,
conflict  with,  result in any breach of,  constitute  a default (or event which
with the  giving of notice or lapse of time,  or both,  would  become a default)
under,  or give to others any right of termination  or  acceleration  under,  or
result in the creation of any Encumbrance on any of the Acquired Assets pursuant
to, any Contract to which the Buyer is a party.

          4.5. Litigation.  There are no pending Actions by or against the Buyer
(or, to the Buyer's Knowledge, threatened to be brought against the Buyer) which
could  reasonably be expected to have a Buyer  Material  Adverse Effect or could
reasonably be expected to affect the  legality,  validity or  enforceability  of
this  Agreement  or the  Ancillary  Documents.  The Buyer is not  subject to any
Governmental  Order  (nor,  to  the  Buyer's  Knowledge,   are  there  any  such
Governmental  Orders  threatened  to be imposed by any  Governmental  Authority)
which could  reasonably be expected to have a Buyer  Material  Adverse Effect or
could reasonably be expected to affect the legality,  validity or enforceability
of this Agreement or the Ancillary Documents.

          4.6.  Availability  of Funds.  The Buyer has  available  and will have
available  sufficient funds on the Closing Date to enable it to pay the Purchase
Price.
<PAGE>

          4.7.  Brokers.  The Buyer has not paid or become  obligated to pay any
fee or commission to any broker,  finder or  intermediary in connection with the
transactions contemplated hereby.

                                    ARTICLE V

                             COVENANTS OF THE SELLER

          The Seller hereby covenants and agrees with the Buyer as follows:

          5.1. Action by the Seller. From the date hereof until the Closing, the
Seller will use commercially  reasonable  efforts,  and the Buyer will cooperate
with the Seller,  to secure all  Consents  of the Seller  from third  parties as
shall be  required,  on behalf of the  Seller,  in order to enable the Seller to
effect the transactions  contemplated hereby and by the Ancillary Documents, and
the Seller  will  otherwise  use  commercially  reasonable  efforts to cause the
consummation  of such  transactions  in accordance with the terms and conditions
hereof and thereof.

          5.2. Conduct of the Eastman Division's  Business.  Except as otherwise
permitted by this  Agreement or consented to by the Buyer (which  consent  shall
not be  unreasonably  withheld  or  delayed),  from the date  hereof  until  the
Closing, the Seller shall not conduct the business of the Eastman Division other
than in the ordinary  course and consistent  with the Seller's  prior  practice.
Without  limiting  the  generality  of the  foregoing,  except  as set  forth on
Schedule  5.2,  the Eastman  Division  shall (i) continue  its  advertising  and
promotional  activities,  and pricing and purchasing policies,  substantially in
accordance  with past  practice;  (ii) not  materially  shorten or lengthen  the
customary  payment  cycles for any of its  payables  or  receivables;  (iii) use
commercially  reasonable  best  efforts  to (A)  preserve  intact  the  business
organization of the Eastman  Division,  (B) retain the services of the employees
(as a group) of the  Eastman  Division,  (C)  continue  in full force and effect
without  material  modification  all  existing  policies or binders of insurance
currently  maintained  in respect of the Eastman  Division  and (D) preserve its
current relationships with its customers, suppliers and other persons with which
it has significant business relationships,  (iv) exercise, but only after notice
to the Buyer and receipt of the  Buyer's  prior  consent,  any rights of renewal
pursuant  to the terms of any of the leases or  subleases  set forth on Schedule
3.10 which by their  terms  would  otherwise  expire;  and (v) not engage in any
practice, take any action, fail to take any action or enter into any transaction
which  could  cause any  representation  or  warranty  of the Seller  under this
Agreement to be untrue or result in a breach of any covenant  made by the Seller
in  this  Agreement.   Notwithstanding  the  foregoing,  the  Buyer  agrees  and
understands, that the Seller is entitled to (i) transfer cash out of the Eastman
Division  and that it is  intended  that at the  Closing  there  shall be a cash
balance of zero in the  accounts of the  Eastman  Division  and (ii)  terminate,
satisfy and/or settle any and all transactions with any Affiliate of the Eastman
Division.
<PAGE>

          5.3. Access. From the date hereof until the Closing,  the Seller shall
provide  the  Buyer  with  such  information  as the Buyer may from time to time
reasonably  request  with respect to the Eastman  Division and the  transactions
contemplated  by this Agreement and the Ancillary  Documents,  and shall provide
the Buyer and its accountants,  counsel,  consultants and other  representatives
access  during  regular  business  hours  and  upon  reasonable  notice  to  the
personnel,  properties,  books and records of the Eastman  Division as the Buyer
may from time to time reasonably request;  provided,  however,  that such access
shall not unduly  interfere  with the  conduct of the Eastman  Division  and the
Seller shall not be obligated to provide the Buyer with any information relating
to trade  secrets or which would  violate any Law or any term of any Contract of
the  Seller or which may  subject  the  Seller to risk of  liability,  or if the
provision thereof would adversely affect the ability of the Seller or any of its
Affiliates  to assert  attorney-client,  attorney  work product or other similar
privilege.  Any disclosure  whatsoever  during such  investigation  by the Buyer
shall  not  constitute  an  enlargement  of  or  additional  representations  or
warranties of the Seller or the Eastman  Division beyond those  specifically set
forth in this Agreement.

          5.4.  Publicity.  The Seller will not release,  generate or permit any
press release,  public statement or other publicity concerning this Agreement or
the Ancillary Documents or the transactions contemplated hereunder or thereunder
nor submit this  Agreement or any  Ancillary  Document or any document  relating
hereto or thereto to any Governmental  Authority,  without first consulting with
and  obtaining  the  consent of the Buyer,  except as  required  by Law or legal
authorities.

          5.5. Notices of Certain Events. From the date hereof until the Closing
Date,  the Seller shall give prompt notice to the Buyer of any material  adverse
development  of which the Seller has  Knowledge and which causes a breach of any
of the Seller's representations and warranties in Article III.

          5.6. Exclusivity. The Seller shall not (and the Seller shall not cause
or permit the Eastman  Division or any of its  directors,  officers,  employees,
agents or representatives  to) solicit,  initiate or encourage the submission of
any  proposal  or offer from any Person  relating to the  acquisition  of all or
substantially all of the assets of the Eastman Division.

          5.7.  Closing of the  McDowell  Division.  The Seller shall within 120
days of the Closing wind up the operations of the McDowell Division.  The Seller
shall be and remain  liable for all costs and  expenses  incurred in  connection
with the closing of the McDowell  Division,  including  all  severance and other
obligations of its employees.

                                   ARTICLE VI

                             COVENANTS OF THE BUYER

          The Buyer hereby covenants and agrees with the Seller as follows:

          6.1. Action by the Buyer. From the date hereof until the Closing,  the
Buyer will use commercially  reasonable  efforts,  and the Seller will cooperate
<PAGE>

with the Buyer, to secure all Consents, from third parties as shall be required,
on behalf of the Buyer, in order to enable the Buyer to effect the  transactions
contemplated hereby and by the Ancillary Documents, and the Buyer will otherwise
use  commercially   reasonable   efforts  to  cause  the  consummation  of  such
transactions in accordance with the terms and conditions hereof and thereof.

          6.2.  Publicity.  The Buyer will not  release,  generate or permit any
press release,  public statement or other publicity concerning this Agreement or
any Ancillary Document or the transactions  contemplated hereunder or thereunder
nor submit this  Agreement or the Ancillary  Documents or any document  relating
hereto or thereto to any Governmental  Authority,  without first consulting with
and  obtaining  the  consent of the  Seller,  except as required by Law or legal
authorities  (provided that the Buyer shall give prior notice of such disclosure
to the  Seller);  and  provided  that in no event shall the Buyer  disclose  any
financial or other results of the Seller or the Eastman Division.

          6.3.  Confidentiality.  The Buyer may disclose non-public  information
relating to the  Eastman  Division  and the Seller  only (i) to those  officers,
directors and employees of the Buyer who need to know such  information  for the
purpose of evaluating  the Eastman  Division and the  transactions  contemplated
hereby and by the  Ancillary  Documents  and who agree to keep it  confidential;
(ii) to those  advisors of the Buyer who need to know such  information  for the
purpose of evaluating  the Eastman  Division and the  transactions  contemplated
hereby  and the  Ancillary  Documents  and  whose  names  and the names of their
professional  firms  are  disclosed  to the  Seller  and who  agree to keep such
information confidential;  and (iii) to the extent required by any Law (provided
that the Buyer gives prior notice of such  disclosure to the Seller).  The Buyer
shall be responsible for any failure by any officer, director or employee of the
Buyer or any advisor of the Buyer to maintain  the  confidentiality  of any such
information.

          6.4. Notice.  From the date hereof until the Closing,  Buyer will give
prompt  notice to the Seller of any material  adverse  development  of which the
Buyer  has   Knowledge  and  which  causes  a  breach  of  any  of  the  Buyer's
representations and warranties in Article IV.

                                   ARTICLE VII

                              ADDITIONAL COVENANTS

          7.1.  Further  Assurances.  The Buyer and the Seller shall each,  from
time to time after the Closing,  at the  reasonable  request of the other and at
their own expense and without  further  consideration,  execute and deliver such
further documents and instruments of assignment, transfer, license or assumption
and take such further action in order more  effectively  to transfer,  reduce to
possession and record title to any of the Acquired  Assets,  to permit the Buyer
to operate the Eastman  Division or to implement  the  assumption of the Assumed
Liabilities.

          7.2. Books and Records. The Buyer, on the one hand, and the Seller, on
the other hand, shall each, on the request of the other,  make available to such
other Party from time to time on a reasonable  basis records and other documents
substantially   relating  to  the  Acquired  Assets  and  the  Eastman  Division
(including  records or documents  relating to Straddle Taxes or Transfer Taxes).
<PAGE>

Such records and other  documents  shall be held by the Party in  possession  of
such  documents  for seven  years  after the  Closing  Date and copies  shall be
delivered to the other Party upon such other Party's  request at any time and at
such other Party's out-of-pocket expense.

          7.3.  Insurance.  As of the  Closing  Date,  the  coverage  under  all
insurance  policies related to the Eastman Division shall continue in force only
for the  benefit  of the  Seller,  and not for the  benefit  of the Buyer or the
Eastman  Division.  As of the  Closing  Date,  the Buyer  shall  arrange for new
insurance  policies  with respect to the Eastman  Division  covering all periods
from and after the Closing  Date and agrees not to seek,  through any means,  to
benefit from any of the Seller's  insurance  policies which may provide coverage
for claims  relating in any way to the Eastman  Division  arising on or prior to
the Closing Date.

          7.4.  Payments from Third Parties.  In the event that, on or after the
Closing Date, either the Buyer or the Seller shall receive any payments or other
funds due to another Party  pursuant to the terms hereof or otherwise,  then the
Party  receiving  such funds  shall  promptly  forward  such funds to the proper
Party.

          7.5. Tax Matters.  After the Closing Date, the Parties shall cooperate
with one another in connection  with the  preparation  and filing of tax returns
and any audits or  proceedings  relating  to Straddle  Taxes or Transfer  Taxes,
including  furnishing  or making  available  books and records  relating to such
Taxes and making employees,  available on a mutually convenient basis to provide
explanations of any such books and records.

          7.6.  Covenant Not to Compete.  (a) For a period of two years from and
after the  Closing  Date,  neither  the Seller  nor  Corporacion  Durango  shall
directly or indirectly engage in the business of producing, marketing or selling
multi-wall  bags in any  state of the  United  States  other  than  through  the
McDowell  Division;  provided,  however,  that no owner  of less  than 5% of the
outstanding  capital stock of any publicly traded corporation shall be deemed to
engage in such business solely by reason of such ownership in such  corporation.
Notwithstanding   anything  in  the  foregoing  to  the   contrary,   the  Buyer
acknowledges  (i)  that  Corporacion  Durango,   through  one  or  more  of  its
Subsidiaries, operates paper mills and other businesses in the United States and
has shipped  products to customers  located in the United States,  and (ii) that
continuing to operate such paper mills and other businesses or to ship products,
including  multi-wall  bags,  to the  customers  set forth on  Schedule  7.6 for
themselves and their  customers  located in Texas or California and customers of
Central Bag  Company  located in Texas and  California  shall not  constitute  a
violation of this Section  7.6. In addition,  the Buyer agrees that  Corporacion
Durango may acquire  businesses  that  include  divisions or assets that compete
with the Eastman  Division in the multi-wall bag market in the United States and
that no such  acquisition  shall  constitute  a violation  of this  Section 7.6,
provided  that  Corporacion  Durango  uses  commercially  reasonable  efforts to
dispose  of such  competitive  divisions  or assets  within  one year after such
acquisition.

          (b) The Seller  acknowledges  that the remedy at law for any breach of
the  provisions of paragraph  (a) above would be  inadequate.  Accordingly,  the
Seller  hereby  consents to the granting by any court of an  injunction or other
equitable relief,  without the necessity of actual monetary loss being proved or
the necessity of posting bond, in order that any breach or threatened  breach of
such provisions may be effectively restrained.
<PAGE>

          (c)  It is  the  intention  of the  Seller  and  the  Buyer  that  the
provisions of paragraph (a) be enforced to the fullest extent  permissible under
the laws and policies of the State of New York and that the  unenforceability of
any provision  hereof shall not render  unenforceable or impair the remainder of
such  provisions.  Accordingly,  if any  provision  of  paragraph  (a)  shall be
determined to be invalid or  unenforceable  in the State of New York,  either in
whole or in part,  this Section 7.6 shall be deemed amended to delete or modify,
as necessary,  the offending provision in order to render this Section 7.6 valid
and enforceable in the State of New York.

          (d) Any Action  with  respect to  paragraph  (a) may be brought in the
courts of the State of Georgia  sitting in Fulton County or of the United States
for the  Northern  District of Georgia,  and each of the Parties  hereto  hereby
irrevocably  accepts for itself and in respect of its  property,  generally  and
unconditionally,  the  non-exclusive  jurisdiction of the aforesaid  courts with
respect to any such Action.

          7.7.  Assignment  of Accounts  Receivable  and Other  Receivables  and
Finished  Goods  Inventory.  In the event that the Buyer is  indemnified  by the
Seller under Article XII for a breach of the  representations and warranties set
forth  in  Section  3.20  or the  Arbiter,  in its  preparation  of the  Closing
Statement,  finds that (x) accounts  receivable or other  receivables  which are
over  ninety  (90) days past due or (y)  finished  goods  inventory  that is not
supported by binding  purchase orders or as to which the Seller has been advised
by the customer that such  inventory  will not be accepted have been included in
the assets transferred to the Buyer pursuant hereto, the Buyer shall immediately
assign to the Seller all accounts  receivable and other receivables and finished
goods inventory which are the subject of such indemnification or such finding by
the  Arbiter,  pursuant  to  documentation  in  form  and  substance  reasonably
satisfactory to the Seller.  In addition,  the Buyer shall (i) unless  otherwise
directed by the Seller, immediately cease all collection efforts with respect to
such accounts  receivable  or other  receivables,  (ii) promptly  provide to the
Seller  information  relating to the collection of such accounts  receivable and
other  receivables and all  documentation  relating thereto and (iii) shall hold
all proceeds  collected  with respect  thereto in trust for the Seller and shall
promptly remit such proceeds to the Seller.

                                  ARTICLE VIII

                      CONDITIONS TO THE BUYER'S OBLIGATIONS

          The obligations of the Buyer hereunder to purchase the Acquired Assets
and assume the  Assumed  Liabilities  shall be subject to the  satisfaction  (or
waiver  by the  Buyer)  on or  prior  to the  Closing  Date of all of  following
conditions:

          8.1. Representations and Warranties;  Performance. All representations
and warranties made by the Seller in this Agreement and the Ancillary  Documents
shall be true in all material  respects at and as of the time when made,  and at
and as of the time of the Closing as though such  representations and warranties
were made at and as of said time.  The Seller shall have  performed and complied
in all material  respects with all the terms,  provisions and conditions of this
Agreement and the  Ancillary  Documents to be complied with and performed by the
Seller at or before the Closing.  The Buyer shall have received a certificate of
the President, a Vice President or the Treasurer of the Seller dated the Closing
<PAGE>

Date in form and substance reasonably  satisfactory to the Buyer,  certifying to
such effect.

          8.2. Consents.  All Consents specified in Schedule 3.4 shall have been
obtained.

          8.3. Absence of Certain Proceedings. No Action in effect preventing or
rendering  illegal  consummation  of  the  transactions   contemplated  by  this
Agreement and the Ancillary Documents shall be pending.

          8.4.  Opinion of Counsel.  The Buyer shall have received an opinion of
counsel,  dated as of the Closing  Date,  from White & Case LLP (or  appropriate
local  counsel),  counsel to the  Seller,  as to the  authorization,  execution,
delivery and  enforceability  of this  Agreement  and the  Ancillary  Documents,
substantially in the form of Exhibit C.

          8.5. Release of  Encumbrances.  The liens created by Loan and Security
Agreement  dated January 31, 2001 among Bank of America,  N.A. and Durango Paper
Company and its  Subsidiaries  shall be  unconditionally  released or terminated
simultaneously  with the  Closing and the Buyer  shall have  received  copies of
releases  and other  evidence,  reasonably  satisfactory  to the Buyer,  of such
release and termination.

          8.6. Transition Services Agreement. The Seller shall have executed and
delivered to the Buyer a Transition Services Agreement (the "Transition Services
Agreement") substantially in the form of Exhibit D.

          8.7.  Permits.  The Buyer shall have  obtained the  reissuance  of the
Environmental  Permits  set forth on  Schedule  3.18(b)  to the Buyer upon terms
substantially similar to the terms of such Environmental Permits.

          8.8. Bill of Sale. The Seller shall have executed and delivered to the
Buyer a Bill of Sale, in form and substance reasonably  acceptable to the Buyer,
conveying  all of Seller's  right,  title and interest in and to the rail siding
and switch servicing the Eastman facility, the vehicles to be transferred to the
Buyer and the other  Tangible  Personal  Property to be  conveyed in  connection
herewith.

                                   ARTICLE IX

                     CONDITIONS TO THE SELLER'S OBLIGATIONS

          The  obligations of the Seller  hereunder to sell the Acquired  Assets
shall be subject to the  satisfaction  (or waiver by the  Seller) on or prior to
the Closing Date of all of the following conditions:

          9.1. Representations and Warranties;  Performance. All representations
and  warranties  made  by the  Buyer  in  this  Agreement  and in the  Ancillary
Documents  shall be true in all  material  respects  at and as of the time  when
made,  and at and as of the time of the Closing as though  such  representations
<PAGE>

and warranties  were made at and as of said time. The Buyer shall have performed
and  complied  in all  material  respects  with all the  terms,  provisions  and
conditions of this Agreement and the Ancillary Documents to be complied with and
performed by the Buyer at or before the Closing.  The Seller shall have received
a  certificate  of an Officer of the Buyer  dated the  Closing  Date in form and
substance reasonably satisfactory to the Seller, certifying to such effect.

          9.2. Absence of Certain Proceedings. No Action in effect preventing or
rendering  illegal  consummation  of  the  transactions   contemplated  by  this
Agreement and the Ancillary Documents shall be pending.

          9.3.  Releases.  The Seller and its Affiliates  shall be released from
all of their obligations under the Contracts as of the Closing Date.

          9.4.  Paper  Supply  Agreement.  The Buyer  shall  have  executed  and
delivered to the Seller a Paper Supply Agreement (the "Paper Supply Agreement"),
substantially in the form of Exhibit E.

          9.5. Opinion of Counsel.  The Seller shall have received an opinion of
counsel, dated as of the Closing Date, from E. Timothy Holstein,  senior counsel
to the Buyer, as to the authorization, execution, delivery and enforceability of
this Agreement and the Ancillary Documents, substantially in the form of Exhibit
F.

                                    ARTICLE X

                  EMPLOYMENT AND EMPLOYEE BENEFITS ARRANGEMENTS

          10.1. Retained  Employees;  Terminations on Closing Date. (a) Schedule
10.1(a)  set forth a list of all of the  Employees  as of the date  hereof.  The
Buyer shall  prepare and deliver  Schedule  10.1(b) to the Seller not later than
four days prior to the Closing Date and such Schedule  shall be attached  hereto
and shall become a part hereof for all purposes. On the Closing Date, the Seller
shall terminate those Employees  listed on Schedule  10.1(b).  Employees who are
set forth on Schedule 10.1(a), but not Schedule 10.1(b), shall be referred to as
"Retained Employees."

          (b) The Seller shall be solely  responsible  for and hereby  covenants
and agrees to pay (i) any severance claims asserted by any Employee set forth on
Schedule  10.1(b) and any  Employees on disability or leave of absence as of the
Closing  Date not hired by the Buyer or  continued  to be employed by the Seller
thereafter  (except  to the  extent  that the  Buyer or the  Seller  had a legal
obligation to hire or continue to employ, as applicable, any such Employee), and
(ii) all  obligations  arising on or prior to the Closing to such  Employees  of
group  insurance  coverage  required under state and federal law with respect to
the Employees set forth on Schedule  10.1(b) and the Designated Sales Personnel,
including but not limited to post-termination obligations under COBRA.

          (c) The Seller shall remain solely  responsible in accordance with its
Employee Benefit Plans for the  satisfaction of all claims for medical,  dental,
<PAGE>

life insurance, health, accident or disability benefits brought by or in respect
of Employees of the Eastman Division under any of the Seller's  Employee Benefit
Plans which claims relate to events or injuries  incurred  prior to the Closing,
regardless of when any such claim is filed.

          (d) As of the Closing, with respect to former and retired Employees of
the Eastman  Division who have  terminated  employment or retired on or prior to
the Closing,  the Seller shall be liable for all  liabilities and obligations in
connection  with claims for benefits  brought by or in respect of such former or
retired  Employees of the Eastman  Division  under any of the Seller's  Employee
Benefit Plans with respect to pension, medical, dental, life insurance,  health,
accident or disability benefits.

          10.2.  Employment of Sales Personnel.  (a) The Buyer shall prepare and
deliver  Schedule  10.2 to the  Seller  not later  than  four days  prior to the
Closing Date and such Schedule shall be attached  hereto and shall become a part
hereof for all purposes. Notwithstanding Section 10.1, the Seller shall continue
to  employ  the  persons  set forth on  Schedule  10.2  (the  "Designated  Sales
Personnel")  for a period of 14 days  following the Closing Date (the  "Deferral
Period") and during the Deferral  Period the Seller shall permit the  Designated
Sales Personnel to continue to render to the Eastman  Division the services they
customarily  rendered to the Eastman  Division  prior to the Closing  Date.  The
Buyer and the Seller shall cooperate with one another with respect to the day to
day management of the Designated Sales Personnel.

          (b) During the Deferral  Period,  the Seller shall continue to pay the
salaries and provide the benefits to the Designated  Sales  Personnel  which the
Seller  has paid  and  provided  prior  to the  Closing.  Without  limiting  the
foregoing,  the Designated  Sales  Personnel shall continue to be covered during
the  Deferral  Period  by the  Seller's  Employee  Benefit  Plans in which  they
participate as of the date hereof.

          (c) The  Buyer  covenants  and  agrees to  reimburse  the  Seller,  in
accordance  with  Section  10.8(b)  hereof,  for all costs  associated  with the
employment  of the  Designated  Sales  Personnel  during  the  Deferral  Period,
including,  without limitation,  the costs of salaries, wages, pension accruals,
savings plan contributions,  severance benefits, welfare and fringe benefits and
all other direct or indirect payroll costs, including taxes and insurance costs.

          10.3.  Employment of Retained  Employees and Disabled  Employees.  (a)
From the Closing  Date until  August 1, 2001,  or such earlier date as the Buyer
may elect on at least 15 days prior  written  notice to the Seller (the "Interim
Employment  Period"),  all Retained  Employees shall continue to be Employees of
the Seller and the Seller  shall  permit the  Retained  Employees to continue to
render to the Eastman  Division the services  they  customarily  rendered to the
Eastman  Division  prior to the  Closing  Date.  The Buyer and the Seller  shall
cooperate  with one another  with  respect to the day to day  management  of the
Retained Employees.

          (b) So long as the Retained Employees are Employees of the Seller, the
Seller  shall  continue to pay the  salaries  and  provide  the  benefits to the
Retained  Employees which the Seller has paid and provided prior to the Closing.
Without  limiting the  foregoing,  the Retained  Employees  shall continue to be
covered by the Seller's  Employee  Benefit Plans in which they participate as of
the date hereof.
<PAGE>

          (c) Any  Employee  who is disabled or is on leave of absence as of the
Closing  Date will  continue  to be the  responsibility  of the  Seller and may,
during the Interim  Employment  Period,  apply to the Seller,  and within twelve
(12) months  following the Closing Date,  apply to the Buyer for employment when
such  Employee is capable of  returning to work.  During the Interim  Employment
Period,  the Seller  shall,  if  required  by  applicable  law or at the written
request of the Buyer, continue to employ any such Employee at the time of his or
her application  and such Employee shall be deemed a Retained  Employee upon his
or her return to active  employment.  Following  the  expiration  of the Interim
Employment  Period,  the Buyer  shall,  in its sole  discretion,  but subject to
applicable law,  determine  whether to hire any such Employee at the time of his
or her  application  and, if hired,  such Employee shall be deemed a Transferred
Employee upon his or her return to active employment.

          (d) Any decisions with respect to  termination,  transfer,  a material
change in job  responsibilities  or a change in compensation  and/or benefits of
any Retained Employee shall be made only at the Buyer's request.

          (e) (i) The Buyer shall be solely responsible for and hereby covenants
and  agrees to  promptly  reimburse  the  Seller  for (i) any  severance  claims
asserted by any  Retained  Employee  terminated  during the  Interim  Employment
Period at the request of the Buyer, and (ii) all obligations arising on or prior
to the  expiration of the Interim  Employment  Period to such Employees of group
insurance  coverage  required  under state and  federal law with  respect to the
Retained Employees,  including but not limited to  post-termination  obligations
under COBRA.

               (ii) In  determining  the benefits  that the Seller shall provide
          under Section  10.3(e)(i) during the Interim  Employment  Period,  (A)
          each salaried  Retained  Employee who, as of the Closing Date,  has at
          least one year of service  with the  Seller or any prior  owner of the
          Eastman Division business, and (B) each non-salaried Retained Employee
          who, as of the Closing  Date,  has at least ten years of service  with
          the Seller or any prior owner of the Eastman Division business,  shall
          be entitled to severance  benefits equal to one week's pay per year of
          service with the Seller or any prior owner,  plus an  additional  four
          weeks,  with a minimum  severance  benefit  equal to eight weeks' pay.
          During the Interim Employment Period, salaried Retained Employees with
          less than one year of service  with the  Seller or any prior  owner of
          the Eastman Division business as of the Closing Date shall be entitled
          to  severance   benefits  equal  to  two  weeks'  pay.  The  severance
          obligations set forth in this clause  10.3(d)(ii)  shall apply only to
          Retained  Employees  severed from  employment  with no  expectation of
          reemployment by the Buyer.

          (f) The  Buyer  covenants  and  agrees to  reimburse  the  Seller,  in
accordance  with  Section  10.8(b)  hereof,  for all costs  associated  with the
employment  of the  Retained  Employees  during the Interim  Employment  Period,
including,  without limitation,  the costs of salaries, wages, pension accruals,
savings plan contributions,  severance benefits, welfare and fringe benefits and
all other direct or indirect payroll costs, including taxes and insurance costs.

          (g) Upon the expiration of the Interim  Employment  Period,  the Buyer
shall offer employment to all Retained Employees. Such Employees who are offered
and  accept  employment  with the Buyer  shall be  referred  to as  "Transferred
Employees."
<PAGE>

          10.4.  Employee  Benefit  Plans.  (a) Following the  expiration of the
Interim  Employment  Period until at least the first  anniversary of the Closing
Date,  the  Buyer  shall  provide  or cause to be  provided  to all  Transferred
Employees (i) a salary or wage level and bonus opportunity at least equal to the
salary  or wage  level  and  bonus  opportunity  to  which  they  were  entitled
immediately prior to the Closing Date, and (ii) benefits,  perquisites and other
terms  and  conditions  of  employment  that  are,  in the  aggregate,  at least
equivalent to the benefits, perquisites and other terms and conditions that they
were entitled to receive immediately prior to the Closing Date. Without limiting
the foregoing,  upon the expiration of the Interim  Employment Period, the Buyer
will  extend  group  health  and  life  insurance  coverage  to all  Transferred
Employees  who  are  actively  employed  as of the  expiration  of  the  Interim
Employment  Period on a full-time  basis as defined within the Buyer's  employee
benefit  plans as working 30 or more hours per week.  The Buyer  shall waive any
pre-existing condition exclusions and actively-at-work requirements and (so long
as reasonable and customary  documentation  relating  thereto is provided by the
Seller to the Buyer) provide that any expenses incurred on or before the Closing
Date by an  Employee  or an  Employee's  covered  dependent  shall be taken into
account for  purposes  of  satisfying  applicable  deductible,  coinsurance  and
maximum  out-of-pocket  provisions  under the Buyer's  employee benefit plans in
which Transferred Employees will be eligible to participate.

          (b) The Buyer shall be solely  responsible for any severance  benefits
of  Transferred  Employees  terminated  by the  Buyer  after the  Closing  Date.
Notwithstanding  the foregoing,  for a period of 18 months following the Closing
Date, the Buyer and its Affiliates  shall provide (i) each salaried  Transferred
Employee who, as of the Closing Date,  has at least one year of service with the
Seller  or any  prior  owner of the  Eastman  Division  business,  and (ii) each
non-salaried  Transferred Employee who, as of the Closing Date, has at least ten
years of service  with the  Seller or any prior  owner of the  Eastman  Division
business,  severance  benefits  equal to one week's pay per year of service with
the Seller or any prior owner,  plus an  additional  four weeks,  with a minimum
severance  benefit  equal to eight  weeks'  pay.  During  such 18 month  period,
salaried  Transferred  Employees  with  less than one year of  service  with the
Seller or any prior  owner of the  Eastman  Division  business as of the Closing
Date shall  receive a severance  benefit  equal to two weeks' pay. The severance
obligations  set forth in this Section  10.4(b) shall apply only to  Transferred
Employees  severed from  employment  with no expectation of  reemployment by the
Buyer.

          (c) The  Closing  Statement  shall set forth an  accrual  as a current
liability for any vacation or holiday pay and sick pay earned on or prior to the
Closing Date by the  Transferred  Employees.  Following  the  expiration  of the
Interim Employment Period, the Buyer agrees to assume,  honor and perform and to
cause its Affiliates to assume, honor and perform all vacation, holiday and sick
pay and other  paid time off  plans,  policies  or  arrangements  maintained  or
contributed  to  by  the  Seller  and  any  employment,  consulting,  retention,
severance or similar  agreement to which the Seller is a party with  Transferred
Employees,  in each  case,  in  accordance  with the  terms  thereof  in  effect
immediately prior to the date hereof.  Schedule 10.4 sets forth each employment,
consulting,  retention,  severance or similar  agreement  in effect  immediately
prior to the date hereof to which the Seller is a party with any Employee.
<PAGE>

          (d)  Transferred  Employees  will be included in the Buyer's  existing
employee  benefit plans and will be subject to the Buyer's  existing  employment
policies, as applicable to the Buyer's employees who are similarly situated.

          (e)  Transferred  Employees  shall receive credit for all service with
the Seller  and its  Affiliates  (and any prior  owner of the  Eastman  Division
business to the extent  recognized under the Seller's 401(k) Plan (the "Seller's
401(k) Plan")) for purposes of eligibility  and vesting under the Buyer's 401(k)
and  pension  plans.  The  Seller's  401(k)  Plan  shall  retain  all assets and
liabilities  with respect to the accounts of Employees  who are not  Transferred
Employees, including retirees or other former Employees. Unless otherwise agreed
to by Seller and Buyer,  the  Seller's  401(k) Plan shall  retain all assets and
liabilities   with  respect  to  the  accounts  of  Transferred   Employees  and
distributions  shall be made  therefrom  in  accordance  with  the  terms of the
Seller's 401(k) Plan as in effect from time to time.

          10.5.  WARN Act.  Unless the Seller is otherwise  required to do so by
applicable  Law, the Buyer agrees to provide any required  notice under the WARN
Act, and any similar statute, and otherwise to comply with any such statute with
respect to any "plant  closing" or "mass layoff" (as defined in the WARN Act) or
similar event affecting Retained Employees, Designated Sales Personnel or former
Employees (to the extent  required by the WARN Act or any similar  statute to be
aggregated with Retained  Employees or Designated Sales Personnel in determining
whether  a plant  closing,  mass  layoff or  similar  event  has  occurred)  and
occurring after the Closing.

          10.6. Worker's Compensation. The Buyer shall assume the responsibility
for, and shall  indemnify and hold the Seller  harmless for any loss,  damage or
expense  the Seller  suffers as a result of, any and all  worker's  compensation
claims, both medical and disability,  or other government mandated programs made
by (i) the Retained  Employees  arising from events  occurring after the Closing
and (ii) the Designated Sales Personnel arising from events occurring during the
Deferral  Period.  The Seller shall retain the  responsibility  for all worker's
compensation  claims, both medical and disability,  or other government mandated
programs  made by its  Employees  or former  Employees  (whether or not Retained
Employees or Designated  Sales  Personnel)  that arise from events that occurred
before the Closing, whether the claim is filed before or after the Closing.

          10.7. Transition Services Agreement.  In connection with the provision
of the services of the Retained  Employees and the Designated  Sales  Personnel,
Durango  Paper  Company  has  agreed to provide  certain  payroll  and  benefits
administration  services to the Buyer during the Interim  Employment Period. The
Buyer  covenants  and  agrees  to pay  the  fees  and  expenses  related  to the
administration  of  payroll  and  benefits  of the  Retained  Employees  and the
Designated Sales Personnel as set forth in the Transition Services Agreement.

          10.8.  Liabilities,  Indemnity  and Payments  with Respect to Retained
Employees and Designated Sales Personnel. (a) Without limiting the foregoing, as
of the  Closing  Date,  the Buyer  shall  assume  and be  responsible  for,  and
indemnify the Seller and its  Affiliates and hold them harmless from and against
any  Losses  which the  Seller or any of its  Affiliates  may  sustain  or incur
arising out of or relating to:
<PAGE>

               (i) any claim,  demand, suit or cause of action asserted or filed
          by any Retained Employees or Designated Sales Personnel as a result of
          actions taken by the Buyer, at the request of the Buyer, by the Seller
          with  the  prior  written  consent  of the  Buyer  or by any  Retained
          Employee during the Interim  Employment  Period or Deferral Period, as
          applicable, including, but not limited to, claims under federal, state
          and/or   municipal   civil  rights  and/or   employment  law  statutes
          including,  without limitation,  Title VII of the Civil Rights Acts of
          1964, the Americans with Disabilities  Act, the Age  Discrimination in
          Employment Act, the Fair Labor Standards Act, the Occupational  Health
          & Safety Act, the National Labor Relations Act;

               (ii) any claim, demand, suit or cause of action asserted or filed
          by any third party allegedly  arising out of any action or omission of
          any Retained Employee or Designated Sales Personnel during the Interim
          Employment Period or Deferral Period, as applicable;

               (iii) obligations under the WARN Act, arising out of, or relating
          to,  any  actions  taken by the Seller at the  written  request of the
          Buyer or by the Buyer after the Closing;

               (iv) all obligations  arising on or after the Closing to Retained
          Employees of group insurance coverage required under state and federal
          law, including but not limited to  post-termination  obligations under
          COBRA;

               (v) any claim made by any Retained  Employee or Designated  Sales
          Personnel  including,   without  limitation,  for  any  severance  pay
          (excluding  claims  made  by  Designated  Sales  Employees)  or  other
          compensation  or benefit  entitlements by reason of any termination or
          deemed   termination  of  employment  of  any  Retained   Employee  or
          Designated   Sales   Personnel   as  a  result  of  the   transactions
          contemplated hereby which arises on or after the Closing Date; or

               (vi) the Buyer's  failure to comply with any of the provisions of
          this Article X.

          The Buyer shall be consulted  with  respect to all material  decisions
relating  to claims  which it may be  required  to  indemnify  pursuant  to this
Section 10.8, and the Buyer's  consent shall be required prior to the settlement
of any such claims.

          (b) The Buyer  covenants  and agrees to pay to the Seller the  amounts
due pursuant to Sections 10.2(c), 10.3(f) and 10.8(a) as follows:

               (i) two  Business  Days  prior to issuing  payroll  checks to the
          Retained Employees or the Designated Sales Personnel, the Seller shall
          provide the Buyer with the necessary detail on the amounts to be paid,
          and the Buyer shall wire transfer funds sufficient to pay such payroll
          to an  account  designated  by the Seller on or prior to the date such
          payroll checks are issued and/or direct deposits are credited; and

               (ii) with  respect to all other  amounts due pursuant to Sections
          10.2(c), 10.3(f) or 10.8(a), the Seller shall furnish the Buyer with a
          schedule  (and  reasonable  detail to support such  schedule)  setting
<PAGE>

          forth the amount due and,  unless the Buyer  reasonably  disputes such
          schedule,  the Buyer shall wire transfer funds  sufficient to pay such
          amount  within  two  Business  Days  of  the  Buyer's  receipt  of the
          schedule.  If the Buyer has a dispute with respect to a schedule,  the
          Buyer  shall pay all  undisputed  amounts and the Buyer and the Seller
          shall negotiate in good faith to resolve such disputes.

          (c) The Seller shall not have any liability to the Buyer for any Loss,
including without limitation, any special,  indirect,  consequential or punitive
damages,  of the Buyer allegedly arising out of the Seller's  performance of its
obligations  under  Sections  10.2 and 10.3 or the Seller's  acts or omission in
connection  with  its  performance  of  such  obligations;  provided  that  this
provision  shall not apply if: (i) such Loss  arises out of (A) an act of fraud,
embezzlement  or  serious  criminal  activity  by  the  Seller  or  (B)  willful
misconduct by the Seller.

                                   ARTICLE XI

                                   TERMINATION

          11.1.  Termination and  Abandonment.  This Agreement may be terminated
and the transactions contemplated by this Agreement may be abandoned at any time
prior to the Closing:

          (a) by mutual written consent of the Parties; or

          (b) by the Buyer,  on the one hand, or the Seller,  on the other hand,
if the Closing  shall not have  occurred on or before the 30th day following the
date hereof, provided, however, that the right to terminate this Agreement under
this  Section  11.1(b)  shall not be  available  to any Party  whose  failure to
fulfill any obligations  under this Agreement has been the cause of, or resulted
in, the failure of the Closing to occur on or before such date; or

          (c) by the Buyer by giving  notice to the  Seller at any time prior to
the  Closing  in  the  event  that  the  Seller  has   breached   any   material
representation, warranty or covenant contained in this Agreement in any material
respect,  the Buyer has  notified  the Seller of such  breach and the breach has
continued without cure for a period of 30 days after the notice of breach; or

          (d) by the  Seller by giving  notice to the Buyer at any time prior to
the   Closing  in  the  event  that  the  Buyer  has   breached   any   material
representation, warranty or covenant contained in this Agreement in any material
respect,  the Seller has  notified  the Buyer of such  breach and the breach has
continued without cure for a period of 30 days after the notice of breach.

          11.2.  Effect of Termination.  In the event of the termination of this
Agreement  pursuant to Section 11.1,  this Agreement shall forthwith cease to be
of any further  force and effect  (except for Section  6.3,  this Article XI and
Article  XII,  which  shall  survive  such  termination),  and there shall be no
liability or obligation on the part of any Party.
<PAGE>

                                   ARTICLE XII

                          SURVIVAL AND INDEMNIFICATION

          12.1.  Survival.  The  representations  and  warranties  of the Seller
contained in Article III of this  Agreement  shall survive the Closing until the
second anniversary of the Closing Date and shall thereupon expire, together with
any right to indemnification  in respect thereof;  provided,  however,  that the
representations  and  warranties  of the Seller  set forth in Section  3.18 with
respect to  Environmental  Matters and Section 3.11 with  respect to  compliance
with  Environmental  Laws  shall  survive  the  Closing  Date  until  the  fifth
anniversary  of the  Closing  Date and the  representations  and  warranties  in
Section 3.17 with respect to Tax Matters shall  survive until  expiration of the
applicable  statute of limitations  relating thereto.  The  representations  and
warranties of the Buyer  contained in Article IV of this Agreement shall survive
the Closing until the second anniversary of the Closing Date and shall thereupon
expire,  together with any right to indemnification in respect thereof.  Neither
the  period  of  survival  nor the  liability  of a Party  with  respect  to its
representations and warranties shall be reduced by any investigation made at any
time by or on behalf of the other Party. The covenants and agreements  contained
herein to be performed or complied with prior to the Closing shall expire at the
Closing.  The  covenants  and  agreements  contained  herein to be  performed or
complied  with at or after the  Closing  shall  survive  the  Closing  until the
expiration of the applicable  statute of  limitations.  If notice of a claim has
been given prior to the expiration of the applicable  survival period by a Party
to the other Party, then the relevant representations,  warranties and covenants
shall survive as to such claim, until such claim has been finally resolved.

          12.2.  Indemnification  by the Seller.  (a) From and after the Closing
Date, the Seller shall  indemnify and hold harmless the Buyer,  its  Affiliates,
and  their  respective  officers,  directors,  employees,  agents,  consultants,
representatives and successors (collectively,  the "Buyer Indemnitees") from and
against any and all Losses,  including Losses relating to Environmental Matters,
incurred by any of them arising out of or  resulting  from (i) any breach by the
Seller of the  representations  and  warranties of the Seller  contained in this
Agreement,  (ii) any  failure by the Seller to perform any of its  covenants  or
agreements contained in this Agreement or any Ancillary Document,  (iii) any and
all debts,  liabilities  and  obligations not assumed by the Buyer under Section
2.2, including,  without limitation, any liabilities to third parties, including
employees  of  the  Seller  and  Transferred   Employees,   product   liability,
liabilities for damage to property or injuries (including death) to persons, and
liabilities  arising  out of or  relating  to  Environmental  Matters  as of the
Closing  Date with  respect to the  Facility,  the Eastman  Division or Acquired
Assets,  or (iv) any Straddle Tax or Transfer Tax payable by the Seller pursuant
to Section 2.6.

          (b)(i) The Seller's indemnification obligations under this Article XII
with respect to any Indemnifiable  Environmental  Losses shall be subject to the
following:

               (A) the Seller  shall have no  indemnification  obligations  with
          respect to any  Indemnifiable  Environmental  Losses  resulting solely
          from any voluntary  actions by any of the Buyer  Indemnitees (or their
          agents) to investigate soil or groundwater on the leased real property
          for the  sole  and  exclusive  purpose  of  discovering  environmental
<PAGE>

          conditions  that may be covered  under  this  Article  XII;  provided,
          however,  that the limitation contained in this Section  12.2(b)(i)(A)
          shall not apply to  Indemnifiable  Environmental  Losses  which result
          from  (1)  the  discovery  of  Hazardous  Materials  in  the  soil  or
          groundwater on or under any of the Facility or Acquired  Assets in the
          ordinary course of any excavation activities conducted for the purpose
          of demolition, repair, renovation,  expansion or other modification of
          the  Facility or Acquired  Assets or (2) the  discovery  by any of the
          Buyer  Indemnitees  (or their  agents) of  Hazardous  Materials in the
          soil,  groundwater or any other environmental  media, in, on, under or
          surrounding  any of the  Facility or Acquired  Assets in the course of
          any "Commercially  Reasonable" voluntary investigation.  "Commercially
          Reasonable"  shall be determined  from the perspective of a reasonable
          person  acting to achieve  compliance  with Laws,  including,  without
          limitation,  Environmental  Laws,  to  avoid  or  mitigate  a loss  or
          liability  or  potential   loss  or  liability,   including,   without
          limitation,  losses or liabilities with respect to Environmental  Laws
          or Environmental  Matters, or to protect or enhance the economic value
          of the Facility, the Eastman Division or any Acquired Assets.

               (B) the Seller  shall have no  indemnification  obligations  with
          respect to any Indemnifiable  Environmental Losses resulting, in whole
          or in  part,  from  any  disclosure,  report  or  other  communication
          (whether  oral or  written)  ("Notification")  from  any of the  Buyer
          Indemnitees (or their agents) to any  Governmental  Authority,  unless
          such  Notification was, in the opinion of Buyer  Indemnitees'  counsel
          (which may include in-house counsel), required by Environmental Law at
          the  time  it  was  made.  In  addition,  the  Seller  shall  have  no
          indemnification   obligations   with  respect  to  any   Indemnifiable
          Environmental  Losses  resulting,  in  whole  or  in  part,  from  any
          Notification  from any of the Buyer  Indemnitees  to any  third  party
          other than a  Governmental  Authority,  unless such  Notification  was
          Commercially  Reasonable  or,  in the  opinion  of Buyer  Indemnitees'
          counsel   (which  may   include   in-house   counsel),   required   by
          Environmental Law at the time it was made;

               (C) the Seller's indemnification  obligations with respect to any
          Indemnifiable Environmental Losses shall be reduced to the extent that
          any negligence of any of the Buyer Indemnitees on or after the Closing
          Date adversely affects such obligations; and

               (D) the Seller  shall have no  indemnification  obligations  with
          respect   to   Indemnifiable   Environmental   Losses,   unless   such
          Indemnifiable  Environmental Losses are the subject of a Claims Notice
          given in accordance with Section  12.2(b)(ii) within five years of the
          Closing Date.

          (ii) As a condition to the Seller's indemnification  obligations under
this Article XII:

               (A) In the event that any Buyer  Indemnitee  incurs or suffers an
          Indemnifiable Environmental Loss, such Buyer Indemnitee shall promptly
          give notice thereof (a "Claims Notice") to the Seller,  and the Claims
          Notice  shall  describe  the  Indemnifiable   Environmental   Loss  in
          reasonable  detail  and  shall  indicate,  to the  extent  that may be
          reasonably  determined,  the amount (estimated,  if necessary) thereof
          that  has been or may be  incurred  by any of the  Buyer  Indemnitees;
          provided,  however,  that the  failure  to give  prompt  notice to the
          Seller shall not affect rights to indemnification hereunder, except to
          the extent that the Seller is actually prejudiced by such failure. The
          Buyer shall have no obligation to make any claim against any insurance
          policy of the Buyer before giving such Claims Notice.

               (B) the Seller  shall have thirty  (30) days after  delivery of a
          Claims  Notice  to  assume  the  defense   (including   litigation  or
          negotiation) of any Indemnifiable  Environmental  Loss through counsel
          reasonably  satisfactory to the Buyer Indemnitee;  provided,  however,
          that  following  any  such  assumption,   the  Seller  shall  have  no
          indemnification  obligation  hereunder to pay any costs or expenses of
          consultants,  experts  or  legal  counsel  of  the  Buyer  Indemnitees
          thereafter  expended or incurred  by any of the Buyer  Indemnitees  in
          connection with such defense. No compromise or settlement with respect
          to any Indemnifiable Environmental Loss may be agreed to by the Seller
          without the Buyer Indemnitees' prior consent,  which consent shall not
          be  unreasonably   withheld  or  delayed.   A  Buyer   Indemnitee  may
          participate in the defense of any Indemnifiable  Environmental Loss at
          the Buyer Indemnitee's own expense; provided, however, that the Seller
          shall pay for the costs and expenses of such  separate  counsel if the
          Seller's  counsel  determines that it cannot represent both the Seller
          and the Buyer Indemnitees.  Notwithstanding  anything in the foregoing
          to the contrary,  a Buyer  Indemnitee  shall have the right to control
          the defense of an  Indemnifiable  Environmental  Loss at the  Seller's
          expense  if  such  Indemnifiable   Environmental  Loss  is  reasonably
          expected to  materially  adversely  affect the conduct by the Buyer of
          its business at the Facility or the operation of the Acquired  Assets;

               (C) the Buyer Indemnitees and the Seller shall cooperate with and
          render each other  assistance as may  reasonably be requested in order
          to insure the proper and  adequate  defense of any such  Indemnifiable
          Environmental  Loss, which assistance shall include making appropriate
          personnel  reasonably  available  for  any  discovery,  trial  or  the
          completion of any Response Action,  and the Seller shall reimburse the
          Buyer for all of its reasonable  out-of-pocket  expenses in connection
          therewith.  The Buyer shall provide access to the Seller necessary for
          the performance of any Response Action;  provided,  however,  that the
          Seller  shall not  unreasonably  interfere  with the  normal  business
          operations of the Buyer,  and the Seller shall execute an  appropriate
          site access agreement setting forth the terms and conditions  pursuant
          to which the Response Action will be performed;

               (D)  if  the  Seller  elects  not  to  defend  any  Indemnifiable
          Environmental  Loss within thirty (30) days after delivery of a Claims
          Notice, or, if after assuming such defense, the Seller fails to defend
          any such Indemnifiable  Environmental Loss for a period of thirty (30)
          days,  the  Buyer  Indemnitees  may  assume  the  defense   (including
          litigation or  negotiation)  of any such  Indemnifiable  Environmental
          Loss,  and the Seller  shall  promptly  pay all  reasonable  costs and
          expenses thereof. The Seller shall have no indemnification  obligation
          hereunder with respect to any settlement effected without the Seller's
          prior consent, which consent shall not be unreasonably withheld. If no
          settlement of an Indemnifiable  Environmental Loss is made, the Seller
          shall satisfy any judgment rendered with respect to such Indemnifiable
<PAGE>

          Environmental Loss before a Buyer Indemnitee is required to do so, and
          shall pay all expenses, legal or otherwise, reasonably and necessarily
          incurred by a Buyer  Indemnitee  in the defense of such  Indemnifiable
          Environmental Loss; and

               (E) the Buyer  Indemnitees'  rights with respect to Indemnifiable
          Environmental  Losses  under this  Article XII shall be reduced to the
          extent that actions undertaken by them are not Commercially Reasonable
          and  such   actions   (1)   increase   the  amount  of   Indemnifiable
          Environmental  Losses,  or (2) result in  Indemnifiable  Environmental
          Losses which,  but for such  actions,  would not have been expended or
          incurred.

          12.3.  Indemnification  by the Buyer. From and after the Closing Date,
the Buyer shall  indemnify and hold  harmless the Seller,  its  Affiliates,  and
their  respective   officers,   directors,   employees,   agents,   consultants,
representatives and successors (collectively, the "Seller Indemnitees") from and
against any and all Losses  incurred by any of them  arising out of or resulting
from (i) any breach by the Buyer of the  representations  and  warranties of the
Buyer contained in this Agreement,  (ii) any failure by the Buyer to perform any
of its  covenants or  agreements  contained in this  Agreement or any  Ancillary
Document,  (iii) any failure to pay when due the Assumed  Liabilities,  (iv) any
Straddle  Tax or Transfer  Tax payable by the Buyer  pursuant to Section 2.6, or
(v) any  operations or activities of the Buyer in connection  with the ownership
or use of the Eastman Division or the Acquired Assets after the Closing.

          12.4. Procedure for Indemnification.  In the event that any Indemnitee
shall incur or suffer any Losses in respect of which indemnification (other than
by the Seller  pursuant to Section 12.2 with respect to  Environmental  Matters)
may be sought  hereunder by the Seller,  on the one hand,  or the Buyer,  on the
other hand, the Indemnitee  shall assert a claim for  indemnification  by notice
(the "Notice") to the Indemnitor stating the nature and basis of such claim. The
Indemnitee  shall have no  obligation  to make any claim  against any  insurance
policy of the Buyer before  giving such  Notice.  Promptly  after  receipt by an
Indemnitee  of Notice of the  assertion  of a claim or the  commencement  of any
action, litigation or proceeding by any third party (a "Third-Party Claim") with
respect to a matter for which  indemnification  is or may be owing  pursuant  to
Section 12.2 or 12.3,  the  Indemnitee  shall give Notice to the  Indemnitor and
shall  thereafter  keep the  Indemnitor  informed  of all other  information  it
receives with respect thereto; provided, however, that failure of the Indemnitee
to give the  Indemnitor  prompt  Notice and such other  information  as provided
herein  shall not relieve the  Indemnitor  of any of its  obligations  hereunder
unless and then only to the extent that the Indemnitor  shall have been actually
prejudiced  thereby.  The Indemnitor  shall have the right, at its option and at
its  own  expense,  to  participate  in or,  by  giving  written  notice  to the
Indemnitee no later than thirty (30) days after delivery of the Notice,  to take
exclusive  control of, the defense,  negotiations  and/or settlement of any such
Third-Party  Claim,  with  counsel  chosen  by  the  Indemnitor  and  reasonably
satisfactory to the Indemnitee.  After the Indemnitor takes exclusive control of
the defense,  negotiation  and/or settlement of any such Third-Party  Claim, the
Indemnitee shall have the right to participate  therein,  at its own expense and
with counsel of its own choosing;  provided,  however, that the Indemnitor shall
pay for the costs and  expenses  of such  separate  counsel if the  Indemnitor's
counsel  determines  that  it  cannot  represent  both  the  Indemnitor  and the
Indemnitee.  The Parties each shall cooperate and shall cause each Indemnitor to
cooperate  with and render such  assistance  as may  reasonably  be requested in
order to insure the proper and adequate defense of any such Third-Party Claim or
<PAGE>

proceeding,   which  assistance  shall  include,   without  limitation,   making
appropriate  personnel  reasonably available for any discovery or trial, subject
to  reimbursement  of reasonable  expenses by the Indemnitor.  If the Indemnitor
fails or refuses to undertake the defense of any such  Third-Party  Claim within
thirty (30) days after  delivery of the Notice,  the  Indemnitee  shall have the
right to take exclusive control of the defense, negotiation and/or settlement of
such Third-Party Claim at the Indemnitor's  expense.  Neither the Indemnitor nor
the  Indemnitee  shall settle or compromise  any  Third-Party  Claim without the
consent  of the other,  which  consent  shall not be  unreasonably  withheld  or
delayed;  provided,  however,  that any  settlement  or  compromise  includes an
unconditional  release of the  Indemnitee  from all  liabilities  or obligations
relating to the Third-Party Claim.

          12.5.   Payment.   With  respect  to  Third-Party   Claims  for  which
indemnification is payable under this Agreement,  such indemnification  shall be
paid by the Indemnitor  promptly upon (i) the entry of a final judgment  against
the  Indemnitee and the  expiration of any  applicable  appeal period;  (ii) the
entry of a  non-appealable  judgment  or final  appellate  decision  against the
Indemnitee;  (iii) the entering into of any  settlement  agreement in accordance
with the  provisions of this Article XII; or (iv) the entry of any consent order
or decree binding upon the Indemnitee. Notwithstanding anything in the foregoing
to the contrary, all reasonable out-of-pocket costs and expenses incurred by the
Buyer  Indemnitees  as a  result  of  the  assumption  of  the  defense  of  any
Indemnifiable Environmental Loss pursuant to Section 12.2(b)(ii)(D),  including,
without limitation,  reasonable attorneys' fees, shall be payable as incurred by
the Buyer Indemnitees.

          12.6. Adjustment Amounts. Notwithstanding anything to the contrary set
forth  herein,  the Buyer shall not be deemed to have  suffered or incurred  any
Loss to the extent such Loss was  included in the  computation  of the  Purchase
Price  Adjustment or any subsequent  adjustment  provided for in Section 2.4 and
the payment in respect thereof was made by the Seller to the Buyer.

          12.7.  Limitation  on Seller's  Indemnification.  Notwithstanding  any
other  provision of this Article XII, (i) the aggregate  liability of the Seller
under Section 12.2 shall in no event exceed the aggregate amount of the Purchase
Price,  as adjusted,  paid to the Seller  hereunder  and (ii) no amount shall be
payable for indemnification  pursuant to Section 12.2 (other than (A) for breach
of Section  3.20 with  respect to accounts  receivable  included in the Acquired
Assets that remain  uncollected  after 120 days  following the Closing Date, and
(B) up to $90,000 in excess of the reserves  set forth on the Closing  Statement
for product  warranty claims with respect to products sold or services  rendered
by the  Seller  on or prior to the  Closing  Date)  until the  aggregate  amount
payable  under  Section 12.2 exceeds  $250,000,  in which event all such amounts
shall be payable.

          12.8. Exclusivity. Except as specifically set forth in this Agreement,
effective as of the Closing,  the Buyer waives any rights and claims it may have
against  the  Seller  and any of its  Affiliates,  whether  in law or in equity,
relating to the  Eastman  Division or the  Acquired  Assets or the  transactions
contemplated hereby or by the Ancillary Documents.  The rights and claims waived
<PAGE>

by the Buyer  include,  without  limitation,  claims for  contribution  or other
rights of recovery arising out of or relating to any  Environmental  Law, claims
for  breach  of  contract,  breach  of  representation  or  warranty,  negligent
misrepresentation  and all other  claims for breach of duty.  After the Closing,
the  indemnification  provisions of this  Agreement  shall provide the exclusive
remedy to the Buyer for any misrepresentation,  breach of warranty,  covenant or
other  agreement or other claim  arising out of this  Agreement or the Ancillary
Documents or the transactions contemplated hereby or thereby.

          12.9.  Tax  Treatment.  The Parties  shall  treat all  indemnification
payments made pursuant to this  Agreement as  adjustments  to the Purchase Price
for all Tax purposes,  except as otherwise  required under  applicable tax rules
and regulations.

          12.10. Guarantee. In the event that the Seller fails to perform any of
its  obligations to be performed  under this Article XII,  Durango Paper Company
agrees to perform such obligations which the Seller fails to perform.

                                  ARTICLE XIII

                                  MISCELLANEOUS

          13.1. Fees and Expenses.  Except as otherwise provided herein, each of
the  Parties  shall  pay  its own  expenses  incurred  in  connection  with  the
transactions contemplated hereby, including legal, accounting and other fees.

          13.2.  Amendments.  This Agreement  shall not be modified or otherwise
amended  except  pursuant to an instrument in writing  executed and delivered by
each of the Parties.

          13.3.  Entire  Agreement.  This  Agreement  (including  the Schedules,
Exhibits and other  documents  referred to herein) and the  Ancillary  Documents
constitute  the entire  understanding  and  agreement  between the Parties  with
respect to the subject matter hereof and supersede any and all prior  agreements
and understandings,  whether oral or written,  between the Parties, with respect
to the subject matter, all of which are merged herein.  The Parties  acknowledge
that in deciding to enter into this Agreement and to consummate the transactions
contemplated  hereby  they have not  relied  upon any  statements,  promises  or
representations,   written  or  oral,  express  or  implied,  other  than  those
explicitly  set  forth  in  this  Agreement  or  the  Ancillary  Documents.   In
furtherance and not in limitation of the foregoing,  the Buyer acknowledges that
the Seller has not made any  representations or warranties,  of any kind, either
express  or  implied,  except  as  expressly  set forth in  Article  III of this
Agreement. THE BUYER AGREES THAT THE REPRESENTATIONS AND WARRANTIES GIVEN HEREIN
BY THE SELLER ARE IN LIEU OF, AND THE BUYER HEREBY  EXPRESSLY  WAIVES ALL RIGHTS
TO, ANY IMPLIED  WARRANTIES  WHICH MAY  OTHERWISE BE  APPLICABLE  BECAUSE OF THE
PROVISIONS  OF THE  UNIFORM  COMMERCIAL  CODE OR ANY OTHER  STATUTE,  INCLUDING,
WITHOUT  LIMITATION,  THE  WARRANTIES  OF  MERCHANTABILITY  AND  FITNESS  FOR  A
PARTICULAR PURPOSE.

          13.4. Assignment,  Binding Effect; Benefit. Neither this Agreement nor
any of the rights,  interests or obligations  hereunder shall be assigned by any
<PAGE>

Party  (whether by operation of law or  otherwise)  without the prior consent of
the other Party.  Subject to the preceding  sentence,  this  Agreement  shall be
binding upon and shall inure to the benefit of the Parties and their  respective
successors and assigns.  Notwithstanding anything contained in this Agreement to
the  contrary,  nothing in this  Agreement,  express or implied,  is intended to
confer  on any  Person  other  than  the  Parties  or  their  respective  heirs,
successors,   executors,   administrators  and  assigns  any  rights,  remedies,
obligations or liabilities under or by reason of this Agreement.

          13.5. Headings. The headings of the Articles,  Sections, Schedules and
Exhibits of this  Agreement are for the  convenience  of the Parties  only,  and
shall be given no substantive or interpretive effect whatsoever.

          13.6. Governing Law; Arbitration. (a) This Agreement shall be governed
in all respects,  including as to validity,  interpretation  and effect,  by the
internal laws of the State of New York,  without giving effect to its principles
or rules of conflict of laws (to the extent that such  principles or rules would
require  the   application   of  the  laws  of  another   jurisdiction   to  the
interpretation of the Parties' rights and obligations hereunder).

          (b) (i) Except as otherwise provided herein, any dispute,  controversy
or claim arising out of, relating to, or in connection with, this Agreement,  or
the  breach,  termination  or  validity  thereof,  shall be  finally  settled by
arbitration.   The  arbitration  shall  be  conducted  in  accordance  with  the
Commercial  Arbitration Rules of the American Arbitration  Association in effect
at the time of the  arbitration,  except  as they may be  modified  herein or by
mutual agreement of the Parties.  The seat of the arbitration  shall be Atlanta,
Georgia, and it shall be conducted in the English language, provided that either
Party may submit testimony or documentary  evidence in Spanish and shall, on the
request of the other Party,  furnish a translation  or  interpretation  into the
other language of any such testimony or  documentary  evidence.  Notwithstanding
Section  13.6(a),  the arbitration and this clause shall be governed by the U.S.
Federal Arbitration Act, 9 U.S.C. ss.ss. 1 et seq.

          (ii) The  arbitration  shall be  conducted by three  arbitrators.  The
Party initiating arbitration (the "Claimant") shall appoint an arbitrator in its
request for  arbitration  (the  "Request").  The other Party (the  "Respondent")
shall appoint an  arbitrator  within ten (10) days of receipt of the Request and
shall notify the  Claimant of such  appointment  in writing.  If within ten (10)
days of receipt of the Request by the Respondent, either Party has not appointed
an  arbitrator,   then  the  arbitrator  shall  be  appointed  by  the  American
Arbitration Association.  The first two arbitrators appointed in accordance with
this provision shall appoint a third  arbitrator  within ten (10) days after the
Respondent  has  notified  Claimant  of  the  appointment  of  the  Respondent's
arbitrator or, in the event of a failure by a Party to appoint,  within ten (10)
days after the American Arbitration Association has notified the Parties and any
arbitrator  already  appointed of its  appointment of an arbitrator on behalf of
the Party  failing  to  appoint.  When the third  arbitrator  has  accepted  the
appointment,  the two arbitrators  making the appointment  shall promptly notify
the Parties of the appointment.  If the first two arbitrators  appointed fail to
appoint a third arbitrator or so to notify the Parties of the  appointment,  the
American  Arbitration  Association  shall appoint the third arbitrator and shall
promptly notify the Parties of the  appointment.  The third arbitrator shall act
as Chair of the tribunal.
<PAGE>

          (iii) The  arbitral  award shall be in writing,  state the reasons for
the award,  and be final and  binding on the  Parties.  The award may include an
award of costs,  including reasonable  attorneys' fees and disbursements and the
expenses  of any  witnesses,  to the  prevailing  Party,  but  may  not  include
consequential,  punitive or exemplary damages of any kind or nature  whatsoever.
Judgment upon the award may be entered by any court having jurisdiction  thereof
or having  jurisdiction  over the  relevant  Party or its assets.  A request for
interim measures by a Party to a court shall not be deemed incompatible with, or
a waiver of, this agreement to arbitrate.

          (iv) Any  Action to enforce  an  arbitral  award may be brought in the
courts of the State of Georgia  sitting in Fulton County or of the United States
for the  Northern  District of Georgia,  and each of the Parties  hereto  hereby
irrevocably  accepts for itself and in respect of its  property,  generally  and
unconditionally,  the  non-exclusive  jurisdiction of the aforesaid  courts with
respect to any such Action.

          13.7. Notices. Any notice,  consent,  request,  claim,  instruction or
other communication to be given hereunder by any party hereto to any other party
shall be in writing and delivered personally,  by telecopy or sent by registered
or certified mail (postage prepaid return receipt requested),

                  If to the Seller, to:

                  Durango Georgia Converting LLC
                  c/o Corporacion Durango
                  Potasio No. 150
                  Ciudad Industrial
                  Durango, Durango
                  Mexico CP  34220
                  Facsimile No.:  011-521-814-0048
                  Attention:  C.P. Mayela Rincon de Velasco

                  with a copy to:

                  White & Case LLP
                  200 S. Biscayne Boulevard
                  Suite 4900 Miami, Florida 33131
                  Attention: Emilio J. Alvarez-Farre
                  Telecopier:  (305) 358-5744

                  If to the Buyer, to:

                  Smurfit-Stone Container Corporation
                  150 N. Michigan Avenue
                  Chicago, IL 60601
                  Attention:  John Riconosciuto
                  Telecopier:  (630) 260-6864
<PAGE>

                  with a copy to:

                  Smurfit-Stone Container Corporation
                  8182 Maryland Avenue
                  Clayton, MO 63105
                  Attention:  E. Timothy Holstein
                  Telecopier:  (314) 746-1184

or at such other  address for a party as shall be specified by like notice.  Any
notice which is delivered in the manner  provided herein shall be deemed to have
been duly given to the party to whom it is directed upon actual  receipt by such
party  (evidenced,   in  the  case  of  a  telecopy,   by  the  receipt  of  the
confirmation).

          13.8.  Counterparts.  This  Agreement may be executed in any number of
counterparts,  each of which,  when executed,  shall be deemed to be an original
and all of which together shall be deemed to be one and the same instrument.

          13.9.  Bulk Transfer Laws.  The Buyer hereby waives  compliance by the
Seller  with  the  provisions  of  any  so-called  "bulk  transfer  law"  in any
jurisdiction in connection with the transactions contemplated hereby. The Seller
shall defend and indemnify the Buyer and its successors and assigns  against any
loss,  liability or damage or claim resulting or arising from such waiver and/or
the Seller's  failure to comply with any applicable  bulk sales or bulk transfer
laws.

          13.10.  Schedules.  Disclosure  of any  fact or  item in any  Schedule
referenced by a particular  paragraph or Section in this Agreement shall, should
the  existence  of the fact or item or its  contents  be  relevant  to any other
paragraph  or  Section,  be deemed to be  disclosed  with  respect to that other
paragraph  or  Section  whether  or  not a  specific  cross  reference  appears.
Disclosure of any fact or item in any Schedule shall not  necessarily  mean that
such item or fact is  material  to the Seller or the  Eastman  Division or would
have a Seller Material Adverse Effect.

          13.11.  Severability.  If  any  provision  of  this  Agreement  or the
application of any such provision to any person or  circumstances  shall be held
invalid,  illegal  or  unenforceable  in any  respect  by a court  of  competent
jurisdiction,  such invalidity,  illegality or unenforceability shall not affect
any other  provision  hereof  and this  Agreement  shall  remain in force and be
effectuated as if such illegal,  invalid or unenforceable  provision is not part
of this Agreement.

                            [SIGNATURES ON NEXT PAGE]
<PAGE>

          IN WITNESS WHEREOF, the Parties have entered into this Agreement as of
the date first above written.

                                        DURANGO GEORGIA CONVERTING LLC

                                        By:
                                           -------------------------------------
                                           Name:
                                           Title:

                                        STONE CONTAINER CORPORATION

                                        By:
                                           -------------------------------------
                                           Name:
                                           Title:

AGREED AND ACCEPTED with
respect to Section 7.6 only,
as of the 16th day of May 2001.

CORPORACION DURANGO

By:
   -----------------------------
   Name:
   Title:

AGREED AND ACCEPTED with
respect to Section 12.10 only,
as of the 16th day of May 2001.

DURANGO PAPER COMPANY

By:
   -----------------------------
   Name:
   Title:<PAGE>

                                                                    Exhibit 10.4

INVENTORY AND FIXED ASSET SALE CONTRACT [CONTRATO DE COMPRAVENTA DE INVENTARIOS
Y ACTIVOS FIJOS] MADE BY AND BETWEEN CELULOSA AVICOLA DE TEPATITLAN, S.A. DE
C.V., REPRESENTED BY MR. CESAR SALVADOR DE ANDA MOLINA, HEREINAFTER REFERRED TO
AS THE "SELLER," AND ENVASES Y EMPAQUES DE MEXICO, S.A. DE C.V., REPRESENTED BY
MR. IGNACIO RINCON ARREDONDO, HEREINAFTER REFERRED TO AS THE "BUYER," PURSUANT
TO THE FOLLOWING REPRESENTATIONS AND CLAUSES

                        R E P R E S E N T A T I O N S :
I. The Seller hereby represents as follows through its attorney in fact:

A. That it is a corporation duly incorporated pursuant to the laws of Mexico, as
per public deed [escritura publica] N(Degrees) 17,348, dated October 14, 1988,
executed before Mr. Cayetano Casillas Casillas, Notary Public N(Degrees) 3 of
Tepatitlan de Morelos, Jalisco, which has been duly recorded in the Register of
Deeds [Registro Publico de Comercio] of Tepatitlan de Morelos, Jalisco, under
entry N(Degrees) 104, Volume 2 of Book First, of which a certified copy is
hereto attached.

B. That, as established with the copies of the documents to be surrendered to
the Buyer, the Seller is the sole, legitimate and exclusive owner of the
inventories and fixed assets described and listed in Exhibit A hereto (the
"Assets and Inventories") which, signed by the parties, is attached to this
Contract to be a part of the same. Said Assets and Inventories include by way of
illustration and not by way of limitation, the plot of land, machinery and
equipment, components and spare parts used to make corrugated packaging, located
in Tepatitlan de Morelos, Jalisco (the "Plant"), and the inventories of raw
materials, finished good and goods in process.

C. That other than the Assets and Inventories listed in Exhibit B which, signed
by the parties, is a part of this Contract, and which deals with the only
obligations that encumber the Assets and Inventories which are the subject
matter of this transaction, the Assets and Inventories are unencumbered and/or
free from any title limitations (as established with the certificates of non-
encumbrance hereto attached) and that any taxes and duties levied on the
building included in the Assets and Inventories have been paid.

D. That the notices have been made and the consents have been secured which are
necessary in order for the execution of this Contract not to breach any
obligation, contract or agreement made

                                       1
<PAGE>

or entered into with third parties, or any legal or government provisions
applicable to this Contract, such as but not limited to the preferential rights
or rights of first refusal.

E. That its attorney in fact has the sufficient authority to execute this
Contract, and that said authority has been neither revoked nor otherwise limited
and is now in effect, as established with the certified copy of the public deed
hereto attached.

II. The Buyer hereby represents as follows through its attorney in fact:

A. That it is a corporation duly incorporated pursuant to the laws of Mexico, as
established with public deed N(Degrees) 4,637, dated May 2, 1991, executed
before Mr. Oscar Francisco Zarzosa Ruiz, Notary Public N(Degrees) 18 of the City
of Durango, State of Durango, which has been duly recorded in the Register of
Deeds of Durango, State of Durango, under entry N(Degrees) 10,133, page 131,
volume 29, Section Fourth, Book 3, Second Auxiliary Ledger of Commerce.

That Article First of its Charter and By-Laws was amended on April 1, 1993, in
order to change the corporate name to Envases y Empaques de Mexico, S.A. de
C.V., pursuant to public deed N(Degrees) 7,262, executed before Mr. Oscar
Francisco Zarzosa Ruiz, Notary Public N(Degrees) 18 of the City of Durango,
State of Durango, on April 22, 1993, which has been duly recorded in the
Register of Deeds of the City of Durango, State of Durango, under entry
N(Degrees) 11,044, page 16, volume 33, Book Third, Second Auxiliary Ledger of
Commerce.

B. That it is aware of the Assets and Inventories and accepts its present
condition and value as set out in this Contract, on the understanding, however,
that said agreement is given without prejudice of any rights available to the
Buyer due to hidden defects or dispossession under law [eviccion].

C. That it wishes to buy the Assets and Inventories from the Buyer.

D. That the execution of this Contract violates no obligation, contract or
agreement made by or entered into with third parties or any legal or government
provisions applicable to the Contract, such as but not limited to preferential
rights or rights of first refusal.

E. That its attorney in fact has the sufficient authority to execute this
Contract, and that said authority has been neither revoked nor otherwise limited
and is now in effect, as established with the certified copy of the public deed
hereto attached.

Being in agreement with the above representations, the parties further agree as
follows:
                                C L A U S E S :

                                       2
<PAGE>

FIRST. CONTRACT PURPOSE.

The Seller hereby sells the Assets and Inventories to the Buyer and the Buyer
acquires such Assets and Inventories for itself, unencumbered or free from any
title limitations, other than the Assets and Inventories listed in Exhibit B.
The Seller shall use any amount received hereunder to repay, to the
corresponding extent, any debts which in any way encumber the Assets and
Inventories, and shall prove to the Buyer such repayment within three business
days following the execution of this Contract. All of the taxes, duties and
assessments levied on the Assets and Inventories have been so far paid. The
Buyer shall pay for such Assets and Inventories the certain price in cash
hereinafter determined.

The Seller must produce proof of the release of the encumbrances or title
limitations currently affecting the Assets and Inventories, within 90 days
following the execution of this Contract.

SECOND. PRICE.

Bearing in mind the future flows, the fact that the Plant is now in operation
and its goodwill, the parties determine that the price of the Assets and
Inventories aggregates US$7,650,000 plus value added tax, where applicable.

The Buyer shall pay the price mentioned in the preceding paragraph to the Seller
as follows:

a.1. For the sale of the Land on which the Plant is located, excluding any
constructions, equipment and facilities in the same, US$2,500,000, on the
execution date of the respective public deed.

a.2. For the sale of the Inventories listed on Section 1 of Exhibit A hereto,
US$1,706,000, on the execution date of this Contract.
a.3. For the sale of the Machinery listed on Section 2 of Exhibit A hereto,
US$3,444,000, on the execution date of this Contract.

All of the amounts set out in this Clause and throughout this Contract shall be
paid in U.S. Dollars or else the equivalent thereof in Mexican currency, at the
iterbank sale exchange rate published on El Financiero on the payment date of
any of the amounts herein listed.

In view of the foregoing, the Seller shall issue and surrender upon receiving
each payment from the Buyer, the corresponding invoices which must meet the
applicable tax requirements.

THIRD. ADJUSTMENT DUE TO SALE VALUES WHICH ARE BELOW THE AGREED

                                       3
<PAGE>

UPON SALE VALUES.

The inventories of finished goods or goods in process as of the execution date
of this Contract must be duly identified in order for the Buyer to make its best
efforts to sell the same; if by September 30 of this year it has not been
possible to sell such goods for any reason, they must be assigned to the Seller,
at the specific prices defined for each customer in Exhibit A. The value
resulting from such assignment shall be converted into Dollars at the interbank
sale exchange rate in effect as of the execution date of this Contract and
published on El Financiero, for each U.S. Dollar, and the resulting amount shall
be paid to the Buyer as indemnification on or before July 31st, 2001.

The [prices of the] paper, goods in process and finished goods inventories
mentioned in Section 1 of Exhibit A may be adjusted on the basis of the physical
inventory which for this purpose will be made and signed by the parties on
August 1st, 2000, to establish their agreement therewith. The adjustment amount
shall be paid by the Buyer or the Seller, as proper, on or before July 31st,
2001.

FOURTH. ENCUMBRANCES OF THE GOODS WHICH ARE THE SUBJECT MATTER OF THE
TRANSACTION.

In the event that any of the Assets and Inventories are subject to any lien or
encumbrance or in the event that title to the same is limited or otherwise
forfeited (the "Limitation"), due to tax, labor, ecological or other liability,
which originate prior to the execution of this Contract, the Seller shall hold
the Buyer free and safe from and if proper indemnify the Buyer from such
liability, within five business days following the date of such liability, by
(1) the immediate replacement of the involved goods, with others having the same
features, quality and efficiency as the replaced goods, including any
replacement expenses, and put them in the same production and efficiency
conditions that they had prior to such encumbrance, or (2) reimbursing the
corresponding amount paid for such assets or inventories, at the value that both
parties determine in Exhibit A, plus 35%; this shall not apply if the Seller
decides to repay the debt, credit or liability that gave rise to the Limitation
or if it decides in good faith to defend the action that gave rise to the
Limitation, in which case the indemnification shall be paid within five business
days following the date on which confirmation has been issued that said defense
has failed and the Limitation is ratified as final. In order for the Seller to
file such defense, the Buyer shall forthwith report to it any matter that brings
or may bring about a Limitation.

If such payment, replacement or reimbursement is not made, whether because such
defense is not filed or the Limitation is confirmed after such defense, the
Seller shall pay to the Buyer, as liquidated damages, the value of the property
which is the subject

                                       4
<PAGE>

matter of the Limitation, plus 50% of such value.

FIFTH. OPTION TO BUY THE ADJOINED PLOT OF LAND.

In addition, the Seller grants the Buyer the exclusive option to buy, within
three years following the execution date of this Contract, additional land for
expansion purposes as described in Exhibit C and located on the back of the
property which is hereby transferred, so that the surface area of the land
included in the Assets and Inventories which are the subject matter of this
Contract and the additional surface area jointly aggregate up to 55,000m2. Said
Seller's obligation, whose fulfillment the Buyer may demand at any time upon a
written notice served 120 days prior to the proposed sale date, will be subject
to payment of US$35 per square meter and on the understanding that the aforesaid
land portion for expansion purposes is unencumbered or free from any title
limitations and that the taxes and duties levied on said portion of land have
been paid. In order to comply with its obligations under the sale option to
which this Clause refers and in order to prevent the possibility that any third
party may acquire the land mentioned in Exhibit C, the Seller shall immediately
take all of the necessary steps, such as but not limited to securing the
transfers to the Seller or the necessary consents or authorizations from the
present owner and that said action be proven to the Buyer as soon as possible.

SIXTH. PREFERENTIAL RIGHT.

The Seller hereby grants the Buyer a preferential right to buy the Seller's
shrink packaging division located also in Tepatitlan de Morelos, Jalisco,
subject to the following conditions:

a) In the event that the Seller wishes to sell its shrink packaging division to
third parties, such as but not limited to by means of the transfer of assets and
other property of said division or by selling in whole or in part the shares of
any class of Celulosa Avicola de Tepatitlan, S.A. de C.V. (other than the stock
transfers among the present stockholders of the Seller or its companies, to the
extent that the Seller's present stockholders remain as majority stockholders of
said companies, and the stockholders retain the corporate control, as stated in
Exhibit D), the Seller must serve upon the Buyer a written notice at least 15
days in advance and at the conventional address hereinafter set forth, that it
wishes to sell such division, and indicating how, for what price, in what terms
and conditions and other formalities of the transaction;

b) The Buyer shall have 10 calendar days following the date on which it receives
the notice mentioned in the preceding paragraph, to advise the Seller in writing
whether or not it wishes to exercise the preferential right hereby granted to
it;

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c) In the event that the Buyer reports that it wishes to exercise said
preferential right, its confirmation must set out the terms of its purchase
offer, which the Seller shall analyze; if the Buyer's purchase offer matches the
terms of any third party purchase offer, the agreements or contracts that the
parties may deem advisable will be executed in order to effect the transfer as
soon as possible.

d) In the event that the Buyer reports, within the aforesaid deadline, that it
will not exercise the preferential right hereby conferred upon it or else if the
terms of its offer do not match the terms of the third party offer, the Seller
may transfer the asserts, property or stock involved, on the understanding that
any change in the way, price, terms, conditions or formalities of the shrink
packaging division transfer will bind the Seller to once again advise the Seller
in writing, in order to comply with the provisions of this Clause.

e) Any sale of the Seller's shrink packaging division which contravenes the
above provisions shall bind the Seller to pay to the Buyer any damages caused by
said contravention and which the parties hereby set at 5% of the contemplated
transaction, on the understanding that it shall not be less than US$500,000,
which shall be the amount of the liquidated damages for all pertinent purposes.

SEVENTH. TAXES AND EXPENSES.

Each party shall bear its own taxes, duties, expenses, fees and any other
disbursement due to the execution of this Contract, such as but not limited to
brokers', attorneys', accountants' and generally any external advisor's fees and
expenses. The expenses or costs resulting from the separation, division or
adaptation of the corrugated packaging and shrink packaging facilities and which
are described in Exhibit E, for up to US100,000, are expressly excluded from the
foregoing, and must be paid by the Buyer, on the understanding that it must have
the Seller's approval in writing of the budget to carry out such separation,
division or adaptation works. Any amount in excess of said amount will be
negotiated in good faith by both parties and said separation, division or
adaptation work must not cause any delay in or detriment to the goods,
manufacturing methods or provision of services by the corrugated packaging
division, whose Assets and Inventories are the subject matter of this Contract.

The parties further agree to mutually provide the services listed in Exhibit F,
pursuant to the next paragraph, which will be paid by the party receiving the
services, at cost, without any profit for the party providing the services, on
the understanding that the expenses for installing metering and similar systems
will be included in the amount to which the preceding paragraph refers.

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The representatives appointed [by the parties] will define (i) how the shared
services to which Exhibit F refers will be provided; (ii) whether some
corrugated packaging division employee will provide services in the shrink
packaging division; the commercial and support plans between the parties in
order not to affect the customers or the corrugated packaging and/or shrink
packaging division; (iv) immediate programs to substitute the Seller for the
Buyer in any contracts with customers and suppliers; (v) steps to handle
relations with the union and employees, and to report the events [which are the
subject matter of this Contract] to the personnel; and (vi) generally, such
actions as may be advisable or necessary for the parties in order for the new
management to take over in the best possible way.

EIGHTH. EMPLOYER SUBSTITUTION

In executing this Contract, the Buyer accepts to become the substitute employer
of all the workers and employees that provide services up to the execution date
of this Contract to the Seller in the corrugated packaging division (other than
the persons that the parties agree will provide services to the shrink packaging
division) and which are identified in the payroll which, signed by the parties,
is attached to this Contract as Exhibit G to be a part of the same. The Seller
shall hold the Buyer free and safe from any contingency arising from labor
relations and events that occur prior to the execution date of this Contract
(other than any contingency resulting from the seniority rights of workers and
employees that will be the Buyer's workers and employees when the Buyer becomes
the substitute employer from the execution date of this Contract onward), as to
any related authority such as but not limited to the Ministry of Finance and
Public Credit [Secretaria de Hacienda y Credito Publico], the Tax Administration
System [Sistema de Administracion Tributaria] ("SAT"), the Mexican Institute of
Social Security [Instituto Mexicano del Seguro Social] ("IMSS"), the Retirement
Saving System [Sistema de Ahorro para el Retiro] ("SAR"), and the Institute of
the National Workers' Housing Fund [Instituto del Fondo Nacional de la Vivienda
para los Trabajadores] ("INFONAVIT") or as to any worker or employee.

In the event that any worker, employee or authority files any claim against the
Buyer for anything that took place before the date of this Contract (with the
exceptions listed in the above paragraph), the Buyer shall forthwith serve a
written notice on the Seller so that the Seller, if it so wishes, file such
legal defense as it may deem proper, provided that no lien or charge is created
on or threatened against any of the Buyer's properties, as in this case such
defense will be filed only if the Seller releases the Buyer's properties before
filing such defense or guarantees to the Buyer's satisfaction, payment for any
damages or losses resulting from said claim.

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In the event that the Buyer pays anything due to such claim, such payments will
be reimbursed by the Seller, but the Buyer may but shall not be under the
obligation to make such payments to the workers, employees or authorities and,
therefore, any consequence of any non-payment shall be the Seller's exclusive
liability.

The parties agree that the Buyer recognizes the seniority, fringe benefits and
other current employment conditions of the workers listed in Exhibit G and, for
this purpose, will issue letters of recognition [cartas de reconocimiento] to
each of said workers and, if proper, will enter into individual employment
contracts [with such workers] including at least the same employment conditions;
the Buyer shall issue such letters or documents within 15 days following the
execution date of this Contract.

In addition, the parties undertake, throughout a 6-month term following the
execution date of this Contract, not to hire any worker of the other party.
NINTH. ADDITIONAL OBLIGATIONS OF THE PARTIES.
This Contract, in addition, is subject to fulfillment of the following
conditions:

a) That as of the date of this Contract the Seller have current all of the
permits, licenses or authorizations that may be necessary to operate the
corrugated packaging Plant whose Assets and Inventories are the subject matter
of this transaction;

b) That the Seller make it best efforts to support the Buyer in the assignment
or securing of the permits, licenses or authorizations for the corrugated
packaging division and the deeding [escrituracion] of the land on which the
Plant is located, which must take place on the execution date of this Contract;

c) That from the date of this Contract onward, the Seller, its stockholders and
the [stockholders'] relatives to the fourth degree abstain from engaging, either
directly or indirectly, in the corrugated packaging business, for at least four
years in the States of Jalisco and Michoacan, and for at least three years in
the States of Sinaloa, Nayarit, Colima, Guanajuato and Aguascalientes, unless
the Buyer asks the Seller in writing to participate in the sale and/or
collection of said goods, in order not to affect the Seller's former customers.
In these cases, the Seller shall make its best efforts to support the Buyer.

d) That the Seller and the Buyer enter into an agreement on this same date to
set up a technical and commercial alliance that guarantees the supply of
corrugated packaging for at least the next five years.

                                       8
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e) That the Seller supply to the Plant whose Assets and Inventories the Buyer
hereby acquires, upon the corresponding payment, at cost per cubic meter charged
by the National Water Administration [Comision Nacional del Agua], or any other
public agency that replaces such Administration, plus the pumping cost, at least
4,500m3 of water per month, from the execution date of this Contract onward. The
Seller's obligation shall be complied with provided that (i) it is possible to
supply the aforesaid water volume based on the water volumes received from the
public agency charged with supplying water, and that any reduction in such
volumes is not the result of the Seller's default or delay in paying the
corresponding fees or duties; the supply of such water volume must not cause the
Seller not to have, due to causes not imputable to it, not to have water for the
regular and day-to-day operation of its facilities; (iii) no failures or
breakdowns occur which are attributable to the Buyer or third parties and which
prevent the proper supply of water as aforesaid; and (iv) no act of God or force
majeure prevents such supply.

Any default of the above conditions will entitle the non-defaulting party to sue
for strict fulfillment before the competent courts, unless the defaulted
condition prevents or substantially affects the transfer of the property to
which this Contract refers or substantially prevents utilizing or turning to
account such property, in which case the non-defaulting party may demand the
rescission of this Contract and the refund of any amounts mutually paid. In any
other event that the parties default any condition, the defaulting party shall
pay to the non-defaulting party any damages caused by the default, plus any
expenses, costs, taxes, duties or fees paid to comply with the involved
condition.

TENTH. NOTICES.

The parties declare that they have the following addresses for service of
process purposes hereunder:

Seller:

Parque Industrial Los Altos S/N

Oficinas Corporativas de Celatep

Tepatitlan de Morelos, Jalisco

Attention: Cesar de Anda Molina

Ignacio Castillo Arreola

Buyer:

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Avenida Lazaro Cardenas 2400

Edificio Losoles 6(Degrees) Piso

Colonia del Valle

66220 Garza Garcia, Nuevo Leon

Attention: Ignacio Rincon A.
With a copy to:

Gabriel Villegas S.

Poniente 140 N(Degrees) 840
Colonia Industrial Vallejo

02300 Mexico, D.F.

Any notices that the parties must give each other in connection with this
Contract shall be made in writing and sent via registered mail return receipt
requested or via any other means in writing that guarantees that the addressee
will receive such notices at any of its addresses. The parties must serve
written notice of any change of address, and therefore all of the notices and
any other communication made pursuant to this Contract shall be regarded validly
made at the latest registered address.

ELEVENTH. AMENDMENTS
Any amendment that the parties wish to make to this Contract must be made in
writing signed by the parties.

If any amendment is made to this Contract as provided in the preceding
paragraph, such amendment will only affect the issue that such amendment
expressly addresses and therefore the terms and conditions of the other Clauses
of this Contract shall remain in full force and effect.

TWELFTH. ENTIRE AGREEMENT.

This Contract represents the entire agreement between the parties as to its
subject matter, wherefore the parties expressly declare that any other agreement
made prior to the execution of this Contract, whether oral or in writing, tacit
or express, which directly or indirectly relates to the subject of this
Contract, is hereby terminated as to anything that contravenes this Contract.

THIRTEENTH. APPLICABLE LAW.

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The parties agree to submit to the applicable laws of the Federal District for
the construction and fulfillment of this Contract.

FOURTEENTH. JURISDICTION AND COMPETENCY.

In the event of any dispute between the parties in connection with this Contract
or its construction, the parties hereby submit to the jurisdiction and
competency of the laws and competent courts of the City of Mexico, Federal
District, and expressly waive the venue of any other court to which they may be
subject by virtue of their present or future domiciles or otherwise.

Having read this Contract and having declared that they are aware of this
Contract's legal purposes and effect, the parties sign the same on this 31st day
of July 2000, in the City of Guadalajara, Jalisco.

The Seller  The Buyer

By: (An illegible signature)  By: (An illegible signature)

Cesar Salvador de Anda Molina  Ignacio Rincon Arredondo

                                      11

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