SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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

                                    FORM 10-K

                       FOR ANNUAL AND TRANSITIONAL REPORTS
                    PURSUANT TO SECTIONS 13 AND 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

|X|   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934

                   For the Fiscal Year Ended December 31, 1997

                                       OR

|_|   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934

                        Commission File Number: 333-8043
                               Four M Corporation
             (Exact name of Registrant as Specified in Its Charter)

                 Maryland                                     52-0822639      
     (State or Other Jurisdiction of                       (I.R.S. Employer   
      Incorporation or Organization)                      Identification No.) 
                                                          
           115 Stevens Avenue                                    10595  
        Valhalla, New York 10595                              (Zip Code)
(Address of Principal Executive Offices)

Registrant's telephone number, including area code: (914) 749-3200

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: None 

                                  -----------

      Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X|   No |_|

    Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |_|

      As of December 31, 1997, there were no shares of voting stock of the
registrant held by non-affiliates.

      As of December 31, 1997, registrant had 6,815,867 shares of Common Stock
outstanding.
<PAGE>

                               FOUR M CORPORATION
                         TRANSITION REPORT ON FORM 10-K
                                TABLE OF CONTENTS

                                     PART I

Item 1.    Business .........................................................  1

Item 2.    Properties .......................................................  7

Item 3.    Legal Proceedings ................................................  8

Item 4.    Submission of Matters to a Vote of Security Holders ..............  8

                                     PART II

Item 5.    Market for Registrant's Common Equity and Related 
            Stockholder Matters .............................................  9

Item 6.    Selected Financial Data ..........................................  9

Item 7.    Management's Discussion and Analysis of Financial Condition 
            and Results of Operations ....................................... 12

Item 8.    Financial Statements and Supplementary Data ...................... 16

Item 9.    Changes in and Disagreements with Accountants on Accounting 
            and Financial Disclosure ........................................ 16

                                    PART III

Item 10.   Directors and Executive Officers of the Registrant ............... 17

Item 11.   Executive Compensation ........................................... 19

Item 12.   Security Ownership of Certain Beneficial Owners and 
            Management ...................................................... 20

Item 13.   Certain Relationships and Related Party Transactions ............. 20

                                     PART IV

Item 14.   Exhibits, Financial Statement Schedules and Reports 
            on Form 8-K ..................................................... 21

Signatures
<PAGE>

                                     PART I

Item 1. BUSINESS

General

      Four M Corporation (the "Company" or "Four M"), which operates under the
trade name Box USA, believes that it is one of the largest independent
full-service converters of corrugated packaging materials in North America. The
Company, through its subsidiaries, operates 23 strategically located converting
facilities, which sold 11.7 billion square feet of finished corrugated
containers, partitions and sheets during the fiscal year ended December 31, 1997
("Fiscal 1997"). The Company also owns a paper mill at Ft. Madison, Iowa (the
"Ft. Madison Mill") which sold 62,880 tons of corrugating medium during Fiscal
1997, most of which was sold to third parties.

      The Company was founded in 1966 as a manufacturer of corrugated
partitions. From a single partition plant, the Company expanded initially
through internal growth and later through 12 separate acquisitions involving 23
manufacturing facilities. The Company has historically targeted assets to which
the Company could significantly improve profitability. These strategic
acquisitions have allowed the Company to (i) supply its partition plants with
lower-cost corrugated sheets for conversion into interior packaging components,
(ii) capture a portion of its partition customers' corrugated container business
and (iii) diversify its customer base to include a broader variety of users of
corrugated packaging materials.

      On May 30, 1996, the Company acquired (i) substantially all of the assets
of St. Joe Container Company ("St. Joe Container"), which consisted primarily of
16 converting facilities and related working capital (the "St. Joe Acquisition")
and (ii) a 50% interest in Florida Coast Paper Company, L.L.C. ("Florida
Coast"), a limited liability company which owns a linerboard mill located in
Port St. Joe, Florida (the "St. Joe Mill") and Stone Container Corporation
("Stone Container", together with the Company, the "Joint Venture Partners")
acquired the remaining 50% interest in Florida Coast. The St. Joe Acquisition
more than doubled the size of the Company to 28 converting facilities and
enabled the Company to increase its geographic coverage from nine to 17 states
and serves the Midwest, Mid-Atlantic and the faster growing Southeast markets.
While corrugated packaging plants typically serve customers within a 150-mile
radius, the Company is generally able to extend its service area to a radius of
approximately 250 miles. The Company believes that improved operating
efficiencies enable it to overcome any incremental costs associated with its
larger trading areas.

      The markets for corrugated packaging materials produced by the Company are
generally subject to changes in industry capacity and cyclical changes in the
economy, both of which can significantly impact the Company's profitability. The
ability of the Company to sustain profitability during cyclical fluctuations in
corrugating packaging material markets is dependent upon the Company's ability
to maintain value-added margins (net sales less the cost of raw materials). For
corrugating packaging material manufacturers, raw materials typically represent
approximately 70% of the total cost of goods sold. The ability of the Company to
maintain value-added margins is primarily a function of the speed with which the
Company can pass along raw material cost increases to its customers or
conversely, absorb reductions in raw materials prices. Historically, the Company
has been able to sustain consistent value-added margins on a unit basis.
Although prices for corrugated packaging products have declined due to an
industry-wide excess of capacity, the Company has experienced growth in volume
for such products.

      One of the Company's competitive advantages is its long-term relationships
with many customers, some of which have been maintained for over 25 years. A
second feature which distinguishes the Company from its competitors is the
significant relationships it has established with its containerboard suppliers.
The Company believes that it is the largest customer of its four primary raw
material suppliers. As one of the largest purchasers of linerboard and
corrugating medium in the industry, the Company believes that it has been able
to purchase raw materials from certain of its outside suppliers at prices below
those reported in Pulp & Paper Week, an industry trade publication.

      Four M has no independent business operations other than its ownership
interest in its subsidiaries.

Operations

      The Company operates three types of converting facilities: (i) corrugator
plants which convert linerboard and corrugating medium into corrugated sheets
and then convert the sheets into corrugated containers, (ii) sheet or specialty
container plants which receive corrugated sheets from the Company's corrugator
plants or external suppliers and then manufacture corrugated containers and
displays and (iii) partition plants which receive corrugated sheets from the
Company's corrugator plants or external suppliers and manufacture corrugated
interior packaging components. The Company also operates the Ft. Madison Mill,
which produces corrugating medium primarily for sale to third parties.


                                       1
<PAGE>

Corrugators

      The Company supplies corrugated containers to national, regional and local
accounts, which include companies in the food, household products, cosmetics,
personal care, beverage, pharmaceutical, electrical and other machinery, and
high-tech industries. The Company's corrugator plants are value-added container
manufacturers, as well as suppliers of corrugated sheets to the Company's and
third-parties' sheet and partition plants.

      The Company's corrugators convert mottled white linerboard, unbleached
kraft linerboard and corrugating medium into corrugated sheets and containers.
Mottled white containers are generally sold at a premium over unbleached kraft
containers; however, the premium tends to cover the higher cost of mottled white
linerboard without increasing operating margins at the container facilities.
Approximately 94.6% of the corrugated materials produced in these facilities in
Fiscal 1997 required unbleached kraft linerboard and the remaining 5.4% required
mottled white linerboard.

Sheet Plants

      The Company's sheet plants convert corrugated sheets into specialty
containers and point-of-sale displays. The Company operates one sheet plant in
Ohio, one in Alabama, two in California and one in Florida. During Fiscal 1997,
the Company's sheet plants accounted for approximately 11.0% of the Company's
net sales.

      The Company operates the sheet plants for smaller production runs and
specialized containers. The customers for these plants are primarily local and
regional accounts. By serving different market segments, sheet plants allow the
Company to operate in trading areas which overlap those of the corrugator plants
without competing with the larger, integrated facilities.

Partition Plants

      The Company believes that it is the largest producer of corrugated
interior packaging components in the United States. The Company operates four
free-standing partition plants in the Midwest and Southeast and supplies
interior packaging components to major food, household products, and glass and
plastic container producers. The Company also has partition manufacturing
capability at two of its sheet plants. The Company maintains a leading position
in the partition segment of the corrugated market by supplying national account,
high-volume users.

Ft. Madison Mill

      The Company's Ft. Madison Mill is currently capable of producing up to
80,000 tons per year of corrugating medium. The Ft. Madison Mill sells its
output primarily to smaller, independent corrugated container manufacturers in
the Midwest. In Fiscal 1997, the Ft. Madison Mill generated net sales of $13.2
million of corrugating medium to third parties.

      In Fiscal 1997, prices for corrugating medium declined as a result of
increased capacity in the industry and decreased demand for such products. In
response to such market conditions, the Company shut down the Ft. Madison Mill
on March 31, 1997 and resumed limited production on August 18, 1997. Full
production commenced on September 1, 1997.

      The Ft. Madison Mill has the capability to process both wood fiber and
recycled fiber. Recycled fiber utilized at the Ft. Madison Mill consists of
double-lined kraft clippings. This flexibility in raw materials processing has
enabled the Company to reduce the impact of fluctuations in raw material prices.
Recycled fibers represented approximately 39% of the raw materials used by the
Ft. Madison Mill in Fiscal 1997.

St. Joe Mill

      On May 30, 1996, Florida Coast, a joint venture (the "Mill Joint Venture")
of the Company and Stone Container acquired the St. Joe Mill for its strategic
location and to fulfill a portion of the linerboard requirements of the
corrugated container facilities of the Joint Venture Partners. The St. Joe Mill
has two paper machines which are capable of producing an aggregate of
approximately 500,000 tons of linerboard annually in a variety of grades and
basis weights. The St. Joe Mill's production presently is approximately 18%
mottled white linerboard, a premium priced product, and 82% unbleached kraft
linerboard.

      Under the Output Purchase Agreement, each of the Joint Venture Partners
has agreed to purchase one-half of the St. Joe Mill's entire annual linerboard
production, representing approximately one-third of the Company's total
requirements, at a price that is $25 per ton below the price published in Pulp &
Paper Week, under the section entitled "Price Watch: Paper and Paperboard,"
subject to a minimum purchase price, intended to generate sufficient funds to
cover cash operating costs, cash interest expense and maintenance capital
expenditures.


                                       2
<PAGE>

Management determined that it was probable that the Company would be required to
pay additional amounts above market price for linerboard pursuant to the Output
Purchase Agreement and established a reserve (the "Reserve") in the amount of
$20.2 million for such purchases. During Fiscal 1997, pursuant to the Output
Purchase Agreement, the Company was required to pay a purchase price adjustment
in the amount of $17.5 million. In addition, the Company increased the Reserve
by $6.0 million in Fiscal 1997. The Company advanced loans of $1.6 million under
the Subordinated Credit Facility (the "Subordinated Credit Facility"), pursuant
to which the Company provides, if needed, Florida Coast with up to $10.0 million
of subordinated indebtedness on a revolving credit basis. The loans under the
Subordinated Credit Facility are fully reserved. The St. Joe Mill is expected to
generate net earnings and operating cash flow in Fiscal 1998 and additional
reserve requirements are not anticipated.

      In addition, in April 1997 the Joint Venture Partners shut down the St.
Joe Mill due to a decline in prices for linerboard as a result of increased
capacity in the industry. The St. Joe Mill resumed limited production in early
September 1997 and full production commenced in October 1997. During the period
of the St. Joe Mill shut down, the Company remained subject to the terms of the
Output Purchase Agreement.

Fibre Marketing Group

      During Fiscal 1996, the Company acquired a 50% interest in Fibre Marketing
Group, LLC ("Fibre Marketing"), which procures and markets waste paper. Fibre
Marketing acts as a broker for the sale and transportation of waste material
from companies which generate waste, such as printers, paper converters and
recycling processors, to paper mills. Fibre Marketing currently provides
brokerage services to all of the Company's converting facilities. Fibre
Marketing also owns and operates Fibre Processing Corporation, a waste paper
processing company located in Edgemere, Maryland, which services sources of
recyclable waste paper which are too small to utilize brokerage services. Fibre
Marketing discontinued operations at this facility as of December 31, 1997.

Box USA of New Jersey, Inc.

      During Fiscal 1996, the Company acquired 49% of the outstanding shares of
common stock of Box USA of New Jersey, Inc. ("Box USA of New Jersey"), formerly
known as MannKraft Corporation, from Stone Container (the "New Jersey
Acquisition"), increasing its ownership interest to 50%. Box USA of New Jersey
is a manufacturer of corrugated paper products, such as cartons and displays,
which it sells primarily in New Jersey, southern New York, southeastern
Connecticut and eastern Pennsylvania.

Box USA of Florida, L.P.

      During Fiscal 1996, Four M Manufacturing Group of Georgia, Inc. acquired a
51% interest in Box USA of Florida, L.P. ("Box USA of Florida, L.P."). Box USA
of Florida, L.P. operates a sheet plant in Jacksonville, Florida.

Recent Developments

      In January 1998, the Company sold its Dallas and Houston corrugating
operations for $19.8 million in cash, subject to working capital adjustments,
which approximated net book value. Approximately $11.2 million of the net
proceeds is held in trust pursuant to the terms of the Indenture governing the
Senior Notes and the remainder has been used for working capital purposes.

Sales, Marketing and Customers

Sales and Marketing

      The Company's products are primarily sold on a direct basis and, to a
lesser degree, through the use of brokers. Currently, the Company generates
approximately 90% of its business through direct sales and the balance through
brokers. The Company seeks to be a leader in customer service for the markets it
serves by capitalizing on its marketing experience, technical expertise and
manufacturing flexibility. The Company's corrugated packaging materials are
typically manufactured to customer order. The Company believes that the strong
integration between manufacturing, marketing and sales provides it with a
competitive advantage by allowing it to respond favorably and quickly to
changing customer demands. The Company prides itself on its sales oriented
culture and its long-standing relationships with customers. The Company's senior
executive officers personally handle a number of the larger accounts.

      Each of the Company's sales representatives receives training in product
specifications and manufacturing techniques in order to satisfy customer
requirements and maintain existing national and local account relationships. The
Company emphasizes achieving sales efficiency by


                                       3
<PAGE>

preserving existing relationships, having a thorough knowledge of customer
requirements and being flexible and responsive to changing customer needs. The
Company has focused on capturing market share by targeting a diverse customer
base and offering a full product line within a given geographical area. The
Company believes that the St. Joe Acquisition has provided access to markets
previously outside the Company's geographic service areas, as well as allowed it
to expand relationships with existing customers which have packaging
requirements within geographic areas serviced by the St. Joe Container
facilities.

      The Company's sales and marketing system is supported by a centralized
computer network. All sales are invoiced and entered into the computer network
at the plant level. Sales information and data are accessible on a real-time
basis from computer terminals at each plant and at the Company's executive
offices. The Company's sales and marketing organization provides the Company
with accurate and timely information on projected product demand, competitive
activity in the marketplace and potential markets for new products and services.

Customers

      In Fiscal 1997, the Company's largest customer accounted for approximately
2.6% of net sales. The top 10 customers accounted for approximately 9.5% of net
sales during Fiscal 1997. The Company typically has one-year, and in some cases
multi-year, contracts with its national accounts. These contracts have
provisions which provide for price adjustments based on changes in the Company's
raw material prices. Sales to national accounts accounted for approximately 15%
of net sales in Fiscal 1997.

Competition

      The markets in which the Company sells its products are highly
competitive. Competitors of the Company's corrugators include large, integrated
manufacturers with operations throughout the United States as well as small,
independent converters with a regional or local focus. The Company competes by
offering its customers high-quality products produced to the customers'
specifications, rapid order turnaround, competitive pricing and high levels of
customer service.

      The Company's sheet plants generally compete with independent regional and
local sheet plants. Competitive factors include product quality, price, delivery
time and customer service. The Company believes that its ready access to raw
materials from its corrugator plants provides it with a competitive advantage
over its non-integrated competitors.

      The market for corrugated partitions is mature. The primary competitors in
the partition business are producers of solid fiber partitions. Solid fiber
partitions have a price advantage over corrugated partitions due to lower raw
material costs but are not as effective as corrugated partitions for protection
of fragile products during shipment and storage. The Company competes with the
solid fiber manufacturers by tailoring timing, manufacturing specifications and
delivery requirements to individual customer needs. As consolidation among users
of corrugated partitions has increased, the Company has continued to focus on
aligning its manufacturing capabilities with individual customer needs to
maintain its market share in the partition segment. In addition, the Company has
utilized its relationships with its partition customers to increase sales of
corrugated containers.

Distribution

      Corrugated packaging materials generally are delivered by truck due to the
large number of customers and demand for timely service. The dispersion of
customers and the high bulk and low density and value of corrugated packaging
materials make shipping costs a relatively high percentage of total costs. As a
result, corrugated packaging material plants tend to be located close to
customers to minimize freight costs. Generally, corrugated packaging material
plants service an area within a 150-mile radius of the plant locations. Each of
the Company's plants typically services a market within a 250-mile radius of the
plant. The Company believes that improved operating efficiencies have enabled it
to overcome any incremental freight costs associated with its larger trading
areas.

Raw Materials

      The Company's primary raw materials are linerboard and corrugating medium.
Historically, over two-thirds of the Company's raw materials have been provided
by Stone Container, Inland Container Corporation and Tenneco Packaging Inc.
pursuant to long-term supply contracts. The Company has recently negotiated
renewals of these contracts; two of them expire in March and July 2000, and the
third contract expires in December 2002. The Company has also entered into an
additional long-term supply contract with Georgia-Pacific Corporation which
expires in January 2001. The contracts specify certain monthly and annual
discounts to negotiated market prices, which are based on volumes purchased. The
Company believes that alternate sources of raw materials are available.


                                       4
<PAGE>

      In Fiscal 1997, the Company bought only 109,958 tons of its linerboard
requirements from the St. Joe Mill under the Output Purchase Agreement as the
mill was shut down for six months. The Company expects to purchase approximately
210,000 tons of linerboard from the St. Joe Mill in Fiscal 1998.

      The Ft. Madison Mill purchases its virgin fiber and its recycled fiber
from several suppliers, including some suppliers of recycled fiber who are also
customers of the Ft. Madison Mill. The Ft. Madison Mill does not typically enter
into long-term supply contracts.

Environmental Matters

      The Company's operations are subject to environmental regulation by
federal, state and local authorities in the United States. The Company believes
that it is in substantial compliance with current federal, state and local
environmental regulation. Unreimbursed liabilities arising from environmental
claims, if significant, could have a material adverse effect on the Company's
results of operations and financial condition. Furthermore, actions by federal,
state and local governments concerning environmental matters could result in
laws or regulations that could increase the cost of compliance with
environmental laws and regulations.

      The operations of the St. Joe Mill are subject to extensive and changing
environmental regulation by federal, state and local authorities. In November
1997, the US Environmental Protection Agency (the "EPA") issued its final rules,
informally known as the "cluster rules", which are more stringent than the
existing requirements for discharge of wastewaters under the Clean Water Act and
impose new requirements on air emissions under the Clean Air Act for the pulp
and paper industry. Although the final rules are less stringent, in some
respects than as initially proposed, the Company currently believes that the St.
Joe Mill will be required to make capital expenditures of approximately $30
million during the period of 1998 through 2005 in order to meet the requirements
of the new regulations. See "Management Discussion and Analysis of Financial
Condition and Results of Operations - Environmental Matters".

      St. Joe Container, St. Joe Paper and St. Joe Forest (collectively, the
"Paper Indemnitors") agreed to indemnify the Company for certain "On-Site
Environmental Liabilities" (as defined in the Asset Purchase Agreement dated as
of November 1, 1995 covering the St. Joe Acquisition (the "St. Joe Acquisition
Agreement")) arising from conditions existing on the date of the closing of the
St. Joe Acquisition (the "Closing Date") and relating either to the St. Joe Mill
or the St. Joe Container facilities. Pursuant to these provisions, (1) 100.0% of
the first $2.5 million of such liability will be paid by the Company or Florida
Coast, (2) 100.0% of the next $2.5 million by the Paper Indemnitors, (3) 100.0%
of the next $2.5 million of such liability will be paid by the Company or
Florida Coast, (4) 100.0% of the next $2.5 million of such liability will be
paid by the Paper Indemnitors, (5) 100.0% of the next $2.5 million of such
liability will be paid by the Company or Florida Coast and (6) 100.0% of the
next $5.0 million of such liability will be paid by the Paper Indemnitors;
provided that the conditions that give rise to such On-Site Environmental
Liabilities are discovered and the Paper Indemnitors are notified not later than
three years after the Closing Date and, subject to certain exceptions,
remediation expenses are incurred within five years after the Closing Date. The
Paper Indemnitors will have no responsibility to indemnify the Company or
Florida Coast for expenses relating to On-Site Environmental Liabilities in
excess of the foregoing or for any On-Site Environmental Liabilities discovered
after the third anniversary of the Closing Date. The Company is solely
responsible for On-Site Environmental Liabilities that arise from the acts or
omissions of the Company after the Closing Date. In the event that On-Site
Environmental Liabilities arise from acts or omissions which occurred both
before and after the Closing Date, such liabilities will be allocated between
the Paper Indemnitors, on the one hand, and the Company or Florida Coast, on the
other hand, based on the relative contribution of the acts and omissions
occurring in each time period to such On-Site Environmental Liabilities. St. Joe
Paper and its affiliates, including St. Joe Container, have retained
responsibility for "Off-Site Environmental Liabilities" (as defined in the St.
Joe Acquisition Agreement) that arise from conditions existing on the Closing
Date. In the event Off-Site Environmental Liabilities arise from acts or
omissions that occurred both before and after the Closing, such Liabilities will
be allocated between the Paper Indemnitors, on the one hand, and the Company and
Florida Coast, on the other hand, based on the relative contribution of the acts
and omissions occurring in each time period to such Off-Site Environmental
Liabilities. Should a condition exist that requires remediation costs to be
incurred both within and without the boundaries of the real property, the costs
for work within the boundaries will be deemed On-Site Environmental Liabilities,
and the work outside such boundaries will be deemed Off-Site Environmental
Liabilities. Subject to certain exceptions, On-Site Environmental Liabilities do
not include liabilities that arise due to a change in any law or regulation
becoming effective after November 1, 1995.

      Pursuant to the Indemnification Reimbursement Agreement between Florida
Coast and the Company, the benefit of indemnification from the Paper Indemnitors
with respect to such environmental liabilities will be allocated 80.0% to
Florida Coast and 20.0% to the Company, with Florida Coast or the Company being
obligated, under certain circumstances, to reimburse the other in the event
either recovers more than its allocated share and the other recovers less.

      The obligations of the Paper Indemnitors with respect to On-Site
Environmental Liabilities will terminate in the event that either the Company or
Florida Coast undergoes a "change of control" (as defined in the St. Joe
Acquisition Agreement). Change of Control is defined to mean (i) a transaction
in which any Person or Group (as defined in Rule 13d-5 of the Exchange Act)
other than the "Principals" (as defined in the St. Joe Acquisition Agreement) or
the "Lenders" (as defined in the St. Joe Acquisition Agreement) acquires more
than 50.0% of the total


                                       5
<PAGE>

voting power of all classes of voting stock of the Company or Florida Coast, as
the case may be, (ii) a transaction in which any Person or Group (as defined in
Rule 13d-5 of the Exchange Act) other than the Principals or the Lenders has a
sufficient number of nominees elected to constitute a majority of the Board of
Directors of the Company or of the Board of Managers of Florida Coast, as the
case may be, (iii) the sale of all or substantially all of the capital stock of
the Company or Florida Coast, as the case may be, as an entirety or
substantially as an entirety to any Person or Group (as defined in Rule 13d-5 of
the Exchange Act) other than the Principals or the Lenders and (iv) the sale or
transfer of all or substantially all of the assets of the Company or Florida
Coast, as the case may be, as an entirety or substantially as an entirety to any
Person other than the Principals or the Lenders. For purposes of the definition
of Change of Control, "Principals" is defined as (1) Dennis Mehiel in the case
of the Company, (2) the Company and Stone Container, in the case of Florida
Coast, and (3) any subsidiary of Dennis Mehiel, the Company or Stone Container;
and "Lenders" is defined as one or more institutional lenders which provide debt
financing to the Company or Florida Coast as of the Closing.

      Pursuant to the St. Joe Acquisition Agreement, St. Joe Container has
completed, at its sole cost, remedial actions required for a former land
application area at the container facility located in Laurens, South Carolina
and remedial actions associated with two underground storage tanks at the
container facility located in Chicago, Illinois. St. Joe Container has also
agreed to reimburse the Company for up to $1.4 million of expenses incurred by
the Company after the Closing Date to undertake certain identified environmental
projects at several of the acquired container facilities. To date, the Company
has spent approximately $100,000 in connection with these projects and expects
that it will be reimbursed for these amounts from St. Joe Container.

      The indemnification provisions in the St. Joe Acquisition Agreement are
generally intended to be the exclusive remedies of the parties with respect to
such agreements.

Personnel

      As of December 31, 1997, the Company had 2,328 employees, of whom 1,702
were hourly employees and 626 were salaried employees. Of such employees, 519
were engaged in management and administrative functions, 107 were engaged in
sales and marketing and 1,702 were engaged in manufacturing. There were 1,314
hourly employees at 20 Company facilities who are members of unions under 19
separate contracts. Six of these contracts will expire in the second half of
1998, six expire in 1999, three expire in 2000, one expires in 2001 and one
expires in 2002. Management believes that its employee relations are good. A
contract was recently finalized in February 1998.


                                       6
<PAGE>

Item 2. PROPERTIES

      The Company owns or leases manufacturing properties having an aggregate
floor space of approximately 4.1 million square feet. The table below provides
summary information regarding the principal properties owned or leased by the
Company.

                                   Approximate                          Leased
      Location                    Square Footage     Type              or Owned
      --------                    --------------     ----              --------
                                                  
      Birmingham, AL(1)               167,000      Corrugator            Owned
      Compton, CA(8)                  135,000      Corrugator            Leased
      Port St. Joe, FL(1)(2)(6)       142,000      Corrugator            Leased
      Lake Wales, FL(1)               275,000      Corrugator            Owned
      Stockbridge, GA(3)              160,000      Corrugator            Leased
      Chicago, IL(1)                  185,000      Corrugator            Owned
      Hartford City,IN(1)             277,150      Corrugator            Owned
      Louisville, KY(1)               240,000      Corrugator            Owned
      Baltimore, MD(1)                220,000      Corrugator            Owned
      Newark, NJ                      180,000      Corrugator            Owned
      Charlotte, NC(6)                170,000      Corrugator            Owned
      Newark, OH                      107,000      Corrugator            Owned
      Eighty Four, PA                 133,000      Corrugator            Owned
      Pittsburgh, PA(1)               225,000      Corrugator            Owned
      Laurens, SC(1)                  180,000      Corrugator            Owned
      Memphis, TN(1)                  216,000      Corrugator            Owned
      Chesapeake, VA(1)               148,000      Corrugator            Owned
      Dothan, AL(1)                    31,000      Sheet                 Owned
      Montebello, CA(8)                90,000      Sheet                 Leased
      San Leandro, CA                 110,000      Sheet(4)              Leased
      Jacksonville, FL                 72,700      Sheet                 Leased
      Byesville, OH                    60,000      Sheet                 Owned
      Jacksonville, FL(3)              69,000      Partition             Leased
      Litchfield, IL                   42,000      Partition             Leased
      Portland, IN(3)                  40,500      Partition             Leased
      Bethesda, OH(3)                  44,100      Partition             Leased
      Ft. Madison, IA                 138,570      Mill                  Owned
      Valhalla, NY                     16,000      Executive Offices     Leased
      New York City, NY                 3,500      Executive Offices     Leased
      College Park, GA(1)(7)          167,000      Corrugator            Owned
      Vernon, CA(5)                   200,000      Corrugator/Sheet(4)   Owned
      North Brunswick, NJ(6)          107,220      Sheet                 Leased

      In January 1998, the Company sold its Dallas and Houston corrugating
operations for $19.8 million in cash, subject to working capital adjustments,
which approximated net book value. Approximately $11.2 million of the net
proceeds is held in trust pursuant to the terms of the Indenture governing the
Senior Notes and the remainder has been used for working capital purposes.

----------
(1) Properties acquired in the St. Joe Acquisition.
(2) Property net leased from Florida Coast for a nominal rental payment.
(3) Properties owned, directly or indirectly, by Dennis Mehiel. See "Certain
    Relationships and Related Party Transactions."
(4) Sheet plants which have the capability to produce partitions.
(5) Acquired on June 4, 1996 by Box USA Group, Inc., a wholly-owned subsidiary
    of the Company, for approximately $4.5 million. The Company has spent
    approximately $1.2 million for capital expenditures on this property. Full
    operations commenced during Fiscal 1997.
(6) Inactive facilities.
(7) Machinery and equipment sold in January 1997 and the property net leased
    to the purchaser.
(8) Lease terminated.


                                       7
<PAGE>

Item 3. LEGAL PROCEEDINGS

      From time to time, the Company is subject to legal proceedings and other
claims arising in the ordinary course of its business. The Company maintains
insurance coverage against claims in an amount which it believes to be adequate.
The Company believes that it is not presently a party to any litigation, the
outcome of which could reasonably be expected to have a material adverse effect
on its financial condition or results of operations.

      On July 19, 1996, a civil action was filed in the Superior Court of Fulton
County, Georgia (the "Suit") by Sid Dunken, individually and on behalf of D&M
Partnership, a purported Georgia partnership, against Four M, Box USA Group,
Inc., Four M Manufacturing Group of Georgia, Inc. and Dennis Mehiel. The
complaint alleges that Dunken is entitled to an equity interest in Four M or in
the alternative, $150,000,000 in compensatory damages, as well as punitive
damages and attorneys' fees. On September 23, 1996, the Company filed an answer
in response to the Complaint. The Company believes that the Suit is without
merit. The Company intends to defend against the Suit vigorously and believes
that it has adequate defenses. However, the Suit is in a very preliminary stage,
and there can be no assurance that the outcome of the Suit will not be adverse
to Four M.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

      During the fourth quarter of the fiscal year covered by this report, no
matter was submitted to a vote of security holders of the Company.


                                       8
<PAGE>

                                     PART II

Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

      There is no established public trading market for the Company's Common
Stock. Dennis Mehiel, the Chairman of the Board of Directors and the Chief
Executive Officer of the Company, is the sole beneficial shareholder of the
Company's outstanding Common Stock.

Item 6. SELECTED FINANCIAL DATA

      The following historical data have been derived from consolidated
financial statements of the Company. The data as of and for the year ended
December 31, 1997, the five months ended December 31, 1996, and the fiscal years
ended July 31, 1996, 1995 and 1994 are derived from the consolidated financial
statements of the Company audited by BDO Seidman, LLP, independent certified
public accountants, whose report thereon is included elsewhere in this report or
are incorporated by reference. The data as of and for the fiscal year ended July
31, 1993 is derived from the Company's consolidated financial statements audited
by KPMG Peat Marwick LLP, independent certified public accountants, whose report
is not included herein. The data as of and for the five months ended December
31, 1995 are unaudited, but in the opinion of management, include all
adjustments (consisting only of normal recurring adjustments and accruals) which
the Company considers necessary for a fair presentation of the operating results
for that period. The following data should be read in conjunction with the
Company's consolidated financial statements, and related notes, "Management's
Discussions and Analysis of Financial Condition and Results of Operations" and
the other financial information included elsewhere herein.


                                       9
<PAGE>

<TABLE>
<CAPTION>
                                               Year
                                              ended
                                             December      Five Months Ended
                                               31,             December 31,                  Fiscal Year Ended July 31,
                                               ---             ------------         -----------------------------------------------
                                              1997         1996         1995         1996         1995         1994         1993
                                            ---------    ---------    ---------    ---------    ---------    ---------    ---------
                                                                                                (In thousands)
<S>                                         <C>          <C>          <C>          <C>          <C>          <C>          <C>      
Statement of Operation Data:
Net sales ...............................   $ 468,867    $ 196,787    $  95,614    $ 257,817    $ 271,994    $ 228,563    $ 214,936
Cost of goods sold ......................     403,160      171,304       81,119      222,105      232,154      205,025      192,208
                                            ---------    ---------    ---------    ---------    ---------    ---------    ---------

Gross profit ............................      65,707       25,483       14,495       35,712       39,840       23,538       22,728
Selling, general and administrative
expenses ................................      47,503       17,499        6,320       19,217       19,703       22,018       21,813
Plant shutdown expenses .................       2,800           --           --           --           --           --           --
                                            ---------    ---------    ---------    ---------    ---------    ---------    ---------
Income from operations ..................      15,404        7,984        8,175       16,495       20,137        1,520          915
Loss on joint venture contract ..........       7,408        1,668           --           --           --           --           --
Other income ............................         529          425            2           --        1,927          126        3,651
Interest expense ........................      26,917       10,314        1,589        7,565        5,607        5,448        4,948
                                            ---------    ---------    ---------    ---------    ---------    ---------    ---------
Income (loss) before provision (benefit)
for income taxes, minority interest,
cumulative effect of change in method
of accounting and extraordinary gain
on early retirement of debt .............     (18,392)      (3,573)       6,588        8,930       16,457       (3,802)        (382)
Minority interest .......................         (26)         (87)          --           --         (146)        (180)          --
Cumulative effect in change in method
of accounting for taxes on income .......          --           --           --           --           --          381           --
Provision (benefit) for income taxes ....     (12,895)      (1,486)       2,966        3,817        5,483         (325)         453
Extraordinary gain on early retirement
of debt .................................          --           --           --           --        2,219           --           --
                                            ---------    ---------    ---------    ---------    ---------    ---------    ---------
Net income (loss) .......................   $  (5,523)   $  (2,174)   $   3,622    $   5,113    $  13,047    $  (3,276)   $    (835)
                                            =========    =========    =========    =========    =========    =========    =========

Other Financial Data:
Ratio of earnings to fixed charges(1) ...        0.4x         0.7x         3.9x         2.0x         3.3x         0.5x         1.0x
EBITDA(2) ...............................   $  30,171    $  13,271    $   9,607    $  21,677    $  25,382    $   6,796    $   6,209
Net cash provided by (used for) operating
activities(3) ...........................      (5,132)      (3,930)       1,127       26,621       (2,217)       4,794        8,860
Net cash provided by (used for) investing
activities ..............................     (22,591)      (4,707)        (221)    (166,203)      (1,975)      (9,126)      (4,135)
Net cash provided by (used for) financing
activities ..............................      27,433       10,257       (1,032)     139,167        3,518        5,182       (3,841)
Depreciation and amortization ...........      14,767        5,287        1,432        5,182        5,245        5,276        5,294
Capital expenditures ....................      29,072        6,721        1,405        8,612        3,690        3,916        3,935
Adjusted net sales(4) ...................     468,867      196,787       89,252      246,140      212,562      155,869      153,857
Adjusted EBITDA(4) ......................      30,171       13,271       11,057       24,831       24,210        3,926        2,196

<CAPTION>
                                       Year
                                       ended
                                     December    Five Months Ended
                                        31,         December 31,             Fiscal Year Ended July 31,
                                        ---         ------------             --------------------------
                                       1997       1996       1995       1996       1995       1994       1993
                                     --------   --------   --------   --------   --------   --------   --------
                                                                                 (In thousands)
<S>                                  <C>        <C>        <C>        <C>        <C>        <C>        <C>     
Balance Sheet Data:
Working capital ..................   $ 53,196   $ 38,537   $ 16,108   $ 37,590   $ 14,504   $  8,903   $ 10,413
Property, plant and equipment, net    181,549    173,333     33,736    157,973     27,044     36,536     36,052
Total assets .....................    322,774    296,333     76,322    263,809     73,137     93,933     79,716
Total long-term debt .............    237,323    210,691     36,113    187,092     30,998     44,105     40,993
Stockholder's equity .............      6,665     12,188     12,131     14,362      8,649      1,278      4,554
</TABLE>

         The accompanying footnotes, which are an integral part of this
                 financial data, appear on the following page.


                                       10
<PAGE>

(1) For purpose of calculating the ratio of earnings to fixed charges,
    earnings consist of earnings (loss) before provision (benefit) for income
    taxes, minority interest and extraordinary gain on early retirement of
    debt plus fixed charges, and fixed charges consist of interest expense
    plus that portion of rental payments on operating leases deemed
    representative on the interest factor.

(2) EBITDA represents income from operations before interest expense,
    provision (benefit) for income taxes and depreciation and amortization.
    EBITDA provides information regarding a company's ability to service
    and/or incur debt. EBITDA should not be considered in isolation or as a
    substitute for net income, cash flows from operations or other
    consolidated income or cash flow data prepared in accordance with
    generally accepted accounting principles or as a measure of a company's
    profitability or liquidity. EBITDA is not intended to disclose excess
    funds available for reinvestments because other commitments and
    obligations exist, including, but not limited to, principal repayment
    obligations and lease commitments, that are not considered in the
    calculation of EBITDA. See Notes 12, 13 and 16 through 19 to the Company's
    financial statements.

(3) Material differences between EBITDA and net cash provided by or used in
    operating activities may occur because of the inherent differences in each
    such calculation including (a) the change in operating assets and
    liabilities between the beginning and end of each period, as well as
    certain non-cash items which are considered when presenting net cash
    provided by or used in operating activities but are not used when
    calculating EBITDA and (b) interest expense, provision for income taxes
    and other income or expenses, which are included when presenting net cash
    provided by or used in operating activities but are not included in the
    calculation of EBITDA. EBITDA is a measure used as part of the covenants
    of the Credit Facility.

(4) Adjusted to exclude the results of The Fonda Group, Inc. ("Fonda"), which
    was a subsidiary of the Company until March 1995, and the Flint, Michigan
    facility (the "Flint Facility") which was owned by Box USA Group, Inc.
    ("Box USA Group"), a wholly-owned subsidiary of the Company. On August 16,
    1996, Box USA Group discontinued its operations at the Flint Facility and
    disposed of substantially all of the machinery and equipment, finished
    goods and work-in-progress inventory and certain related assets utilized
    at such facility.


                                       11
<PAGE>

Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

General

      The following discussion and analysis should be read in conjunction with
the financial statements of the Company and the notes thereto included elsewhere
in this report. In December 1996, the Company changed its fiscal year end from
July 31 to December 31. To facilitate comparisons of the operating results, the
data as of and for the year ended December 31, 1996 and for the five months
ended December 31, 1995 are unaudited, but in the opinion of management include
all adjustments (consisting only of normal recurring adjustments and accruals)
which the Company considers necessary for a fair presentation of the operating
results for that period. The table presented below is in millions of dollars,
except for percentage amounts.

      The Company manufactures corrugated paper, rolled paper and other paper
products such as cartons and displays. The markets for corrugated packing
materials produced by the Company are generally subject to changes in industry
capacity and cyclical changes in the economy, both of which can significantly
impact the Company's profitability. The ability of the Company to sustain
profitability during cyclical fluctuations in corrugating packaging material
markets is dependent upon the Company's ability to maintain value-added margins
(net sales less the cost of raw materials). For corrugated packaging material
manufacturers, raw materials typically represent approximately 70% of the total
cost of goods sold. The ability of the Company to maintain value-added margins
is primarily a function of the speed with which the Company can pass on raw
material cost increases to its customers or conversely, absorb reductions in raw
materials prices. Historically, the Company has been able to sustain consistent
value-added margins on a unit basis. In addition, the Company also believes it
has been able to mitigate raw material price increases at its converting
facilities by entering into several long-term supply contracts.

      In April 1997, the Joint Venture Partners shut down the St. Joe Mill due
to a decline in prices for linerboard as a result of increased capacity in the
industry. The mill resumed full production in October 1997. During the period of
the St. Joe Mill shutdown, the Company remained subject to the terms of the
Output Purchase Agreement and pursuant thereto, paid a purchase price adjustment
in the amount of $17.5 million. In addition, the Company increased the Reserve
by $6.0 million in 1997. In Fiscal 1997, the Company advanced loans of $1.6
million under the Subordinated Credit Facility. The loans under the Subordinated
Credit Facility are fully reserved.

      In Fiscal 1997, prices for corrugating medium declined as a result of
increased capacity in the industry and decreased demand for such products. In
response to such market conditions, the Company shut down the Ft. Madison Mill
on March 31, 1997 and resumed limited production on August 18, 1997. Full
production commenced on September 1, 1997.

<TABLE>
<CAPTION>
                                         Year Ended December 31,                Five Months Ended December 31,
                                   -------------------------------------     ------------------------------------
                                        1997                 1996                 1996                1995
                                   ----------------     ----------------     ----------------     ---------------
                                            Percent              Percent              Percent             Percent
                                             of Net               of Net               of Net              of Net
                                   Amount     Sales     Amount     Sales     Amount     Sales     Amount    Sales
                                   ------    ------     ------    ------     ------    ------     ------   ------
<S>                                <C>        <C>       <C>        <C>       <C>        <C>       <C>       <C>   
Net sales ......................   $468.9     100.0%    $360.5     100.0%    $196.8     100.0%    $ 95.6    100.0%
Cost of goods sold .............    403.2      86.0      315.8      87.6      171.3      87.0       81.1     84.8
Gross profit ...................     65.7      14.0       44.7      12.4       25.5      13.0       14.5     15.2
Selling, general and ...........     
     administrative expenses ...     47.5      10.1       30.5       8.5       17.5       8.9        6.3      6.6
Plant shutdown expenses ........      2.8        .6         --        --         --        --         --       -- 
Income from operations .........     15.4       3.3       14.2       3.9        8.0       4.1        8.2      8.6
Loss on joint venture contract .      7.4       1.6         --        --        1.7       0.9         --       -- 
Other income ...................       .5        .1         .6        .2        0.4       0.2         --       -- 
Interest expense ...............     26.9       5.7       16.4       4.5       10.3       5.2        1.6      1.7
                                   ------    ------     ------    ------     ------    ------     ------   ------
Income (loss) before
     provision (benefit) for
     income taxes, minority
     interest and extraordinary
     gain on early retirement of
     debt ......................    (18.4)     (3.9)      (1.6)      (.4)      (3.6)     (1.8)       6.6      6.9
Provision (benefit) for
     income taxes ..............    (12.9)     (3.2)       (.5)      (.1)      (1.5)     (0.1)       3.0      3.1
                                   ------    ------     ------    ------     ------    ------     ------   ------
Net income (loss) before
     minority interest and
     extraordinary gain on early
     retirement of debt ........   $ (5.5)      (.7)%   $ (1.1)      (.3)%   $ (2.1)     (1.1)%   $  3.6      3.8%
                                   ======    ======     ======    ======     ======    ======     ======   ======

<CAPTION>
                                      Fiscal Year Ended July 31,
                                       1996               1995
                                   ---------------    ---------------
                                           Percent            Percent
                                            of Net             of Net
                                   Amount    Sales    Amount    Sales
                                   ------   ------    ------   ------
<S>                                <C>       <C>      <C>       <C>   
Net sales ......................   $257.8    100.0%   $272.0    100.0%
Cost of goods sold .............    222.1     86.2     232.2     85.4
Gross profit ...................     35.7     13.8      39.8     14.6
Selling, general and ...........
     administrative expenses ...     19.2      7.4      19.7      7.2
Plant shutdown expenses ........       --       --        --       --
Income from operations .........     16.5      6.4      20.1      7.4
Loss on joint venture contract .       --       --        --       --
Other income ...................       --       --       2.0      0.7
Interest expense ...............      7.6      2.9       5.6      2.1
                                   ------   ------    ------   ------
Income (loss) before
     provision (benefit) for
     income taxes, minority
     interest and extraordinary
     gain on early retirement of
     debt ......................      8.9      3.5      16.5      6.1
Provision (benefit) for
     income taxes ..............      3.8      1.5       5.5      2.0
                                   ------   ------    ------   ------
Net income (loss) before
     minority interest and
     extraordinary gain on early
     retirement of debt ........   $  5.1      2.0%   $ 11.0      4.1%
                                   ======   ======    ======   ======
</TABLE>


                                       12
<PAGE>

Year Ended December 31, 1997 Compared to the Year Ended December 31, 1996
(Unaudited)

      Net sales for the fiscal year ended December 31, 1997 were $468.9 million
compared to $360.5 million in the comparable 1996 period, an increase of 30%.
The net sales increase was due to increased unit volume primarily as a result of
the St. Joe Acquisition and the New Jersey Acquisition. On a proforma basis,
unit volume for the Company's corrugating operations increased 8.4% while
average selling prices declined 15.0% in Fiscal 1997 compared to Fiscal 1996,
assuming a full year of operations for the acquisitions consummated in Fiscal
1996. Net sales at the Ft. Madison Mill were $13.2 million compared to $17.3
million in the comparable 1996 period due to a decrease in average selling
prices and unit volumes as a result of the Ft. Madison Mill shutdown.

      Gross profit increased $21.0 million, or 46.9%, to $65.7 million in Fiscal
1997. The gross profit increase was due to increased unit volume primarily as a
result of the St. Joe Acquisition and the New Jersey Acquisition, which was
partially offset by losses arising from the temporary shutdown at the Ft.
Madison Mill. Margins as a percentage of net sales, however, decreased due to
the decline in average selling prices, which were substantially offset by lower
raw material costs and losses at the Fort Madison Mill.

      Selling, general and administrative expenses increased $17.0 million, or
56%, to $47.5 million in Fiscal 1997. This increase is primarily attributable to
the St. Joe Acquisition and the New Jersey Acquisition. As a percentage of net
sales, the selling, general and administrative expenses increased to 10.1% in
Fiscal 1997 compared to 8.5% in the comparable 1996 period primarily as a result
of lower average selling prices.

      As a result of the foregoing factors, income from operations increased
$1.2 million, or 8.5%, to $15.4 million in Fiscal 1997 from $14.2 million in the
comparable 1996 period.

      Interest expense increased $10.5 million, or 64%, to $26.9 million in
Fiscal 1997 from $16.4 million in the comparable 1996 period, primarily as a
result of the Company's 12% Senior Secured Notes due 2006 issued in connection
with the St. Joe Acquisition.

      An income tax benefit of $12.9 million was recorded during Fiscal 1997.
The increased benefit arose from the reversal of the valuation allowance in
1997.

1996 Transition Period Compared to the Five Month Period Ended December 31, 1995

      Net sales were $196.8 million in the five month period from August 1, 1996
to December 31, 1996 (the "1996 Transition Period") compared to $95.6 million in
the comparable 1995 period, an increase of 105.9%. The sales increase was due to
increased unit volume primarily as a result of the St. Joe Acquisition and the
New Jersey Acquisition which was partially offset by a decrease in average
selling prices during the 1996 Transition Period. Net sales at the Ft. Madison
Mill were $6.1 million in the 1996 Transition Period compared to $15.3 million
in the comparable 1995 period primarily due to a 54.1% decrease in sales price
to $262 per ton.

      Gross profit increased $11.0 million, or 75.9%, to $25.5 million in the
1996 Transition Period from $14.5 million in the 1995 Period. The gross profit
increase was due to increased unit volume primarily as a result of the St. Joe
Acquisition and the New Jersey Acquisition which was partially offset by losses
arising from the temporary shutdown of the Ft. Madison Mill during the 1996
Transition Period. Margins as a percentage of net sales, however, decreased due
to the decline in average selling prices, which was partially offset by lower
raw material costs of linerboard and losses at the Fort Madison Mill.

      Selling, general and administrative expenses increased $11.3 million, or
181.0%, to $17.6 million in the 1996 Transition Period from $6.3 million in the
comparable 1995 period, primarily as a result of the St. Joe Acquisition and the
New Jersey Acquisition. Selling, general and administrative expenses as a
percent of net sales increased to 9.0% in the 1996 Transition Period from 6.6%
in the comparable 1995 period. This increase is primarily a result of lower
average selling prices.

      Loss on joint venture contract was $1.7 million in the 1996 Transition
Period.

Operating income decreased $0.4 million, or 4.9%, to $7.8 million in the 1996
Transition Period from $8.2 million in the comparable 1995 period, operating
income decreased $.4 million, or $4.9%, to $7.8 million in the 1996 Transition
Period from $8.2 million in the comparable 1995 period, primarily a result of a
decrease in selling price per ton.

      Interest expense was $10.1 million in the 1996 Transition Period compared
to $1.6 million in the comparable 1995 period. This increase is primarily a
result of the issuance of the Company's 12% Senior Secured Notes due 2006 in
connection with the St. Joe Acquisition.

      An income tax benefit of $1.5 million was recorded in the 1996 Transition
Period as compared to a provision of $3.0 million in the comparable 1995 period.
This change is related to the decrease in income before taxes. The effective tax
rate in the 1996 Transition 


                                       13
<PAGE>

Period was 41.6% compared to 45.5% in the comparable 1995 period. This decrease
was primarily due to a gain on the sale of one of the Company's subsidiaries in
the comparable 1995 period.

Fiscal 1996 Compared to Fiscal 1995

      The Company's net sales decreased $14.2 million, or 5.2%, to $257.8
million in Fiscal 1996 compared to $272.0 million in the twelve month period
ended July 31, 1995 ("Fiscal 1995"). Net sales for the Company's converting
operations increased $39.9 million, or 20.4%, to $235.9 million in Fiscal 1996
compared to $196.0 million in Fiscal 1995 primarily as a result of the St. Joe
Acquisition, which increased sales by $44.8 million, or 22.8%. This increase was
partially offset by the effect of the sale in August 1995 by the Company of its
equity interest in Timberline Packaging, Inc. ("Timberline"), a converting
facility which accounted for $1.2 million, or 0.5%, of net sales for Fiscal 1996
compared to $13.6 million, or 5.0%, for Fiscal 1995. Net sales at the Ft.
Madison Mill decreased $11.7 million, or 34.8%, to $21.9 million in Fiscal 1996
compared to $33.6 million in Fiscal 1995 due to a 16.1% decrease in price per
ton to $371.47 in Fiscal 1996 from $442.67 in Fiscal 1995. The Company's net
sales decreased by $42.4 million, or 15.6%, in Fiscal 1996 due to the spinoff of
Fonda in March 1995.

      Gross profit decreased $4.1 million, or 10.3%, to $35.7 million in Fiscal
1996 compared to $39.8 million in Fiscal 1995. As a percentage of net sales,
gross profit decreased to 13.8% in Fiscal 1996 compared to 14.6% in Fiscal 1995.
Gross profit as a percentage of net sales for the Company's converting
operations decreased to 12.0% in Fiscal 1996 compared to 12.4% in Fiscal 1995 as
a result of a shift in product mix in Fiscal 1996. Gross profit as a percentage
of net sales for the Ft. Madison Mill decreased to 25.7% in Fiscal 1996 compared
to 26.8% in Fiscal 1995 primarily as a result of a decrease in selling prices
per ton.

      Selling, general and administrative expenses decreased $0.5 million, or
2.5%, to $19.2 million in Fiscal 1996 from $19.7 million in Fiscal 1995. The
decrease is primarily a result of the elimination of Fonda's expenses after
March 1995, partially offset by the addition of St. Joe expenses for June and
July 1996. Selling, general and administrative expenses as a percent of net
sales remained flat in Fiscal 1996 and Fiscal 1995.

      Operating income decreased $3.6 million, or 31.9%, to $16.5 million in
Fiscal 1996 from $20.1 million in Fiscal 1995, primarily as a result of the
spin-off of Fonda, the sale of the Company's interest in Timberline and a
decrease in selling price per ton.

      Income taxes decreased $1.7 million to $3.8 million in Fiscal 1996
compared to $5.5 million in Fiscal 1995. This decrease in the provision for
income taxes is related to the decrease in income before taxes.

Liquidity and Capital Resources

      Historically, the Company has relied on cash flows from operations and
bank borrowing to finance its working capital requirements and capital
expenditures.

      Net cash used for investing activities was $22.6 million in Fiscal 1997
compared to $171.4 million ($159.5 million of which included the St. Joe
Acquisition and the New Jersey Acquisition) in the comparable 1996 period. Gross
capital expenditures were $29.1 million in Fiscal 1997 as compared to $15.0
million in Fiscal 1996. This increase in capital expenditures was primarily due
to upgrade and maintenance capital expenditures at the converting facilities
acquired by the Company in the St. Joe Acquisition and includes outfitting the
Company's new facility in Vernon, California with machinery and equipment. A
portion of the funding for the 1997 capital expenditures was derived from the
net proceeds of the sale of other fixed assets. The Company's 1998 capital
expenditure budget is $12.7 million and will be financed through a trust account
pursuant to the terms of the Indenture governing the Senior Notes.

      Net cash provided by financing activities was $27.4 million in Fiscal 1997
compared to $166.8 million in the comparable 1996 period. This difference is
primarily attributable to the issuance of the 12% Senior Secured Notes in Fiscal
1996 and higher net borrowings under the revolving credit agreement in Fiscal
1997.

      On May 30, 1996, the Company established a Credit Facility which matures
in 2001. The Credit Facility provides total borrowing of up to $80.0 million on
a revolving basis, subject to borrowing base limitations, to finance the
Company's working capital needs. Unused borrowing base availability must be at
least $5.0 million. Effective December 5, 1997 the Credit Facility was modified,
so as to among other things, (i) reduce, per the Company's request, the
borrowing capacity from $80.0 million to $65.0 million; (ii) modify the base
borrowing interest rate from the lender's prime rate plus .5% to a sliding scale
rate, based on performance, of the lender's prime rate plus .5% to 1.0%; and
(iii) reduce the minimum unused borrowing base availability to $1.0 million
increasing on December 31, 1998 to $5.0 million. On December 31, 1997, the
Company had unused borrowing capacity of approximately $6.2 million under the
Credit Facility.


                                       14
<PAGE>

      In addition, pursuant to the Subordinated Credit Facility, the Company
will provide, if needed, Florida Coast with up to $10.0 million of subordinated
indebtedness on a revolving credit basis. During Fiscal 1997, the Company
advanced loans of $1.6 million to Florida Coast under the Subordinated Credit
Facility which are fully reserved. Florida Coast currently has availability of
$8.4 million from each Joint Venture Partner under the Subordinated Credit
Facility.

      Pursuant to the Output Purchase Agreement, the Company paid Florida Coast
approximately $44.0 million for its share of the linerboard produced by the St.
Joe Mill during Fiscal 1997. During the period of the St. Joe Mill shutdown, the
Company remained subject to the terms of the Output Purchase Agreement and
pursuant thereto, paid a purchase price adjustment in the amount of $17.5
million. In addition, the Company increased the Reserve by $6.0 million in 1997.
The St. Joe Mill is expected to generate net earnings and operating cash flow in
1998 and additional reserve requirements are not anticipated.

      Although there can be no assurance, the Company believes that cash
generated by operations together with amounts available under the Credit
Facility, will be sufficient to meet its debt service requirements and working
capital needs for the next twelve months.

Impact of Inflation

      A period of rising prices will affect the Company's cost of production
and, in particular, the Company's raw material costs. Since the Company's
business is a margin business, the impact of increased costs on the Company will
depend upon the Company's ability to pass on such costs to its customers. The
Company is typically able to pass on a significant portion of its increased raw
material costs in a timely fashion. From time to time, however, there is a lag
in passing on price adjustments which creates a temporary margin contraction in
a rising price environment. Historically, the Company has been able to recover
fully from the impact of rising prices over a short period of time.

Environmental Matters

      The Company's operations are subject to environmental regulation by
federal, state and local authorities in the United States. The Company believes
that it is in substantial compliance with current federal, state and local
environmental regulation. Unreimbursed liabilities arising from environmental
claims, if significant, could have a material adverse effect on the Company's
results of operations and financial condition. Furthermore, actions by federal,
state and local governments concerning environmental matters could result in
laws or regulations that could increase the cost of compliance with
environmental laws and regulations.

      The operations of the St. Joe Mill are subject to extensive and changing
environmental regulation by federal, state and local authorities. Significant
capital expenditures have been made in the past to comply with water, air and
solid and hazardous waste regulations at the St. Joe Mill. The St. Joe Mill
expects to make significant expenditures in the future. Capital expenditures by
the St. Joe Mill for environmental control equipment was approximately $0.2
million in Fiscal 1997 and is budgeted to be approximately $1.0 million in
Fiscal 1998. In November 1997, the EPA issued its final rules, informally known
as the "cluster rules", which are more stringent than the existing requirements
for discharge of wastewaters under the Clean Water Act and impose new
requirements on air emissions under the Clean Air Act for the pulp and paper
industry. Although the final rules are less stringent, in some respect, than as
initially proposed, the Company currently believes that the St. Joe Mill will be
required to make capital expenditures of approximately $30 million during the
period of 1998 through 2005 in order to meet the requirements of the new
regulations . The Joint Venture Partners may determine that, under the final
regulations, the costs associated with the production of mottled white
linerboard are prohibitive and could therefore discontinue its production. If
the Joint Venture Partners determine to discontinue the production of mottled
white linerboard, the Company estimates the capital spending that would be
required to comply with the regulations would be approximately $9 million.
Because of the current higher margins associated with mottled white linerboard,
in the event the Joint Venture Partners discontinue the production of mottled
white linerboard, Florida Coast's revenues and profit margins would decrease.

Year 2000

      The Company utilizes software and related technologies throughout its
business that will be affected by the date change in the year 2000. System
modifications or replacements are underway or planned which should make all
significant computer systems at the Company compliant with the year 2000
requirement. Anticipated spending for these modifications will be expensed as
incurred and are not expected to have a material impact on the Company's ongoing
results of operations.


                                       15
<PAGE>

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

      The Consolidated Financial Statements and notes thereto are presented
under Item 14 of this report.

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

      Not Applicable.


                                       16
<PAGE>

                                    PART III

Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

      The following table sets forth certain information (ages of March 15,
1997) with respect to the directors and executive officers of the Company.

      Name                    Age     Position
      ----                    ---     --------
      Dennis Mehiel           56      Chairman, Chief Executive Officer and
                                      Director
      Chris Mehiel            58      Executive Vice President, Chief Operating
                                      Officer, Chief Financial Officer and
                                      Director
      Gerald K. Adams         44      Chief Executive Officer of Box USA Group,
                                      Inc.
      Joseph Benson           52      Executive Vice President and Chief
                                      Operating Officer of Box USA Group, Inc.
      Harvey L. Friedman      56      Corporate Secretary and General Counsel
      Lawrence A. Bishop      53      Director
      Thomas Uleau            53      Director
      James Armenakis         54      Director
      John Nevin              63      Director

      Dennis Mehiel, a co-founder of the Company, has been the Chairman and
Chief Executive Officer of the Company, except during a leave of absence from
April 1994 through July 1995, since 1977. He was also the Chief Executive
Officer of the Company's subsidiary, Box USA Group, Inc., until June 1996. He is
also the Chairman of the Executive Committee of the Company's Board of
Directors. Mr. Mehiel is also the Chairman of Fonda, SF Holdings Group, Inc.,
Box USA of New Jersey and Chief Executive Officer of Sweetheart Holdings Inc.
("Sweetheart"). Dennis Mehiel is also on the board of Sweetheart.

      Chris Mehiel, the brother of Dennis Mehiel, is a co-founder of the Company
and has been Executive Vice President, Chief Operating Officer and a Director of
the Company since September 1995. Mr. Mehiel was President of Fibre Marketing
Group, Inc., a waste paper recovery business which he co-founded, from 1994 to
January 1996. He is the President of Mehiel Enterprises, Inc., the managing
member of Fibre Marketing Group, LLC, the successor to Fibre Marketing Group,
Inc. From 1993 to 1994, Mr. Mehiel served as President and Chief Operating
Officer of Box USA of New Jersey, a corrugated container manufacturer affiliated
with the Company. From 1982 to 1992, Mr. Mehiel served as the President and
Chief Operating Officer of Specialty Industries, Inc., a waste paper processing
and container manufacturing company.

      Gerald K. Adams served as Chief Executive Officer of the Company's
subsidiary, Box USA Group, Inc., from June 1996 until March 1998. From March
1992 to March 1996, he was Chief Executive Officer of Amcor Fibre Packaging
Group, a corrugated packaging company and a division of Amcor, Ltd. From March
1988 until March 1992, Mr. Adams was the General Manager of Australian Paper, a
folding cartonboard producer and a division of Amcor, Ltd.

      Joseph Benson became Executive Vice President and Chief Operating Officer
of Box USA Group, Inc. in February 1997. From August, 1996 to February 1997, he
was the Regional Vice President for the Southern Region. Prior to joining the
Company, Mr. Benson was Vice President of Converting Operations for Visy
Industries.

      Harvey L. Friedman has been General Counsel since 1991 and Corporate
Secretary since May 1996. He was a Director of the Company from 1985 to May
1996. He was formerly a partner in Kramer, Levin, Naftalis & Frankel, a New York
City law firm.

      Lawrence A. Bishop has been a Director of the Company since November 1985.
He has held various positions since 1980 at Gray, Seifert and Co., Inc., a
registered investment advisor that provides money management services to
individuals and institutions, and currently holds the title of Executive Vice
President. From 1972 to 1979, he was a Vice President of Bessemer Trust Company,
N.A. Mr. Bishop is a Director of Synergistics, Inc. and Unapix Entertainment,
Inc. Mr. Bishop is Chairman of the Compensation/Stock Appreciation Rights
Committee and a member of the Executive Committee and Audit Committee of the
Company's Board of Directors. Mr. Bishop is also a Director of Fonda and SF
Holdings Group, Inc.


                                       17
<PAGE>

      Thomas Uleau has been the President of Fonda since January 1997, the Chief
Operating Officer of Fonda since March 1995, a Director of Fonda since 1988 and
a Director of the Company since May 1989. He has also been Chief Operating
Officer of SF Holdings Group, Inc. and Sweetheart since January 1998 and March
12, 1998, respectively. Mr. Uleau was Executive Vice President and Chief
Financial Officer of the Company from 1989 through March 1994. He served as
President of Cardinal Container Corporation (which was acquired by the Company
in 1985) from 1983 to 1986. Mr. Uleau started his career as an accountant at
Deloitte, Haskins and Sells from 1969 to 1972, after which he spent several
years in various capacities at IU International, a transportation and paper
products conglomerate. Mr. Uleau is a Director and Chief Operating Officer of
Creative Expressions Group, Inc., a company owned 97% by Dennis Mehiel and 3% by
Mr. Uleau.

      James Armenakis has been a Director of the Company since May 1996. He has
been a partner in Armenakis & Armenakis, a New York City law firm, since 1990.

      John Nevin has been a Director of the Company since May 1996. He has
served as President of Ayrshire, Inc. since January 1998. He was Executive Vice
President at Fieldcrest Cannon, Inc. from October 1995 to December 1997. From
September 1990 to October 1995 he was a Senior Vice President at James River
Corporation. From 1957 to 1990, Mr. Nevin served in various capacities at
International Paper Company, including Vice President and Group Executive of the
Pulp and Coated Papers Businesses.


                                       18
<PAGE>

Item 11. EXECUTIVE COMPENSATION

      The following table sets forth the compensation earned, whether paid or
deferred, to the Company's Chief Executive Officer and its other four most
highly compensated executive officers during Fiscal 1997 (collectively, the
"Named Executive Officers") for services rendered in all capacities to the
Company for Fiscal 1997, the 1996 Transition Period and fiscal years ended July
31, 1996 and 1995:

                           Summary Compensation Table

<TABLE>
<CAPTION>
                                                                          Annual                   Long-Term
                                                                      Compensation(1)             Compensation
                                                         --------------------------------------   ------------
                                                                                                  Securities
                                                                                   Other Annual    Underlying      All Other
 Name and Principal Position    Year                        Salary        Bonus    Compensation   Option/SARs   Compensation
 ---------------------------    ----                        ------        -----    ------------   -----------   ------------
<S>                             <C>                      <C>            <C>           <C>              <C>        <C>    
Dennis Mehiel.................  1997                     $550,000       $215,867          --           --              --
Chairman of the Board of        1996 Transition Period    229,167         39,200          --           --              --
Directors and Chief Executive   1996                      369,166        173,131      31,574(2)        --         101,412(3)
Officer                         1995                      333,044        375,000      38,904(2)        --         137,448(3)

Chris Mehiel..................  1997                     $277,557             --          --           --              --
Executive Vice President and    1996 Transition Period    115,000             --          --           --              --
Chief Operating Officer         1996                      167,333(4)      60,000          --           --              --
Chief Financial Officer         1995                       24,000             --          --           --              --

Gerald K. Adams (5) ..........  1997                     $284,000             --          --           --              --
Chief Executive Officer of      1996 Transition Period    114,583             --       2,083(7)        --              --
Box USA Group, Inc.             1996                       31,445(6)          --         500(7)        --              --
                                1995                           --             --          --           --              --

Timothy D. McMillin (8).......  1997                     $121,917             --          --           --         133,333 (10)
Senior Vice President           1996 Transition Period     83,333             --         434(9)
and Chief Financial Officer     1996                      154,542(4)      40,000       1,250(9)        --              --
                                1995                           --             --          --           --              --

Howard Brainin (11)...........  1997                     $200,000             --          --           --              --
Regional Vice President of      1996 Transition Period     83,333         20,833          --           --              --
Box USA Group, Inc.             1996                       33,338(12)     38,000          --           --              --
                                1995                           --             --          --           --              --

Joe Benson ...................  1997                     $220,000             --          --           --              --
Executive Vice President        1996 Transition Period     77,083             --          --           --              --
and Chief Operating Officer     1996                           --             --          --           --              --
of Box USA Group, Inc.          1995                           --             --          --           --              --
</TABLE>

----------
(1)   Unless otherwise indicated, the Named Executive Officers did not reive any
      annual compensation, stock options, restricted stock awards, SARs,
      long-term incentive plan payments or any perquisites or other personal
      benefits that exceeded the lesser of $50,000 or 10% of the salary and
      bonus for such officer during the 1997, 1996 Transition Period or Fiscal
      1996 and 1995.
(2)   Includes imputed interest from non-interest bearing loans provided to
      Dennis Mehiel by the Company in Fiscal 1996 and 1995.
(3)   Consists of split-dollar term life insurance premiums for Mr. Mehiel paid
      by the Company.
(4)   Consists of salary for employment commencing in September, 1995.
(5)   Mr. Adams ceased to be employed by Box USA in March, 1998.
(6)   Consists of salary for employment commencing on June 24, 1996.
(7)   Represents imputed interest from non-interest bearing loan provided to Mr.
      Adams by the Company.
(8)   Mr. McMillin ceased to be employed by the Company in July 1997.
(9)   Represents imputed interest from non-interest bearing loan provided to Mr.
      McMillin by the Company.
(10)  Consists of severance payments.
(11)  Mr. Brainin ceased to be employed by the Company in January 1998.
(12)  Consists of salary for employment commencing on May 31, 1996.


                                       19
<PAGE>

Compensation of Directors

      Any Director who is not an employee of the Company receives annual
compensation of (i) $12,000 (provided such director attends five meetings per
year), (ii) a fee of $1,000 for attendance at each meeting of the Board of
Directors or any committee thereof and (iii) 1,000 SARs. Directors who are
employees of the Company do not receive any compensation or fees for service on
the Board of Directors.

Stock Appreciation Rights

      Stock appreciation rights ("SARs") were not granted to any executive
officer during Fiscal 1997.

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      The following table sets forth information as of December 31, 1997 with
respect to the beneficial ownership of shares of Common Stock:

                                                            Percentage of       
                              Amount of Beneficial          Beneficial Ownership
                              Ownership of Shares           of Shares           
Name                          of Common Stock               of Common Stock     

Dennis Mehiel .............         6,815,867                     100%

Item 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

      Dennis Mehiel, Chairman and Chief Executive Officer of the Company, is an
owner, directly or indirectly, of entities from which the Company rents certain
property, plant and equipment. Rental expense incurred and paid to these
entities in Fiscal 1997, the 1996 Transition Period, Fiscal 1996 and Fiscal 1995
amounted to approximately $0.7 million, $0.4 million, $1.0 million, and $0.9
million, respectively. The Company believes that such rents were not in excess
of market levels. The partition plant located in Jacksonville, Florida is
currently leased by Fonda from Mr. Mehiel, and a portion of the facility is
subleased to the Company. In addition, the Company is selling product to this
partition plant on terms no more favorable than those given to unaffiliated
third parties.

      Dennis Mehiel has been a part owner since 1993 of Box USA of New Jersey to
which the Company sold approximately $1.4 million and $3.3 million of material
in Fiscal 1996 and Fiscal 1994, respectively. The Company believes that the
prices at which such sales were made are not below market levels. There were no
material sales to Box USA of New Jersey in Fiscal 1995. Box USA of New Jersey is
now a consolidated entity and sales to this entity during Fiscal 1997 were
insignificant.

      In March 1995, the Company spun off its Fonda subsidiary to Dennis Mehiel.
The Company sold approximately $0.5 million, $1.1 million and $.06 million of
material to Fonda in Fiscal 1997, Fiscal 1995 and Fiscal 1994, respectively. The
Company believes that the prices at which such sales were made are not below
market levels.

      Chris Mehiel, Chief Operating Officer of the Company has been a part owner
since 1994 of Fibre Marketing, to which the Company sold approximately $4.3
million, $3.1 million, $2.0 million and $3.4 million of material in Fiscal 1997,
the 1996 Transition period, Fiscal 1996 and Fiscal 1995, respectively. The
Company believes that the prices at which such sales were made are not below
market levels. There were no material sales to Fibre Marketing in Fiscal 1994.

      The Company had an outstanding demand note from Gerald Adams in the
principal of $100,000 at the end of Fiscal 1997, which is non-interest bearing
through December 31, 1999 and thereafter bears interest at a floating annual
rate equal to 3% above the three year treasury rate until paid. The Company had
outstanding notes from Dennis Mehiel in the principal amounts of $0.8 million
and $1.5 million at the end of Fiscal 1996 and Fiscal 1995, respectively, all of
which have been paid and were non-interest bearing. Of these amounts,
approximately $0.8 million and $0.7 million, at the end of Fiscal 1996 and
Fiscal 1995, respectively, related to the cumulative premiums on life insurance
policies paid by the Company on behalf of Mr. Mehiel.


                                       20
<PAGE>

                                     PART IV

Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)   Financial Statements and Financial Statement Schedules:

      Four M Corporation
      Index to Financial Statements
      Independent Auditors' Report
      Consolidated Balance Sheets as of December 31, 1997 and December 31, 1996
      Consolidated Statements of Operations for the twelve months ended
      December 31, 1997, the five months ended December 31, 1996, the years
      ended July 31, 1996, and 1995 
      Consolidated Statements of Stockholder's Equity for the twelve months
      ended December 31, 1997, five months ended December 31, 1996, the years
      ended July 31, 1996, and 1995
      Consolidated Statements of Cash Flows for the twelve months ended December
      31, 1997, five months ended December 31, 1996, the years ended July 31,
      1996, and 1995
      Notes to Consolidated Financial Statements
      Schedule of valuation and qualifying accounts

(b)   Exhibits:

      Exhibits 2.1 through 10.6 and Exhibit 21.1, are incorporated herein by
      reference to the exhibit with the corresponding number filed as part of
      the Company's Registration Statement on Form S-4 filed on July 12, 1996,
      and all amendments thereto (File No. 333-8043). Exhibit 10.10 is
      incorporated herein by reference to the exhibits with the corresponding
      number filed as part of the Company's Form 8-K.

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

2.1         Asset Purchase Agreement, dated as of November 1, 1995, among Four M
            Corporation (the "Company"), St. Joe Forest Products Company, St.
            Joe Container Company, St. Joe Paper Company and Florida Coast Paper
            Company, L.L.C. ("Florida Coast").
3.1         Certificate of Incorporation of the Company.
3.2         Certificate of Incorporation of Box USA Group, Inc.
3.3         Certificate of Incorporation of Four M Paper Corporation.
3.4         Certificate of Incorporation of Page Packaging Corporation.
3.5         Certificate of Incorporation of Box USA, Inc.
3.6         Certificate of Incorporation of Four M Manufacturing Group of
            Georgia, Inc.
3.7         By-laws of the Company.
3.8         By-laws of Box USA Group, Inc.
3.9         By-laws of Four M Paper Corporation.
3.10        By-laws of Page Packaging Corporation.
3.11        By-laws of Box USA, Inc.
3.12        By-laws of Four M Manufacturing Group of Georgia, Inc.
4.1         Indenture, dated as of May 30, 1996, between the Company and Norwest
            Bank Minnesota, National Association (the "Trustee").
4.2         Form of 12% Series A and Series B Senior Secured Notes, dated as of
            May 30, 1996 (incorporated by reference to Exhibit 4.1).
4.3         Registration Rights Agreement, dated as of May 30, 1996, among the
            Company,


                                       21
<PAGE>

            the Guarantors and Bear, Stearns & Co. Inc. (the "Initial
            Purchaser").
4.4         Security Agreement, dated as of May 30, 1996, between the Company
            and the Trustee.
4.5         Subsidiary Security Agreement, dated as of May 30, 1996, among the
            Guarantors and the Trustee.
4.6         Contribution Agreement, dated as of May 30, 1996, among the Company,
            the Guarantors and the Trustee.
4.7         Drop Down Notes, dated as of May 30, 1996, executed by each of the
            Guarantors.
4.8         Drop Down Note Security Agreement, dated as of May 30, 1996, among
            the Guarantors and the Company.
4.9         Guaranty, dated as of May 30, 1996, among the Guarantors and the
            Trustee.
4.10        Form of Company Pledge Agreement, dated as of May 30, 1996, between
            the Company and the Trustee.
4.11        Form of Subsidiary Pledge Agreement, dated as of May 30, 1996, among
            the Guarantors and the Trustee.
4.12        Warrant Agreement, dated as of May 30, 1996, between the Company and
            the Initial Purchaser.
10.1        Output Purchase Agreement, dated as of May 30, 1996, among the
            Company, Florida Coast and Stone Container Corporation ("Stone").
10.2        Financing and Security Agreement, dated as of May 30, 1996, among
            the Company, the Guarantors, NationsBank, N.A. ("NationsBank"), the
            financial institutions named therein (together with NationsBank, the
            "Lenders"), and NationsBank, as agent (NationsBank, in such
            capacity, the "Agent").
10.3        Subordinated Credit Agreement, dated as of May 30, 1996, among the
            Company, Florida Coast and Stone.
10.4        Environmental Indemnity Agreement, dated as of May 30, 1996, between
            the Company and Florida Coast.
10.5        Stock Appreciation Unit Plan of the Company, dated as of August 1,
            1992, and Amendment No. 1 thereto, dated as of August 1, 1995.
10.6        Subordination, Nondisturbance and Attornment Agreement, dated as of
            May 30, 1996, between Norwest Bank Minnesota, National Association,
            and Box USA Group, Inc.
10.7        Fourth Amendment to Financing and Security Agreement, dated as of
            December 5, 1997, among the Company, the Guarantors, the Lendors,
            the Agent and Box USA of Florida, L.P.
12.1*       Statement re computation of ratios.
21.1        Subsidiaries of the registrant.
27.1*       Financial Data Schedule.
 
* To be filed herein.


                                       22
<PAGE>

(b)   Reports on Form 8-K

            On December 5, 1997, Four M Corporation filed a Form 8-K with the
            Securities and Exchange Commission disclosing the Fourth Amendment
            to the Financing and Security Agreement.


                                       23
<PAGE>

                                   SIGNATURES

            Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned there unto duly authorized.

                                       FOUR M CORPORATION


                                       By: /s/ Dennis Mehiel
                                           ---------------------------
                                           Dennis Mehiel
                                           Chairman of the Board and
                                           Director

      Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

Signature               Title(s)                                        Date


/s/ Dennis Mehiel
----------------------
    Dennis Mehiel         Chairman of the Board and Director      March 26, 1998
                          (Principal Executive Officer)
                          
/s/ Chris Mehiel          
----------------------
    Chris Mehiel          Executive Vice President, Chief 
                          Operating Officer, Chief Financial 
                          Officer and Director                    March 26, 1998
                          (Principal Accounting Officer)
                          
/s/ James Armenakis       
----------------------
    James Armenakis       Director                                March 26, 1998
                          
                          
/s/ Lawrence A. Bishop    
----------------------
    Lawrence A. Bishop    Director                                March 26, 1998
                          
                          
/s/ John Nevin            
----------------------
    John Nevin            Director                                March 26, 1998
                          
                          
/s/ Thomas Uleau          
----------------------
    Thomas Uleau          Director                                March 26, 1998
<PAGE>

                                   SIGNATURES

            Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned there unto duly authorized.

                                       FOUR M PAPER CORPORATION


                                       By: /s/ Dennis Mehiel
                                           ---------------------------
                                           Dennis Mehiel
                                           Chairman of the Board and
                                           Director

      Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

Signature               Title(s)                                        Date


/s/ Dennis Mehiel
----------------------
    Dennis Mehiel         Chairman of the Board and Director      March 26, 1998
                          (Principal Executive Officer)
                          
/s/ Chris Mehiel          
----------------------
    Chris Mehiel          Executive Vice President, Chief 
                          Operating Officer, Chief Financial 
                          Officer and Director                    March 26, 1998
                          (Principal Accounting Officer)
                          
/s/ James Armenakis       
----------------------
    James Armenakis       Director                                March 26, 1998
                          
                          
/s/ Lawrence A. Bishop    
----------------------
    Lawrence A. Bishop    Director                                March 26, 1998
                          
                          
/s/ John Nevin            
----------------------
    John Nevin            Director                                March 26, 1998
                          
                          
/s/ Thomas Uleau          
----------------------
    Thomas Uleau          Director                                March 26, 1998
<PAGE>

                                   SIGNATURES

            Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned there unto duly authorized.

                                       BOX USA GROUP, INC.



                                       By: /s/ Dennis Mehiel
                                           ---------------------------
                                           Dennis Mehiel
                                           Chairman of the Board and
                                           Director

      Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

Signature               Title(s)                                        Date


/s/ Dennis Mehiel
----------------------
    Dennis Mehiel         Chairman of the Board and Director      March 26, 1998
                          (Principal Executive Officer)
                          
/s/ Chris Mehiel          
----------------------
    Chris Mehiel          Executive Vice President, Chief 
                          Operating Officer, Chief Financial 
                          Officer and Director                    March 26, 1998
                          (Principal Accounting Officer)
                          
/s/ James Armenakis       
----------------------
    James Armenakis       Director                                March 26, 1998
                          
                          
/s/ Lawrence A. Bishop    
----------------------
    Lawrence A. Bishop    Director                                March 26, 1998
                          
                          
/s/ John Nevin            
----------------------
    John Nevin            Director                                March 26, 1998
                          
                          
/s/ Thomas Uleau          
----------------------
    Thomas Uleau          Director                                March 26, 1998
<PAGE>

                                   SIGNATURES

            Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned there unto duly authorized.

                                       PAGE PACKAGING CORPORATION


                                       By: /s/ Dennis Mehiel
                                           ---------------------------
                                           Dennis Mehiel
                                           Chairman of the Board and
                                           Director

      Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

Signature               Title(s)                                        Date


/s/ Dennis Mehiel
----------------------
    Dennis Mehiel         Chairman of the Board and Director      March 26, 1998
                          (Principal Executive Officer)
                          
/s/ Chris Mehiel          
----------------------
    Chris Mehiel          Executive Vice President, Chief 
                          Operating Officer, Chief Financial 
                          Officer and Director                    March 26, 1998
                          (Principal Accounting Officer)
                          
/s/ James Armenakis       
----------------------
    James Armenakis       Director                                March 26, 1998
                          
                          
/s/ Lawrence A. Bishop    
----------------------
    Lawrence A. Bishop    Director                                March 26, 1998
                          
                          
/s/ John Nevin            
----------------------
    John Nevin            Director                                March 26, 1998
                          
                          
/s/ Thomas Uleau          
----------------------
    Thomas Uleau          Director                                March 26, 1998
<PAGE>

                                   SIGNATURES

            Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned there unto duly authorized.

                                       BOX USA, INC.


                                       By: /s/ Dennis Mehiel
                                           ---------------------------
                                           Dennis Mehiel
                                           Chairman of the Board and
                                           Director

      Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

Signature               Title(s)                                        Date


/s/ Dennis Mehiel
----------------------
    Dennis Mehiel         Chairman of the Board and Director      March 26, 1998
                          (Principal Executive Officer)
                          
/s/ Chris Mehiel          
----------------------
    Chris Mehiel          Executive Vice President, Chief 
                          Operating Officer, Chief Financial 
                          Officer and Director                    March 26, 1998
                          (Principal Accounting Officer)
                          
/s/ James Armenakis       
----------------------
    James Armenakis       Director                                March 26, 1998
                          
                          
/s/ Lawrence A. Bishop    
----------------------
    Lawrence A. Bishop    Director                                March 26, 1998
                          
                          
/s/ John Nevin            
----------------------
    John Nevin            Director                                March 26, 1998
                          
                          
/s/ Thomas Uleau          
----------------------
    Thomas Uleau          Director                                March 26, 1998
<PAGE>

                                   SIGNATURES

            Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned there unto duly authorized.

                                       FOUR M MANUFACTURING GROUP OF GEORGIA, 
                                       INC.


                                       By: /s/ Dennis Mehiel
                                           ---------------------------
                                           Dennis Mehiel
                                           Chairman of the Board and
                                           Director

      Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

Signature               Title(s)                                        Date


/s/ Dennis Mehiel
----------------------
    Dennis Mehiel         Chairman of the Board and Director      March 26, 1998
                          (Principal Executive Officer)
                          
/s/ Chris Mehiel          
----------------------
    Chris Mehiel          Executive Vice President, Chief 
                          Operating Officer, Chief Financial 
                          Officer and Director                    March 26, 1998
                          (Principal Accounting Officer)
                          
/s/ James Armenakis       
----------------------
    James Armenakis       Director                                March 26, 1998
                          
                          
/s/ Lawrence A. Bishop    
----------------------
    Lawrence A. Bishop    Director                                March 26, 1998
                          
                          
/s/ John Nevin            
----------------------
    John Nevin            Director                                March 26, 1998
                          
                          
/s/ Thomas Uleau          
----------------------
    Thomas Uleau          Director                                March 26, 1998
<PAGE>

                                                              Four M Corporation
                                                                and Subsidiaries
                                                                   d/b/a Box USA

================================================================================

                                                            Financial Statements
                                          For the Years Ended December 31, 1997,
                                     July 31, 1996 and 1995, and the Five Months
                                                         Ended December 31, 1996


                                                                               1
<PAGE>
                                             Four M Corporation and Subsidiaries
                                                                   d/b/a Box USA
                                                                        Contents
================================================================================

    Independent auditors' report                                              3

    Consolidated financial statements:
        Balance sheets                                                        4
        Statements of operations                                              5
        Statements of stockholder's equity                                    6
        Statements of cash flows                                              7
        Notes to consolidated financial statements                         8-34


                                                                               2
<PAGE>

Independent Auditors' Report

Board of Directors and Stockholder
Four M Corporation and Subsidiaries

We have audited the accompanying consolidated balance sheets of Four M
Corporation and subsidiaries (the "Company") as of December 31, 1997 and
December 31, 1996 and the related consolidated statement of operations and
stockholder's equity and cash flows for each of the years ended December 31,
1997, July 31, 1996 and 1995, and the five months ended December 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company at
December 31, 1997 and 1996 and the results of their operations and their cash
flows for each of the years ended December 31, 1997, July 31, 1996 and 1995, and
the five months ended December 31, 1996 in conformity with generally accepted
accounting principles.

March 10, 1998
Valhalla, New York


                                                                               3
<PAGE>

                                             Four M Corporation and Subsidiaries
                                                                   d/b/a Box USA

                                                     Consolidated Balance Sheets
                                           (in thousands, except per share data)
================================================================================
<TABLE>
<CAPTION>
                                                            December 31,  December 31,
                                                                1997          1996
--------------------------------------------------------------------------------------
<S>                                                           <C>           <C>     
Assets                                                                      
Current:                                                                    
    Cash and cash equivalents                                 $  2,141      $  2,431
    Accounts receivable, less allowance for doubtful                        
        accounts of $2,727 and $1,621                                       
        (Note 13)                                               55,209        52,775
     Inventories (Notes 2 and 13)                               36,963        32,896
     Income taxes recoverable                                    6,900         1,143
     Notes, advances and other receivables                       2,638         3,863
     Deferred income taxes (Note 15)                            16,654         8,413
--------------------------------------------------------------------------------------
                     Total current assets                      120,505       101,521
Property, plant and equipment, net (Notes 3 and 13)            181,549       173,333
Other assets (Note 4)                                           16,399        16,801
Goodwill and other intangibles, net of accumulated                          
    amortization of  $1,205 and $880 (Note 7)                    4,321         4,678
--------------------------------------------------------------------------------------
                    Total assets                               322,774       296,333
======================================================================================
Liabilities and Stockholder's Equity                                        
Current:                                                                    
     Accounts payable                                           48,237        30,387
     Accrued liabilities (Note 5)                               15,769        30,150
     Current maturities of long-term debt and subordinated                  
         debt (Notes 13 and 14)                                  3,303         2,447
--------------------------------------------------------------------------------------
                    Total current liabilities                   67,309        62,984
Long-term debt (Note 13)                                       235,354       208,777
Subordinated debt (Note 14)                                      1,969         1,914
Deferred income taxes (Note 15)                                  9,404         7,174
Minority interest (Note 16)                                      1,508         1,584
Other liabilities                                                  565         1,712
--------------------------------------------------------------------------------------
                     Total liabilities                         316,109       284,145
--------------------------------------------------------------------------------------
Commitments and contingencies (Notes 15 - 19)                               
Stockholder's equity                                                        
     Common stock, $.125 par value, 10,000,000 shares                       
          authorized; 7,229,770 shares issued and 6,815,867                 
          outstanding                                              904           904
     Additional paid-in-capital                                    717           717
     Retained earnings                                           6,006        11,529
--------------------------------------------------------------------------------------
                                                                 7,627        13,150
     Less: treasury stock, at cost (413,903 shares)                962           962
--------------------------------------------------------------------------------------
                   Total stockholder's equity                    6,665        12,188
--------------------------------------------------------------------------------------
                                                              $322,774      $296,333
======================================================================================
</TABLE>

                    See accompanying notes to consolidated financial statements.


                                                                               4
<PAGE>

                                             Four M Corporation and Subsidiaries
                                                                   d/b/a Box USA

                                           Consolidated Statements of Operations
                                                                  (in thousands)

================================================================================
<TABLE>
<CAPTION>
                                                       Year       Five Months       Years ended July 31,
                                                      Ended          Ended        ------------------------
                                                   December 31,   December 31,
                                                      1997           1996           1996           1995
----------------------------------------------------------------------------------------------------------
<S>                                                 <C>            <C>            <C>            <C>      
Net sales                                           $ 468,867      $ 196,787      $ 257,817      $ 271,994
Cost of goods sold                                    403,160        171,304        222,105        232,154
----------------------------------------------------------------------------------------------------------
             Gross profit                              65,707         25,483         35,712         39,840
Selling, general and administrative
    expenses                                           47,503         17,499         19,217         19,703
Plant closing expenses                                  2,800             --             --             --
----------------------------------------------------------------------------------------------------------
Income from operations                                 15,404          7,984         16,495         20,137
Other income (expense):
     Loss on joint venture contract (Notes 7
        and 12)                                        (7,408)        (1,668)            --             --
     Gain on sale of assets and other  (Note 7)           529            425             --          1,927
     Interest expense                                 (26,917)       (10,314)        (7,565)        (5,607)
----------------------------------------------------------------------------------------------------------
     Income (loss) before taxes, minority
         interest and extraordinary gain              (18,392)        (3,573)         8,930         16,457
Provision (benefit) for income taxes (Note 15)        (12,895)        (1,486)         3,817          5,483
----------------------------------------------------------------------------------------------------------
Income (loss) before minority interest                 (5,497)        (2,087)         5,113         10,974
Minority interest (Note 16)                               (26)           (87)            --           (146)
Extraordinary gain                                         --             --             --          2,219
----------------------------------------------------------------------------------------------------------
Net (loss) income                                   $  (5,523)     $  (2,174)     $   5,113      $  13,047
==========================================================================================================
</TABLE>

                    See accompanying notes to consolidated financial statements.


                                                                               5
<PAGE>

                                             Four M Corporation and Subsidiaries
                                                                   d/b/a Box USA

                                 Consolidated Statements of Stockholder's Equity
                                                                  (in thousands)
================================================================================
<TABLE>
<CAPTION>
                             Common   Common     Additional
                              Stock    Stock      Paid-in   Retained    Treasury
                             Shares   Amount      Capital   Earnings       Stock     Total
-------------------------------------------------------------------------------------------
<S>                           <C>      <C>          <C>      <C>           <C>     <C>    
Balance, July 31, 1994        7,230    $ 904        $ 117    $ 1,219       $ 962   $ 1,278
Net income for  year             --       --           --     13,047          --    13,047
Distribution (Note 7)            --       --           --     (5,676)         --    (5,676)
-------------------------------------------------------------------------------------------
Balance, July 31, 1995        7,230      904          117      8,590         962     8,649
Net income for  year             --       --           --      5,113          --     5,113
Warrant issuance (Note 7)        --       --          600          -          --       600
-------------------------------------------------------------------------------------------
Balance, July 31, 1996        7,230      904          717     13,703         962    14,362
Net loss for five months         --       --           --     (2,174)         --    (2,174)
-------------------------------------------------------------------------------------------
Balance, December 31, 1996    7,230      904          717     11,529         962    12,188
Net loss for year                --       --           --     (5,523)         --    (5,523)
-------------------------------------------------------------------------------------------
Balance, December 31, 1997    7,230      904          717      6,006         962   $ 6,665
===========================================================================================
</TABLE>

                    See accompanying notes to consolidated financial statements.


                                                                               6
<PAGE>

                                             Four M Corporation and Subsidiaries
                                                                   d/b/a Box USA

                                           Consolidated Statements of Cash Flows
                                                                  (in thousands)
================================================================================
<TABLE>
<CAPTION>
                                                                Year       Five Months        Years ended July 31,
                                                               Ended          Ended          -----------------------
                                                             December 31,   December 31,
                                                                1997           1996           1996           1995
--------------------------------------------------------------------------------------------------------------------
<S>                                                           <C>            <C>            <C>            <C>      
Cash flows from operating activities:
   Net (loss) income                                          $  (5,523)     $  (2,174)     $   5,113      $  13,047
   Adjustments to reconcile net income (loss) to net cash
     provided by (used for) operating activities:
     Depreciation and amortization                               14,767          5,287          5,182          5,245
     Allowance for doubtful accounts                              1,106            583           (290)           467
     Non-cash interest expense                                      203             --             --            499
     Gain on sale/closure of subsidiary                              --             --           (166)        (1,618)
     Gain on exchange of stock for debt                              --             --             --         (2,393)
     Deferred income taxes                                       (6,011)        (1,306)        (1,506)          (312)
     Loss (gain) on sale of fixed assets                           (259)          (480)           246             32
     Change in assets and liabilities, net of effect of
       acquisitions and disposals:
          Accounts, advances, notes and other receivables        (3,540)        (3,151)         1,779         (4,273)
          Income taxes recoverable                               (5,757)        (1,143)            --             --
          Inventories                                            (4,067)         1,025         12,296        (10,594)
          Other assets, net of other liabilities                    627         (3,338)          (512)           275
          Accounts payable and accrued liabilities                3,322            767          4,479         (2,592)
--------------------------------------------------------------------------------------------------------------------
            Net cash provided by (used for) operating
              activities                                         (5,132)        (3,930)        26,621         (2,217)
--------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
   Capital expenditures                                         (29,072)        (6,721)        (8,612)        (3,690)
   Proceeds from sale of subsidiaries                                --             --            898          1,618
   Proceeds from sale or exchange of fixed assets                 6,481          2,300            679            397
   Investment in New Jersey, net of cash acquired                                (5,500)            --             --
   Purchase of net assets of St. Joe Container                       --          5,214       (159,168)            --
   Costs related to subsidiary spin-off                              --             --             --           (300)
--------------------------------------------------------------------------------------------------------------------
            Net cash used for investing activities              (22,591)        (4,707)      (166,203)        (1,975)
--------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
   Proceeds from bond issuance                                       --             --        170,000             --
   Financing costs                                                   --             --         (8,798)            --
   Borrowings under revolving credit agreements                  24,742         94,200         14,419             --
   Repayments under revolving credit agreements                  (1,794)       (79,223)       (22,953)            --
   Secured term, mortgage, equipment and other borrowings         7,811          8,534            380          8,914
   Repayment of long-term debt                                   (3,326)       (13,254)       (13,881)        (5,396)
--------------------------------------------------------------------------------------------------------------------
            Net cash provided by financing activities            27,433         10,257        139,167          3,518
Increase (decrease) in cash and cash equivalents                   (290)         1,620           (415)          (674)
Cash and cash equivalents, beginning of period                    2,431            811          1,226          1,900
--------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period                          2,141          2,431            811          1,226
====================================================================================================================
Supplemental cash flow information
   Interest paid                                              $  25,074      $  11,683      $   4,204      $   4,882
   Income taxes paid                                          $  (1,020)     $   1,127      $   3,668      $   6,052
====================================================================================================================
</TABLE>

                    See accompanying notes to consolidated financial statements.


                                                                               7
<PAGE>

                                             Four M Corporation and Subsidiaries
                                                                   d/b/a Box USA

                                      Notes to Consolidated Financial Statements
                                                                  (in thousands)
================================================================================

1. Summary of Significant Accounting Policies

Business

Four M Corporation and subsidiaries ("Four M" or the "Company") are
manufacturers of corrugated packaging and semi-chemical corrugating medium. The
Company uses the trade name Box USA to conduct the bulk of its business
activities.

Four M has no assets or independent business operations other than ownership
interest in its subsidiaries.

Principles of Consolidation

The consolidated financial statements include the accounts of Four M Corporation
and all of its subsidiaries. All of the common stock of Four M is beneficially
owned by its Chairman of the Board and Chief Executive Officer, Dennis Mehiel
(the "Stockholder"). Intercompany accounts and transactions have been
eliminated.

The Company has certain 50%-owned investments which are accounted for under the
equity method. 

Inventories

Inventories are valued at the lower of cost (first-in, first-out) or market.

Property, Plant, Equipment, and Depreciation

Property, plant and equipment are stated at cost, less accumulated depreciation.
Depreciation is based on estimated useful lives of the assets and is provided
using the straight-line method. For income tax purposes, statutory accelerated
methods of depreciation are used.


                                                                               8
<PAGE>

                                             Four M Corporation and Subsidiaries
                                                                   d/b/a Box USA

                                      Notes to Consolidated Financial Statements
                                                                  (in thousands)
================================================================================

Goodwill and Other Intangibles

Goodwill and other intangibles principally relate to the excess of the purchase
price of certain acquisitions over the fair value of the net assets acquired and
are being amortized over their estimated useful lives which range from 10 to 20
years using the straight-line method.

Costs associated with obtaining financing arrangements are included in other
assets and are being amortized over the term of the borrowings.

Revenue Recognition

Revenue is recognized when products are shipped.

Income Taxes

Deferred taxes are provided on the differences between the basis of assets and
liabilities for financial reporting and income taxes purposes using the
statutory rates enacted for future periods.

The Company files a consolidated federal tax return with all of its subsidiaries
except Box USA of New Jersey, Inc. (Note 7) ("New Jersey"), formerly known as
Mannkraft Corporation, and Box USA of Florida LP, a 51% owned joint venture.
State income tax returns are filed separately.

Cash and Cash Equivalents

The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.


                                                                               9
<PAGE>

                                             Four M Corporation and Subsidiaries
                                                                   d/b/a Box USA

                                      Notes to Consolidated Financial Statements
                                                                  (in thousands)
================================================================================

Reclassifications

Certain prior year amounts have been reclassified to conform with the current
year presentation.

Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.

Long-lived Assets

As prescribed in Statement of Financial Accounting Standards No.121, "Accounting
for the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed
Of," long-lived assets are required to be adjusted to net realizable value if,
in the opinion of management, there is a permanent diminution in value. The
adoption of this pronouncement in 1996 did not have a significant impact on the
Company's financial statements. The Company assesses recoverability based upon
estimated undiscounted future cash flows from the related assets.

Fair Value of Financial Instruments

The carrying value of financial instruments including cash, accounts receivable,
advances and other receivables and accounts payable approximate fair value
because of the relatively short maturities of these instruments. The carrying
value of long-term debt, including the current portion and subordinated debt,
approximates fair value based upon market rates for similar instruments.


                                                                              10
<PAGE>

                                             Four M Corporation and Subsidiaries
                                                                   d/b/a Box USA

                                      Notes to Consolidated Financial Statements
                                                                  (in thousands)
================================================================================

2. Inventories

Inventories consist of the following:

                                                    December 31,   December 31,
                                                        1997           1996
            -------------------------------------------------------------------
            Raw materials                             $28,071        $25,056
            Work-in-process                             1,801          1,615
            Finished goods                              7,091          6,225
            -------------------------------------------------------------------
                                                      $36,963        $32,896
            ===================================================================

3. Property, Plant and Equipment

Property, plant and equipment consist of the following:

                                             Life in  December 31,  December 31,
                                              Years       1997         1996
            --------------------------------------------------------------------
            Land and buildings                   20     $ 57,695     $ 56,384
            Machinery and equipment            3-20      160,266      142,145
            Leasehold improvements             5-10          852        1,402
            Furniture and fixtures                5        3,777        3,071
            Autos and trucks                      5          612          460
            --------------------------------------------------------------------
                                                         223,202      203,462
            Less accumulated
               depreciation and amortization              41,653       30,129
            --------------------------------------------------------------------
                                                        $181,549     $173,333
            ====================================================================

Depreciation expense was approximately $14,410 for the year ended December 31,
1997. Depreciation expense was approximately $5,135 for the five months ended
December 31, 1996, and $5,118 and $4,887 for the years ended July 31, 1996 and
1995, respectively.


                                                                              11
<PAGE>

                                             Four M Corporation and Subsidiaries
                                                                   d/b/a Box USA

                                      Notes to Consolidated Financial Statements
                                                                  (in thousands)
================================================================================

Property, plant and equipment includes equipment under capital leases as
follows:

                                                     December 31,  December 31,
                                                        1997          1996
            -------------------------------------------------------------------
            Equipment                                  $8,735        $8,332
            Less accumulated amortization               1,914           710
            -------------------------------------------------------------------
                                                       $6,821        $7,622
            ===================================================================

4. Other Assets

Other assets consisted of the following as of December 31, 1997 and 1996:

                                                            1997          1996
            -------------------------------------------------------------------
            Deferred financing costs, net                 $ 7,405       $ 8,285
            Investment in Groveton Paper Board, Inc.        5,250         5,250
            Officer and employee receivables                   --           286
            Other                                           3,744         2,980
            -------------------------------------------------------------------
                                                          $16,399       $16,801
            ===================================================================

5. Accrued Liabilities

Accrued liabilities were comprised of the following as of December 31, 1997 and
1996:

                                                               1997       1996
            -------------------------------------------------------------------
            Output purchase agreement reserve (Note 7)       $ 4,327    $19,363
            Acquisition related reserves (Note 7)                 --        870
            Payroll and related expenses                       3,701      3,226
            Other                                              7,741      6,691
            -------------------------------------------------------------------
                                                             $15,769    $30,150
            ===================================================================


                                                                              12
<PAGE>

                                             Four M Corporation and Subsidiaries
                                                                   d/b/a Box USA

                                      Notes to Consolidated Financial Statements
                                                                  (in thousands)
================================================================================

6. Credit Risk

Financial instruments, which potentially subject the Company to concentrations
of credit risk, consist principally of temporary cash investments and trade
receivables. The Company places its temporary cash investments with financial
institutions having high credit ratings. Concentrations of credit risk with
respect to trade receivables are limited due to a large number of customers
comprising the Company's customer base, and their dispersion across many
geographical regions. At December 31, 1997, the Company had no significant
concentrations of credit risk. No single customer accounted for 10% or more of
net sales during any of the reported periods.

7. Significant Acquisitions and Dispositions

Box USA of New Jersey, Inc. ("New Jersey")

On August 5, 1996, the Company acquired 490 shares of common stock in New Jersey
from Stone Container for $5,500. The purchase represented 49% of New
Jersey's outstanding shares, increasing the Company's ownership interest to 50%.
Since the remaining 50% interest in New Jersey is owned indirectly by the
Stockholder, the financial statements of New Jersey are included in the
Company's consolidation.

The acquisition has been accounted for using the purchase method of accounting.
The purchase price was allocated to the assets purchased and liabilities assumed
based upon fair value at the date of the acquisition. The Company recorded
goodwill of approximately $4,000, which is being amortized over 15 years.
The results of New Jersey's operations have been included in the Company's
financial statements since the date of acquisition.

Fibre Marketing

Pursuant to a Limited Liability Company Agreement, dated as of May 24, 1996, the
Company acquired a 50% interest in Fibre Marketing Company, L.L.C. ("Fibre
Marketing"). The Company made an aggregate capital contribution of $280 to Fibre
Marketing in August 1996.


                                                                              13
<PAGE>

                                             Four M Corporation and Subsidiaries
                                                                   d/b/a Box USA

                                      Notes to Consolidated Financial Statements
                                                                  (in thousands)
================================================================================

St. Joe Container Company

On May 30, 1996, the Company acquired (i) substantially all of the assets and
certain liabilities of St. Joe Container, which consisted primarily of 16
converting facilities and related working capital (the "St. Joe Acquisition")
and (ii) a 50% interest in Florida Coast Paper Company, L.L.C. ("Florida
Coast"), a limited liability company which owns a linerboard mill located at
Port St. Joe, Florida (the "St. Joe Mill"), and Stone Container Corporation
("Stone Container", together with the Company, the "Joint Venture Partner")
acquired the remaining 50% interest in Florida Coast (Note 12). On May 30, 1996,
the Company issued senior secured notes for $170,000 and warrants valued at $600
and entered into a revolving credit facility which, as amended, provides up to
$65,000 to, in part, finance such transactions.

In December 1996, the Company received $5,200 as a purchase price adjustment in
accordance with the Agreement.

The St. Joe Acquisition has been accounted for using the purchase method of
accounting, and, accordingly, the purchase price, as adjusted as discussed
above, has been allocated to the assets purchased and the liabilities assumed
based upon fair value at the date of the St. Joe Acquisition. The purchase price
has been allocated as follows:

      --------------------------------------------------------------------------
      Accounts receivable, net                                        $  23,558 
      Inventories, net                                                   30,257
      Property, plant and equipment, net                                120,747
      Long-term investment                                                5,250
      Deferred financing costs                                            8,798
      Accounts payable and accrued liabilities                           (2,552)
      Acquisition related provisions (a)                                 (3,470)
      Reserve for unfavorable contracts (b)                             (19,236)
      --------------------------------------------------------------------------
                  Total costs allocated (c)                           $ 163,352
      ==========================================================================


                                                                              14
<PAGE>

                                             Four M Corporation and Subsidiaries
                                                                   d/b/a Box USA

                                      Notes to Consolidated Financial Statements
                                                                  (in thousands)
================================================================================

(a)   The St. Joe Acquisition related provisions consist of professional costs
      incurred with respect to the St. Joe Acquisition, costs associated with a
      plant closure, severance and relocation costs.

(b)   The Company has provided for two unfavorable contracts related to the St.
      Joe Acquisition. The first unfavorable contract is the Output Purchase
      Agreement with Florida Coast, which requires the Company and Stone
      Container to each purchase one-half of the St. Joe Mill's annual output of
      linerboard. Initially, management determined that it was probable that the
      Company would be required to pay additional amounts above market price for
      linerboard as a result of the Output Purchase Agreement and accordingly,
      provided a reserve for such purchases. The St. Joe Mill is expected to
      return to profitability in 1998 and accordingly, additional reserves are
      not anticipated. The second unfavorable contract relates to the Company's
      12.6% shareholder's interest in Groveton which requires the Company to
      purchase 12.6% of Groveton's annual production. Management has determined
      that it is probable that the Company will not be required to pay
      additional amounts above market price in 1998 and has not provided for a
      reserve.

(c)   The Company did not allocate any portion of the purchase price to its
      investment in Florida Coast since management believes the investment value
      is nominal (Note 12).


                                                                              15
<PAGE>

                                             Four M Corporation and Subsidiaries
                                                                   d/b/a Box USA

                                      Notes to Consolidated Financial Statements
                                                                  (in thousands)
================================================================================

The Fonda Group, Inc.

In March 1995, the stock of Fonda was distributed to the Stockholder, except for
3.5% which was distributed to a lender. Net sales, operating income and net
losses of Fonda for the eight months ended March 31, 1995 were $42,413, $1,352
and $(57), respectively.

Fiber Partition Products

Effective March 20, 1995, the Company disposed of certain assets relating to its
fiber partition products which resulted in a gain before income taxes of
approximately $1,618.

Consolidated Packaging Corporation, Debtor-In-Possession

On August 16, 1996, Box USA Group, Inc. ("Box USA"), a wholly-owned subsidiary
of the Company discontinued operations at its Flint, Michigan facility and
disposed of substantially all of the machinery and equipment utilized in the
operations of such facility for approximately $2,300, and finished goods
and work-in-progress inventory and certain related assets utilized at such
facility for approximately $300, which resulted in a gain of $480.


                                                                              16
<PAGE>

                                             Four M Corporation and Subsidiaries
                                                                   d/b/a Box USA

                                      Notes to Consolidated Financial Statements
                                                                  (in thousands)
================================================================================

8. Mill Shutdowns and Reopenings

In the latter part of 1996 and first quarter of 1997, the Company experienced a
decline in prices for corrugating medium as a result of increased capacity in
the industry and decreased demand for such products. As a result, the Company
shut down its corrugating medium mill at Ft. Madison, Iowa (the "Ft. Madison
Mill") in March 1997. Market conditions for corrugating medium have since
improved and as a result, the Company resumed limited production at the Ft.
Madison Mill in August 1997, with full production commencing September 1997.

In addition, the St. Joe Mill was shut down in April 1997 due to a decline in
prices for linerboard as a result of increased capacity in the industry. Market
conditions for linerboard have since improved and as a result Florida Coast
resumed limited production in early September 1997 with full production
commencing in October 1997. During the period of the St. Joe Mill shut down, the
Company remained subject to terms of the Output Purchase Agreement (Note 7). A
portion of the Company's payments under the Output Purchase Agreement during the
shutdown period ($6,000) has been charged to operations as part of loss on
joint venture.

9. Plant Closings

On August 9, 1997 the Company announced its intent to close two of its
facilities and to reallocate its business at those locations to its other nearby
facilities, including a "Super Plant" that is intended to utilize state of the
art technology and is expected to expand the Company's capacity in the
southeastern operating region. In connection therewith, the Company recorded a
provision of $1,000 in the third quarter of 1997 to accrue the costs of
closing such facilities, which are principally related to severance and
relocation of employees. In addition, the Company established a reserve during
the third quarter of 1997 of $1,800, to cover costs in connection with
certain plant dispositions which are anticipated to occur in 1998.


                                                                              17
<PAGE>

                                             Four M Corporation and Subsidiaries
                                                                   d/b/a Box USA

                                      Notes to Consolidated Financial Statements
                                                                  (in thousands)
================================================================================

10. Results of Operations for the Five Months Ended December 31, 1995
(Unaudited)

Results of operations of the Company for the five months ended December 31, 1995
are as follows:

                                                                     (Unaudited)
            December 31,                                                   1995
            --------------------------------------------------------------------
            Net sales                                                    $95,614
            Gross profit                                                  14,495
            Income before income taxes                                     6,588
            Provision for income taxes                                     2,966
            Net income                                                     3,622
            ====================================================================

11. Condensed Consolidating Financial Statements

In connection with the St. Joe Acquisition, the Company issued and sold $170,000
aggregate principal amount of 12% Senior Secured Notes due 2006 (the "Notes").
The Notes are fully and unconditionally guaranteed on a joint and several basis
by Box USA Group, Inc., Four M Paper Corporation, Page Packaging Corporation,
Box USA, Inc. and Four M Manufacturing Group of Georgia, Inc., each a direct or
indirect wholly owned subsidiary of the Company (collectively, the
"Guarantors"). Separate financial statements and other disclosures concerning
the Guarantors are not presented because management has determined that they are
not material to the holders of the Notes. The Notes are not guaranteed by Box
USA Paper Corporation, Box USA of Florida L.P. ("Florida L.P."), Florida Coast,
New Jersey or Fibre Marketing Group, L.L.C. (collectively, the
"Non-Guarantors").


                                                                              18
<PAGE>

                                             Four M Corporation and Subsidiaries
                                                                   d/b/a Box USA

                                      Notes to Consolidated Financial Statements
                                                                  (in thousands)
================================================================================

The following are unaudited condensed consolidating financial statements
regarding the Company (on a stand-alone basis and on a consolidated basis) and
Guarantors and Non-Guarantors as of and for the year ended December 31, 1997:

<TABLE>
<CAPTION>
                      Condensed Consolidating Balance Sheet
                                 Four M                         Non      Elimination
                               Corporation    Guarantors     Guarantors     Entries     Consolidated
----------------------------------------------------------------------------------------------------
<S>                            <C>            <C>            <C>            <C>             <C>     
Current assets                 $     --       $107,288       $ 13,217       $     --        $120,505
Investment in affiliates          6,665          5,954             --         (6,865)          5,754
Total assets                      6,665        393,450         29,524         (6,865)        322,774
Current liabilities                  --         57,173         10,136             --          67,309
Total liabilities                    --        289,929         26,180             --         316,109
Stockholder's equity           $  6,665       $  2,521       $  3,044       $ (6,865)       $  6,665
====================================================================================================

<CAPTION>
                 Condensed Consolidating Statement of Operations
                                 Four M                         Non      Elimination
                               Corporation    Guarantors     Guarantors     Entries     Consolidated
----------------------------------------------------------------------------------------------------
<S>                            <C>            <C>            <C>            <C>             <C>     
Net sales                      $     --       $423,040       $ 45,827       $     --        $468,867
Gross profit                         --         59,318          6,389             --          65,707
Income from operations               --         15,112          2,292             --          15,404
Income (loss) before income taxes    --        (19,032)           640             --         (18,392)
Net loss of subsidiaries         (5,523)            --             --          5,523              --
Net income (loss)              $ (5,523)      $ (5,714)      $    196       $  5,523        $ (5,523)
====================================================================================================

<CAPTION>
                 Condensed Consolidating Statement of Cash Flows
                                 Four M                         Non      Elimination
                               Corporation    Guarantors     Guarantors     Entries     Consolidated
----------------------------------------------------------------------------------------------------
<S>                            <C>            <C>            <C>            <C>             <C>     
Net cash provided by (used in)
     operating activities      $     --       $ (8,864)      $  3,732       $     --        $ (5,132)
Net cash used in investing
     activities                      --        (20,758)        (1,833)            --         (22,591)
Net cash provided by (used in)
     financing activities            --         29,303         (1,870)            --          27,433
(Decrease) increase in cash
     and cash equivalents            --           (319)            29             --            (290)
Cash and cash equivalents,
     beginning of period             --          2,064            367             --           2,431
----------------------------------------------------------------------------------------------------
Cash and cash equivalents,
     end of period             $     --       $  1,745       $    396       $     --        $  2,141
====================================================================================================
</TABLE>


                                                                              19
<PAGE>

                                             Four M Corporation and Subsidiaries
                                                                   d/b/a Box USA

                                      Notes to Consolidated Financial Statements
                                                                  (in thousands)
================================================================================

12. Investment in Florida Coast

In conjunction with the formation of Florida Coast, the Company and Stone
Container each invested $5,000 for a 50% interest in the Florida Coast
Holding Co., L.L.C. ("Florida Coast Holding"), the holder of all of the member
interests in Florida Coast and Stone Container made a $30,000 loan to
Florida Coast Holding. In addition, the Company and Stone Container have each
agreed to provide Florida Coast with up to $10,000 of subordinated
financing, if needed for general corporate purposes.

The Company's investment in Florida Coast Holding is accounted for using the
equity method of accounting and is carried at no value. Due to the shutdown in
the St. Joe Mill, the Company funded operating requirements of $19,100, in
accordance with the Output Purchase Agreement. Of the $19,100 funded, $17,500
was charged against the reserve for unfavorable contracts and $1,600 related to
the subordinated credit facility described above. In addition, the Company
charged $7,400 to loss on joint venture contract, which included an increase in
the reserve for unfavorable contracts of $6,000 (Note 7).


                                                                              20
<PAGE>

                                             Four M Corporation and Subsidiaries
                                                                   d/b/a Box USA

                                      Notes to Consolidated Financial Statements
                                                                  (in thousands)
================================================================================

Summarized balance sheet and income statement information of Florida Coast as of
December 31, 1997, and for the year ended December 31, 1997 were as follows:

                                                                   December 31,
                                                                      1997
            -------------------------------------------------------------------
            Current assets                                          $  19,534 
            Land, buildings and equipment, net                        176,232
            Other assets                                                7,842
            Current liabilities                                        16,925
            Long term liabilities                                     183,521
            Equity                                                      3,162
            ===================================================================

                                                                 Year
                                                                Ended
                                                         December 31, 1997 (b)
            -------------------------------------------------------------------
            Net sales (a)                                           $  87,910
            Operating loss                                            (22,846)
            Interest expense                                          (23,598)
            Net loss                                                  (46,061)
            ===================================================================

            (a) Includes $44,000 of sales to the Company.
            (b) The St. Joe Mill was shut down for approximately six months 
                during the year (Note 8).


                                                                              21
<PAGE>

                                             Four M Corporation and Subsidiaries
                                                                   d/b/a Box USA

                                      Notes to Consolidated Financial Statements
                                                                  (in thousands)
================================================================================

13. Long-Term Debt

Long-term debt consists of the following:

                                                 December 31,      December 31,
                                                     1997              1996
-------------------------------------------------------------------------------
12% senior secured notes (a)                      $ 170,000         $ 170,000
Revolving credit agreements (b)                      45,184            22,235
Mortgages (weighted average                      
interest rate as of December 31,                 
1997 7.9%)                                            7,041             2,374
Term loan agreements (c)                              8,765             8,500
Capital lease obligations (Note 17)                   6,259             7,283
Other                                                 1,408               832
-------------------------------------------------------------------------------
                                                    238,657           211,224
Less current portion                                  3,303             2,447
-------------------------------------------------------------------------------
Long-term debt                                    $ 235,354         $ 208,777
===============================================================================


                                                                              22
<PAGE>

                                             Four M Corporation and Subsidiaries
                                                                   d/b/a Box USA

                                      Notes to Consolidated Financial Statements
                                                                  (in thousands)
================================================================================

(a)   On May 30, 1996, the Company issued $170,000 aggregate principal
      amount of 12% Senior Secured Notes (the "Notes") due 2006 to, in part,
      finance the St. Joe Acquisition. The Notes are secured by the Company's
      real and personal property other than accounts receivable, inventory and
      certain related assets and interest is payable semi-annually in arrears on
      June 1 and December 1 of each year beginning December 1, 1996.

(b)   On May 30, 1996, the Company entered into a "Credit Facility" which, as
      amended, provides up to $65,000 of revolving credit. The Credit Facility
      is secured by accounts receivable, inventories and certain related assets.
      Advances are limited to 85% of eligible receivables and the lesser of 60%
      of eligible inventories or $40,000. The Credit Facility matures on May 30,
      2001. The interest rate at December 31, 1997 was prime (8.5% at December
      31, 1997) plus 1.%. At December 31, 1997, the Company had outstanding
      approximately $41,308 and available approximately $6,200 of additional
      credit under the Credit Facility. The Company has the ability to convert
      interest on some or all of its advances to a LIBOR based rate. At December
      31, 1997, the Company had converted $30,000 of its debt under this option
      at a rate of 8.875% towards an $18,000 contract, and 8.9375% on a
      $12,000 contract. These LIBOR based arrangements matured on March 2, 1998
      and will mature on March 16, 1998, respectively. Pursuant to the Credit
      Facility, the Company is subject to certain affirmative and negative
      covenants customarily found in agreements of this type. In addition, the
      Credit Facility requires that the Company maintain certain specified
      financial covenants, including, without limitation, a minimum tangible net
      worth, a minimum interest coverage ratio, a maximum funded debt to EBITDA
      ratio, a minimum fixed charge coverage ratio, a minimum current ratio, and
      a minimum debt service coverage ratio. The Company was in compliance with
      these covenants, as amended, at December 31, 1997.


                                                                              23
<PAGE>

                                             Four M Corporation and Subsidiaries
                                                                   d/b/a Box USA

                                      Notes to Consolidated Financial Statements
                                                                  (in thousands)
================================================================================

      New Jersey (Note 7) has a revolving credit agreement for $10,000, secured
      by inventories, receivables and equipment. Borrowings are limited to 85%
      of eligible receivables, and the lesser of 60% of eligible inventories.
      New Jersey had approximately $3,876 outstanding and $264 of additional
      credit available under this agreement at December 31, 1997. Interest under
      this agreement is prime (8.50% at December 31, 1997) plus 1%. New Jersey
      has the ability to convert interest on some or all of its advances to a
      LIBOR based rate equal to LIBOR plus 3.5%. At December 31, 1997, New
      Jersey had converted $3,500 of its debt under this option at a rate of
      9.125%. This LIBOR based arrangement matured on February 22, 1998.

(c)   New Jersey had outstanding at December 31, 1997 a $8,800 term loan
      due September 30, 2001 which is secured by New Jersey's equipment, real
      estate and eligible receivables. This loan bears interest at the prime
      rate (8.50% at December 31, 1997) plus 1.5%. New Jersey has the ability to
      convert some or all of this term loan to a LIBOR based rate equal to LIBOR
      plus 3.5%. At December 31, 1997, New Jersey had $7,000 of its debt
      under this option at a rate of 9.0625%. This LIBOR based arrangement
      matured on March 22, 1998.


                                                                              24
<PAGE>

                                             Four M Corporation and Subsidiaries
                                                                   d/b/a Box USA

                                      Notes to Consolidated Financial Statements
                                                                  (in thousands)
================================================================================

Long-term debt, excluding capital lease obligations, is payable as follows:

      -------------------------------------------------------------------------
      1998                                                             $  2,075
      1999                                                                1,606
      2000                                                                1,614
      2001                                                                2,096
      2002                                                                4,136
      Thereafter                                                        220,871
      -------------------------------------------------------------------------
                                                                       $232,398
      =========================================================================

14. Subordinated Debt

Subordinated debt consists of the following:

                                                    December 31,   December 31,
                                                        1997            1996
      -------------------------------------------------------------------------
      Subordinated notes (a)                          $ 2,279          $ 2,279 
      Less:  Deferred interest                           (310)            (365)
      -------------------------------------------------------------------------
      Long-term subordinated debt                     $ 1,969          $ 1,914
      =========================================================================


                                                                              25
<PAGE>

                                             Four M Corporation and Subsidiaries
                                                                   d/b/a Box USA

                                      Notes to Consolidated Financial Statements
                                                                  (in thousands)
================================================================================

(a)   Prior to the Company's purchase of New Jersey, the Bankruptcy Court
      confirmed New Jersey's Plan of Reorganization and New Jersey emerged from
      Chapter 11 of the United States Bankruptcy Code. Pursuant to New Jersey's
      Plan of Reorganization, New Jersey's previous shareholders received $2,750
      in cash and notes payable in consideration of full and complete
      satisfaction of their interests. The first note is in the principal amount
      of $700 and interest is payable on the outstanding principal balance at
      7.5% per annum paid quarterly, with the exception of the first six
      payments which are payable in the year 2001. The second and third notes
      are in the principal amounts of $1,179 and $321, respectively, and are
      non-interest bearing. The notes have been discounted using a rate of 8%
      resulting in aggregate initial deferred interest of $839. Deferred
      interest is accreted over the repayment period using the balance
      outstanding method. All three notes are payable beginning after fiscal
      year ending July 31, 1999 provided that New Jersey's secured claims and
      trade and other claims are paid in full. The notes are secured by a pledge
      agreement executed by Four M Manufacturing Group of New Jersey, Inc.


                                                                              26
<PAGE>

                                             Four M Corporation and Subsidiaries
                                                                   d/b/a Box USA

                                      Notes to Consolidated Financial Statements
                                                                  (in thousands)
================================================================================

15.   Income Taxes

Components of provision (benefit) for income taxes are as follows:

<TABLE>
<CAPTION>
                                             Year        5 Months
                                            Ended          Ended              Years Ended July 31,
                                         December 31,    December 31,      ------------------------
                                             1997            1996            1996            1995
      ---------------------------------------------------------------------------------------------
      <S>                                  <C>             <C>             <C>             <C>     
      Current:
          Federal                          $ (6,900)       $ (2,362)       $  4,441        $  4,675
          State                                  16            (702)            889           1,120
      ---------------------------------------------------------------------------------------------
                                             (6,884)         (3,064)          5,330           5,795
      ---------------------------------------------------------------------------------------------
      Deferred:
          Federal                            (5,238)          1,206          (1,261)           (250)
          State                                (773)            372            (252)            (62)
      ---------------------------------------------------------------------------------------------
                                             (6,011)          1,578          (1,513)           (312)
      ---------------------------------------------------------------------------------------------
      Provision (benefit) for income
          taxes before extraordinary
          item                              (12,895)         (1,486)          3,817           5,483
      Taxes on extraordinary item                --              --              --             174
      ---------------------------------------------------------------------------------------------
                                           $(12,895)       $ (1,486)       $  3,817        $  5,657
      =============================================================================================
</TABLE>


                                                                              27
<PAGE>

                                             Four M Corporation and Subsidiaries
                                                                   d/b/a Box USA

                                      Notes to Consolidated Financial Statements
                                                                  (in thousands)
================================================================================

Deferred income taxes reflect the tax effect of temporary differences between
carrying amounts of assets and liabilities for financial reporting and income
tax purposes. Deferred tax assets (liabilities) result from temporary
differences as follows:

<TABLE>
<CAPTION>
                                                                  December 31,    December 31,      July 31,
                                                                      1997            1996            1996
      ------------------------------------------------------------------------------------------------------
      <S>                                                           <C>             <C>             <C>     
      Current:
         Allowance for doubtful accounts receivable                 $  1,114        $    670        $    581
         Capitalized inventory costs                                   1,749           1,632           1,213
         Accrued salaries and benefits                                   552             964             730
         Provisions for losses                                         2,828           7,976           2,100
         Current portion of net operating
                  loss carry forwards and credits                     10,362              --              --
         Other                                                            49             262             367
      ------------------------------------------------------------------------------------------------------
                                                                      16,654          11,504           4,991
        Less valuation allowance                                         --          (3,091)              --
      ------------------------------------------------------------------------------------------------------
               Current deferred tax assets                            16,654           8,413           4,991
      ------------------------------------------------------------------------------------------------------
      Long term:
         Property, plant, equipment                                  (18,960)        (12,028)         (5,140)
         Long term portion of net operating loss carryforward          9,556           4,854              --
      ------------------------------------------------------------------------------------------------------
                Net long-term deferred tax liabilities                (9,404)         (7,174)         (5,140)
      ------------------------------------------------------------------------------------------------------
      Net deferred tax assets (liabilities)                         $  7,250        $  1,239        $   (149)
      ======================================================================================================
</TABLE>

The Company established a valuation allowance at July 31, 1996 for the
unfavorable contracts reserve (Note 7), since its utilization was not assured.
The reserve and allowance was increased in 1996 due to a purchase price
adjustment. The Company reversed the valuation allowance in 1997 because of the
tax utilization of the reserve.


                                                                              28
<PAGE>

                                             Four M Corporation and Subsidiaries
                                                                   d/b/a Box USA

                                      Notes to Consolidated Financial Statements
                                                                  (in thousands)
================================================================================

The effective tax rate was different than the federal statutory rate due to the
following:

<TABLE>
<CAPTION>
                                           Year       5 Months
                                           Ended       Ended          Years Ended July 31,
                                        December 31, December 31,  ---------------------------
                                            1997         1996        1996           1995
      ----------------------------------------------------------------------------------------
      <S>                                  <C>          <C>          <C>            <C>  
      Tax (benefit) at the statutory
         Federal rate                      (35.0)%      (35.0)%      35.0%          34.0%
      State income taxes (net of
         Federal benefit)                   (4.0)        (6.0)        6.4            4.0
      Non-deductible interest                --           --           --            3.0
      Reversal of valuation
         allowance                         (16.9)         --           --           (3.7)
      Change in taxed rate                 (10.1)         --           --             --
      Other                                 (4.1)        (0.6)        1.3           (4.0)
      ----------------------------------------------------------------------------------------
                                           (70.1)%      (41.6)%      42.7%          33.3%
      ========================================================================================
</TABLE>


                                                                              29
<PAGE>

                                             Four M Corporation and Subsidiaries
                                                                   d/b/a Box USA

                                      Notes to Consolidated Financial Statements
                                                                  (in thousands)
================================================================================

16. Minority Interest

Minority interest represents the minority stockholder's investment plus its
proportionate share of the income or loss of the respective subsidiary.

17. Leases

The Company leases several facilities and certain equipment used in connection
with its manufacturing operations. Future minimum payments for capital leases
and noncancellable operating leases with initial or remaining terms of one year
or more are:

                                                          Capital     Operating
      Year ending December 31,                             Leases        Leases
      -------------------------------------------------------------------------
      1998                                                  1,834         5,713
      1999                                                  1,810         4,341
      2000                                                  1,701         3,619
      2001                                                  1,663         2,605
      2002                                                    885         2,222
      Thereafter                                               --         7,183
      -------------------------------------------------------------------------
      Total minimum lease payments                          7,893        25,683
      =========================================================================
      Less amount representing interest                    (1,634)
      ------------------------------------------------------------
      Present value of capital lease obligations            6,259
      ============================================================

Rent expense under operating leases was approximately $7,891 for the year ended
December 31, 1997 and $3,555 for the five months ended December 31, 1996, and
$5,041 and $4,613 for the years ended July 31, 1996 and 1995, respectively.


                                                                              30
<PAGE>

                                             Four M Corporation and Subsidiaries
                                                                   d/b/a Box USA

                                      Notes to Consolidated Financial Statements
                                                                  (in thousands)
================================================================================

18. Related Party Transactions

The Stockholder is an owner of entities from which the Company rents certain
property, plant and equipment. Rent expense was approximately $763 for the year
ended December 31, 1997 and $434 for the five months ended December 31, 1996,
and $964 and $929 for the years ended July 31, 1996 and 1995, respectively. The
Company believes that such rents are not in excess of market levels. The
Company's partition plant located in Jacksonville, Florida is currently
subleased from Fonda and constitutes a portion of a property leased by Fonda
from the Stockholder.

The Stockholder has been a part owner since 1993 of New Jersey, to which the
Company sold approximately $1,351 and $3,330 of material in the twelve months
ended July 31, 1996 and 1995, respectively. The Company believes that the prices
at which such sales were made are not below market levels. For the year ended
December 31, 1997 and the five month period ended December 31, 1996, sales to
New Jersey have been eliminated in consolidation.

In March 1995, the Company spun off its Fonda subsidiary to the Stockholder. The
Company sold approximately $500, $1,100 and $60 of material to Fonda in Fiscal
1997, Fiscal 1995 and Fiscal 1994, respectively. The Company believes that the
prices at which such sales were made are not below market levels

An officer of the Company has been part owner since 1994 of Fibre Marketing, to
which the Company sold approximately $4,294 of material in the year ended
December 31, 1997, $3,130 of material in the five months ended December 31, 1996
and $2,024 of material in the year ended July 31, 1996. The Company believes
that the prices at which such sales were made are not below market levels.


                                                                              31
<PAGE>

                                             Four M Corporation and Subsidiaries
                                                                   d/b/a Box USA

                                      Notes to Consolidated Financial Statements
                                                                  (in thousands)
================================================================================

19. Commitments and Contingencies

Purchase Commitments

The Company has commitments to purchase paperboard inventory from four vendors.
The total commitment is for the purchase of up to 170,000 tons of inventory
annually through December 2001. The price per ton will be based on market rates.

The Company has commitments to purchase one half of the production of the St.
Joe Mill. The price per ton is based on the Output Purchase Agreement (Note 7).

The Company is required to purchase 12.6% of the output of the Groveton medium
mill at prices defined in an agreement among the owners of the mill. The mill's
production capacity is approximately 140,000 tons annually (Note 7).

Litigation

On July 19, 1996 a civil action was filed in the Superior Court of Fulton
County, Georgia (the "Suit") by a former employee, individually and on behalf of
D&M Partnership, a purported Georgia partnership, against Four M, Box USA Group,
Inc., Four M Manufacturing Group of Georgia, Inc., and the Stockholder. The
plaintiff alleges that he is entitled to an equity interest in Four M or the
alternative, $150,000 in compensatory damages, as well as punitive damages and
attorney's fees. The Company believes that the suit is without merit. On
September 23, 1996, the Company filed an answer in response to the complaint.
The Company intends to defend against the suit vigorously and believes that it
has adequate defenses. The Suit is in the preliminary stages and management
believes that the outcome of this suit will not have a material impact on the
Company's financial statements.


                                                                              32
<PAGE>

                                             Four M Corporation and Subsidiaries
                                                                   d/b/a Box USA

                                      Notes to Consolidated Financial Statements
                                                                  (in thousands)
================================================================================

The Company is involved in various other legal actions and claims arising in the
ordinary course of its business. Management believes that current litigation and
claims will be resolved without any material effect on the Company's financial
statements.

Savings and Investment Plans

The Company has two defined contribution savings and investment plans covering a
majority of its salaried and non-union hourly employees. Under one plan,
employee contributions of up to 6% of annual salary are matched at 50%. Under
the other plan, 7% of salary is matched at 50%. Expenses incurred under both
plans amounted to approximately $600 for the year ended December 31, 1997, $130
for the five months ended December 31, 1996, and $195 and $107 for the years
ended July 31, 1996 and 1995, respectively.

Pension Plans

The Company has defined contribution plans for its union and non-union hourly
employees. Contributions are made by the Company at a labor agreement specified
rate per hours worked. Expenses incurred under these plans amounted to
approximately $410 for the year ended December 31, 1997, $306 for the five
months ended December 31, 1996, and $93 and $67 for the years ended July 31,
1996 and 1995, respectively.


                                                                              33
<PAGE>

                                             Four M Corporation and Subsidiaries
                                                                   d/b/a Box USA

                                      Notes to Consolidated Financial Statements
                                                                  (in thousands)
================================================================================

Stock Appreciation Unit Plan

On September 8, 1993, the Company's Board of Directors approved a Stock
Appreciation Unit Plan (the "Plan"). Pursuant to the Plan units may be granted
to key employees at the discretion of the Chief Executive Officer and the
non-employee directors of the Company. Units awarded under the Plan are subject
to the vesting and redemption terms of the Plan. Employees may elect to redeem
vested units awarded under the Plan. Units to be redeemed will be paid in cash
over a period of time at an amount based on earning and increases in book value.

20. Subsequent Events

In January 1998, the Company sold its Dallas and Houston corrugating operations
for cash of $20,400, subject to working capital adjustments, which approximated
net book value. Approximately $11,200 of the proceeds of such sale is held in
trust under the terms of the Notes and the remainder was used for working
capital purposes.


                                                                              34
<PAGE>

                          INDEPENDENT AUDITORS' REPORT
                              RELATING TO SCHEDULE

Board of Directors and Stockholder
Four M Corporation and Subsidiaries

The audits referred to in our report to Four M Corporation and Subsidiaries
dated March 10, 1998 which is contained in Item 8 of this Form 10-K included the
audit of Schedule listed under Item 21(b) for each of the years ended December
31, 1997, July 31, 1996 and 1995, and the five months ended December 31, 1996.
This Financial Statement Schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on the Financial
Statement Schedule based on our audits.

In our opinion, such Schedule presents fairly, in all material respects the
information set forth therein for each of the years ended December 31, 1997,
July 31, 1996 and 1995, and the five months ended December 31, 1996.


                                                /s/ BDO Seidman, LLP
                                                BDO Seidman, LLP


Valhalla, New York
March 10, 1998
<PAGE>

                                                                     SCHEDULE II

                       FOUR M CORPORATION AND SUBSIDIARIES

                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
         COLUMN A                     COLUMN B                   COLUMN C                    COLUMN D           COLUMN E
---------------------------------   ------------      -------------------------------      ------------      --------------
                                                                Additions
                                                      -------------------------------
                                     Balance at       Charged to        Charged to
                                    beginning of       Cost and      other Accounts -       Deductions-      Balance at end
Description                            Period          Expenses          describe            describe           of Period
---------------------------------   ------------      -------------------------------      ------------      --------------
<S>                                  <C>              <C>              <C>                 <C>                 <C>       
Year ended July 31, 1995
     Allowance for doubtful
      accounts ..................    $1,542,000       $  575,000               --          $  339,000(1)       $1,778,000
Year ended July 31, 1996
     Allowance for doubtful
      accounts ..................    $1,778,000       $  736,000               --          $  605,000(1)       $1,909,000
Period ended December 31, 1996 ..    $1,909,000       $  582,000       $  151,000(2)       $1,021,000(1)       $1,621,000
Year ended December 31, 1997
     Allowance for doubtful
      accounts ..................    $1,621,000       $1,801,000               --          $  695,000(1)       $2,727,000
</TABLE>

----------
(1) Amounts written off.
(2) Acquired through New Jersey purchase.