SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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


                                    FORM 10-K

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

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

For the fiscal year ended July 31, 1996
                                                    OR

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

For the transition period from _____________ to _____________

                        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:
12% SERIES B SENIOR SECURED NOTES DUE 2006

                                   -----------

     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     No X
                                             ----   ---

     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  November  30,  1996,  there  were no shares  of  voting  stock of the
registrant held by non-affiliates.

    As of November 30, 1996,  registrant  had  6,815,867  shares of Common Stock
outstanding.


<PAGE>

                               FOUR M CORPORATION
                         1996 ANNUAL REPORT ON FORM 10-K
                                TABLE OF CONTENTS

                                     PART I


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

Item 2. Properties...........................................................  8

Item 3. Legal Proceedings....................................................  9

Item 4. Submission of Matters to a Vote of Security Holders..................  9

                                     PART II

Item 5. Market for Registrant's Common Equity and Related
        Stockholder Matters.................................................  10

Item 6. Selected Financial Data.............................................  10

Item 7. Management's Discussion and Analysis of Financial
        Condition and Results of Operations.................................  11

Item 8. Financial Statements and Supplementary Data.........................  15

Item 9. Changes in and Disagreements with Accountants on
        Accounting and Financial Disclosure.................................  15

                                    PART III

Item 10. Directors and Executive Officers of the Registrant.................  16

Item 11. Executive Compensation.............................................  18

Item 12. Security Ownership of Certain Beneficial Owners and Management.....  19

Item 13. Certain Relationships and Related Party Transactions...............  19

                                     PART IV


Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K....  20

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"). The Company has developed and maintains  longstanding  customer
relationships with leading consumer products and packaging  companies  including
Avon,  Clorox,  Anchor Glass,  Owens Illinois and Procter & Gamble.  The Company
also owns and  operates  a paper  mill at Ft.  Madison,  Iowa (the "Ft.  Madison
Mill") which produced 77,726 tons of corrugating medium during Fiscal 1996, most
of which was sold to third parties.  For Fiscal 1996, the Company  generated net
sales of $257.8  million,  net income of $5.1  million  and  EBITDA (as  defined
herein) of $21.7 million.

         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  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  (the  "Acquisition").  The
Acquisition  more  than  doubled  the  size  of  the  Company  to 28  converting
facilities  which  sold,  on a pro forma  basis,  10.1  billion  square  feet of
corrugated packaging materials in Fiscal 1996. 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. For Fiscal 1996, after giving pro forma effect to the
Acquisition,  the Company would have generated net sales of $508.9 million,  net
loss of $3.8 million and EBITDA of $34.1 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.  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.

         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
substantially  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.

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.  In
addition,  the Company strives to operate its corrugator  plants at three shifts
per day,  five  days per week  rather  than the two  shifts,  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.

         The Company also believes that the Acquisition will further improve the
vertical  integration  of  the  Company's  converting  operations.  The  Company
anticipates that the 15 additional corrugator plants acquired in the Acquisition
will produce corrugated sheets for use at other Company facilities, reducing the
dependence of the Company on external suppliers of corrugated sheets.  While the
Company  presently  has no  commitments  or  understandings  with respect to any
material  acquisitions  of sheet  plants,  it may pursue  acquisitions  of sheet
plants in areas  contiguous  to its  existing  operations  in order to  maintain
outlets for its production of corrugated sheets.

         The Company has focused on the maximization of utilization of available
production   capacity,   minimization   of  waste   and  the   development   and
implementation of financial controls and management  systems.  In addition,  the
Company believes that 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 sources 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.

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,   the  Company's   corrugator   plants   produced
approximately 5.2 billion square feet of corrugated sheets. 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.


                                        2


<PAGE>

         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.

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.  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.

         The Company's  sheet plants  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.

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 West,  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,  Owens  Illinois and Procter &
Gamble.  Output at the  partition  plants  totaled  approximately  402.4 million
square feet in Fiscal 1996.

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 and 200 tons per day of  corrugating  medium
and  actual  production  of  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.

         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 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.
In Fiscal 1996, the output of the Ft.  Madison Mill  consisted of  approximately
39.0% recycled fiber.  Presently,  the Company is benefiting from lower recycled
fiber  costs.  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 $77 per ton as of July 31, 1996.


                                        3


<PAGE>

St. Joe Mill

         On May 30, 1996, Florida Coast Paper Company,  L.L.C. ("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.  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  (approximately 250,000 tons),  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. 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 $156.6 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 one-third mottled white linerboard,  a premium priced
product, and two-thirds unbleached kraft linerboard.

         During  Fiscal 1996,  the Company did not exert  significant  influence
over the operations of the Mill Joint Venture.  Accordingly, the Company did not
record 50% of the Mill Joint  Venture's  operating  results  during such period,
aggregating  a loss of $3.5  million.  Significant  influence  is expected to be
achieved  in the first  quarter of fiscal  1997.  In  addition,  the Company has
established  a reserve in the  amount of $11.0  million  for  fiscal  1997 as it
expects to purchase  linerboard  pursuant to the Output  Purchase  Agreement  at
prices above market.

Fibre Marketing Group

         In 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

         On August 5,  1996,  the  Company  acquired  an  additional  49% of the
outstanding shares of common stock of MannKraft  Corporation  ("MannKraft") 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.

SALES, MARKETING AND CUSTOMERS

Sales and Marketing

         The  Company's  products  are 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  currently  outside the  Company's
geographic  service  areas,  as well as allow it to  expand  relationships  with
existing  customers which have packaging  requirements  within  geographic areas
serviced by the St. Joe Container facilities.


                                        4


<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,  the  Company's   largest   customer   accounted  for
approximately  7.1% of net  sales,  with  the top 10  customers  accounting  for
approximately  21.8% of net sales.  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 12.5% of net sales in Fiscal 1996.

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  (approximately 250,000 tons),  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


                                        5


<PAGE>

expense and  maintenance  capital  expenditures.  Pursuant to this minimum price
provision, in November 1996, the Company was required to pay Florida Coast Paper
Company,  L.L.C. ("Florida Coast") an additional $3,337,500 for its share of the
linerboard  produced by the St. Joe Mill  during the  three-month  period  ended
September 30, 1996.

         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  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.


                                        6


<PAGE>

         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 agreed to
undertake and complete, 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.

         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 November 30, 1996, the Company had 2,297 employees, of whom 1,678
were hourly employees and 619 were salaried  employees.  Of such employees,  522
were engaged in  management  and  administrative  functions,  97 were engaged in
sales and marketing and 1,678 were engaged in  manufacturing.  One thousand four
hundred and two hourly employees at 20 Company  facilities are members of unions
under  21  separate  contracts.  Two of  these  contracts  are  currently  being
renegotiated, two expire in 1997, ten expire in 1998, six expire in 1999 and one
expires in 2000. Management believes that its employee relations are good.


                                        7


<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
--------                    --------------     ----               --------

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             Leased
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                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              138,570        Mill                   Owned
Valhalla, NY                  16,000        Executive Offices      Leased
New York City, NY              3,500        Executive Offices      Leased
College Park, GA (1)(6)      167,000        Corrugator             Owned
Vernon, CA (5)(6)            200,000        Sheet                  Owned
Paperwood, 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 anticipates that
     it will spend  approximately $1.1 million for capital  expenditures on this
     plant.
(6)  Inactive facilities.


                                        8


<PAGE>

ITEM 3.  LEGAL PROCEEDINGS


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

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


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

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


                                        9


<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 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  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.
<TABLE>
<CAPTION>


                                                                                 FISCAL YEAR ENDED JULY 31,
                                                     -------------------------------------------------------------------------------
                                                            1996         1995              1994               1993           1992
                                                            ----         ----              ----               ----           ----
                                                                                       (IN THOUSANDS)
STATEMENT OF OPERATION DATA:
<S>                                                    <C>             <C>              <C>                <C>          <C>
Net sales.........................................     $  257,817      $  271,994       $  228,563         $  214,936   $   203,179
Cost of goods sold................................        222,105         232,154          205,025            192,208       178,189
                                                     ------------     -----------       ----------         ----------   -----------
Gross profit......................................         35,712          39,840           23,538             22,728        24,990
Selling, general and administrative expenses......         19,217          19,703           22,018             21,813        23,663
                                                     ------------     -----------      -----------        -----------   -----------
Income from operations............................         16,495          20,137            1,520                915         1,327
Other income......................................              -           1,927              126              3,651         5,917
Interest expense..................................          7,565           5,607            5,448              4,948          5,903
                                                     ------------     -----------      -----------        -----------   ------------
Income (loss) before provision (benefit)
  for income taxes, minority interest and
  extraordinary gain on early retirement of debt..          8,930          16,457          (3,802)              (382)         1,341
Minority interest.................................              -           (146)            (180)                  -            94
Provision (benefit) for income taxes..............          3,817           5,483            (325)                453           832
Extraordinary gain on early retirement of debt....              -           2,219              381                  -           321
                                                     ------------     -----------    -------------     --------------   ------------
Net income (loss).................................          5,113          13,047           (3,276)             (835)           924
                                                     ============    ============    ==============      ============   ===========

OTHER FINANCIAL DATA:
Ratio of earnings to fixed charges(1).............            2.0x          3.3x              .5x               1.0x           1.1x
EBITDA(2).........................................      $  21,677      $  25,382       $    6,796          $   6,209       $  6,664
Net cash provided by (used in)
operating activities(3)...........................         27,060         (2,217)           4,794              8,860          3,615
Net cash provided by (used in) investing activities      (166,642)        (1,975)          (9,126)            (4,135)         3,733
Net cash provided by (used in) financing activities       139,167          3,518            5,182             (3,841)        (8,336)
Depreciation and amortization.....................      $   5,182      $   5,245        $   5,276          $   5,294       $  5,337
Capital expenditures..............................          8,612          3,690            3,916              3,935          2,862
Adjusted net sales(4).............................        246,140        212,562          155,869            153,857        139,116
Adjusted EBITDA(4)................................         24,831         24,210            3,926              2,196          3,110

                                                                                       FISCAL YEAR ENDED JULY 31,
                                                   ---------------------------------------------------------------------------------
                                                          1996            1995               1994             1993             1992
                                                          ----            ----               ----             ----             ----
                                                                                        (IN THOUSANDS)
BALANCE SHEET DATA:
Working capital...................................      $  37,590      $  14,504        $   8,903          $  10,413      $  11,573
Property, plant and equipment, net................        157,973         27,044           36,536             36,052         37,636
Total assets......................................         88,410         73,137           93,933             79,716         85,744
Total long-term debt..............................        187,092         30,998           44,105             40,993         44,285
Stockholder's equity..............................         14,362          8,649            1,278              4,554          5,389
</TABLE>


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


                                       10


<PAGE>


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

(2)  EBITDA represents income from operations before interest expense, provision
     (benefit)  for  income  taxes and  depreciation  and  amortization.  EBITDA
     provides information  regarding a company's ability to service and/or incur
     debt.  EBITDA should not be considered in isolation or as a substitute  for
     net income, cash flows from operations or other consolidated income or cash
     flow  data  prepared  in  accordance  with  generally  accepted  accounting
     principles  or as a measure  of a  company's  profitability  or  liquidity.
     EBITDA is not intended to disclose excess funds available for reinvestments
     because other commitments and obligations exist, including, but not limited
     to, principal  repayment  obligations and lease  commitments,  that are not
     considered in the calculation of EBITDA.  See Notes 7, 11, 12 and 13 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 Fonda and the Flint,  Michigan  facility
     (the "Flint Facility") which was owned by, Box USA Group, Inc. ("Box USA"),
     a  wholly-owned  subsidiary  of the Company.  On August 16,  1996,  Box USA
     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.

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.  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.

         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 $156.6 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 one-third mottled white linerboard,  a premium priced product, and
two-thirds  unbleached kraft  linerboard.  The St. Joe Mill's operations will be
managed principally by personnel designated by Stone Container.


                                       11


<PAGE>

         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.  While  there can be no  assurance,  the Mill
Joint Venture does not expect any shutdowns in the next twelve months other than
for routine maintenance. The Output Purchase Agreement requires that the St. Joe
Mill operate at a production rate not less than the average capacity utilization
rate of domestic linerboard producers. In the event further shutdowns occur, the
Company will need to purchase that portion of its linerboard  that it would have
otherwise purchased from the Mill Joint Venture from outside suppliers.

         During  Fiscal 1996,  the Company did not exert  significant  influence
over the operations of the Mill Joint Venture.  Accordingly, the Company did not
record 50% of the Mill Joint  Venture's  operating  results  during such period,
aggregating  a loss of $3.5  million.  Significant  influence  is expected to be
achieved in the first quarter of fiscal 1997.

         The Company's fiscal year end is July 31.

SUMMARY SALES TABLE
<TABLE>
<CAPTION>

                                                             FISCAL YEAR ENDED JULY 31,
                                              1996                     1995                        1994
                                      --------------------   --------------------------     -----------------
                                                                           (IN MILLIONS)
                                                 PERCENT OF                 PERCENT OF                PERCENT OF
                                        AMOUNT    NET SALES     AMOUNT       NET SALES     AMOUNT      NET SALES
                                        ------    ---------     ------       ---------     ------      ---------
<S>                                    <C>         <C>         <C>             <C>          <C>          <C>
Net sales .......................      $257.8      100.0%      $272.0          100.0%       $228.6       100.0%
Cost of goods sold...............       222.1       86.2        232.2           85.4         205.0        89.7
Gross profit.....................        35.7       13.8         39.8           14.6          23.6        10.3
Selling, general and
     administrative expenses.....        19.2        7.4         19.7            7.2          22.0         9.6
Income from operations...........        16.5        6.4         20.1            7.4           1.6         0.7
Other income.....................          -          -           2.0            0.7           0.1         0.1
Interest expense.................         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.........................         8.9        3.5         16.5            6.1          (3.8)       (1.6)
Provision (benefit) for
     income taxes................         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..........     $   5.1        2.0%       $11.0            4.1%        $(3.5)       (1.5)%
                                      =======        ====       =====            ====        ======       ======
</TABLE>

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  of  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


                                       12


<PAGE>

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 sales
remained flat in Fiscal 1996 and Fiscal 1995.

         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.


                                       13

<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  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  provided by
operating  activities  was $2.2 million for Fiscal 1995 compared to $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 $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 $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 refinancing of 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 Fiscal 1996 were $8.6 million compared to $3.7
million  for Fiscal  1995.  This  increase is  primarily  a result of  equipment
purchases for one of the Company's corrugator facilities and equipment purchases
and rehabilitation of certain property at a facility in Vernon, California where
the Company intends to consolidate the Compton and Montebello facilities.

         The Company has implemented a target capital  expenditure  program with
annual  capital  expenditures  totaling  approximately  $15.0 million for Fiscal
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 November 27, 1996,  the Company had unused  borrowing
capacity of approximately  $27.9 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. 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. 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.

         On November 1, 1995, the Company entered into the Acquisition Agreement
pursuant to which on May 30, 1996 (i) the Company acquired  substantially all of
the assets of St. Joe Container and (ii) 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 described herein.  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  described  herein.  In July 1996, St.
Joe Paper paid monies to both the Company  and Florida  Coast as purchase  price
adjustments.  Approximately $13.8 million was paid to the Company. St. Joe Paper
and the Company  have  reached an  understanding  with resepct to the payment of
additional  monies by St.  Joe  Paper 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.

         In  November  1996,  pursuant  to the Output  Purchase  Agreement,  the
Company was required to pay Florida Coast Paper an additional $3,337,500 for its
share of the  linerboard  produced  by the St. Joe Mill  during the  three-month
period ended  September 30, 1996.


                                       14


<PAGE>

         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  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.


                                       15


<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           54     Chairman, Chief Executive Officer and Director
Chris Mehiel            57     Executive Vice President, Chief Operating Officer
                                 and Director
Timothy D. McMillin     53     Senior Vice President, Chief Financial Officer
                                 and Director
Gerald K. Adams         43     Chief Executive Officer of Box USA Group, Inc.
Harvey L. Friedman      54     Corporate Secretary and General Counsel
Howard Brainin          67     Regional Vice President
Clinton G. Ames         74     Director
Lawrence A. Bishop      52     Director
Samuel B. Guren         49     Director
Thomas Uleau            52     Director
James Armenakis         53     Director
John Nevin              61     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.  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.

         CLINTON G. AMES has been a Director of the  Company  since 1992 and has
been Chief Executive  Officer of Four M Paper  Corporation,  a subsidiary of the
Company and the operating  company for the Ft.  Madison  Mill,  since July 1995.
From April 1994 through July 1995,  Mr. Ames served as the Company's  President,
Chief  Executive  Officer and Chief  Operating  Officer.  From 1990 to 1994,  he
served as the Chief  Executive  Officer of Fonda.  From 1988 to 1990,  Mr.  Ames
served as a consultant  to the Company.  Prior to joining the Company,  Mr. Ames
was with Inland Container Corporation for 19 years, commencing in 1968. In 1974,
he became Inland's President


                                       16


<PAGE>

and, in 1978, its Chief Executive Officer and Chairman,  positions he held until
he retired  from Inland in 1987.  Mr. Ames is also a Director of Bell  Packaging
Corporation.

         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 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 wholly-owned by Dennis Mehiel.

         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.


                                       17


<PAGE>


ITEM 11.  EXECUTIVE COMPENSATION

         The following table sets forth the compensation earned, whether paid or
deferred,  to the  Company's  Chief  Executive  Officer  and its other four most
highly  compensated  executive  officers during Fiscal 1996  (collectively,  the
"Named  Executive  Officers")  for services  rendered in all  capacities  to the
Company for the 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>        <C>
Dennis Mehiel......................   1996    $369,166     $173,131     $31,574(2)          -          $101,412(3)
Chairman of the Board of              1995     333,044     $375,000      38,904(2)          -           137,448(3)
Directors and Chief Executive         1994     373,641            -      16,462(2)          -            87,287(3)
Officer

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

Gerald K. Adams....................   1996      31,445(5)   $71,000         500(6)          -                 -
Chief Executive Officer of Box        1995           -            -             -           -                 -
USA Group Inc.                        1994           -            -             -           -                 -

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

Howard Brainin.....................   1996     33,333(8)          -            -            -                 -
Regional Vice President of Box        1995           -            -            -            -
USA Group, Inc.                       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 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.


                                       18


<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

      No Named  Executive  Officer  received  any  grants of stock  appreciation
rights  ("SARs")  during  Fiscal 1996,  and at the end of Fiscal 1996,  no Named
Executive Officers held any SARs.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      The following  table sets forth  information  as of November 30, 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 of entities from which the Company rents  certain  property,  plant and
equipment.  Rental  expense  incurred and paid to these entities in Fiscal 1996,
Fiscal  1995 and Fiscal  1994  amounted  to  approximately  $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.

         Dennis Mehiel 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 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
$2.0  million  and $3.4  million of  material  in 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 relate to the cumulative  premiums on life insurance  policies paid
by the  Company  on behalf of Mr.  Mehiel at the end of Fiscal  1996 and  Fiscal
1995, respectively.


                                       19


<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 July 31, 1996 and 1995
     Consolidated  Statements of Operations for the years ended July 31,
     1996, 1995 and 1994
     Consolidated Statements of Stockholder's Equity for the years ended
     July 31, 1996, 1995 and 1994
     Consolidated Statements of Cash Flows for the years ended July 31, 1996,
     1995 and 1994
     Notes to Consolidated Financial Statements

(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.


                                  20


<PAGE>

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 and the Trustee.
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.
12.1      Statement re computation of ratios.
21.1      Subsidiaries of the registrant.
23.1      Consent of BDO Seidman, LLP.
27.1      Financial Data Schedule.


(b) Reports on Form 8-K

         No reports on Form 8-K have been filed by the  Company  during the last
         quarter of the period covered by this report.


                                       21


<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    December 12, 1996
-----------------        (Principal Executive Officer)
Dennis Mehiel

/s/ Chris Mehiel         Executive Vice President, Chief       December 12, 1996
----------------         Operating Officer and Director
Chris Mehiel

/s/ Timothy D. McMillin  Senior Vice President, Chief          December 12, 1996
-----------------------  Financial Officer and Director
Timothy D. McMillin      (Principal Accounting Officer)

                         Director                              December   , 1996
-------------------
Clinton G. Ames

/s/ James Armenakis      Director                              December 12, 1996
-------------------
James Armenakis


/s/ Lawrence A. Bishop   Director                              December 12, 1996
----------------------
Lawrence A. Bishop

                         Director                              December   , 1996
-------------------
Samuel B. Guren

/s/ John Nevin           Director                              December 12, 1996
--------------
John Nevin

/s/ Thomas Uleau         Director                              December 12, 1996
----------------
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    December 12, 1996
-----------------        (Principal Executive Officer)
Dennis Mehiel

/s/ Chris Mehiel         Executive Vice President, Chief       December 12, 1996
----------------         Operating Officer and Director
Chris Mehiel

/s/ Timothy D. McMillin  Senior Vice President, Chief          December 12, 1996
-----------------------  Financial Officer and Director
Timothy D. McMillin      (Principal Accounting Officer)

                         Director                              December   , 1996
-------------------
Clinton G. Ames

/s/ James Armenakis      Director                              December 12, 1996
-------------------
James Armenakis


/s/ Lawrence A. Bishop   Director                              December 12, 1996
-------------------
Lawrence A. Bishop

                         Director                              December   , 1996
-------------------
Samuel B. Guren

/s/ John Nevin           Director                              December 12, 1996
--------------
John Nevin

/s/ Thomas Uleau         Director                              December 12, 1996
----------------
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    December 12, 1996
-----------------        (Principal Executive Officer)
Dennis Mehiel

/s/ Chris Mehiel         Executive Vice President, Chief       December 12, 1996
----------------         Operating Officer and Director
Chris Mehiel

/s/ Timothy D. McMillin  Senior Vice President, Chief          December 12, 1996
-----------------------  Financial Officer and Director
Timothy D. McMillin      (Principal Accounting Officer)

                         Director                              December   , 1996
-------------------
Clinton G. Ames

/s/ James Armenakis      Director                              December 12, 1996
-------------------
James Armenakis


/s/ Lawrence A. Bishop   Director                              December 12, 1996
-------------------
Lawrence A. Bishop

                         Director                              December   , 1996
-------------------
Samuel B. Guren

/s/ John Nevin           Director                              December 12, 1996
--------------
John Nevin

/s/ Thomas Uleau         Director                              December 12, 1996
----------------
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    December 12, 1996
-----------------        (Principal Executive Officer)
Dennis Mehiel

/s/ Chris Mehiel         Executive Vice President, Chief       December 12, 1996
----------------         Operating Officer and Director
Chris Mehiel

/s/ Timothy D. McMillin  Senior Vice President, Chief          December 12, 1996
-----------------------  Financial Officer and Director
Timothy D. McMillin      (Principal Accounting Officer)

                         Director                              December   , 1996
-------------------
Clinton G. Ames

/s/ James Armenakis      Director                              December 12, 1996
-------------------
James Armenakis


/s/ Lawrence A. Bishop   Director                              December 12, 1996
-------------------
Lawrence A. Bishop

                         Director                              December   , 1996
-------------------
Samuel B. Guren

/s/ John Nevin           Director                              December 12, 1996
--------------
John Nevin

/s/ Thomas Uleau         Director                              December 12, 1996
----------------
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    December 12, 1996
-----------------        (Principal Executive Officer)
Dennis Mehiel

/s/ Chris Mehiel         Executive Vice President, Chief       December 12, 1996
----------------         Operating Officer and Director
Chris Mehiel

/s/ Timothy D. McMillin  Senior Vice President, Chief          December 12, 1996
-----------------------  Financial Officer and Director
Timothy D. McMillin      (Principal Accounting Officer)

                         Director                              December   , 1996
-------------------
Clinton G. Ames

/s/ James Armenakis      Director                              December 12, 1996
-------------------
James Armenakis


/s/ Lawrence A. Bishop   Director                              December 12, 1996
-------------------
Lawrence A. Bishop

                         Director                              December   , 1996
-------------------
Samuel B. Guren

/s/ John Nevin           Director                              December 12, 1996
--------------
John Nevin

/s/ Thomas Uleau         Director                              December 12, 1996
----------------
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    December 12, 1996
-----------------        (Principal Executive Officer)
Dennis Mehiel

/s/ Chris Mehiel         Executive Vice President, Chief       December 12, 1996
----------------         Operating Officer and Director
Chris Mehiel

/s/ Timothy D. McMillin  Senior Vice President, Chief          December 12, 1996
-----------------------  Financial Officer and Director
Timothy D. McMillin      (Principal Accounting Officer)

                         Director                              December   , 1996
-------------------
Clinton G. Ames

/s/ James Armenakis      Director                              December 12, 1996
-------------------
James Armenakis


/s/ Lawrence A. Bishop   Director                              December 12, 1996
-------------------
Lawrence A. Bishop

                         Director                              December   , 1996
-------------------
Samuel B. Guren

/s/ John Nevin           Director                              December 12, 1996
--------------
John Nevin

/s/ Thomas Uleau         Director                              December 12, 1996
----------------
Thomas Uleau


<PAGE>

                                            FOUR M CORPORATION AND SUBSIDIARIES
                                                                   D/B/A BOX USA


Index to Financial Statements
--------------------------------------------------------------------------------


INDEPENDENT AUDITORS' REPORT                                                 F-2

CONSOLIDATED FINANCIAL STATEMENTS:
     Balance sheets                                                          F-3
     Statements of operations                                                F-4
     Statements of stockholder's equity                                      F-5
     Statements of cash flows                                                F-6
     Notes to financial statements                                           F-7


                                      F-1


<PAGE>


INDEPENDENT AUDITORS' REPORT


Board of Directors and Stockholder
Four M Corporation and Subsidiaries

We  have  audited  the  accompanying  consolidated  balance  sheets  of  Four  M
Corporation  and  subsidiaries  (the "Company") as of July 31, 1996 and 1995 and
the related  consolidated  statements of operations and stockholder's equity and
cash flows for 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 July
31, 1996 and 1995 and the results of their  operations  and their cash flows for
each of the three  years in the period  ended July 31, 1996 in  conformity  with
generally accepted accounting principles.
                  
                                              /s/ BDO Seidman, LLP
                                              --------------------

Valhalla, New York
October 11, 1996

                                      F-2


<PAGE>
<TABLE>
<CAPTION>


                                                 FOUR M CORPORATION AND SUBSIDIARIES
                                                                      D/B/A BOX USA

                                                                      BALANCE SHEETS
                                                                       (IN THOUSANDS)
-----------------------------------------------------------------------------------------------
                                                                         JULY 31,       July 31,
                                                                             1996         1995
-----------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
<S>                                                                       <C>         <C>
   Cash and cash equivalents                                              $    811    $ 1,226
   Accounts receivable, less allowance for doubtful accounts of $1,909
      and $1,778 (Notes 2 and 7)                                            43,193     22,867
   Notes, advances and other receivables                                     1,433      1,452
   Inventories (Notes 5 and 7)                                              32,732     15,110
   Deferred income taxes (Note 9)                                           10,241      2,001
---------------------------------------------------------------------------------------------
              TOTAL CURRENT ASSETS                                          88,410     42,656
PROPERTY, PLANT AND EQUIPMENT, NET OF ACCUMULATED DEPRECIATION
   (NOTES 6 AND 7)                                                         157,973     27,044
GOODWILL AND OTHER INTANGIBLES, NET OF ACCUMULATED AMORTIZATION OF
   $763 AND $546                                                               933      1,007
OTHER ASSETS (NOTE 12)                                                      16,493      2,430
---------------------------------------------------------------------------------------------
                                                                          $263,809    $73,137
---------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
   Accounts payable and accrued liabilities                               $ 48,380    $24,703
   Current maturities of long-term debt and subordinated debt (Notes 7
      and 8)                                                                 2,440      3,449
---------------------------------------------------------------------------------------------
              TOTAL CURRENT LIABILITIES                                     50,820     28,152
LONG-TERM DEBT, LESS CURRENT MATURITIES (NOTE 7)                           187,092     29,918
SUBORDINATED DEBT, LESS CURRENT MATURITIES (NOTE 8)                             --      1,080
DEFERRED INCOME TAXES (NOTE 9)                                              10,390      3,663
MINORITY INTEREST (NOTE 10)                                                     --        326
OTHER LIABILITIES                                                            1,145      1,349
---------------------------------------------------------------------------------------------
              TOTAL LIABILITIES                                            249,447     64,488
---------------------------------------------------------------------------------------------
COMMITMENT AND CONTINGENCIES (NOTES 11, 12 AND 13)
STOCKHOLDER'S EQUITY:
   Common stock, $.125 par value, 10,000,000 shares authorized;
      7,229,770 shares issued and 6,815,867 outstanding                        904        904
   Additional paid-in capital                                                  717        117
   Retained earnings                                                        13,703      8,590
---------------------------------------------------------------------------------------------
                                                                            15,324      9,611
Less treasury stock, at cost (413,903 shares)                                  962        962
---------------------------------------------------------------------------------------------
              TOTAL STOCKHOLDER'S EQUITY                                    14,362      8,649
---------------------------------------------------------------------------------------------
                                                                          $263,809    $73,137
---------------------------------------------------------------------------------------------
                                 See accompanying notes to consolidated financial statements.
</TABLE>


                                      F-3


<PAGE>
<TABLE>
<CAPTION>

                                            FOUR M CORPORATION AND SUBSIDIARIES
                                                                   D/B/A BOX USA

                                           CONSOLIDATED STATEMENTS OF OPERATIONS
                                                                  (IN THOUSANDS)
--------------------------------------------------------------------------------------------------
                                                                          Years ended July 31,
                                                            --------------------------------------
                                                                1996         1995          1994
--------------------------------------------------------------------------------------------------
<S>                                                         <C>           <C>           <C>
NET SALES                                                   $ 257,817     $ 271,994     $ 228,563
COST OF GOODS SOLD                                            222,105       232,154       205,025
-------------------------------------------------------------------------------------------------
              GROSS PROFIT                                     35,712        39,840        23,538
-------------------------------------------------------------------------------------------------
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES                   19,217        19,703        22,018
-------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS                                         16,495        20,137         1,520
OTHER INCOME (EXPENSE):
   Interest expense                                            (7,565)       (5,607)       (5,448)
   Gain on sale of assets and other (Note 3)                       --         1,927           126
-------------------------------------------------------------------------------------------------
   Income (loss) before provision (benefit) for income
      taxes, minority interest and extraordinary gain on
      early retirement of debt                                  8,930        16,457        (3,802)
PROVISION (BENEFIT) FOR INCOME TAXES (NOTE 9)                   3,817         5,483          (325)
-------------------------------------------------------------------------------------------------
INCOME BEFORE MINORITY INTEREST AND EXTRAORDINARY
   GAIN ON EARLY RETIREMENT OF DEBT                             5,113        10,974        (3,477)
MINORITY INTEREST (NOTE 10)                                        --          (146)         (180)
CUMULATIVE EFFECT OF CHANGE IN METHOD OF ACCOUNTING
   FOR TAXES ON INCOME (NOTE 9)                                    --            --           381
EXTRAORDINARY GAIN ON EARLY RETIREMENT OF DEBT
   (NOTES 7 AND 8)                                                 --         2,219            --
-------------------------------------------------------------------------------------------------
NET INCOME (LOSS)                                           $   5,113     $  13,047     $  (3,276)
-------------------------------------------------------------------------------------------------
                                      See accompanying notes to consolidated financial statements.
</TABLE>


                                      F-4


<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>         <C>
Balance, August 1, 1993        6,816      $904      $117      $  4,495       $  962      $  4,554
Net loss                          --        --        --        (3,276)          --        (3,276)
-------------------------------------------------------------------------------------------------
Balance, July 31, 1994         6,186      $904      $117      $  1,219       $  962      $  1,278
-------------------------------------------------------------------------------------------------
Net income                        --        --        --        13,047           --        13,047
Distribution (Note 3)             --        --        --        (5,676)          --        (5,676)
-------------------------------------------------------------------------------------------------
Balance, July 31, 1995         6,816      $904      $117      $  8,590       $  962      $  8,649
-------------------------------------------------------------------------------------------------
Net income                        --        --        --         5,113           --         5,113
Warrant issuance (Note 3)         --        --       600            --           --           600
-------------------------------------------------------------------------------------------------
Balance, July 31, 1996         6,816      $904      $717      $ 13,703       $  962      $ 14,362
-------------------------------------------------------------------------------------------------
                                     See accompanying notes to consolidated financial statements.
</TABLE>


                                      F-5


<PAGE>
<TABLE>
<CAPTION>


                                            FOUR M CORPORATION AND SUBSIDIARIES
                                                                   D/B/A BOX USA

                                           CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                                  (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------
                                                                               Years Ended July 31,
                                                                    ----------------------------------------
                                                                     1996              1995           1994
------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                 <C>             <C>            <C>
   Net income                                                       $   5,113       $ 13,047       $ (3,276)
   Adjustments to reconcile net income to net cash provided by
      (used for) operating activities:
        Depreciation and amortization                                   5,182          5,245          5,276
        Allowance for doubtful accounts                                  (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                                          (1,506)          (312)          (600)
        Loss (gain) on sale of fixed assets                               246             32           (830)
        Change in assets  and  liabilities,  net of effect of
           acquisitions  and disposals:
              Accounts, notes and other receivables                     2,218         (4,273)        (5,061)
              Inventories                                              12,296        (10,594)        (1,194)
              Other assets, net of other liabilities                     (512)           275           (387)
              Accounts payable and accrued liabilities                  4,479         (2,592)         9,446
-----------------------------------------------------------------------------------------------------------
              NET CASH PROVIDED BY (USED FOR) OPERATING
                ACTIVITIES                                             27,060         (2,217)         4,794
-----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Capital expenditures                                                (8,612)        (3,690)        (3,916)
   Proceeds from sale of subsidiaries                                     898          1,618          1,401
   Proceeds from sale or exchange of fixed assets                         679            397            174
   Payments for acquisition, net of cash acquired                          --             --         (6,601)
   Purchase of net assets of St. Joe Container                       (159,168)            --             --
   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                 (166,642)        (1,975)        (9,126)
-----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from bond issuance                                        170,000             --             --
   Financing costs                                                     (8,798)            --             --
   Short-term borrowings                                               14,419             --          3,428
   Repayment of short-term borrowings                                 (22,953)            --             --
   Payments to pre-petition creditors (Note 7)                             --           (180)          (274)
   Secured term, mortgage, equipment and other borrowings                 380          9,094          7,446
   Repayments of long-term debt                                       (13,881)        (5,396)        (5,418)
-----------------------------------------------------------------------------------------------------------
              NET CASH PROVIDED BY FINANCING ACTIVITIES               139,167          3,518          5,182
-----------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS:
   (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                      (415)          (674)           850
   CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                       1,226          1,900          1,050
-----------------------------------------------------------------------------------------------------------
   CASH AND CASH EQUIVALENTS, END OF PERIOD                         $     811       $  1,226       $  1,900
-----------------------------------------------------------------------------------------------------------
                                               See accompanying notes to consolidated financial statements.
</TABLE>


                                       F-6


<PAGE>


                                            FOUR M CORPORATION AND SUBSIDIARIES
                                                                   D/B/A BOX USA

                                                   NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------




1.   SUMMARY OF
     SIGNIFICANT ACCOUNTING
     POLICIES

Business

Four  M  Corporation   and   subsidiaries   ("Four  M"  or  the  "Company")  are
manufacturers of corrugated  packaging and semi-chemical  corrugating medium and
prior to the distribution of The Fonda Group, Inc. ("Fonda") (See Note 3), 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.

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,  not exceeding a 40-year
period, using the straight-line method.

                                       F-7


<PAGE>

                                            FOUR M CORPORATION AND SUBSIDIARIES
                                                                   D/B/A BOX USA

                                                   NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

Other Assets

Other assets at July 31, 1996 include deferred  financing costs of approximately
$8,798,000  and an investment in an  unconsolidated  affiliate of  approximately
$5,250,000  (see Note 3).

Accounts  Payable  and  Accrued  Liabilities

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

Revenue  Recognition

Revenue is recognized when products are shipped.

Income Taxes

Deferred taxes are provided on the  differences  between the basis of assets and
liabilities for financial  reporting and income tax purposes using the statutory
rates enacted for future  periods.  A consolidated  federal income tax return is
filed. 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.  The Company
made interest  payments of $4,204,000,  $4,882,000 and $4,015,000 in 1996,  1995
and 1994,  respectively  and income tax payments of  $3,668,000,  $6,052,000 and
$1,080,000  in 1996,  1995 and 1994,  respectively.  In  addition,  the  Company
purchased equipment under capital leases for $7,862,000 in 1996 and had non-cash
distributions  of  $5,676,000  and  $1,262,000  in 1995 and 1994,  respectively.

Reclassifications

Certain  prior year  balances  have been  reclassified  to conform with the 1996
presentation.

                                      F-8


<PAGE>

                                            FOUR M CORPORATION AND SUBSIDIARIES
                                                                   D/B/A BOX USA

                                                   NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
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 does not have a significant impact on
the Company's  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.   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 July 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.


                                      F-9


<PAGE>

                                            FOUR M CORPORATION AND SUBSIDIARIES
                                                                   D/B/A BOX USA

                                                   NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
3.   ACQUISITIONS AND
     DISPOSITIONS

St. Joe Container Company

The Company  entered  into an Asset  Purchase  Agreement  (the  "Agreement")  on
November 1, 1995, as amended,  for the Company to acquire  substantially  all of
the  assets  and  certain   liabilities   of  St.  Joe  Container   Company  for
approximately  $160  million  plus  financing  costs  (the  "Acquisition").   In
accordance  with the  Agreement,  the Company  entered into 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 4). 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.  The Acquisition
has  been  accounted  for  using  the  purchase   method  of  accounting,   and,
accordingly,  the purchase price has been allocated to the assets  purchased and
the  liabilities  assumed based upon fair value at the date of the  Acquisition.
The purchase price was 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)      (12,492)    (17,492)
-------------------------------------------------------------------------------
                       Total costs allocated (c)                      $ 168,566
-------------------------------------------------------------------------------

(a)  The Acquisition  related  provisions  consist of approximately $3.0 million
     related to  professional  costs  incurred with respect to the  Acquisition,
     approximately  $1.0 million  related to a plant  closure and  approximately
     $1.0 million for severance and relocation costs.


                                      F-10


<PAGE>


                                            FOUR M CORPORATION AND SUBSIDIARIES
                                                                   D/B/A BOX USA

                                                   NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


(b)  The Company has provided for two contracts related to the Acquisition.  The
     first is with the Mill Joint Venture,  which requires the Company and Stone
     Container  to  each  purchase  one-half  of the  Mill's  annual  output  in
     accordance with the Output Purchase Agreement. Management has determined it
     is probable  that the Company  will be required to pay  additional  amounts
     above  market  price  for  linerboard  in  fiscal  1997 as  result  of this
     agreement  and has  provided a reserve for $11 million in  accordance  with
     Accounting Principles Board Opinion number 16 "Business Combinations".  The
     second  relates  to a paper  mill in which  the  Company  acquired  a 12.6%
     interest as part of the  Acquisition.  The Company,  in  accordance  with a
     sales  agreement,  is  required  to  purchase  12.6% of the  mill'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  fiscal  1997 and 1998 as a result  of this
     agreement.

(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 4).

The operating  results of these  acquired  facilities  have been included in the
consolidated  financial  statements from the date of the Acquisition.  Pro forma
unaudited  consolidated  results of operations as if the  Acquisition  had taken
place as of August 1,  1994,  rather  than at May 30,  1996 are as  follows  (in
thousands):


                                                    Twelve months ended July 31,
                                                  ------------------------------
                                                       1996              1995
--------------------------------------------------------------------------------
            Net sales                                 $508,878          $534,680
            (Loss)income before extraordinary items     (3,767)           22,867
            Net (loss) income                           (3,767)           25,086
--------------------------------------------------------------------------------


                                      F-11


<PAGE>


                                            FOUR M CORPORATION AND SUBSIDIARIES
                                                                   D/B/A BOX USA

                                                   NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

The unaudited pro forma results have been prepared for comparative purposes only
and include  adjustments based on available  information and certain assumptions
that  the  Company  believes  are  reasonable.  These  adjustments  include:  1)
additional  interest expense resulting from the pro forma  capitalization of the
Company 2) reduced cost of goods sold of the acquired  facilities to reflect raw
material price savings that the Company has historically realized and the effect
of the Output Purchase Agreement and 3) the effect of the change from accounting
for  inventories  on the LIFO method to the FIFO method on cost of goods sold of
the facilities purchased in the Acquisition.

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.

The Fonda Group, Inc.

In March 1995, Fonda concluded a purchase agreement with the Scott Paper Company
to acquire certain net assets and the business of its 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 8. 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  years  ended  July 31,  1994 and 1993 are  summarized  as  follows  (in
thousands):

                               March 31,           July 31,           July 31,
                                    1995              1994               1993
-------------------------------------------------------------------------------
Net sales                        $42,413           $61,839            $61,079
Operating income                   1,352             1,788              2,835
Net (loss) income                   (57)               251                960
Total assets                      33,332            24,668             23,598
Stockholder's equity               5,882             5,977              3,717
-------------------------------------------------------------------------------


                                      F-12


<PAGE>

                                            FOUR M CORPORATION AND SUBSIDIARIES
                                                                   D/B/A BOX USA

                                                   NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

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.

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.


4.   INVESTMENT IN MILL
     JOINT VENTURE


On May 30, 1996, the Company  invested $5 million for a 50% interest in the Mill
Joint Venture (see Note 3). 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 will be accounted for using the
equity method of accounting.

Summarized unaudited balance sheet and income statement  information of the Mill
Joint  Venture,  as of July 31, 1996,  and for the period from May 30, 1996 (the
date of Acquisition) through July 31, 1996 were as follows:


                                      F-13


<PAGE>

                                            FOUR M CORPORATION AND SUBSIDIARIES
                                                                   D/B/A BOX USA

                                                   NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

Summarized unaudited balance sheet information (in thousands):

                                                                         1996
--------------------------------------------------------------------------------
Current assets                                                        $ 32,768
Land, buildings and equipment, net                                     185,202
Other assets                                                             3,583
--------------------------------------------------------------------------------
Current liabilities                                                     17,603
Long term liabilities                                                  170,796
--------------------------------------------------------------------------------



Summarized unaudited statement of operations (in thousands):



                                                                   FROM DATE
                                                                      OF
                                                                  ACQUISITION
                                                                    THROUGH
                                                                 JULY 31, 1996
-------------------------------------------------------------------------------
Net sales                                                             $24,876
Gross loss                                                             (3,007)
Net operating loss                                                     (3,354)
Interest expense                                                        3,642
Net loss                                                               (6,996)
-------------------------------------------------------------------------------

During the period  ended July 31,  1996,  the Company did not exert  significant
influence  over the  operations  of the Mill  Joint  Venture.  Accordingly,  the
Company did not record 50% of the Mill Joint Venture's  operating results during
such period, aggregating ($3.5 million). Significant influence is expected to be
achieved in the first quarter of fiscal 1997.


                                      F-14


<PAGE>

                                            FOUR M CORPORATION AND SUBSIDIARIES
                                                                   D/B/A BOX USA

                                                   NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

5.   INVENTORIES

Inventories as of July 31, consist of the following (in thousands):

                                                        1996              1995
--------------------------------------------------------------------------------
Raw materials                                        $25,410           $10,710
Work-in-process                                        1,563               632
Finished goods                                         5,759             3,768
--------------------------------------------------------------------------------
                                                     $32,732           $15,110
--------------------------------------------------------------------------------

6.   PROPERTY, PLANT AND
     EQUIPMENT

Property,  plant and  equipment  as of July 31,  consist  of the  following  (in
thousands):

                                     Lives in
                                       Years               July 31,
                                                 ------------------------------
                                                          1996             1995
-------------------------------------------------------------------------------
Land and buildings                      20            $ 50,015          $ 9,107
Machinery and equipment                3-20            125,574           31,819
Leasehold improvements                 5-10              1,461            1,362
Furniture and fixtures                   5               2,798            2,987
Autos and trucks                         5                 365              306
-------------------------------------------------------------------------------
                                                       180,213           45,581
Less:   accumulated depreciation                        22,240           18,537
-------------------------------------------------------------------------------
                                                      $157,973          $27,044
-------------------------------------------------------------------------------

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 as of July 31,  includes  equipment under capital
leases as follows (in thousands):

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


                                      F-15


<PAGE>

                                            FOUR M CORPORATION AND SUBSIDIARIES
                                                                   D/B/A BOX USA

                                                   NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

7.   LONG-TERM DEBT

Long-term debt as of July 31, consists of the following (in thousands):

                                                          1996              1995
--------------------------------------------------------------------------------
12% senior secured notes(a)                           $170,000           $     -
Revolving credit agreements(b)                           7,258            16,110
Terms loans(c)                                               -             9,913
Mortgages (weighted average interest rate
   as of July 31, 1996 7.9%)                             2,456             2,620
Pre-petition creditors (discounted at 9%)(d)                 -               275
Other                                                    2,267             2,857
--------------------------------------------------------------------------------
                                                       181,981            31,775
Capital lease obligations (Note 11)                      7,551               592
--------------------------------------------------------------------------------
                                                       189,532            32,367
Less: current portion                                    2,440             2,449
--------------------------------------------------------------------------------
Long-term debt                                        $187,092           $29,918
--------------------------------------------------------------------------------

(a)  On May 30, 1996,  the Company  issued  $170,000,000  of 12% series A Senior
     Secured Notes ("the Notes") due 2006 to, in part,  finance the  Acquisition
     of substantially all of the assets of St. Joe Container Company.  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.


                                      F-16


<PAGE>

(b)  On May 30,  1996,  the Company  entered  into a new credit  facility in the
     amount  of  $80  million.  The  credit  facility  is  secured  by  accounts
     receivable, inventories and certain related assets and advances are limited
     to  85%  of  eligible  receivables  and  the  lesser  of  60%  of  eligible
     inventories  or $40  million.  The new credit  facility  matures on May 30,
     2001.  Interest  rate at July 31, 1996 was prime  (8.25% at July 31,  1996)
     plus .75%.  The Company has the ability to convert  interest on some or all
     of its advances to a LIBOR based rate.  At July 31,  1996,  the Company had
     available  approximately  $29.2  million of  additional  credit  under this
     agreement.  The  Company is subject to  certain  loan  covenants,  the most
     restrictive  of which  require the Company to  maintain  certain  financial
     ratios  beginning on October 30, 1996. The Company  believes that they will
     be in compliance  with these  covenants at October 30, 1996. The Company is
     in compliance with all loan covenants which began on May 30, 1996.


                                      F-17


<PAGE>


                                            FOUR M CORPORATION AND SUBSIDIARIES
                                                                   D/B/A BOX USA

                                                   NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

(c)  The term loans were paid off on May 30,  1996 in  conjunction  with the new
     credit facility.

(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 or $241,000 net of income taxes.



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

Year ending July 31,
--------------------------------------------------------------------------------
1997                                                                 $   1,393
1998                                                                       919
1999                                                                       485
2000                                                                       210
2001                                                                       159
Thereafter                                                             178,815
--------------------------------------------------------------------------------
                                                                      $181,981
--------------------------------------------------------------------------------

8.   SUBORDINATED DEBT

Subordinated debt at July 31, consists of the following (in thousands):

                                                              July 31,
                                                       ------------------------
                                                           1996          1995
-------------------------------------------------------------------------------
Debt with warrants (a):                                  $   -          $2,080
Less: current portion                                        -           1,000
-------------------------------------------------------------------------------
Long-term subordinated debt                              $   -          $1,080
-------------------------------------------------------------------------------


                                      F-18


<PAGE>

                                            FOUR M CORPORATION AND SUBSIDIARIES
                                                                   D/B/A BOX USA

                                                   NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

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 3), 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.



9.   INCOME TAXES

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

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


                                      F-19


<PAGE>


                                            FOUR M CORPORATION AND SUBSIDIARIES
                                                                   D/B/A BOX USA

                                                   NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

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)  at July  31,  result  from
temporary differences as follows (in thousands):

                                                        1996              1995
--------------------------------------------------------------------------------
Allowance for doubtful accounts receivable            $   581           $   751
Capitalized inventory costs                             1,213               762
Accrued salaries and benefits                             730               299
Provisions for losses                                   7,350                 -
Other                                                     367               189
--------------------------------------------------------------------------------
Gross deferred tax assets                              10,241             2,001
Property, plant and equipment                         (10,390)           (3,663)
--------------------------------------------------------------------------------
Net deferred tax liabilities                          $  (149)         $ (1,662)
--------------------------------------------------------------------------------

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

                                  1996               1995                1994
--------------------------------------------------------------------------------
Tax (benefit) at the
   statutory Federal rate         35.0%              34.0%              (34.0)%
State income taxes (net of
   Federal benefit)                6.4                4.0                 7.0
Non-deductible interest              -                3.0                 5.3
Goodwill amortization               .1                 .1                 1.4
Officers' life insurance             -                  -                  .1
Provision for (reversal of)
   valuation allowance               -               (3.7)               11.7
Permanent differences
   related to sale of
   subsidiary, ceased
   operations and other            1.1               (4.1)                  -
Meals and entertainment             .1                 -                    -
-------------------------------------------------------------------------------
                                  42.7%              33.3%               (8.5)
-------------------------------------------------------------------------------


                                      F-20


<PAGE>

                                            FOUR M CORPORATION AND SUBSIDIARIES
                                                                   D/B/A BOX USA

                                                   NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

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.

10.  MINORITY INTEREST

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

11.  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 July 31,                                    Leases           Leases
--------------------------------------------------------------------------------
1997                                                  $  1,870         $  3,423
1998                                                     1,839            3,024
1999                                                     1,729            2,458
2000                                                     1,666            1,737
2001                                                     1,647            1,467
Thereafter                                               1,774            8,002
--------------------------------------------------------------------------------
Total minimum lease payments                            10,525          $20,111
                                                                     -----------
Less: amount representing interest                       2,974
----------------------------------------------------------------
Present value of capital lease obligations            $  7,551
--------------------------------------------------------------------------------



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.


                                      F-21


<PAGE>


                                            FOUR M CORPORATION AND SUBSIDIARIES
                                                                   D/B/A BOX USA

                                                   NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

12.  RELATED PARTY
     TRANSACTIONS

The  Stockholder  is an owner of entities  from which the Company  rents certain
property,  plant and  equipment.  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 1996 and
1994,  respectively.  There were no material  sales to this entity in 1995.  The
Company  believes  that the  prices at which  such sales were made are not below
market  levels.  On August 5, 1996,  the Company  acquired  490 shares of common
stock of Mannkraft Corporation from Stone Container Corporation (See Note 14).

The Company had  outstanding  receivables  from  officers  and  employees in the
amount of $1,124,000 and $1,474,000 at July 31, 1996 and 1995, respectively, all
of which are  non-interest  bearing.  Of these  amounts,  $828,000  and $740,000
relate to amounts  advanced on behalf of the  Shareholder  for  premiums on life
insurance policies. 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  $2,024,000  and $3,400,000 of material in
1996 and 1995, respectively.  The Company believes that the prices at which such
sales were made are not below market levels.

13.  COMMITMENT AND
     CONTINGENCIES

Purchase Commitments

The Company has  commitments  to purchase  paperboard  inventory from four major
vendors.  The total  commitment  is for the  purchase  of up to 160,000  tons of
inventory  through  December  2001.  The  price  per ton will be based on market
rates.

As  discussed  in Note 4, 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 4.

Additionally the Company is required to purchase 12.6% of the output of a 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.


                                      F-22


<PAGE>


                                            FOUR M CORPORATION AND SUBSIDIARIES
                                                                   D/B/A BOX USA

                                                   NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

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.  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.

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  $195,000,  $107,000  and
$81,000 for the years ended July 31, 1996, 1995 and 1994, respectively.

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  $93,000,  $67,000 and
$431,000 for the years ended July 31, 1996, 1995 and 1994, respectively.


                                      F-23


<PAGE>

                                            FOUR M CORPORATION AND SUBSIDIARIES
                                                                   D/B/A BOX USA

                                                   NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

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.

14.  SUBSEQUENT EVENTS

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.

Disposition of Flint

On August 16,  1996,  the  Company  discontinued  its  operations  at its Flint,
Michigan  facility  and  disposed  of  substantially  all of the  machinery  and
equipment,  finished  goods and  work-in-process  inventory and certain  related
assets  utilized at such  facility for a purchase  price of  approximately  $2.6
million and a gain of approximately  $480,000. The Company retained all accounts
receivable,  accounts  payable and raw material  inventory.  The  equipment  was
transferred  pursuant to a like-kind exchange within the meaning of Section 1031
of the Code, as amended.

Purchase of MannKraft

On August 5, 1996, the Company  acquired 490 shares of common stock of MannKraft
Corporation  ("MannKraft") from Stone Container. The purchase represented 49% of
MannKraft's outstanding shares and was acquired by the Company for $5.5 million,
which was paid on August 6, 1996,  resulting  in an  ownership  interest of 50%.
This  transaction  was made in compliance  with the  covenants  contained in the
Indenture.  The Company's  interest in MannKraft will be accounted for under the
consolidation method.


                                      F-24