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

                             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

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

                                       OR

[x]       TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
          EXCHANGE ACT OF 1934

For the transition period from August 1, 1996 to December 31, 1996

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

     As of March 31,  1997,  registrant  had  6,815,867  shares of Common  Stock
outstanding.


<PAGE>

DOCUMENTS INCORPORATED BY REFERENCE

Part 1, Item 8:

         The Financial  Statements  for the period from May 30, 1996 to December
1, 1996,  together with the Independent  Auditors'  Report for Florida Coast and
the Financial Statements for the period from January 1, 1996 to May 30, 1996 and
the two years ended  December 31, 1995 and 1994  together  with the  Independent
Auditors'  Report  for  St.  Joe  Forest  Products  Company  -  Linerboard  Mill
Operations included in the Annual Report on Form 10-K for Florida Coast.


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



                                     PART I
<TABLE>
<CAPTION>

<S>  <C>                                                                                              <C>
Item 1.  Business......................................................................................1

Item 2.  Properties....................................................................................9

Item 3.  Legal Proceedings............................................................................10

Item 4.  Submission of Matters to a Vote of Security Holders..........................................10


                                     PART II


Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters........................11

Item 6.  Selected Financial Data......................................................................11

Item 7.  Management's Discussion and Analysis of Financial Condition and Results of Operations........13

Item 8.  Financial Statements and Supplementary Data..................................................19

Item 9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.........19


                                    PART III


Item 10. Directors and Executive Officers of the Registrant...........................................20

Item 11. Executive Compensation.......................................................................22

Item 12. Security Ownership of Certain Beneficial Owners and Management...............................23

Item 13. Certain Relationships and Related Party Transactions.........................................23


                                     PART IV


Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K..............................24
</TABLE>

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 28 strategically located converting
facilities,   which  sold  4.6  billion  square  feet  of  finished   corrugated
containers,  partitions  and sheets  during the fiscal  year ended July 31, 1996
("Fiscal 1996") and during the five month period from August 1, 1996 to December
31, 1996 (the "1996 Transition Period"). The Company has developed and maintains
long-standing   customer   relationships  with  leading  consumer  products  and
packaging  companies  including Avon,  Clorox,  Anchor Glass, Owens Illinois and
Procter & Gamble.  The Company also owns a paper mill at Ft. Madison,  Iowa (the
"Ft.  Madison  Mill") which produced  77,726 tons of  corrugating  medium during
Fiscal 1996 and 31,699 tons of  corrugating  medium  during the 1996  Transition
Period, most of which was sold to third parties during such periods. See "Recent
Developments."

         On May 30,  1996,  the Company  acquired (i)  substantially  all of the
assets of St. Joe  Container  Company ("St.  Joe  Container"),  which  primarily
consisted  of 16  converting  facilities  and related  working  capital and (ii)
through Florida Coast Paper Company,  L.L.C.  ("Florida Coast"), a joint venture
(the "Mill Joint Venture") with Stone Container Corporation ("Stone Container"),
a 50% interest in a 500,000 tons per year  linerboard  mill (the "St. Joe Mill")
from St. Joe Forest Products Company ("St. Joe Forest"), an affiliate of St. Joe
Container (collectively,  the "Acquisition").  The Acquisition more than doubled
the size of the  Company to 28  converting  facilities.  The  facilities  of the
Company  and St. Joe  Container  utilize  similar  manufacturing  equipment  and
production  processes  and operate with  minimal  geographic  redundancy  and no
material   customer  overlap.   Accordingly,   the  Company  believes  that  the
Acquisition  creates  opportunities  to pursue continued growth in its business,
utilize  its  purchasing  power to achieve  reductions  in raw  material  costs,
improve  productivity  and reduce  operating  expenses.  In the 1996  Transition
Period,  the Company had net sales of $196.8  million,  net loss of $2.2 million
and EBITDA of $11.8 million.

         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 11 separate acquisitions  involving 17
manufacturing  facilities prior to the date of the Acquisition.  The Company has
historically targeted distressed properties and undermanaged 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. The Company's ability to target and successfully
integrate  acquisitions is reflected in an increase in average revenue per plant
from $9.0 million in 1991 to $18.2 million in Fiscal 1996 while  average  annual
production  per plant has grown from 201.7 million  square feet to 342.6 million
square feet over the same period. During the 1996 Transition Period, the average
revenue per plant was $16.3 million,  and average production per plant was 397.6
million square feet.

         The Company  has  entered  into a letter of intent to (i) acquire a 50%
interest  in a sheet  plant and (ii)  enter  into a  requirements  and  services
agreement for total investment of $2.25 million

         The Company's strategy is to enhance its position as one of the largest
independent  full-service  converters of corrugated packaging materials in North
America. Fundamental elements of the Company's strategy include:

          o    providing a full line of high-quality products

          o    capitalizing   on  the   Company's   significant   raw  materials
               purchasing power

          o    implementing   cost-reduction    manufacturing   techniques   and
               operating efficiency programs

          o    responding  quickly to customer needs and offering high levels of
               customer service

          o    expanding  the  Company's  penetration  of national  accounts and
               increasing the Company's share of existing customers' business

         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


                                        1

<PAGE>

it has been able to purchase raw materials from its outside  suppliers at prices
below those reported in Pulp & Paper Week, an industry trade publication.

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

Recent Developments

         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 of cost of goods sold. The
ability of the  Company to  maintain  value-added  margins is 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  lower prices have affected the Company's  ability to maintain
value-added  margins,  the Company has experienced  growth in volume.  Thus, the
Company  believes  that it is well  positioned  to benefit  from any increase in
prices for its products.

         The Company is  experiencing  a decline in prices for its products as a
result of  increased  capacity in the  industry  and  decreased  demand for such
products.  This  decline in demand  and prices has had a negative  impact on the
financial results of the Company during the 1996 Transition  Period. The Company
has  decided  to shut  down  the Ft.  Madison  Mill on  March  31,  1997  for an
indefinite  period of time.  Operations at the Ft. Madison Mill will resume when
market conditions warrant a resumption of production.

         In addition, Florida Coast is also experiencing a decline in prices for
its  products as a result of increased  capacity in the  industry and  decreased
demand for such  products.  As a result,  Florida Coast has decided to shut down
the St. Joe Mill on April 1, 1997 for an indefinite  period of time until market
conditions  warrant a resumption of production.  Pursuant to the Output Purchase
Agreement, the Company is required to reimburse the St. Joe Mill for one-half of
its fixed  costs  during the  shut-down,  including  its debt  service  costs of
approximately $1,763,000 per month.

The Acquisition

         The Acquisition enabled the Company to increase its geographic coverage
from nine to 17 states. As a result, the Company is able to serve new markets in
the Midwest,  Mid-Atlantic  and the faster growing  Southeast.  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 have enabled it
to overcome any  incremental  freight costs  associated  with its larger trading
areas.

         The Company believes that the  Acquisition,  by expanding the Company's
geographic  coverage,  will  particularly  benefit its  national  account  sales
program  by  enabling  it to serve  national  accounts  from St.  Joe  Container
facilities in markets not previously  covered by the Company.  National accounts
comprised  approximately  20% of net sales for the  Company  in Fiscal  1996 and
18.0% in the 1996 Transition Period. In addition, the Company strives to operate
its  corrugator  plants for three shifts per day, five days per week rather than
the two shifts per day,  five days per week  operation of the St. Joe  Container
facilities in order to increase  aggregate  production at these facilities.  The
Company  intends  to  utilize  available  capacity  to  increase  production  of
corrugated  sheets to supply sheet plants owned by third parties in the vicinity
of the St. Joe Container facilities.


                                        2

<PAGE>

         The Company has focused on maximum utilization of available  production
capacity,  minimization  of waste  and the  development  and  implementation  of
financial controls and management systems. In addition,  the Company believes it
can  eliminate  certain  duplicative   functions  and  achieve  efficiencies  in
manufacturing,  administration and sales and marketing. Furthermore, the Company
believes that it can reduce manufacturing costs by reducing waste at the St. Joe
Container facilities.

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
make corrugated  interior  packaging  components.  The Company also owns the Ft.
Madison Mill, a paper mill which produces  corrugating medium primarily for sale
to third  parties,  and a 50%  interest  in the St.  Joe  Mill,  which  produces
linerboard  for sale to the  Company and Stone  Container.  Both mills have been
shut down for an indefinite period of time. See "Recent Developments."

Corrugators

         Prior to the Acquisition,  the Company operated five corrugator  plants
located  in the  Midwest,  the  Southeast  and  California.  As a result  of the
Acquisition,  the Company  currently  operates  an  additional  14  full-service
corrugators  located in the  Southeast,  Midwest,  Mid-Atlantic  and Texas.  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.

         During  Fiscal  1996  and the 1996  Transition  Period,  the  Company's
corrugator plants produced approximately 5.2 billion and 4.9 billion square feet
of corrugated sheets, respectively.  The Company supplied approximately 85.7% of
its own corrugated sheet requirements in Fiscal 1996 and purchased the remaining
14.3% in the  marketplace  from  third  parties,  while  in the 1996  Transition
Period,  the Company  supplied  approximately  86.0% of its own corrugated sheet
requirements and the remaining 14.0% was purchased from other suppliers.

         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 kraft  containers;
however,  the premium tends to cover the higher cost of mottled white linerboard
without increasing operating margins at the container facilities.  Approximately
89.9% of the corrugated  materials  produced in these  facilities in Fiscal 1996
required  unbleached  kraft  linerboard and the remaining 10.1% required mottled
white linerboard.  During the 1996 Transition Period, the Company's  corrugators
used  unbleached  kraft  linerboard  for  approximately  92.9% of the corrugated
materials produced by such plants and white mottled linerboard for the remaining
7.1%.

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 1996,
the Company's sheet plants produced  approximately  543.2 million square feet of
corrugated  containers,  accounting for approximately 16.4% of the Company's net
sales.  These  plants  produced  approximately  295.4  million  square  feet  of
corrugated  containers and accounted for approximately 9.9% of the Company's net
sales in the 1996 Transition Period. The Alabama facility, which was acquired by
the Company in the Acquisition,  shipped  approximately 68.1 million square feet
of corrugated containers in Fiscal 1996 and 31.4 million square feet in the 1996
Transition Period.

         The Company's sheet plants  typically  operate on a two shifts per day,
five days per week schedule.  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.


                                        3

<PAGE>

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 such as Clorox, Anchor Glass and Owens Illinois. Output at the
partition plants totaled  approximately 402.4 million square feet in Fiscal 1996
and approximately 128.8 million square feet in the 1996 Transition Period.

Ft. Madison Mill

         The  Company's  paper mill in Ft.  Madison,  Iowa was  acquired  out of
bankruptcy  in January  1994.  In 1993,  the Ft.  Madison Mill had a capacity of
approximately  70,000 tons per year or 200 tons per day of  corrugating  medium.
Actual  production for 1993 was  approximately  165 tons per day.  Following the
acquisition  of the  Ft.  Madison  Mill,  the  Company  improved  production  by
providing  management  leadership,   supplying  necessary  working  capital  and
initiating  significant  repairs.  By the first quarter of 1995, the Ft. Madison
Mill began to achieve  record daily  production  levels,  thereby  lowering unit
operating  costs and  increasing  sales.  In Fiscal 1996,  the Ft.  Madison Mill
produced  approximately  77,726  tons,  and in the 1996  Transition  Period,  it
produced approximately 31,699 tons.

         The 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  1996,  the Ft.  Madison Mill  generated  net sales of $21.9
million through sales of 59,035 tons of corrugating medium to third parties.  In
addition,  the Ft. Madison Mill supplied  18,350 tons of corrugating  medium for
processing  at the  Company's  corrugator  plants.  The Ft.  Madison  Mill  sold
approximately  23,285 tons of  corrugating  medium to third parties and provided
approximately  8,414  tons of  corrugating  medium to the  Company's  corrugator
plants in the 1996 Transition Period.

         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 1996 and in the 1996 Transition  Period.  The Company
benefited from lower recycled fiber costs during the 1996 Transition Period. The
price of  recycled  fiber  paid by the Ft.  Madison  Mill has  declined  from an
average  of  approximately  $205  per  ton  in  August  1995  to an  average  of
approximately $99 per ton as of December 31, 1996.

         During the 1996 Transition period, 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.  The  Company  will shut down the Ft.
Madison Mill as of March 31, 1997 for an indefinite  period of time.  Operations
at the Ft. Madison Mill will resume when market conditions  warrant a resumption
of production. The Company will satisfy its current obligations to third parties
for corrugating medium from other sources.  The Company estimates that its fixed
costs for the Ft.  Madison  Mill  during  the  shut-down  will be  approximately
$115,000 per month.

St. Joe Mill

         On May 30,  1996,  Florida  Coast,  a joint  venture of the Company and
Stone  Container (the "Joint Venture  Partners"),  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.  Since 1990,  approximately $148.0 million has been spent for the
maintenance  and  modernization  of the St.  Joe  Mill's  plant,  equipment  and
machinery  and for  environmental  compliance.  The St.  Joe  Mill's  production
presently  is  approximately  28% mottled  white  linerboard,  a premium  priced
product, and 72% unbleached kraft linerboard.


                                        4

<PAGE>

         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,  which  price is  intended  to  generate
sufficient  funds to cover cash  operating  costs,  cash  interest  expense  and
maintenance  capital  expenditures.  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 $11.0 million for such  purchases.  The
Reserve was  subsequently  increased to $20.2  million and was $17.9  million at
December 31, 1996.  The Company was required to pay Florida  Coast an additional
$4.0  million for its 50% share of the  linerboard  produced by the St. Joe Mill
during 1996  Transition  Period.  The Company  recorded a loss on joint  venture
contract  of $1.7  million  and  utilized  $2.3 of the  Reserve  during the 1996
Transition Period.

         Florida Coast has  experienced a decline in prices for  linerboard as a
result of  increased  capacity in the  industry  and  decreased  demand for such
products. Florida Coast has decided to shut down the St. Joe Mill as of April 1,
1997  for  an  indefinite  period  of  time.  Pursuant  to the  Output  Purchase
Agreement, the Company is required to reimburse the St. Joe Mill for one-half of
its fixed  costs  during the  shut-down,  including  its debt  service  costs of
approximately  $1,763,000 per month. The Company  believes,  in light of current
market  conditions,  that it can purchase  linerboard  from third parties during
this  shut-down and meet its financial  obligations to the St. Joe Mill.

Fibre Marketing Group

         In 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.

MannKraft Corporation

         In the 1996 Transition Period the Company acquired an additional 49% of
the outstanding shares of common stock of MannKraft  Corporation (the "MannKraft
Acquisition")  from Stone Container,  increasing its ownership  interest to 50%.
MannKraft 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.

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

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  approximately  10%
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  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
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.


                                        5

<PAGE>

         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 1996 and the 1996 Transition  Period,  the Company's  largest
customer accounted for approximately  7.1% and 2.5% of net sales,  respectively.
The top 10 customers  accounted for  approximately  21.8% and 12.7% of net sales
during such  periods.  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
20.0% of net sales in Fiscal 1996 and 18.0% of net sales in the 1996  Transition
Period.

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.

         In Fiscal 1996,  St. Joe Container  bought a substantial  amount of its
linerboard from the St. Joe Mill. 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


                                        6

<PAGE>

         price,  which price is intended to generate  sufficient  funds to cover
cash  operating   costs,   cash  interest   expense  and   maintenance   capital
expenditures. Pursuant to this minimum price provision, the Company was required
to pay Florida Coast an additional  $4.0 million for its share of the linerboard
produced by the St. Joe Mill during the  six-month  period  ended  December  31,
1996.  Florida  Coast has  experienced  a decline in prices for  linerboard as a
result of  increased  capacity in the  industry  and  decreased  demand for such
products. Florida Coast has decided to shut down the St. Joe Mill as of April 1,
1997 for an indefinite  period of time. In light of current  market  conditions,
the Company  believes that it can purchase  linerboard from third parties during
the period the St. Joe Mill is shut down.

         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.

         In November 1993, the EPA announced proposed regulations,  known as the
"cluster  rules," that would  require more  stringent  controls on air and water
discharges from pulp and paper mills under the Clean Water Act and the Clean Air
Act. Pulp and paper  manufacturers have submitted  extensive comments to the EPA
on the proposed cluster rules in support of the position that requirements under
the   proposed   regulations   are   unnecessarily   complex,   burdensome   and
environmentally unjustified. It cannot be predicted at this time whether the EPA
will modify the  requirements  in the final  regulations.  Based on  information
presently  available  from the EPA, it is expected that the EPA will  promulgate
the final cluster rules in 1997. In addition,  the Company  anticipates that the
earliest time for industry  compliance  with certain  aspects of the regulations
should not be prior to the last quarter of 1997,  and that  compliance  with the
remaining  elements will be required by the end of 1999.  The Company  estimates
that these regulations,  if adopted as currently proposed, would require capital
expenditures of  approximately  $1.5 million to $2.0 million by the Company with
respect to the Ft. Madison Mill. The ultimate  financial  impact of the proposed
regulations  on the Company will depend on the nature of the final  regulations,
the  timing of  required  implementation  and the cost and  availability  of new
technology.

         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 (the  "Acquisition  Agreement"))  arising  from  conditions
existing on the date of the closing of the 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 the Mill Joint  Venture,  (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 the Mill Joint Venture,
(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 the Mill Joint Venture 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 the Mill Joint Venture
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 the Mill Joint Venture, 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
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
the Mill Joint Venture, 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


                                        7


<PAGE>

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 the
Mill Joint  Venture and the  Company,  the benefit of  indemnification  from the
Paper  Indemnitors  with  respect  to  such  environmental  liabilities  will be
allocated  80.0% to the Mill Joint  Venture and 20.0% to the  Company,  with the
Mill Joint Venture 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
the Mill Joint  Venture  undergoes  a "change  of  control"  (as  defined in the
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  Acquisition  Agreement) or the
"Lenders" (as defined in the Acquisition  Agreement) acquires more than 50.0% of
the total voting power of all classes of voting stock of the Company or the Mill
Joint  Venture,  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
the  Mill  Joint  Venture,  as  the  case  may  be,  (iii)  the  sale  of all or
substantially all of the capital stock of the Company or the Mill Joint Venture,
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 the Mill Joint Venture,  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 the Mill Joint Venture, 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 the Mill Joint Venture as of the Closing.

         Pursuant to the 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  Acquisition  Agreement  are
generally  intended to be the exclusive  remedies of the parties with respect to
such agreements.

Personnel

         As of December 31, 1996, the Company had 2,439 employees, of whom 1,769
were hourly employees and 670 were salaried  employees.  Of such employees,  559
were engaged in management  and  administrative  functions,  111 were engaged in
sales and marketing and 1,769 were engaged in manufacturing.  One thousand three
hundred and sixty-seven hourly employees at 20 Company facilities are members of
unions under 21 separate  contracts.  One of these  contracts is currently being
renegotiated, one expires in 1997, ten expire in 1998, seven expire in 1999, one
expires in 2000 and one expires in 2001.  Management  believes that its employee
relations are good.


                                        8

<PAGE>

Item 2.  PROPERTIES

         The Company owns or leases manufacturing properties having an aggregate
floor space of  approximately  4.7 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              135,000             Corrugator          Leased
Port St. Joe, FL (1)(2)  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 (1)        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
Dallas, TX (1)           187,000             Corrugator          Owned
Houston, TX (1)          157,000             Corrugator          Owned
Chesapeake, VA (1)       148,000             Corrugator          Owned
Dothan, AL (1)            31,000             Sheet               Owned
Montebello, CA (6)        90,000             Sheet (4)           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(6)       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             Sheet               Owned
North Brunswick NJ (6)   107,220             Sheet               Owned

-----------
(1)  Properties acquired in the Acquisition.
(2)  Property  net  leased  from the Mill  Joint  Venture  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 plant.  Full
     operations are expected to commence during fiscal 1997.
(6)  Inactive facilities.
(7)  Machinery and equipment  sold in January 1997.  The plant was net leased to
     the purchaser

                                        9

<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 five month  period  covered  by this  report,  no matter was
submitted to a vote of security holders of the Company.


                                       10

<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  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 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.  The data as of and for the fiscal years
ended  July  31,  1993  and 1992 are  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.


                                       11

<PAGE>
<TABLE>
<CAPTION>

                                               Five Months Ended
                                                 December 31,                                     Fiscal Year Ended July 31,
------------------------------------------------------------------------------------------------------------------------------------
                                               1996        1995        1996         1995           1994         1993         1992
                                               ----        ----        -----        ----           -----        -----        -----
                                                                             (In thousands)
Statement of Operation Data:
<S>                                         <C>          <C>        <C>          <C>           <C>           <C>          <C>
Net sales ..............................    $ 196,787    $ 95,614   $ 257,817    $ 271,994     $ 228,563     $ 214,936    $ 203,179
Cost of goods sold .....................      171,304      81,119     222,105      232,154       205,025       192,208      178,189
                                            ---------    --------   ---------    ---------     ---------     ---------    ---------
Gross profit ...........................       25,483      14,495      35,712       39,840        23,538        22,728       24,990
Selling, general and administrative
expenses ...............................       17,707       6,320      19,217       19,703        22,018        21,813       23,663
                                            ---------    --------   ---------    ---------     ---------     ---------    ---------
Income from operations .................        7,776       8,175      16,495       20,137         1,520           915        1,327
Loss on joint venture contract .........        1,668          --          --           --            --            --           --
Other income ...........................          425           2          --        1,927           126         3,651        5,917
Interest expense .......................       10,106       1,589       7,565        5,607         5,448         4,948        5,903
                                            ---------    --------   ---------    ---------     ---------     ---------    ---------
Income (loss) before  provision  (benefit) for income taxes,  minorit  interest,
     cumulative effect of change in method of accounting
     and  extraordinary gain on early ..       (3,573)
     retirement of debt ................            y       6,588       8,930       16,457        (3,802)         (382)       1,341
Minority interest ......................          (87)         --          --         (146)         (180)           --           94
Cumulative effect in change in method
     of accounting for taxes on income .           --          --          --           --           381            --           --
Provision (benefit) for income taxes ...       (1,486)      2,966       3,817        5,483          (325)          453          832
Extraordinary gain on early retirement .           --          --          --        2,219            --            --          321
                                            ---------    --------   ---------    ---------     ---------     ---------    ---------
     of debt
Net income (loss) ......................    $  (2,174)   $  3,622   $   5,113    $  13,047     $  (3,276)    $    (835)   $     924
                                            =========    ========   =========    =========     =========     =========    =========

Other Financial Data:
Ratio of earnings to fixed charges(1) ..         0.7x        3.9x        2.0x         3.3x           .5x          1.0x         1.1x
EBITDA(2) ..............................    $  11,820    $  9,469   $  21,677    $  25,382     $   6,796     $   6,209    $   6,664
Net cash provided by (used for)
     operating activities(3) ...........       (3,930)      1,127      27,060       (2,217)        4,794         8,860        3,615
Net cash provided by (used for)
     investing activities ..............       (4,707)       (221)   (166,642)      (1,975)       (9,126)       (4,135)       3,733
Net cash provided by (used for)
     financing activities ..............       10,257      (1,032)    139,167        3,518         5,182        (3,841)      (8,336)
Depreciation and amortization ..........        5,287       1,432       5,182        5,245         5,276         5,294        5,337
Capital expenditures ...................       (6,721)     (1,405)      8,612        3,690         3,916         3,935        2,862
Adjusted net sales(4) ..................      196,787      89,252     246,140      212,562       155,869       153,857      139,116
Adjusted EBITDA(4) .....................       11,820      10,919      24,831       24,210         3,926         2,196        3,110


                                               Five Months Ended
                                                 December 31,                                     Fiscal Year Ended July 31,
------------------------------------------------------------------------------------------------------------------------------------
                                               1996        1995        1996         1995           1994         1993         1992
                                               ----        ----        -----        ----           -----        -----        -----
                                                                              (In thousands)
Balance Sheet Data:
Working capital ........................    $  45,849    $ 16,108   $  37,590    $  14,504     $   8,903     $  10,413    $  11,573
Property, plant and equipment, net .....      173,333      33,736     157,973       27,044        36,536        36,052       37,636
Total assets ...........................      303,645      76,322     263,809       73,137        93,933        79,716       85,744
Total long-term debt ...................      210,691      36,113     187,092       30,998        44,105        40,993       44,285
Stockholder's equity ...................       12,188      12,131      14,362        8,649         1,278         4,554        5,389

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


                                                       12

<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  expense  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  until March 31, 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.


                                       13

<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.

     The Company  manufacturers  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  70.0% of the
total cost of goods sold.  The  ability of the  Company to maintain  value-added
margins  is 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  addition  to  maintaining  value-added  margins,  the  Company has also
focused on controlling costs through maximum utilization of available production
capacity,   the  development  and   implementation  of  financial  controls  and
management systems and minimization of waste.  Direct costs of production at the
Company's  converting  facilities  have  declined  on a per unit basis from 1992
through the present. By controlling costs and maintaining  value-added  margins,
together with adding to its manufacturing base through acquisitions completed in
a cost  effective  manner,  the Company has been able to increase  its net sales
from $36.3  million in Fiscal 1985 to 257.8  million in Fiscal 1996, to increase
net  income  from $0.7  million  to $5.1  million  over the same  period  and to
increase EBITDA from $2.6 million to $21.7 million over the same period.  In the
1996 Transition Period, the Company had net sales of $196.8 million, net loss of
$2.2 million and EBITDA of $11.8 million.

         On May 30, 1996,  the Mill Joint Venture  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 Mill Joint Venture Partners,  each
of which has committed to purchase  one-half of the St. Joe Mill's  output.  The
St. Joe Mill has two paper machines which are capable of producing approximately
500,000 tons of  linerboard  annually in a variety of grades and basis  weights.
Since 1990,  approximately $148.0 million has been spent for the maintenance and
modernization  of the St. Joe Mill's  plant,  equipment  and  machinery  and for
environmental  compliance.  The  St.  Joe  Mill's  operations  will  be  managed
principally by personnel designated by Stone Container.

         The  Company  was  required to pay  Florida  Coast an  additional  $4.0
million for its 50% share of the linerboard  produced by the St. Joe Mill during
the five-month  period ended  December 31, 1996. The Company  recorded a loss on
joint venture  contract of $1.7 million and utilized $2.3 of the Reserve  during
the 1996 Transition Period.

         Prior  to the  consummation  of the  Acquisition,  both of the St.  Joe
Mill's paper machines were shut down for  maintenance  and to reduce  inventory,
from April 17, 1996 through May 6, 1996,  and in December 1995 and January 1996,
one paper machine was shut down for the same reasons.  Since the consummation of
the  Acquisition,  both of the St. Joe Mill's paper  machines  were shut down in
July 1996 for annual  maintenance.  Florida  Coast has  experienced a decline in
prices for  linerboard  as a result of  increased  capacity in the  industry and
decreased  demand for its  products.  Florida Coast has decided to shut down the
St. Joe Mill as of April 1, 1997 for an  indefinite  period of time until market
conditions warrant a resumption of production.


                                       14

<PAGE>

         During the 1996 Transition Period, 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 of this decline in prices
and demand,  the Company shut down the Ft. Madison Mill as of March 31, 1997 for
an indefinite  period of time.  Operations  at the Ft.  Madison Mill will resume
when market  conditions  warrant  resumption  of  production.  The Company  will
satisfy its current  obligations  to third parties for  corrugating  medium from
other sources.

     In December 1996,  the Company  changed its fiscal year end from July 31 to
December  31. This report  includes the five month period from August 1, 1996 to
December 31, 1996 as a transitional period.

Summary Sales Table
<TABLE>
<CAPTION>


                                       Five Months Ended December 31,                          Fiscal Year Ended July 31,
                                    -------------------------------------   -------------------------------------------------------
                                          1996               1995                1996               1995               1994
                                    -----------------   -----------------   ----------------    ---------------    ----------------
                                                                                (in millions)
                                               Percent           Percent            Percent              Percent             Percent
                                               of Net             of Net             of Net               of Net              of Net
                                      Amount    Sales   Amount    Sales     Amount   Sales      Amount    Sales     Amount    Sales
                                      ------    -----   ------    -----     ------   -----      ------    -----     ------    -----
<S>                                <C>         <C>     <C>        <C>     <C>         <C>     <C>         <C>     <C>        <C>
Net sales .......................  $  196.8    100.0%  $  95.6    100.0%  $  257.8    100.0%  $  272.0    100.0%  $  228.6   100.0%
Cost of goods sold ..............     171.3     87.0      81.1     84.8      222.1     86.2      232.2     85.4      205.0    89.7
Gross profit ....................      25.5     13.0      14.5     15.2       35.7     13.8       39.8     14.6       23.6    10.3
Selling, general and
     administrative expenses ....      17.7      9.0       6.3      6.6       19.2      7.4       19.7      7.2       22.0     9.6
Income from operations ..........       7.8      4.0       8.2      8.6       16.5      6.4       20.1      7.4        1.6     0.7
Loss on joint venture
     contract ...................       1.7      0.9        --       --         --       --         --       --         --      --
Other income ....................       0.4      0.9        --       --         --       --        2.0      0.7        0.1     0.1
Interest expense ................      10.1      5.1       1.6      1.7        7.6      2.9        5.6      2.1        5.5     2.4
                                     ------    -----     -----    -----     ------    -----     ------    -----     ------   -----
Income (loss) before provision (benefit) for income taxes, minority interest and
     extraordinary gain on early retirement
     of debt ....................      (3.6)    (1.8)      6.6      6.9        8.9      3.5       16.5      6.1       (3.8)   (1.6)
Provision (benefit) for
     income taxes ...............      (1.5)    (0.1)      3.0      3.1        3.8      1.5        5.5      2.0       (0.3)   (0.1)
                                      ------    -----     -----    -----     ------    -----     ------    -----     ------   -----
Net income (loss) before
     minority interest and
     extraordinary gain on
     early retirement of debt ...  $   (2.1)    (1.1)% $   3.6      3.8%  $    5.1      2.0%  $   11.0      4.1%  $   (3.5)   (1.5)%
                                      ======    =====     =====    =====     ======    =====     ======    =====     ======   =====
</TABLE>


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

         The Company's net sales increased $101.2 million,  or 105.9%, to $196.8
million in the 1996  Transition  Period  compared  to $95.6  million in the five
month period from August 1, 1995 to December 31, 1995 (the "1995  Period").  Net
sales for the Company's  converting  operations  increased  $110.3  million,  or
137.4%,  to $190.7  million  in the 1996  Transition  Period  compared  to $80.3
million in the 1995  Period  primarily  as a result of the  Acquisition  and the
MannKraft Acquisition which was partially offset by lower average selling prices
during the 1996 Transition  Period.  Net sales at the Ft. Madison Mill decreased
$9.2 million,  or 60.0%, to $6.1 million in the 1996 Transition  Period compared
to $15.3 million in the 1995 Period due to a 54.1%  decrease in price per ton to
$262 in the 1996 Transition Period from $461 in the 1995 Period.

         The Company's cost of goods sold as a percentage of net sales increased
to 87.0% for the 1996 Transition  Period from 84.8% in the 1995 Period primarily
as a result of the decrease in sales price per ton  incurred at the Ft.  Madison
Mill  which  was  partially  offset  by a  decrease  in cost of goods  sold as a
percentage of net sales at the converting facilities.  Cost of goods sold at the
Company's converting  operations decreased as a percentage of net sales to 86.4%
in the 1996  Transition  Period from 89.1% in the 1995  Period,  whereas cost of
goods sold at the Ft.  Madison Mill  increased  as a percentage  of net sales to
105.7% in the 1996 Transition  Period from 62.1% in the 1995 Period primarily as
a result of the 54.1% decrease in selling prices per ton.


                                       15

<PAGE>

         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  primarily a
result of the Acquisition and the MannKraft Acquisition.  As a percentage of net
sales, gross profit decreased to 13.0% in the 1996 Transition Period compared to
15.2% in the 1995 Period  primarily as a result of the net loss  incurred at the
Ft.  Madison  Mill.  Gross profit as a percentage of net sales for the Company's
converting  operations increased to 13.5% in the 1996 Transition Period compared
to 10.8% in the 1995 Period.

         Selling,  general and administrative  expenses increased $11.4 million,
or 181.0%,  to $17.7 million in the 1996 Transition  Period from $6.3 million in
the 1995 Period,  primarily  as a result of the  Acquisition  and the  MannKraft
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 1995
Period. This increase is primarily a result of a decrease in paper 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 1995 Period,  primarily as 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 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 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 1995 Period.
This change is related to the decrease in income before taxes. The effective tax
rate in the 1996  Transition  Period  was  41.6%  compared  to 45.5% in the 1995
Period.  This  decrease  was  primarily  due to a gain on the sale of one of the
Company's subsidiaries in the 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
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 Companmy 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
The Fonda Group, Inc. ("Fonda") in March 1995.

         The Company's cost of goods sold as a percentage of net sales increased
to 86.2% for Fiscal  1996 from 85.4% in Fiscal  1995.  Cost of goods sold at the
Company's converting  operations increased as a percentage of net sales to 88.0%
in Fiscal  1996 from 87.6% in Fiscal  1995  primarily  as a result of a shift in
product mix in Fiscal 1996. Cost of goods sold at the Ft. Madison Mill increased
as a  percentage  of net sales to 74.3% in Fiscal 1996 from 73.2% in Fiscal 1995
primarily as a result of a decrease in selling prices per ton.

         Gross profit  decreased  $4.1  million,  or 10.3%,  to $35.7 million in
Fiscal 1996 from $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.
Gross profit as a percentage of net sales for the Ft.  Madison Mill increased to
25.7% in Fiscal 1996 compared to 26.8% in Fiscal 1995.

         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.


                                       16

<PAGE>

         Operating  income  decreased $3.6, 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.

Fiscal 1995 Compared to Fiscal 1994

         The Company's net sales  increased  $43.4 million,  or 19.0%, to $272.0
million in Fiscal 1995 compared to $228.6  million in Fiscal 1994. Net sales for
the Company's converting operations increased $40.6 million, or 26.1%, to $196.0
million in Fiscal 1995 compared to $155.4  million in Fiscal 1994 primarily as a
result of an increase in average  price per thousand  square feet sold to $51.66
in Fiscal 1995 from $40.90 in Fiscal 1994 with volume  remaining  virtually flat
at 3,794 million  square feet sold  compared to 3,799 million  square feet sold.
Net sales at the Ft. Madison Mill increased $22.3 million,  or 197.3%,  to $33.6
million in Fiscal 1995 compared to $11.3  million in Fiscal 1994  primarily as a
result  of net  sales in  Fiscal  1994  reflecting  only  five  full  months  of
operations of the Ft. Madison Mill, which was acquired by the Company in January
1994,  and by a 48.6%  rise in the  average  price  per ton sold of  corrugating
medium to $442.67 in Fiscal 1995 from $297.98 in Fiscal 1994.  Volume at the Ft.
Madison Mill  increased to 75,872 tons sold in Fiscal 1995 from 38,029 tons sold
in Fiscal 1994. The increase in net sales from the Company's converting and mill
operations  was partially  offset by a decrease of $19.4 million,  or 31.4%,  in
Fonda's net sales to $42.4  million in Fiscal 1995 from $61.8  million in Fiscal
1994,  resulting from the elimination of four months of operations following the
spin-off of Fonda in March 1995.

         The Company's  cost of goods sold as a percentage of net sales improved
to 85.4% in Fiscal 1995 compared to 89.7% in Fiscal 1994.  Cost of goods sold as
a percentage of net sales at the  Company's  converting  facilities  improved to
87.1% in Fiscal 1995  compared to 91.2% in Fiscal  1994.  This  improvement  was
primarily  a result of a decrease in labor costs to 10.3% of net sales in Fiscal
1995 from  13.8% of net  sales in  Fiscal  1994 and  reductions  in other  major
components of  manufacturing  costs as a percentage of net sales.  Cost of goods
sold as a percentage  of net sales at the Ft.  Madison Mill improved to 73.2% in
Fiscal  1995 from 99.1% of net sales for the initial  five  months of  ownership
ended July 31,  1994.  The  improved  performance  at the Ft.  Madison  Mill was
primarily a result of improved value-added margins which resulted from the 48.6%
increase in average price per ton sold of corrugating medium partially offset by
a 24.7% increase in raw material costs per ton sold. Manufacturing costs per ton
(excluding raw materials used at the Ft. Madison Mill) decreased to $169 per ton
in Fiscal 1995, or 1.7%, from $172 per ton sold in Fiscal 1994.

         Gross profit  increased  $16.3 million,  or 69.4%,  to $39.8 million in
Fiscal  1995 from $23.5  million in Fiscal  1994,  primarily  as a result of the
reduction in the cost of goods sold as a  percentage  of net sales to 85.4% from
89.7%  during this period.  Gross  profit as a  percentage  of net sales for the
Company's  converting  operations  increased to 12.4% in Fiscal 1995 compared to
8.8% in  Fiscal  1994.  Gross  profit as a  percentage  of net sales for the Ft.
Madison Mill improved to 26.8% in Fiscal 1995 compared to 0.9% in Fiscal 1994.

         Selling, general and administrative expenses decreased $2.3 million, or
10.5%, to $19.7 million in Fiscal 1995 from $22.0 million in Fiscal 1994 due, in
part, to the elimination of Fonda's expenses  subsequent to March 1995. Selling,
general and  administrative  expenses as a percentage  of net sales were 7.2% in
Fiscal 1995  compared to 9.6% in Fiscal  1994.  This  decrease  was  primarily a
result of a reduction in certain  selling,  legal,  insurance and other costs at
the Company's converting facilities.

         Operating  income  increased  $18.6  million to $20.1 million in Fiscal
1995 from $1.5 million in Fiscal 1994. This increase was attributable to a 26.1%
increase  in net  sales  in the  Company's  converting  operations  and a  13.2%
improvement in value-added margin for the Company's  converting  operations,  as
well as a reduction  in overall  selling,  general and  administrative  expenses
primarily as a result of the exclusion of Fonda after March 1995.

         Other  income  increased  $1.8  million to $1.9  million in Fiscal 1995
compared to $0.1 million in Fiscal 1994.  This increase was due to a gain on the
sale of the assets of the Company's fiber partitions division.

         Income  taxes  increased  $5.8  million to $5.5  million in Fiscal 1995
compared to a tax  benefit in Fiscal 1994 of $0.3  million.  This  increase  was
directly related to the change in income before taxes.


                                       17

<PAGE>

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  operating  activities  was $3.9  million in the 1996
Transition Period compared to net cash provided by operating  activities of $1.1
million in the 1995 Period. This decrease in cash flow was primarily a result of
the Company's  reduction in earnings during the 1996 Transition Period. Net cash
provided by operating  activities for Fiscal 1996 was $27.1 million  compared to
net cash used for  operating  activities  of $2.2 million for Fiscal 1995.  Cash
provided by operating activities in Fiscal 1996 was driven by net income of $5.1
million for the period and a $14.1  million  reduction  in the level of accounts
receivable  and  inventory  which was  offset  by a $7.1  million  reduction  in
accounts payable and accrued liabilities. Net cash used for operating activities
was $2.2  million for Fiscal 1995  compared  to net cash  provided by  operating
activities of $4.8 million in Fiscal 1994. The  period-to-period  change was due
primarily to the net changes related to the exclusion of Fonda after March 1995.

         Net cash used for  investing  activities  was $4.7  million in the 1996
Transition Period compared to $0.2 million in the 1995 Period. This increase was
due  principally  to  capital  expenditures  and  the  Company's  investment  in
MannKraft, which was partially offset by the receipt of the final purchase price
adjustment by St. Joe in connection with the Acquisition and the sale of certain
assets  located at the Flint,  Michigan  facility.  Net cash used for  investing
activities  was $166.6  million  for Fiscal 1996  compared  to $2.0  million for
Fiscal 1995. This increase was  principally  the result of the financing  raised
for the Acquisition and an increase in capital  expenditures.  The Company's net
cash used for  investing  activities  decreased  to $2.0  million in Fiscal 1995
compared to $9.1 million for Fiscal  1994.  The  decrease  was  principally  the
result of the  acquisition  by the Company in January  1994 of three  converting
facilities and the Ft. Madison Mill for $5.3 million (the "CPC Acquisition").

         Net cash provided by financing activities was $10.3 million in the 1996
Transition  Period  compared to net cash used for  financing  activities of $1.0
million in the 1995 Period. This increase was due primarily to borrowings by the
Company  pursuant  to the  Credit  Facility  which  were  used to  fund  capital
expenditures  and working capital needs.  This increase was partially  offset by
the  prepayment  of certain  long-term  debt.  Net cash  provided  by  financing
activities  was $139.2  million in Fiscal 1996  compared to net cash provided by
financing  activities of $3.5 million in Fiscal 1995. The increase was primarily
a result of the net proceeds  received from the sale of the Company's 12% Series
A Senior Secured Notes due 2006 (the "Notes") and borrowings under the Company's
Credit  Facility.  In Fiscal 1996 net cash provided by financing  activities was
used to repay  $16.1  million  under a credit  facility,  $10.0  million of term
loans, $2.1 million of subordinated debt and the balance for other debt.

         Capital  expenditures for the 1996 Transition  Period were $6.7 million
compared to $1.4 million in the 1995  Period.  Capital  expenditures  for Fiscal
1996 were $8.6 million compared to $3.7 million for Fiscal 1995. These increases
were primarily a result of equipment purchases for and rehabilitation of certain
property at a facility in Vernon, California. 

         The Company has implemented a target capital  expenditure  program with
annual capital expenditures  totaling  approximately $17.0 million for 1997. The
Company intends to finance capital expenditures primarily through operating cash
flow.

         On May 30, 1996, the Company  established a Credit  Facility which will
mature 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.  On December 31, 1996,  the Company had unused  borrowing
capacity of approximately  $30.6 million under the Credit Facility.  Pursuant to
the Credit Facility,  the Company is subject to certain affirmative and negative
covenants  customarily  found in  agreements  of this type,  including,  without
limitation,  covenants  that  restrict,  subject  to  specified  exceptions  (i)
mergers,  consolidations,  asset  sales or changes in  capital  structure,  (ii)
creation or  acquisition  of  subsidiaries,  (iii) purchase or redemption of the
Company's  capital stock or declaration or payment of dividends or distributions
on  such  capital  stock,  (iv)  incurrence  of  additional  indebtedness,   (v)
investment activities,  (vi) capital expenditures,  (vii) granting or incurrence
of liens to secure other indebtedness,  (viii) prepayment or modification of the
terms of subordinated  indebtedness and (ix)  transactions  with affiliates.  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 and a minimum  fixed charge  coverage  ratio.  At December  31, 1996,  the
Company was in violation of two of its  financial  covenants  for which  waivers
were  obtained.  On  February  28,  1997,  the Credit  Facility  was amended and
Florida, L.P. was made an additional borrower


                                       18


<PAGE>

thereunder.  The sole general  partner of Florida,  L.P. is Four M Manufacturing
Group of Georgia, Inc., one of the guarantors of the Notes.

         In  addition,  the  Company  will  provide,  if needed,  the Mill Joint
Venture with up to $10.0  million of  subordinated  indebtedness  on a revolving
credit basis (the "Subordinated Credit Facility"). At December 2, 1996, the Mill
Joint  Venture drew down on the  Subordinated  Credit  Facility in the amount of
$2.0 million ($1.0 million of which was funded by the Company) to supplement its
cash flow in order to meet its 1996 debt  service  requirements.  The Mill Joint
Venture  currently  has  availability  of $10.0  million from each Joint Venture
Partner under the Subordinated Credit Facility.

         On May 30,  1996  (i) the  Company  acquired  substantially  all of the
assets of St. Joe Container and (ii) the Company and Stone Container through the
Mill Joint Venture acquired the St. Joe Mill. The purchase price for the St. Joe
Container  facilities was $87.8 million for the fixed assets, plus approximately
$69.7 million for working capital, for a total purchase price of $157.5 million,
subject to adjustment for changes in working capital. The purchase price for the
St. Joe Mill was $185.0 million for the fixed assets,  plus approximately  $17.4
million for  working  capital,  for a total  purchase  price of $202.4  million,
subject to adjustment for changes in working capital.  In July 1996, the Company
and Florida Coast received monies as purchase price  adjustments.  Approximately
$13.8  million  was  paid  to the  Company.  In  December  1996,  St.  Joe  paid
approximately  $5.2 million as final payment for the purchase price  adjustment.
The Company  acquired a 50% equity  interest in the Mill Joint  Venture for $5.0
million.  The  Acquisition  was  funded by the sale of the Notes and  borrowings
under the Credit Facility.

         Pursuant to the Output Purchase Agreement,  the Company was required to
pay Florida  Coast an  additional  $4.0 million for its share of the  linerboard
produced by the St. Joe Mill during the  six-month  period  ended  December  31,
1996. The Company  recorded a loss on joint venture contract of $1.7 million and
utilized $2.3 of the Reserve during the 1996 Transition Period.

         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 capital expenditure needs, 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.

         In November 1993, the EPA announced proposed regulations,  known as the
"cluster  rules," that would  require more  stringent  controls on air and water
discharges from pulp and paper mills under the Clean Water Act and the Clean Air
Act. Pulp and paper  manufacturers have submitted  extensive comments to the EPA
on the proposed cluster rules in support of the position that requirements under
the   proposed   regulations   are   unnecessarily   complex,   burdensome   and
environmentally unjustified. It cannot be predicted at this time whether the EPA
will modify the  requirements  in the final  regulations.  Based on  information
presently  available  from the EPA, it is expected that the EPA will  promulgate
the final cluster rules in 1997. In addition,  the Company  anticipates that the
earliest time for industry  compliance  with certain  aspects of the regulations
should not be prior to the last quarter of 1997,  and that  compliance  with the
remaining elements will be required by the end of 1999. The Company


                                       19

<PAGE>

estimates  that  these  regulations,  if adopted as  currently  proposed,  would
require capital  expenditures of  approximately  $1.5 million to $2.0 million by
the Company with respect to the Ft. Madison Mill. The ultimate  financial impact
of the  proposed  regulations  on the  Company  will depend on the nature of the
final  regulations,  the  timing  of  required  implementation  and the cost and
availability of new technology.

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.


                                       20

<PAGE>

                                    PART III


Item 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The following table sets forth certain  information with respect to the
directors and executive officers of the Company.

Name                    Age       Position

Dennis Mehiel          55         Chairman, Chief Executive Officer and Director
Chris Mehiel           57         Executive Vice President, Chief Operating
                                  Officer and Director
Timothy D. McMillin    54         Senior Vice President, Chief
                                  Financial Officer and Director
Gerald K. Adams        43         Chief Executive Officer of Box USA Group, Inc.
Harvey L. Friedman     55         Corporate Secretary and General Counsel
Howard Brainin         67         Regional Vice President
Lawrence A. Bishop     52         Director
Samuel B. Guren        50         Director
Thomas Uleau           52         Director
James Armenakis        53         Director
John Nevin             62         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  and  the  MannKraft
Corporation, a corrugated container manufacturer ("MannKraft").

         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 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 MannKraft
Corporation,  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.

         Timothy D.  McMillin has been a Director of the Company  since 1983 and
Senior Vice President and Chief  Financial  Officer since  September  1995. From
November 1994 to September 1995, he was Chairman of Executive Advisors,  Inc., a
consulting firm specializing in financial restructuring.  From 1991 to 1994, Mr.
McMillin was an independent  strategic and financial  consultant.  Mr.  McMillin
spent over 25 years in the  financial  services  industry  and served in various
capacities,  including Executive Vice President, at Maryland National Bank, from
1965  to  1990.  Mr.  McMillin  is  a  Director  of  EIL  Instruments,  Inc.,  a
manufacturer and distributor of testing, measurement and energy control systems.
Mr.  McMillin  is a member  of the Audit  Committee  of the  Company's  Board of
Directors.

         Gerald  K.  Adams  became  Chief  Executive  Officer  of the  Company's
subsidiary, Box USA Group, Inc., in June 1996. 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.

         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.

         Howard Brainin became Regional Vice President of Box USA Group, Inc. in
May 1996. From March 1992 until May 1996, Mr. Brainin was a Vice President and a
Director of St. Joe Paper and the President of St. Joe Container.  From December
1981 to March  1992,  Mr.  Brainin  was a  Regional  Vice  President  of St. Joe
Container.


                                       21

<PAGE>

         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.

         Samuel B. Guren has been a Director of the Company  since 1987. He is a
Managing Director of Baird Capital  Partners,  a private equity fund. He is also
co-founder and Managing  Partner since 1982 of William Blair Venture  Management
Company, the general partner of three private equity funds. Mr. Guren was a Vice
President at Continental  Illinois  Corporation  from 1974 to 1981. Mr. Guren is
Chairman of the Audit Committee of the Company's  Board of Directors.  Mr. Guren
is also a Director of Fonda and Maus Bros. Jewelers Inc.

         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.  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
been an Executive Vice President at Fieldcrest Cannon,  Inc. since October 1995.
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.


                                       22

<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  the  1996  Transition  Period
(collectively,  the "Named  Executive  Officers")  for services  rendered in all
capacities to the Company for the 1996 Transition  Period and Fiscal 1994, 1995,
and 1996:
<TABLE> 
<CAPTION>

                           Summary Compensation Table
                                                                            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>
Dennis Mehiel.................   1996 Transition Period        $229,167       $ 39,200          -              -               -
Chairman of the Board of         1996                           369,166        173,131    31,574(2)            -        101,412(3)
Directors and Chief              1995                           333,044        375,000    38,904(2)            -        137,448(3)
Executive Officer                1994                           373,641              -    16,462(2)            -         87,287(3)


Chris Mehiel..................   1996 Transition Period        $115,000              -          -              -               -
Executive Vice President and     1996                           167,333(4)      60,000          -              -               -
Chief Operating Officer          1995                            24,000              -          -              -               -
                                 1994                           144,000              -          -              -               -

Gerald K. Adams...............   1996 Transition Period        $114,583              -     2,083(6)            -               -
Chief Executive Officer of       1996                            31,445(5)           -       500(6)            -               -
Box USA Group, Inc.              1995                                 -              -          -              -               -
                                 1994                                 -              -          -              -               -

Timothy D. McMillin...........   1996 Transition Period        $ 83,333              -       434(7)
Senior Vice President            1996                           154,542(4)      40,000     1,250(7)            -               -
and Chief Financial Officer      1995                                 -              -          -              -               -
                                 1994                                 -              -          -              -               -

Howard Brainin................   1996 Transition Period         $83,333        $20,833          -              -               -
Regional Vice President of       1996                           33,333(8)       38,000          -              -               -
Box USA Group, Inc.              1995                                 -              -          -              -               -
                                 1994                                 -              -          -              -               -

</TABLE>

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

(1)  Unless otherwise  indicated,  the Named Executive  Officers did not receive
     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 1996 Transition Period or Fiscal 1996, 1995 and
     1994.

(2)  Includes  imputed  interest from  non-interest  bearing  loans  provided to
     Dennis Mehiel by the Company in Fiscal 1996, 1995 and 1994.

(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)  Consists of salary for employment commencing on June 24, 1996.

(6)  Represents imputed interest from non-interest  bearing loan provided to Mr.
     Adams by the Company.

(7)  Represents imputed interest from non-interest  bearing loan provided to Mr.
     McMillin by the Company.

(8)  Consists of salary for employment commencing on May 31, 1996.


                                       23

<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

         Timothy  D.  McMillan  and  Chris  Mehiel   received  grants  of  stock
appreciation  rights ("SARs") in the amount of 17,000 and 20,000,  respectively,
during the 1996 Transition Period.

Item 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      The following  table sets forth  information  as of December 31, 1996 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 the 1996 Transition Period, Fiscal 1996, Fiscal 1995 and Fiscal 1994
amounted to approximately  $0.4 million,  $1.0 million,  $0.9 million,  and $1.1
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 products 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  MannKraft,  to which the
Company sold approximately $1,351,000 million and $3,300,000 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 MannKraft in Fiscal 1995.

    In March 1995,  the Company spun off its Fonda  subsidiary to Dennis Mehiel.
The Company  sold  approximately  $1.1  million and $.06  million of material to
Fonda in 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  $3.1
million,  $2.0  million  and $3.4  million of  material  in 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 has outstanding  notes and loan  receivables  from Gerald Adams
and Timothy McMillin in the amount of $100,000 and $25,000, respectively, at the
end of Fiscal 1996 which are  non-interest  bearing and are due on June 30, 1999
and on  demand,  respectively.  The  Company  had  outstanding  notes  and loans
receivables from Dennis Mehiel in the amount 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, relate to
the cumulative premiums on life insurance policies paid by the Company on behalf
of Mr. Mehiel.


                                       24

<PAGE>

                                     PART IV

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


(a) Financial Statements and Financial Statement Schedules:

     Index to Financial Statements
     Independent Auditors' Report
     Consolidated Balance Sheets as of December 31, 1996, July 31, 1996 and 1995
     Consolidated Statements of Operations for the five months ended
       December  31,  1996,  the  years  ended  July  31,  1996,  1995  and 1994
     Consolidated Statements of Stockholder's Equity for the five months
       ended  December  31, 1996,  the years ended July 31, 1996,  1995 and 1994
     Consolidated Statements of Cash Flows for the five months ended
       December 31, 1996, the years ended July 31, 1996,  1995 and 1994 Notes to
     Consolidated Financial Statements

    The  Financial  Statements  for the period from May 30, 1996 to December 31,
1996,  together with the Independent  Auditors' Report for Florida Coast and the
Financial  Statements  for the  period  from  January  1, 1996 to May 30,  1996,
together  with the  Independent  Auditors'  Report for St.  Joe Forest  Products
Company - Linerboard Mill Operations  included in the Annual Report on Form 10-K
for Florida Coast (File no.  333-8023)  ("Florida Coast 10-K") as filed with the
SEC on March 31, 1997.

(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
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, 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  First  Amendment  to  Financing  and  Security  Agreement  and  Additional
      Borrower  Joinder  Supplement,  dated as of February 28,  1997,  among the
      Company,  the Guarantors,  the Lenders,  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.
99.1  The Financial  Statements  for the period from May 30, 1996 to December 1,
      1996, together with the Independent  Accountants' Report for Florida Coast
      and the  Financial  Statements  for the period from January 1, 1996 to May
      30, 1996 and the two years ended  December 31, 1995 and 1994 together with
      the Independent  Auditors'  Report for St. Joe Forest  Products  Company -
      Linerboard Mill Operations  included in the Annual Report on Form 10-K for
      Florida Coast (File no. 333-8023) as filed with SEC on March 31, 1997.

(b) Reports on Form 8-K

     A report  on Form  8-K was  filed  by the  Company  on  December  19,  1996
     regarding  the  change  of the  Company's  fiscal  year end from July 31 to
     December 31.

     A report on Form 8-K was filed by the Company on March 14,  1997  regarding
     the shut down of the Company's Ft. Madison Mill.


                                       25

<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          Chairman of the Board and Director    April 1, 1997
-----------------          (Principal Executive Officer)
Dennis Mehiel


/s/ Chris Mehiel           Executive Vice President, Chief       April 1, 1997
----------------           Operating Officer and Director
Chris Mehiel



/s/ Timothy D. McMillin    Senior Vice President, Chief          April 1, 1997
-----------------------    Financial Officer and Director
Timothy D. McMillin        (Principal Accounting Officer)


/s/ James Armenakis        Director                              April 1, 1997
-------------------
James Armenakis


/s/ Lawrence Bishop        Director                              April 1, 1997
-------------------
Lawrence A. Bishop


Samuel B. Guren            Director                              April 1, 1997


/s/ John Nevin             Director                              April 1, 1997
--------------
John Nevin


/s/ Thomas Uleau           Director                              April 1, 1997
----------------
Thomas Uleau


<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          Chairman of the Board and Director    April 1, 1997
-----------------          (Principal Executive Officer)
Dennis Mehiel


/s/ Chris Mehiel           Executive Vice President, Chief       April 1, 1997
----------------           Operating Officer and Director
Chris Mehiel


/s/ Timothy D. McMillin    Senior Vice President, Chief          April 1, 1997
-----------------------    Financial Officer and Director
Timothy D. McMillin        (Principal Accounting Officer)


/s/ James Armenakis        Director                              April 1, 1997
-------------------
James Armenakis


/s/ Lawrence Bishop        Director                              April 1, 1997
-------------------
Lawrence A. Bishop


Samuel B. Guren            Director                              April 1, 1997


/s/ John Nevin             Director                              April 1, 1997
--------------
John Nevin


/s/ Thomas Uleau           Director                              April 1, 1997
----------------
Thomas Uleau


<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          Chairman of the Board and Director    April 1, 1997
-----------------          (Principal Executive Officer)
Dennis Mehiel


/s/ Chris Mehiel           Executive Vice President, Chief       April 1, 1997
----------------           Operating Officer and Director
Chris Mehiel


/s/ Timothy D. McMillin    Senior Vice President, Chief          April 1, 1997
-----------------------    Financial Officer and Director
Timothy D. McMillin        (Principal Accounting Officer)


/s/ James Armenakis        Director                              April 1, 1997
-------------------
James Armenakis


/s/ Lawrence Bishop        Director                              April 1, 1997
-------------------
Lawrence A. Bishop
Director


Samuel B. Guren            Director                              April 1, 1997
Director


/s/ John Nevin             Director                              April 1, 1997
--------------
John Nevin


/s/ Thomas Uleau           Director                              April 1, 1997
----------------
Thomas Uleau

<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          Chairman of the Board and Director    April 1, 1997
-----------------          (Principal Executive Officer)
Dennis Mehiel


/s/ Chris Mehiel           Executive Vice President, Chief       April 1, 1997
----------------           Operating Officer and Director
Chris Mehiel


/s/ Timothy D. McMillin    Senior Vice President, Chief          April 1, 1997
-----------------------    Financial Officer and Director
Timothy D. McMillin        (Principal Accounting Officer)


/s/ James Armenakis        Director                              April 1, 1997
-------------------
James Armenakis


/s/ Lawrence Bishop        Director                              April 1, 1997
-------------------
Lawrence A. Bishop


Samuel B. Guren            Director                              April 1, 1997


/s/ John Nevin             Director                              April 1, 1997
--------------
John Nevin


/s/ Thomas Uleau           Director                              April 1, 1997
----------------
Thomas Uleau


<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          Chairman of the Board and Director    April 1, 1997
-----------------          (Principal Executive Officer)
Dennis Mehiel


/s/ Chris Mehiel           Executive Vice President, Chief       April 1, 1997
----------------           Operating Officer and Director
Chris Mehiel


/s/ Timothy D. McMillin    Senior Vice President, Chief          April 1, 1997
-----------------------    Financial Officer and Director
Timothy D. McMillin        (Principal Accounting Officer)


/s/ James Armenakis        Director                              April 1, 1997
-------------------
James Armenakis


/s/ Lawrence Bishop        Director                              April 1, 1997
-------------------
Lawrence A. Bishop


Samuel B. Guren            Director                              April 1, 1997


/s/ John Nevin             Director                              April 1, 1997
--------------
John Nevin


/s/ Thomas Uleau           Director                              April 1, 1997
----------------
Thomas Uleau


<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          Chairman of the Board and Director    April 1, 1997
-----------------          (Principal Executive Officer)
Dennis Mehiel


/s/ Chris Mehiel           Executive Vice President, Chief       April 1, 1997
----------------           Operating Officer and Director
Chris Mehiel


/s/ Timothy D. McMillin    Senior Vice President, Chief          April 1, 1997
-----------------------    Financial Officer and Director
Timothy D. McMillin        (Principal Accounting Officer)


/s/ James Armenakis        Director                              April 1, 1997
-------------------
James Armenakis


/s/ Lawrence Bishop        Director                              April 1, 1997
-------------------
Lawrence A. Bishop
Director


Samuel B. Guren            Director                              April 1, 1997
Director


/s/ John Nevin             Director                              April 1, 1997
--------------
John Nevin


/s/ Thomas Uleau           Director                              April 1, 1997
----------------
Thomas Uleau
<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 18, 1997 which is contained in Item 8 of this Form 10-K
included  the audit of the  Schedule  listed under Item 21(b) for the five month
period  ended  December 31, 1996 and each of the three years in the period ended
July 31, 1996. This Financial  Statement  Schedule is the  responsibility of the
Company's  management.  Our  responsibility  is to  express  an  opinion on this
Financial Statement Schedule based on our audits.

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


                                                     /s/ BDO Seidmen, LLP
                                                     --------------------
                                                     BDO Seidman, LLP


Valhalla, New York
March 18, 1997


<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 -                               BALANCE AT END
DESCRIPTION                            PERIOD       EXPENSES              DESCRIBE       DEDUCTIONS - DESCRIBE          OF PERIOD
--------------------------------- -------------------------------   ------------------   -----------------------   --------------

<S>                                    <C>             <C>                                       <C>                     <C>       
Year ended July 31, 1993
  Allowance for doubtful
  accounts.......................      $1,970,000      $809,000             --                 $  612,000(1)             $2,167,000
--                                                                                                          
Year ended July 31, 1994
  Allowance for doubtful
  accounts.......................      $2,167,000      $599,000             --                 $1,224,000(1)             $1,542,000
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

</TABLE>

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




<PAGE>
                                 EXHIBIT INDEX


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

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, 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  First  Amendment to Financing  and  Security  Agreement  and
      Additional Borrower Joinder Supplement, dated as of February
      28, 1997, among the Company, the Guarantors,  the Lenders, 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.
99.1  The Financial  Statements  for the period from May 30, 1996 to December 1,
      1996, together with the Independent  Accountants' Report for Florida Coast
      and the  Financial  Statements  for the period from January 1, 1996 to May
      30, 1996 and the two years ended  December 31, 1995 and 1994 together with
      the Independent  Auditors'  Report for St. Joe Forest  Products  Company -
      Linerboard Mill Operations  included in the Annual Report on Form 10-K for
      Florida Coast (File no. 333-8023) as filed with SEC on March 31, 1997.

<PAGE>

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



                              Financial Statements
                                For the five months ended  December 31, 1996 and
                                    the years ended July 31, 1996, 1995 and 1994




                                                                               1


<PAGE>






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

                                                                        Contents

Report of Independent Certified Public Accountants                         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                           8-29


                                                                               2

<PAGE>

Report of Independent Certified Public Accountants

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, 1996, July 31,
1996  and  1995  and  the  related   consolidated   statements  of   operations,
stockholder's equity and cash flows for the five month period ended December 31,
1996 and each of the  three  years in the  period  ended  July 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, 1996,  July 31, 1996 and 1995 and the results of their  operations
and their cash flows for the five month period ended  December 31, 1996 and each
of the three  years in the  period  ended  July 31,  1996,  in  conformity  with
generally accepted accounting principles.

Valhalla, NY
March 18, 1997


                                                                               3


<PAGE>
<TABLE>
<CAPTION>

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

                                                                                       Consolidated Balance Sheets
                                                                             (In Thousands, except per share data)

                                                                      December 31,        July 31,         July 31,
                                                                          1996              1996             1995
--------------------------------------------------------------------------------------------------------------------
Assets
Current:
<S>                                                                   <C>                <C>                <C>    
   Cash and cash equivalents                                          $  2,431           $    811           $ 1,226
   Accounts receivable, less allowance for doubtful
      accounts of $1,621, $1,909 and $1,778, respectively
      (Note 12)                                                         52,775             43,193            22,867
   Inventories (Notes 10 and 12)                                        32,896             32,732            15,110
   Deferred income taxes  (Note 14)                                     12,661             10,241             2,001
   Notes, advances and other receivables                                 3,863              1,433             1,452
   Income taxes recoverable                                              4,207                 --                --
                                                                         -----            --------           -------
              Total current assets                                     108,833             88,410            42,656
Property, plant and equipment, net  (Notes 11 and 12)                  173,333            157,973            27,044
Goodwill and other intangibles, net of accumulated
   amortization of $880, $763 and $546, respectively
   (Note 6)                                                              4,678                933             1,007
Other assets (Notes 2 and 17)                                           16,801             16,493             2,430
                                                                        ------             ------             -----
                                                                      $303,645           $263,809           $73,137
                                                                      ========           ========           =======
                                                                                                            -------
Liabilities and Stockholder's Equity
Current:
   Accounts payable and accrued liabilities (Note 3)                  $ 24,703           $ 60,537           $48,380
   Current maturities of long-term debt and subordinated
      debt (Note 12 and 13)                                              2,447              2,440             3,449
                                                                         -----              -----             -----
              Total current liabilities                                 62,984             50,820            28,152
Long-term debt (Note 12)                                               208,777            187,092            29,918
Subordinated debt  (Note 13)                                             1,914                 --             1,080
Deferred income taxes  (Note 14)                                        14,486             10,390             3,663
Minority interest (Note 15)                                              1,584                 --               326
Other liabilities                                                        1,712              1,145             1,349
                                                                         -----              -----             -----
              Total liabilities                                        291,457            249,447            64,488
                                                                       -------            -------            ------
Commitments and contingencies (Note 8,9, 16 and 18)
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               904
   Additional paid-in capital                                              717                717               117
   Retained earnings                                                    11,529             13,703             8,590
                                                                        ------             ------             -----
                                                                        13,150             15,324             9,611
Less: treasury stock, at cost (413,903) shares                             962                962               962
                                                                           ---                ---               ---
              Total stockholder's equity                                12,188             14,362             8,649
                                                                        ------             ------             -----
                                                                      $303,645           $263,809           $73,137
                                                                      ========           ========           =======
</TABLE>

          See accompanying notes to consolidated financial statements.

                                                                               4


<PAGE>
<TABLE>
<CAPTION>
                                                                     Four M Corporation and Subsidiaries
                                                                                           d/b/a Box USA

                                                                   Consolidated Statements of Operations
                                                                                          (In Thousands)

                                                  
                                                  
                                                       Five Months 
                                                          Ended                             Years ended July 31,
                                                       December 31,    -------------------------------------------------------------
                                                           1996               1996                  1995               1994
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                     <C>                   <C>                   <C>                <C>     
Net sales                                               $196,787              $257,817              $271,994           $228,563
Cost of goods sold                                       171,304               222,105               232,154            205,025
-----------------------------------------------------------------------------------------------------------------------------------
              Gross profit                                25,483                35,712                39,840             23,538
Selling, general and administrative
   expenses                                               17,707                19,217                19,703             22,018
-----------------------------------------------------------------------------------------------------------------------------------
Income from operations                                     7,776                16,495                20,137              1,520
Other income (expense):
   Interest expense                                     (10,106)               (7,565)               (5,607)            (5,448)
   Loss on joint venture contract (Notes 6
      and 9)                                             (1,668)                     -                     -                  -
   Gain on sale of assets and other (Note 6)                 425                     -                 1,927                126
-----------------------------------------------------------------------------------------------------------------------------------
   Income (loss) before taxes, minority interest,
    cumulative effect of change in
    method of accounting and extraordinary
      gain on early retirement of debt                   (3,573)                 8,930                16,457            (3,802)
Provision (benefit) for income taxes
   (Note 14)                                             (1,486)                 3,817                 5,483              (325)
-----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before minority interest, 
cumulative effect of change in method of
   accounting and extraordinary gain
   on early retirement of debt                           (2,087)                 5,113                10,974            (3,477)
Minority interest (Note 15)                                 (87)                     -                 (146)              (180)
Cumulative effect of change in method of
   accounting for taxes on income
   (Note 14)                                                   -                     -                     -                381
Extraordinary gain on early retirement of
   debt (Notes 12 and 13)                                      -                     -                 2,219                  -
-----------------------------------------------------------------------------------------------------------------------------------
Net income (loss)                                    $   (2,174)             $   5,113             $  13,047            $  (3,276)
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

          See accompanying notes to consolidated financial statements.

                                                                               5


<PAGE>
<TABLE>
<CAPTION>

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

                                                       Consolidated Statements of Stockholder's Equity
                                                                                        (In Thousands)

                                        Common          Common     Additional
                                         Stock           Stock        Paid-in        Retained       Treasury
                                        Shares          Amount        Capital        Earnings          Stock           Total
------------------------------------------------------------------------------------------------------------------------------
<S>                                      <C>              <C>            <C>                            <C>         <C>
Balance, August 1, 1993                  7,230            $904           $117         $ 4,495           $962       $  4,554
Net loss                                     -               -              -         (3,276)              -         (3,276)
------------------------------------------------------------------------------------------------------------------------------
Balance, July 31, 1994                   7,230             904            117           1,219            962           1,278
Net income                                   -               -              -          13,047              -          13,047
Distribution (Note 6)                        -               -              -         (5,676)              -         (5,676)
------------------------------------------------------------------------------------------------------------------------------
Balance,  July 31, 1995                  7,230             904            117           8,590            962           8,649
Net income                                   -               -              -           5,113              -           5,113
Warrant issuance (Note 6)                    -               -            600               -              -             600
------------------------------------------------------------------------------------------------------------------------------
Balance, July 31, 1996                   7,230             904            717          13,703            962          14,362
Net loss                                     -               -              -         (2,174)              -         (2,174)
------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996               7,230            $904           $717         $11,529           $962         $12,188
------------------------------------------------------------------------------------------------------------------------------
</TABLE>

          See accompanying notes to consolidated financial statements.

                                                                               6


<PAGE>
<TABLE>
<CAPTION>

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

                                                                             Consolidated Statements of Cash Flows
                                                                                           (Note 4) (In Thousands)

                                                                        Five Months 
                                                                           Ended                 Years ended July 31,
                                                                       December 31,  ----------------------------------------------
                                                                           1996          1996              1995              1994
-----------------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
<S>                                                                     <C>          <C>                <C>               <C>      
   Net income (loss)                                                    $ (2,174)    $  5,113           $13,047           $(3,276) 
   Adjustments to reconcile net income (loss) to net cash provided
      by (used for) operating activities:                       
      Depreciation and amortization                                        5,287        5,182             5,245             5,276
      Allowance for doubtful accounts                                        583        (290)               467               678
      Non-cash interest expense                                                -            -               499             1,123
      Gain on sale/closure of subsidiary                                       -        (166)           (1,618)                 -
      Gain on exchange of stock for debt                                       -            -           (2,393)             (381)
      Deferred income taxes                                                1,578      (1,506)             (312)             (600)
      Loss (gain) on sale of fixed assets                                  (480)          246                32             (830)
      Change in assets and liabilities, net of effect of acquisi
        and disposals:                                          tions
           Accounts, advances, notes and other receivables               (3,151)        2,218           (4,273)           (5,061)
           Income taxes recoverable                                      (4,027)            -                 -                 -
           Inventories                                                     1,025       12,296          (10,594)           (1,194)
           Other assets, net of other liabilities                        (3,338)        (512)               275             (387)
           Accounts payable and accrued liabilities                          767        4,479           (2,592)             9,446
-----------------------------------------------------------------------------------------------------------------------------------
              Net cash provided by (used for) operating
                activities                                               (3,930)       27,060           (2,217)             4,794
-----------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
   Capital expenditures                                                  (6,721)      (8,612)           (3,690)           (3,916)
   Proceeds from sale of subsidiaries                                          -          898             1,618             1,401
   Proceeds from sale or exchange of fixed assets                          2,300          679               397               174
   Payment for acquisition, net of cash acquired                               -            -                 -            (6,601)
   Investment in Mannkraft, net of cash acquired                          (5,500)           -                 -                 -
   Purchase of net assets of St. Joe Container                                 -     (159,168)                -                 -
   Recovery of purchase price from St. Joe Container                       5,214            -                 -                 -
   Payment related to subsidiary spin-off, net of common stock
      sold                                                                     -            -              (300)                -
   Loans made to employees, net of payment                                     -        (439)                 -              (184)
-----------------------------------------------------------------------------------------------------------------------------------
              Net cash used for investing activities                     (4,707)     (166,642)           (1,975)           (9,126)
-----------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
   Proceeds from bond issuance                                                 -      170,000                 -                 -
   Financing costs                                                             -      (8,798)                 -                 -
   Borrowings under revolving credit agreements                           94,200       14,419                 -             3,428
   Repayments under revolving credit agreements                          (79,223)     (22,953)                 -                 -
   Secured term, mortgage, equipment and other borrowings                  8,534          380              8,914            7,172
   Repayment of long-term debt                                           (13,254)     (13,881)            (5,396)          (5,418)
-----------------------------------------------------------------------------------------------------------------------------------
              Net cash provided by financing activities                   10,257      139,167             3,518             5,182
Increase (decrease) in cash and cash equivalents                           1,620         (415)             (674)              850
Cash and cash equivalents, beginning of period                               811        1,226             1,900             1,050
-----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period                                $  2,431     $    811           $ 1,226           $ 1,900
-----------------------------------------------------------------------------------------------------------------------------------
</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

    1.   Summary of                     Business
         Significant Accounting
         Policies

                                        Four  M  Corporation  and   subsidiaries
                                        ("Four   M"  or   the   "Company")   are
                                        manufacturers  of  corrugated  packaging
                                        and semi-chemical corrugating medium and
                                        prior to the  distribution  of The Fonda
                                        Group,  Inc.  ("Fonda")  (See  Note  6),
                                        paper cups and plates.  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  its
                                        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
                                        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  investments 50%
                                        of 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 and Equipment

                                        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.

                                        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.

                                        Revenue Recognition

                                        Revenue is recognized  when products are
                                        shipped.


                                                                              8

<PAGE>

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

                                      Notes to Consolidated Financial Statements




                                        Income Taxes

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

                                        The Company files a consolidated federal
                                        tax return with all of its  subsidiaries
                                        except  MannKraft  (see  Note 6) and Box
                                        USA of Florida, L.P.,  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.

                                        Reclassifications

                                        Certain  prior year  balances  have been
                                        reclassified   to   conform   with   the
                                        December 31, 1996 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
                                        revenues   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.


                                                                               9

<PAGE>

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

                                      Notes to Consolidated Financial Statements

                                        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,
                                        approximate fair value based upon market
                                        rates for similar instruments.



    2.   Other Assets                   Other  assets at  December  31, 1996 and
                                        July 31, 1996 include an  investment  in
                                        Groveton Paper Board, Inc.  ("Groveton")
                                        an    unconsolidated     affiliate    of
                                        approximately  $5,250,000  (see  Note 6)
                                        and   deferred    financing   costs   of
                                        approximately $8,285,000 and $8,798,000,
                                        respectively.  Deferred  financing costs
                                        are being  amortized over 10 years using
                                        the straight-line method.               
                                        

    3.   Accounts Payable and           Accrued  liabilities were  approximately
         Accrued Liabilities            $30,150,000,  $25,915,000 and $4,603,000
                                        at December 31, 1996,  July 31, 1996 and
                                        1995, respectively. At December 31, 1996
                                        and July 31,  1996  accrued  liabilities
                                        included  approximately  $19,363,000 and
                                        $12,492,000,  respectively,  in reserves
                                        for unfavorable contracts related to the
                                        Acquisition    (see    Note    6)    and
                                        approximately $870,000 and $5,000,000 at
                                        December  31,  1996 and  July 31,  1996,
                                        respectively,   in  acquisition  related
                                        provisions  (see Note 6).  In  addition,
                                        accrued liabilities consisted of various
                                        items   including   employee   benefits,
                                        utilities, interest and plant repairs at
                                        December  31,  1996,  July 31,  1996 and
                                        1995.

                            
    4.   Supplemental Cash              The Company  made  interest  payments of
         Disclosures                    $11,683,000,  $4,204,000, $4,882,000 and
                                        $4,015,000  and income tax  payments  of
                                        $1,127,000,  $3,668,000,  $6,052,000 and
                                        $1,080,000  during the five month period
                                        ended  December  31, 1996 and the twelve
                                        month period  ended July 31, 1996,  1995
                                        and 1994, respectively. In addition, the
                                        Company   purchased    equipment   under
                                        capital leases for $7,862,000 during the
                                        twelve month period ended July 31, 1996.
                                        The Company had  non-cash  distributions
                                        of $5,676,000 and $1,262,000  during the
                                        twelve  month period ended July 31, 1995
                                        and 1994, respectively.


                                                                              10


<PAGE>

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

                                      Notes to Consolidated Financial Statements

    5.   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 the large  number of
                                        customers   comprising   the   Company's
                                        customer  base,  and  their   dispersion
                                        across   many   different   geographical
                                        regions.   At  December  31,  1996,  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.



    6.   Acquisitions and               MannKraft Corporation
         Dispositions
                                        On August 5, 1996, the Company  acquired
                                        490 shares of common  stock of MannKraft
                                        Corporation   ("MannKraft")  from  Stone
                                        Container for $5.5 million. The purchase
                                        represented     49%    of    MannKraft's
                                        outstanding   shares,   increasing   the
                                        Company's  ownership  interest  to  50%.
                                        Since   the   remaining    interest   in
                                        MannKraft  is  owned  indirectly  by the
                                        Stockholder, the financial statements of
                                        MannKraft  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 million,
                                        which is being  amortized over 15 years.
                                        The  results of  MannKraft's  operations
                                        have  been  included  in  the  Company's
                                        financial  statements  since the date of
                                        acquisition.

                                        Purchase of 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
                                        $280,000  to Fibre  Marketing  in August
                                        1996.


                                                                              11

<PAGE>

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

                             Notes to Consolidated Financial Statements


                                        St. Joe Container Company

                                        On May 30,  1996,  the Company  acquired
                                        substantially  all  of  the  assets  and
                                        certain liabilities of St. Joe Container
                                        Company for  approximately  $160 million
                                        (the "Acquisition").  In accordance with
                                        the  Asset   Purchase   Agreement   (the
                                        "Agreement"),  the Company  entered into
                                        an  investment  in a joint  venture (the
                                        "Mill   Joint   Venture")   between  the
                                        Company and Stone Container  Corporation
                                        ("Stone  Container")  to acquire a paper
                                        mill  (the  "Mill")  owned  by  St.  Joe
                                        Forest Products Company having an annual
                                        production   capacity  of  approximately
                                        500,000  tons  (see  Note 9). On May 30,
                                        1996 the Company  issued senior  secured
                                        notes  for  $170  million  and  warrants
                                        valued at $600,000  and  entered  into a
                                        revolving credit facility of $80 million
                                        to, in part, finance such transactions.

                                        In December 1996,  the Company  received
                                        $5.2   million  as  a   purchase   price
                                        adjustment   in   accordance   with  the
                                        Agreement.

                                        The  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  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)         (5,000)
                  Reserve for unfavorable contracts (b)     (17,706)
                  -------------------------------------------------------------
                  Total costs allocated (c)                            $163,352
                  -------------------------------------------------------------


                                                                              12

<PAGE>

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

                                      Notes to Consolidated Financial Statements


                              (a)       The   Acquisition   related   provisions
                                        consist of  professional  costs incurred
                                        with respect to the  Acquisition,  costs
                                        associated   with   a   plant   closure,
                                        severance and relocation  costs.  During
                                        the five months ended  December 31, 1996
                                        approximately $2.6 million of costs have
                                        been   applied  to  this   reserve   and
                                        approximately  $1.53  million  has  been
                                        reclassified  to reserve for unfavorable
                                        contracts (see (b)).

                              (b)       The   Company  has   provided   for  two
                                        unfavorable  contracts  related  to  the
                                        Acquisition   and  has   established   a
                                        separate    reserve    for   each   such
                                        unfavorable    contract.    The    first
                                        unfavorable   contract   is  the  Output
                                        Purchase  Agreement  with the Mill Joint
                                        Venture,  which requires the Company and
                                        Stone   Container   to   each   purchase
                                        one-half of the Mill's  annual output of
                                        linerboard.     Initially,    management
                                        determined  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  approximately
                                        $11.0   million   in   accordance   with
                                        Accounting  Principles Board Opinion No.
                                        16 "Business  Combinations."  During the
                                        five month  period  ended  December  31,
                                        1996,  the  Company   reevaluated   such
                                        reserve and  increased  this  reserve by
                                        $9.2 million.  The Company increased the
                                        reserve  by  reducing   other   reserves
                                        established  in purchase  accounting and
                                        by   the   purchase   price   adjustment
                                        described above. The Company has charged
                                        approximately  $2.3 million against this
                                        reserve  during  the five  month  period
                                        ended  December 31, 1996 and its balance
                                        at December  31, 1996 was  approximately
                                        $17.9  million.  The second  unfavorable
                                        contract is the Shareholder's  Agreement
                                        relating   to   the   Company's    12.6%
                                        shareholder's interest in Groveton which
                                        requires  the Company to purchase  12.6%
                                        of  Groveton's   annual   production  of
                                        medium   paper  at  a   defined   price.
                                        Management has determined it is probable
                                        that the Company will be required to pay
                                        an  aggregate  $1.5 millon  above market
                                        price  in 1997  and 1998 and as a result
                                        has    provided      a    reserve    for
                                        approximatlely  $1.5 million.  Since the
                                        acquisition,   no   amounts   have  been
                                        charged against this reserve.

                              (c)       The Company did not allocate any portion
                                        of the purchase  price to its investment
                                        in  the   Mill   Joint   Venture   since
                                        management believes the investment value
                                        is nominal (see Note 9).


                                        Timberline Packing Inc.

                                        In August 1995, the Company sold its 67%
                                        interest in Timberline  Packaging,  Inc.
                                        The   sale   resulted   in  a  gain   of
                                        approximately $166,000.


                                                                              13

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

                                      Notes to Consolidated Financial Statements


                                        The Fonda Group, Inc.

                                        In March 1995,  Fonda  acquired  certain
                                        net assets and the business of the Scott
                                        Foodservice  Division for  approximately
                                        $30 million in cash plus the  assumption
                                        of certain liabilities.

                                        In March  1995,  the  stock of Fonda was
                                        distributed to the  Stockholder,  except
                                        for  3.5%  which  was  distributed  to a
                                        lender  as  described  in Note  13.  The
                                        distribution to the Stockholder amounted
                                        to 96.5% of the net  assets  of Fonda as
                                        of March 31,1995.

                                        Accordingly,  the results of  operations
                                        of  Fonda  are  not   included   in  the
                                        financial  statements  after  March  31,
                                        1995.

                                        The  accounts of Fonda as of and for the
                                        eight  months  ended  March 31, 1995 and
                                        for the  twelve  months  ended  July 31,
                                        1994  are   summarized  as  follows  (in
                                        thousands):

                                                           March 31,    July 31,
                                                                1995        1994
                                      ------------------------------------------
                                      Net sales              $42,413     $61,839
                                      Operating income         1,352       1,788
                                      Net (loss) income         (57)         251
                                      Total assets            33,332      24,668
                                      Stockholder's equity     5,882       5,977
                                      ------------------------------------------
                                 
                                        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 $1,618,000.

                                        Consolidated    Packaging   Corporation,
                                        Debtor-In-Possession

                                        On January 5, 1994, the Company acquired
                                        certain assets of Consolidated Packaging
                                        Corporation,  Debtor-in-Possession  (the
                                        "CPC  Acquisition").  The purchase price
                                        was  approximately  $5,285,000.   Assets
                                        acquired included  accounts  receivable,
                                        inventories,  equipment and certain real
                                        estate and leasehold interests including
                                        a paper mill in Ft.  Madison,  Iowa. The
                                        assets  were   transferred   to  certain
                                        subsidiaries.  The financial  statements
                                        reflect   the    operations    of   such
                                        subsidiaries    from    the    date   of
                                        acquisition.


                                                                              14

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

                                      Notes to Consolidated Financial Statements



                                        Effective  July 31,  1994,  the  Company
                                        disposed   of   certain  of  the  assets
                                        purchased   in  the   CPC   Acquisition,
                                        resulting in a gain before  income taxes
                                        of approximately $622,000.

                                        In  November   1994,  the  Company  sold
                                        certain  additional  assets purchased in
                                        the  CPC   Acquisition,   consisting  of
                                        substantially   all  of  the  inventory,
                                        property  and   equipment   and  certain
                                        tangible  assets  resulting in a loss of
                                        approximately $73,000 which was recorded
                                        in 1994.

                                        On August 16, 1996, Box USA Group,  Inc.
                                        ("Box USA"), a  wholly-owned  subsidiary
                                        of the Company,  discontinued operations
                                        at its Flint,  Michigan  facility (which
                                        was  purchased  as a  part  of  the  CPC
                                        Acquisition),     and     disposed    of
                                        substantially  all of the  machinery and
                                        equipment for approximately $2.3 million
                                        and finished goods and  work-in-progress
                                        inventory  and  certain  related  assets
                                        utilized    at   such    facility    for
                                        approximately    $0.3   million    which
                                        resulted in a gain of $480,000.  Box USA
                                        retained   all   accounts    receivable,
                                        accounts   payable  and  raw   materials
                                        inventory.  The  machinery and equipment
                                        were transferred pursuant to a like-kind
                                        exchange  within the  meaning of Section
                                        1031  of the  Internal  Revenue  Code of
                                        1986, as amended.


    7.   Results of Operations          Unaudited  results of  operations of the
         for the Five Months            Company  for  the  five   months   ended
         Ended December 31,             December 31, 1995 are as follows:       
         1995 (Unaudited)               
                                                                   (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
                                ------------------------------------------------


                                                                              15

<PAGE>

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

                                      Notes to Consolidated Financial Statements

    8.   Condensed                      In connection with the Acquisition,  the
         Consolidating                  Company  issued  and sold  $170  million
         Financial Statements           aggregate principal amount of 12% Series
                                        A  Secured  Notes  due  2006  (the  "Old
                                        Notes").  In September 1996, the Company
                                        registered   $170   million    aggregate
                                        principal  amount of 12% Series B Senior
                                        Secured   Notes   due  2006   (the  "New
                                        Notes").   The  Company  consummated  an
                                        exchange offer pursuant to which the New
                                        Notes were  exchanged  for the Old Notes
                                        in   November   1996.   The   Notes  are
                                        guaranteed on a senior  secured 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").   The   Notes   are   not
                                        guaranteed by Box USA Paper Corporation,
                                        Box USA of Florida,  L.P., Florida Coast
                                        or    MannKraft    (collectively,    the
                                        "Non-Guarantors").  The Guarantors  have
                                        fully and unconditionally guaranteed the
                                        Notes  on a  joint  and  several  basis.
                                        Separate financial  statements and other
                                        disclosures  concerning  the  Guarantors
                                        are not presented because management has
                                        determined that they are not material to
                                        holders of the Notes.  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  five
                                        months  ended   December  31,  1996  (in
                                        thousands):                             


                                                                              16


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

                                      Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>

                                   Condensed Consolidating Balance Sheet
                           Four M                        Non     Elimination
                         Corporation    Guarantors   Guarantors    Entries   Consolidated
------------------------------------------------------------------------------------------
<S>                           <C>            <C>          <C>       <C>        <C>  
Current assets           $         -       $98,772      $10,061  $         -   $108,833
Investment in
   affiliates                 12,188         5,730            -     (12,388)      5,530
Total assets                  12,188       278,905       25,440     (12,388)    303,645
Current liabilities                -        57,010        5,974           -      62,984
Total liabilities                  -       269,287       22,170           -     291,457
Stockholder's equity          12,188         9,118        3,270     (12,388)      12,188
------------------------------------------------------------------------------------------

                                   Condensed Consolidating Statement of Operations
                           Four M                      Non      Elimination
                        Corporation   Guarantors    Guarantors    Entries   Consolidated
-----------------------------------------------------------------------------------------
Net sales               $         -     $176,172       $20,615  $       -      $196,787
Gross profit                      -       22,812         2,671          -        25,483
Income from
   operations                     -        6,765         1,001          -         7,776
Income (loss) before
   income taxes                   -      (3,864)           291          -       (3,573)
Net loss of
   subsidiaries             (2,174)            -             -      2,174             -
Net income (loss)           (2,174)      (2,544)           170     (2,174)      (2,174)
-----------------------------------------------------------------------------------------

                                   Condensed Consolidating Statement of Cash Flows
                         Four M                       Non      Elimination
                       Corporation   Guarantors   Guarantors     Entries    Consolidated
-----------------------------------------------------------------------------------------
Net cash used in       $         -
   operating activities                $(3,151)    $   (779)    $       -      $(3,930)
Net cash used in                 -
   investing activities                 (3,948)        (759)            -       (4,707)
Net cash used in                 -
   financing activities                   8,619        1,638            -        10,257
(Decrease) increase in
   cash and cash
   equivalents                   -        1,520          100            -         1,620
Cash and cash                    -
   equivalents,
   beginning of period                      544          267            -           811
-----------------------------------------------------------------------------------------
Cash and cash
   equivalents, end of $         -
   period                               $ 2,064      $   367    $       -       $ 2,431
-----------------------------------------------------------------------------------------
</TABLE>


                                                                              17

<PAGE>

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

                                      Notes to Consolidated Financial Statements


    9.   Investment in Mill             On May 30,  1996,  the Company and Stone
         Joint Venture                  Container each invested $5 million for a
                                        50%  interest in Florida  Coast  Holding
                                        Co., L.L.C.  ("Florida  Coast Holding"),
                                        the   holder   of  all  of  the   member
                                        interests in the Mill Joint Venture (see
                                        Note 6).  Additionally,  Stone Container
                                        made a $30 million loan to Florida Coast
                                        Holding.  In  addition,  the Company and
                                        Stone  Container  have  each  agreed  to
                                        provide the Mill Joint  Venture  with up
                                        to   $10    million   of    subordinated
                                        indebtedness   if  needed  for   general
                                        corporate   purposes.                   
                                                                                
                                        The  Company's  investment  in the  Mill
                                        Joint Venture is accounted for using the
                                        equity method of accounting.  During the
                                        five month  period  ended  December  31,
                                        1996, the Company did not record its 50%
                                        share  of  the  Mill   Joint   Venture's
                                        operating   results   aggregating  $(3.5
                                        million  since  its  investment  had  no
                                        carrying  value.  As  a  result  of  the
                                        Company's 4.0 million  obligation  under
                                        the Output  Purchase  Agreement,  during
                                        the five month period ended December 31,
                                        1996 the Company recorded  approximately
                                        $1.7  million  as loss on joint  venture
                                        contract and approximatley  $2.3 million
                                        against  its  reserve  for   unfavorable
                                        contracts (see Note 6).                 

                                                                                
                                        Summarized   balance  sheet  and  income
                                        statement  information of the Mill Joint
                                        Venture,  as of December 31,  1996,  and
                                        for the seven months ended  December 31,
                                        1996 were as follows:                   
                                                                                
                                        Summarized balance sheet information (in
                                        thousands):                             

                                                                    December 31,
                                                                           1996
                         -------------------------------------------------------
                         Current assets                                 31,697
                         Land, buildings and equipment, net            184,946
                         Other assets                                    8,822
                         Current liabilities                            20,542
                         Long term liabilities                         178,867
                         Equity (1)                                     26,056
                         -------------------------------------------------------
                         
                                        Summarized  statement of operations  (in
                                        thousands):
                         
                                                                   Seven Months
                                                                       Ended
                                                               December 31, 1996
                         -------------------------------------------------------
                         Net sales                                    $103,365
                         Net operating income (loss)                     (908)
                         Interest expense                             (13,546)
                         Net loss                                     (13,944)
                         -------------------------------------------------------

                                 (1)    Equity of the Mill Joint Venture is held
                                        entirely by Stone Container.


                                                                              18

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

                                      Notes to Consolidated Financial Statements


   10.   Inventories                    Inventories consist of the following (in
                                        thousands):                             

                                                               
                                                                   July 31,
                                             December 31, ----------------------
                                                     1996      1996       1995
                          ------------------------------------------------------
                          Raw materials           $25,056   $25,410    $10,710
                          Work-in-process           1,615     1,563        632
                          Finished goods            6,225     5,759      3,768
                          ------------------------------------------------------
                                                  $32,896   $32,732    $15,110
                          ------------------------------------------------------


    11.   Property, Plant               Property, plant and equipment consist of
          and Equipment                 the following (in thousands):           
<TABLE>
<CAPTION>

                                 
                                                                     July 31,
                                    Life in     December 31, ---------------------------
                                     Years          1996         1996          1995
----------------------------------------------------------------------------------------
<S>                                   <C>           <C>          <C>            <C>   
Land and buildings                      20         $ 56,384    $  50,015      $  9,107
Machinery and equipment               3-20          142,145      125,574        31,819
Leasehold improvements                5-10            1,402        1,461         1,362
Furniture and fixtures                   5            3,071        2,798         2,987
Autos and trucks                         5              460          365           306
----------------------------------------------------------------------------------------
                                                    203,462      180,213        45,581
Less: accumulated
   depreciation                                      30,129       22,240        18,537
----------------------------------------------------------------------------------------
                                                   $173,333     $157,973       $27,044
----------------------------------------------------------------------------------------
</TABLE>


                                                                              19

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

                                      Notes to Consolidated Financial Statements


                                        Depreciation  expense was  approximately
                                        $5,135,000  for the  five  months  ended
                                        December 31, 1996.  Depreciation expense
                                        was approximately $5,118,000, $4,887,000
                                        and  $5,014,000 for the years ended July
                                        31, 1996, 1995 and 1994, respectively.

                                        Property,  plant and equipment  includes
                                        equipment   under   capital   leases  as
                                        follows (in thousands):

                                          
                                                          July 31,
                                   December 31, --------------------------
                                           1996          1996       1995
---------------------------------------------------------------------------
Equipment                                $8,332         $8,332     $1,170
Less: accumulated depreciation              710            634        311
---------------------------------------------------------------------------
                                         $7,622         $7,698    $   859
---------------------------------------------------------------------------


                                                                              20

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

                                      Notes to Consolidated Financial Statements


   12.   Long-Term Debt                 Long-term  debt consist of the following
                                        (in thousands):                         
                                        
                                        
                                        


                                             
                                                           July 31,
                                         December 31,  ------------------
                                            1996        1996     1995
-------------------------------------------------------------------------
12% senior secured notes (a)              $170,000    $170,000  $      -
Revolving credit agreements (b)             22,235       7,258   16,110
Mortgages (weighted average                           
   interest rate as of December 31,                   
   1996 7.9%)                                2,374       2,456    2,620
Term loan agreements (c)                     8,500           -    9,913
Pre-petition creditors (discounted at                 
9%)(d)                                           -           -      275
Other                                          832       2,267    2,857
-------------------------------------------------------------------------
                                           203,941     181,981   31,775
Capital lease obligations (Note 16)          7,283       7,551      592
-------------------------------------------------------------------------
                                           211,224     189,532   32,367
Less: current portion                        2,447       2,440    2,449
-------------------------------------------------------------------------
Long-term debt                            $208,777    $187,092  $29,918
-------------------------------------------------------------------------

                              (a)       On May 30, 1996, the Company issued $170
                                        million  aggregate  principal  amount of
                                        12% Series A Senior  Secured  Notes (the
                                        "Notes")  due 2006 to, in part,  finance
                                        the  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.


                                                                              21

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

                                      Notes to Consolidated Financial Statements


                              (b)       On May 30,  1996,  the  Company  entered
                                        into a new credit  facility (the "Credit
                                        Facility") in the amount of $80 million.
                                        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 million.  The Credit
                                        Facility  matures on May 30,  2001.  The
                                        interest  rate at December  31, 1996 was
                                        prime  (8.25% at December 31, 1996) plus
                                        .75%. At December 31, 1996,  the Company
                                        had    outstanding    $16,566,000    and
                                        available approximately $30.6 million 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,  1996,   the  Company  had
                                        converted $8.0 million of its debt under
                                        this  option  at a rate of  8.25%.  This
                                        LIBOR based arrangement matured on March
                                        2, 1997 and was  replaced  with a 90 day
                                        contract  for $10  million.  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   and  a  minimum   fixed   charge
                                        coverage  ratio.   The  Company  was  in
                                        compliance  with  these  covenants,   as
                                        amended, at December 31, 1996,

                                        Mannkraft Corporation (see Note 6) has a
                                        revolving   credit   agreement  for  $10
                                        million,    secured   by    inventories,
                                        receivables  and  equipment.  Borrowings
                                        are   limited   to   85%   of   eligible
                                        inventory.  Mannkraft had  approximately
                                        $5,669,000  outstanding  and $249,000 of
                                        additional  credit  available under this
                                        agreement at December 31, 1996. Interest
                                        under this  agreement is prime (8.25% at
                                        December  31,  1996) plus 1%.  MannKraft
                                        has the  ability to convert  interest on
                                        some or all of its  advances  to a LIBOR
                                        based rate equal to LIBOR plus 3.5%.

                              (c)       Mannkraft Corporation had outstanding at
                                        December  31, 1996 an $8.5  million term
                                        loan due  September  30,  2001  which is
                                        secured by Mannkraft's  equipment,  real
                                        estate and  eligible  receivables.  This
                                        loan  bears  interest  at the prime rate
                                        (8.25% at December  31, 1996) plus 1.5%.
                                        Mannkraft  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, 1996,  MannKraft  had $8.0
                                        million of its debt under this option at
                                        a rate of 9.0%.


                                                                              22

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

                                      Notes to Consolidated Financial Statements


                              (d)       In January 1995,  Four M assumed certain
                                        outstanding     pre-petition    creditor
                                        liabilities   from   Fonda   aggregating
                                        $870,000   in   exchange   for   partial
                                        settlement  of amounts  owed to Fonda by
                                        Four  M.  In  July  1995,  this  assumed
                                        liability  of  $870,000  was settled for
                                        $455,000  resulting in an  extraordinary
                                        gain of $241,000 net of income taxes.

                                        Long-term debt,  excluding capital lease
                                        obligations,  is payable as follows  (in
                                        thousands):


                                       --------------------------------------
                                       1997                       $   1,352
                                       1998                           1,804
                                       1999                           1,472
                                       2000                           1,942
                                       2001                           3,657
                                       Thereafter                   193,714
                                       --------------------------------------
                                                                   $203,941
                                       --------------------------------------



   13.   Subordinated Debt              Subordinated   debt   consists   of  the
                                        following (in thousands):               

                                                                   July 31,
                                       December 31,   --------------------
                                               1996     1996       1995
---------------------------------------------------------------------------
Subordinated notes (a)                       $2,279       $  -    $      -
Debt with warrants (b)                            -          -      2,080
Less: Deferred interest                        (365)         -          -
        Current portion                           -          -     (1,000)
---------------------------------------------------------------------------
Long-term subordinated debt                  $1,914       $  -    $ 1,080
---------------------------------------------------------------------------


                                                                              23


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

                                      Notes to Consolidated Financial Statements

                              (a)       Prior  to  the  Company's   purchase  of
                                        MannKraft,    the    Bankruptcy    Court
                                        confirmed     MannKraft's     Plan    of
                                        Reorganization   and  MannKraft  emerged
                                        from  Chapter  11 of the  United  States
                                        Bankruptcy Code. Pursuant to Mannkraft's
                                        Plan  of   Reorganization,   Mannkraft's
                                        previous      shareholders      received
                                        $2,750,000  in cash and notes payable in
                                        consideration   of  full  and   complete
                                        satisfaction  of  their  interests.  The
                                        first note is in the principal amount of
                                        $700,000  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  $1,179,000  and
                                        $321,000,    respectively,    and    are
                                        non-interest  bearing.  The  notes  have
                                        been  discounted  using  a  rate  of  8%
                                        resulting in aggregate  initial deferred
                                        interest of $838,638.  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 MannKraft'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.

                              (b)       In January  1990,  the Company  borrowed
                                        $4,000,000  (the  "Subordinated   Debt")
                                        from a lender (the  "Holder") and issued
                                        a warrant (the  "Warrant") to the Holder
                                        to purchase 513,000 shares of its common
                                        stock.   Interest  on  the  Warrant  was
                                        accreted  such that at March  31,  1995,
                                        the Warrant  had a value of  $2,184,000.
                                        In March 1995, the Subordinated Debt was
                                        restructured as follows: (i) the Company
                                        distributed  35  shares  (3.5%)  of  the
                                        issued and outstanding stock of Fonda to
                                        the Holder (see Note 6), in exchange for
                                        a portion of the  outstanding  principal
                                        balance of the  Subordinated  Debt;  and
                                        (ii) in  consideration  of the  Holder's
                                        surrendering   the   Warrant,   and   in
                                        satisfaction of the remaining portion of
                                        the   Subordinated   Debt  and  interest
                                        accrued  thereon,  payments  aggregating
                                        $4,000,000   were  made,  with  a  final
                                        payment of $1,080,000  which was made on
                                        July 30, 1996,  together  with  interest
                                        accrued  thereon.   As  a  result,   the
                                        Company recognized an extraordinary gain
                                        of $1,978,000 in 1995 which  represented
                                        the excess of the recorded  value of the
                                        Warrant     settled    less    $206,000,
                                        representing  3.5% of the net  assets of
                                        Fonda at March 31, 1995.


                                                                              24

<PAGE>

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

                                      Notes to Consolidated Financial Statements

   14.   Income Taxes                   Components  of provision  (benefit)  for
                                        income   taxes   are  as   follows   (in
                                        thousands):                             

                                     5 Months   
                                        Ended          12 Months Ended July 31,
                                      December 31,  ---------------------------
                                         1996       1996         1995      1994
--------------------------------------------------------------------------------
Current:
   Federal                             $(2,362)   $ 4,441    $ 4,675    $    --
   State                                  (702)       889      1,120        275
                                                                        -------
                                        (3,064)     5,330      5,795        275
                                                                        -------
Deferred:
   Federal                               1,206     (1,261)      (250)      (481)
   State                                   372       (252)       (62)      (119)
                                                                        -------
                                         1,578     (1,513)      (312)      (600)
                                                                        -------
Provision (benefit)
   for income taxes before
   extraordinary item                   (1,486)     3,817      5,483       (325)
Taxes on extraordinary item                 --         --        174         --
                                                                        -------
                                       $(1,486)   $ 3,817    $ 5,657    $  (325)
                                                                        -------



                                        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 (in thousands):
<TABLE>
<CAPTION>

                                                  December 31,
                                                     1996             July 31,
                                                             --------------------------
                                                                    1996         1995
---------------------------------------------------------------------------------------
Current:
<S>                                                    <C>         <C>           <C>
   Allowance for doubtful 
     accounts receivable                            $    670    $    581      $   751
   Capitalized inventory costs                         1,632       1,213         762
   Accrued salaries and benefits                         964         730         299
   Provisions for losses                               9,133       7,350          --
   Other                                                 262         367         189
                                                                            --------
           Current deferred tax assets                12,661      10,241       2,001
                                                                            --------
Long term:
   Property, plant and equipment                     (19,340)    (10,390)     (3,663)
   MannKraft net operating loss carryforward           4,854          --          --
                                                                            --------
           Net long-term deferred tax liabilities    (14,486)    (10,390)     (3,663)
                                                                            --------
Net deferred tax liabilities                        $ (1,662)   $ (1,825)   $   (149)
                                                                            --------
</TABLE>


                                                                              25

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

                                      Notes to Consolidated Financial Statements


                                        The  effective  tax rate  was  different
                                        than the federal  statutory  rate due to
                                        the following:
<TABLE>
<CAPTION>
                                       Five Months 
                                          Ended             12 Months Ended July 31,
                                      December 31,     ----------------------------------
                                          1996               1996      1995        1994
-----------------------------------------------------------------------------------------
Tax (benefit) at the statutory
<S>                                        <C>               <C>       <C>        <C>    
   Federal rate                            (35.0)%           35.0%     34.0%      (34.0)%
State income taxes (net of
   Federal benefit)                         (6.0)             6.4       4.0         7.0
Non-deductible interest                         -               -       3.0         5.3
Reversal of valuation
   allowance                                    -               -     (3.7)        11.7
Other                                       (0.6)             1.3     (4.0)         1.5
-----------------------------------------------------------------------------------------
                                           (41.6)%           42.7%    33.3%        (8.5)%
-----------------------------------------------------------------------------------------
</TABLE>

                                        During  1994,  the  Company  adopted the
                                        provisions   of   Financial   Accounting
                                        Standards   Board   Statement  No.  109,
                                        "Accounting  for  Income  Taxes"  ("FASB
                                        109").  The  cumulative  effect  of this
                                        change in method of accounting for taxes
                                        on income  has been  reported  as of the
                                        beginning of the 1994 fiscal year in the
                                        consolidated statements of operations.



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


                                                                              26

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

                                      Notes to Consolidated Financial Statements


   16.   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 (in thousands): 
                                                                                

                                                   Capital         Operating
Year ending December 31,                            Leases            Leases
------------------------------------------------------------------------------
1997                                                $1,957             5,033
1998                                                 1,883             4,314
1999                                                 1,671             3,350
2000                                                 1,662             2,573
2001                                                 1,634             1,921
Thereafter                                             876             7,761
------------------------------------------------------------------------------
Total minimum lease payments                         9,683            24,952
                                                                 -------------
Less: amount representing interest                  (2,400)
------------------------------------------------------------
Present value of capital lease obligations           7,283
------------------------------------------------------------



                                        Rent expense under operating  leases was
                                        approximately  $3,555,000  for the  five
                                        months ended  December  31,  1996.  Rent
                                        expense  under   operating   leases  was
                                        approximately $5,041,000, $4,613,000 and
                                        $4,984,000  for the years ended July 31,
                                        1996, 1995 and 1994, respectively.



   17.   Related Party                  The  Stockholder is an owner of entities
                                        from  which the  Company  rents  certain
                                        Transactions    property,    plant   and
                                        equipment.  Rent  expense  for the  five
                                        months  ended   December  31,  1996  was
                                        approximately  $434,000.  Rental expense
                                        for the three years ended 1996, 1995 and
                                        1994   was    approximately    $964,000,
                                        $929,000 and  $1,120,000,  respectively.
                                        The Company believes that such rents are
                                        not in  excess  of  market  levels.  The
                                        partition plant located in Jacksonville,
                                        Florida  is  currently  leased  by Fonda
                                        from the  Stockholder,  and a portion of
                                        the   facility  is   subleased   to  the
                                        Company.                                
                                                                                
                                        The  Stockholder  has been a part  owner
                                        since  1993 of  MannKraft,  to which the
                                        Company  sold  approximately  $1,351,000
                                        and $3,300,000 of material in the twelve
                                        months  ended  July 31,  1996 and  1995,
                                        respectively.  There  were  no  material
                                        sales to this  entity  during the twelve
                                        month period  ended July 31,  1995.  The
                                        Company  believes  that  the  prices  at
                                        which such sales were made are not below
                                        market levels. For the five month period
                                        ended  December 31,  1996,  all sales to
                                        MannKraft   have  been   eliminated   in
                                        consolidation.                          


                                                                              27

<PAGE>

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

                                      Notes to Consolidated Financial Statements


                                        The Company had outstanding  receivables
                                        from   officers  and  employees  in  the
                                        amount  of  $286,000,   $1,124,000   and
                                        $1,474,000  at December 31,  1996,  July
                                        31,   1996   and  at  July   31,   1995,
                                        respectively,    all   of   which    are
                                        non-interest bearing.  These receivables
                                        are classified as other assets.

                                        An officer of the  Company has been part
                                        owner since 1994 of Fibre Marketing,  to
                                        which  the  Company  sold  approximately
                                        $3,130,074   of  material  in  the  five
                                        months  ended   December  31,  1996  and
                                        $2,024,000 and $3,400,000 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.



   18.   Commitment and                 Purchase Commitments
         Contingencies

                                        The Company has  commitments to purchase
                                        paperboard  inventory  from  four  major
                                        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.

                                        As  discussed in Note 6, the Company has
                                        commitments  to  purchase  one  half the
                                        production  of the  Mill.  The price per
                                        ton  is  based  on the  Output  Purchase
                                        Agreement discussed in Note 6.

                                        Additionally  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.

                                        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 in the  alternative,  $150,000,000 in
                                        compensatory   damages,   as   well   as
                                        punitive  damages and  attorneys'  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.


                                                                              28

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

                                      Notes to Consolidated Financial Statements


                                        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
                                        most of its non-union  employees with at
                                        least one year of service. One plan does
                                        not  provide  for  matching  of employee
                                        contributions.  Under  the  other  plan,
                                        employee contributions up to 6% of their
                                        salary  are  matched  at  20%.  Expenses
                                        incurred  under both plans  amounted  to
                                        approximately   $130,000  for  the  five
                                        months  ended   December  31,  1996  and
                                        $195,000,  $107,000  and $81,000 for the
                                        years  ended  July  31,  1996,  1995 and
                                        1994, respectively.

                                        The  Company  amended  one of its plans,
                                        effective  January 1, 1997,  to increase
                                        the Company's employee match to 50%

                                        Pension Plans

                                        The  Company  has  defined  contribution
                                        plans   for   its    union    employees.
                                        Contributions are made by the Company at
                                        a defined rate per hour worked.  Expense
                                        incurred  under these plans  amounted to
                                        approximately   $306,000  for  the  five
                                        months  ended   December  31,  1996  and
                                        $93,000,  $67,000 and  $431,000  for the
                                        years  ended  July  31,  1996,  1995 and
                                        1994, respectively.

                                        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 earnings and
                                        increases in book value.


                                                                              29

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

                                      Notes to Consolidated Financial Statements

   19.   Subsequent Events              The Company has 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 of this decline in
                                        price and demand,  the Company will shut
                                        down  its Ft.  Madison  Mill as of March
                                        31,  1997 for an  indefinite  period  of
                                        time. Operations at the Ft. Madison Mill
                                        will  resume   when  market   conditions
                                        warrant a resumption of  production.  In
                                        addition,    the   Company   and   Stone
                                        Container, as partners in the Mill Joint
                                        Venture,  (see Note 9) have  decided  to
                                        shut  down the St.  Joe Mill on April 1,
                                        1997 for an  indefinite  period of time.
                                        The Company  continues  to be subject to
                                        the   terms  of  the   Output   Purchase
                                        Agreement (see Note 6) .                
                                        
                                        The   Company   sold   certain   of  its
                                        machinery    and    equipment   in   its
                                        corrugating  facility located in College
                                        Park,   Georgia  in  January   1997  for
                                        approximately $2.5 million.