BUCKEYE CELLULOSE CORP, 424B1, 1996-06-28

BUCKEYE CELLULOSE CORP
424B1, 1996-06-28
PULP MILLS

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<PAGE>
Filed Pursuant to Rule 424(b)(1)
File No. 333-05135

PROSPECTUS

2,887,935 SHARES

BUCKEYE CELLULOSE CORPORATION

COMMON STOCK

($.01 PAR VALUE) LOGO

All of the 2,887,935 shares of Common Stock, $.01 par value per share (the
"Common Stock"), of Buckeye Cellulose Corporation (the "Company") being
offered hereby (this "Offering") are being sold by the Selling Stockholder.
The Company will not receive any of the proceeds from the sale of shares by
the Selling Stockholder.

At the request of the Company, the Underwriters (as defined) have reserved
approximately 980,000 shares of Common Stock for sale at the public offering
price to directors, executives and other officers, employees and business
associates of the Company.

The Common Stock is listed for trading on the New York Stock Exchange under
the symbol "BKI." On June 27, 1996, the last reported sale price of the Common
Stock was $27.75 per share. See "Price Range of Common Stock and Dividend
Policy."

Concurrent with this Offering, the Company is offering (the "Notes Offering")
$100 million aggregate principal amount of its 9 1/4% Senior Subordinated
Notes due 2008 (the "New Notes").

The Offering is contingent upon the consummation of the other Stock
Transactions (as defined) and the availability to the Company of debt
financing in an amount sufficient to consummate the Company Stock Repurchase
(as defined), which financing is currently expected to be provided by the
Notes Offering.

SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.

- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT SELLING STOCKHOLDER(1)
<S> <C> <C> <C>
Per Share....................... $27.625 $1.380 $26.245
Total (2)....................... $79,779,204 $3,985,350 $75,793,854
</TABLE>
- -------------------------------------------------------------------------------
(1) Before deducting expenses payable by the Company estimated at $600,000.

(2) The Selling Stockholder has granted the Underwriters a 30-day option to
purchase up to an additional 200,000 shares of Common Stock, exercisable
solely to cover over-allotments, if any. If the Underwriters exercise such
option in full, the total Price to Public, Underwriting Discount and
Proceeds to Selling Stockholder will be $85,304,204, $4,261,350 and
$81,042,854, respectively. See "Underwriting."

The Common Stock is offered subject to receipt and acceptance by the
Underwriters, to prior sales and to the Underwriters' right to reject any
order in whole or in part and to withdraw, cancel or modify the offer without
notice. It is expected that delivery of the certificates representing the
Common Stock will be made at the office of Salomon Brothers Inc, Seven World
Trade Center, New York, New York, or through the facilities of The Depository
Trust Company, on or about July 2, 1996.

SALOMON BROTHERS INC
MERRILL LYNCH & CO.
PAINEWEBBER INCORPORATED
MORGAN KEEGAN & COMPANY, INC.

The date of this Prospectus is June 27, 1996.
<PAGE>

END-USE APPLICATIONS OF BUCKEYE CELLULOSE CORPORATION PRODUCTS

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

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by reference to the more
detailed information and financial statements, including the notes thereto,
appearing elsewhere in this Prospectus or incorporated by reference herein. The
Company reports on a June 30 fiscal year. Unless otherwise indicated, (i) all
information in this Prospectus assumes the Underwriters' over-allotment option
is not exercised, (ii) certain information in this Prospectus has been adjusted
to give effect to the recapitalization and stock split of the Common Stock
effected in connection with the initial public offering of the Common Stock in
November 1995 and (iii) all references in this Prospectus to the "Company" or
"Buckeye" refer to Buckeye Cellulose Corporation, its direct and indirect
subsidiaries and the Predecessor (as defined).

THE COMPANY

The Company is a leading manufacturer and worldwide marketer of high-quality,
value-added specialty cellulose pulps. The Company focuses on a wide array of
technically demanding niche markets in which its proprietary products and
commitment to customer technical service give it a competitive advantage.
Buckeye is the world's only manufacturer of both wood-based and cotton linter-
based specialty cellulose pulps and, as such, produces the broadest range of
specialty pulps in the industry. The Company believes that it has a leading
position in most of the high-end niche markets in which it competes. Buckeye's
focus on niche specialty pulp markets has enabled it to maintain consistently
strong operating margins, even during downturns in the commodity pulp markets.

From fiscal 1994 to fiscal 1995, net sales increased 10% to $408.6 million,
while operating income increased 42% to $79.2 million and net income increased
67% to $21.7 million. For the nine months ended March 31, 1996, net sales
increased 12% to $338.8 million, while operating income increased 52% to $83.2
million and income before extraordinary loss increased 129% to $33.2 million
over the comparable period of the prior year. In fiscal 1995, on a pro forma
basis, the Company's operating income and net income were approximately $88.0
million and $32.9 million, respectively. For the nine months ended March 31,
1996, on a pro forma basis, operating income and income before extraordinary
loss were approximately $86.3 million and $38.9 million, respectively.

The cellulose pulp market generally can be divided into two categories:
commodity pulps and specialty cellulose pulps. The Company participates
exclusively in the estimated $7 billion annual specialty cellulose pulp market,
which accounts for approximately 3% of the total cellulose pulp market.
Specialty cellulose pulps are used to impart unique chemical or physical
characteristics to a broad and diverse range of specialty end products.
Specialty cellulose pulps generally command higher prices and tend to be less
cyclical than commodity pulps. The more demanding performance requirements for
specialty cellulose pulps limit customers' ability to substitute other
products.

The Company has manufactured specialty cellulose pulps for nearly 75 years.
The Company's specialty pulps can be broadly grouped into three categories:
chemical cellulose pulps, absorbent pulps and customized paper pulps. Chemical
cellulose pulps (41% of fiscal 1995 sales) are used to impart purity, strength,
transparency, and viscosity in the manufacture of diversified products such as
food casings, rayon filament, photographic film, transparent tape, acetate
plastics, and thickeners for food, cosmetics, and pharmaceuticals. Absorbent
pulps (39% of fiscal 1995 sales) are used to increase absorbency and fluid
transport in products such as disposable diapers, feminine hygiene products,
and adult incontinence products. Customized paper pulps (20% of fiscal 1995
sales) are used to provide porosity, color permanence, and tear resistance in
automotive air and oil filters, premium letterhead, currency paper, stock
certificates, and personal stationery.

The Company's commitment to research and development focuses on introducing
new specialty cellulose pulps, improving the performance of its existing
cellulose pulps, and creating new applications for its products. Buckeye
developed one of the earliest commercial processes to purify cotton linters for
conversion into cellulose acetate for use in photographic film. Buckeye was
also the first to develop a new application that enabled fluff pulp to be used
as the absorbent core of disposable diapers. Today, the Company's research and
development

3
<PAGE>

scientists are working on the next generation of specialty cellulose pulps for
both new and current applications such as thin diapers, high-performance
automotive filters and cellulose ethers.

The Company manufactures approximately 600,000 metric tons of specialty pulp
annually at its three plants in the United States and Germany. Since 1983,
Buckeye has invested over $400.0 million in its two U.S. plants and believes
that both are state-of-the-art manufacturing facilities. The Company's plant
located near Perry, Florida (the "Foley Plant") has an annual capacity of
approximately 450,000 metric tons. The Company's plant located in Memphis,
Tennessee (the "Memphis Plant") has an annual capacity of approximately 100,000
metric tons. In addition, in May 1996 the Company acquired the specialty
cellulose pulp business (the "Temming Business") of Peter Temming AG, a German
company (the "Temming Acquisition"), which has an annual capacity of
approximately 50,000 metric tons at its plant in Gluckstadt, Germany (the
"Gluckstadt Plant").

The Company's customer base is broadly diversified both geographically and by
end-use markets. The Company's fiscal 1995 sales reflect this geographic
diversity, with 30% of sales in the United States, 30% in Europe, 26% in Asia
and 14% in other regions. Buckeye works closely with customers through all
stages of product development and manufacture in order to tailor products to
meet each customer's specific requirements. The Company's commitment to product
quality, dedication to customer technical service, and responsiveness to
changing customer needs have enabled the Company to develop and strengthen
long-term alliances with its customers. Over 70% of fiscal 1995 sales were to
firms who have been customers of Buckeye for over 30 years. The Procter &
Gamble Company and its affiliates ("Procter & Gamble"), the world's largest
diaper manufacturer, purchase virtually all of the Company's current annual
production of absorbent pulps pursuant to a long-term, take-or-pay contract
(the "Pulp Supply Agreement"). Procter & Gamble is the Company's largest
customer, accounting for approximately 39% of the Company's fiscal 1995 net
sales. The Company's other large customers include Akzo Nobel N.V. (rayon
filament and cellulose ethers), A. Ahlstrom Corporation (automotive filter
paper), Hercules Incorporated (cellulose ethers) and Eastman Chemical Company
(cellulose acetate).

The Company's strategy is to continue to strengthen its position as a leading
worldwide supplier of specialty cellulose pulps. The Company believes it can
continue to expand its market share, increase its profitability, and decrease
its exposure to cyclical downturns by pursuing the following key strategic
objectives: (i) focus on technically demanding niche markets; (ii) develop
proprietary product innovations; (iii) strengthen long-term alliances with
customers; and (iv) expand capacity internally and through acquisitions to
support growing demand for its products.

As part of its growth strategy, the Company recently completed the Temming
Acquisition and has entered into a definitive stock purchase agreement, dated
April 26, 1996 (the "Alpha Agreement"), to acquire Alpha Cellulose Holdings,
Inc. (together with its wholly owned subsidiary, Alpha Cellulose Corporation,
"Alpha"). Such acquisition is herein referred to as the "Alpha Acquisition."

The Alpha Acquisition, if consummated, will increase the Company's annual
capacity by approximately 50,000 metric tons, expand the Company's range of
products in the customized paper pulp market and provide synergies in operating
costs, product development and customer service. Subject to the satisfaction of
certain conditions and the expiration or other termination of the applicable
waiting period (including any extensions thereof) under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 (the "HSR Act"), the consummation of the
Alpha Acquisition is expected to occur in early fiscal 1997. The Alpha
Agreement provides each of the parties thereto with an option to terminate the
agreement if the closing of the Alpha Acquisition has not occurred on or before
July 25, 1996. The Company is also considering other acquisition and joint
venture opportunities to expand its production capacity, although it has not
yet entered into any agreements to do so.

COMPANY HISTORY

In March 1993, an investor group consisting of Madison Dearborn Capital
Partners, L.P. (the "Selling Stockholder" or "MDCP") and members of the
Company's current management organized the Company to acquire from the
Cellulose & Specialties Division (the "C&S Division") of The Procter & Gamble
Cellulose Company ("Procter & Gamble Cellulose"), a wholly owned subsidiary of
Procter & Gamble, substantially all

4
<PAGE>

of the assets of the Memphis Plant, as well as certain other assets of the C&S
Division, including the headquarters building, research and development
laboratories, pilot plants and real property adjacent to the Memphis Plant. At
the same time, MDCP and members of current management also organized Buckeye
Florida Corporation to serve as the sole general partner of Buckeye Florida,
Limited Partnership ("Buckeye Florida Partners"), which simultaneously acquired
from Procter & Gamble Cellulose substantially all of the assets of the Foley
Plant. Procter & Gamble Cellulose retained a 50% interest in this facility as
the sole limited partner of Buckeye Florida Partners and granted Buckeye
Florida Corporation an option to purchase all of Procter & Gamble Cellulose's
limited partnership interest in Buckeye Florida Partners (the "P&G Call
Option"). The business operations of Procter & Gamble Cellulose so acquired are
hereinafter referred to collectively as the "Predecessor," and the acquisitions
of such assets are hereinafter referred to collectively as the "P&G
Acquisitions."

In November 1995, the ownership of the Memphis Plant, the Foley Plant and
related assets was combined into a single corporate ownership structure,
Buckeye Florida Corporation became a wholly owned subsidiary of the Company,
and the Company acquired Procter & Gamble Cellulose's remaining equity interest
in Buckeye Florida Partners for approximately $62.1 million pursuant to the P&G
Call Option. Concurrently, the Company and MDCP made an initial public offering
of the Common Stock, and the Company refinanced substantially all of its
outstanding indebtedness (including all indebtedness to Procter & Gamble
Cellulose) through a public offering of $150.0 million aggregate principal
amount of 8 1/2% Senior Subordinated Notes due 2005 (the "Existing Senior
Subordinated Notes") and through the establishment of a new senior bank credit
facility providing for aggregate lending commitments of up to $135.0 million
(as amended, the "Bank Credit Facility"). The Company also completed an offer
to repurchase, and a related amendment to the terms of, a majority of its
outstanding 10 1/4% Senior Notes due 2001 (the "Existing Senior Notes" and,
together with the Existing Senior Subordinated Notes, the "Existing Notes").
Such transactions are collectively referred to herein as the "1995 Business
Combination Transactions."

THE COMPANY STOCK REPURCHASE AND THE RELATED TRANSACTIONS

In early 1996, the Company's management and MDCP began discussions regarding
the possible disposition by MDCP of its remaining equity ownership interest in
the Company. On June 3, 1996, BKI Investment Corp., a newly formed, wholly
owned subsidiary of the Company ("BKI Investment"), agreed to purchase
2,259,887 shares of Common Stock from MDCP for $22.125 per share (the "Company
Stock Repurchase"), subject, among other things, to the approval by each of the
Company's and BKI Investment's board of directors, the completion on or before
August 15, 1996 of the Company Stock Repurchase and related transactions, and
the availability to the Company of debt financing in an amount sufficient to
consummate the Company Stock Repurchase, on terms satisfactory to the Company,
which debt financing is currently anticipated to be provided by the Notes
Offering (together with the Offering, the "Offerings"). The aggregate amount of
the purchase price to be paid in the Company Stock Repurchase is approximately
equal to the maximum amount currently permitted to be used for stock
repurchases under the terms of the Existing Notes Indentures (as defined).
Additionally, on June 3, 1996, MDCP agreed to sell, and certain individuals
employed by the Company and their related trusts agreed to purchase in an
exempt transaction under the Securities Act of 1933, as amended (the
"Securities Act"), an aggregate of 1,385,269 shares of Common Stock for $22.125
per share (the "Individuals' Stock Purchase") concurrently with the Company
Stock Repurchase. The purchase price for the Company Stock Repurchase and the
Individuals' Stock Purchase reflects the prevailing market price when the
parties decided to pursue definitive agreements and seek board approval. On
June 3, 1996, the board of directors of each of the Company and BKI Investment
approved the Company Stock Repurchase.

Each of this Offering, the Company Stock Repurchase and the Individuals'
Stock Purchase (collectively, the "Stock Transactions") is subject, among other
things, to the concurrent completion on or before August 15, 1996 of each of
the other Stock Transactions and the availability to the Company of debt
financing in an amount sufficient to consummate the Company Stock Repurchase,
which debt financing is currently anticipated to be provided by the Notes
Offering. Upon completion of the Stock Transactions, the Company will have
19,147,336 shares of Common Stock outstanding, and MDCP's equity ownership
interest in the Company will be reduced to less than 5% of the outstanding
Common Stock.

5
<PAGE>

THE OFFERINGS

<TABLE>
<S> <C>
Common Stock offered by the Selling
Stockholder................................ 2,887,935 shares
Common Stock to be outstanding after the
Offering and the Company Stock Repurchase.. 19,147,336 shares (a)
Use of Proceeds ............................ All of the shares of Common Stock
being offered in the Offering are
being sold by the Selling
Stockholder. The Company will not
receive any of the proceeds from
the sale of shares in the
Offering. See "Use of Proceeds."
New York Stock Exchange Symbol.............. BKI
Notes Offering.............................. Concurrently with this Offering,
the Company is offering $100.0
million aggregate principal
amount of New Notes to the public
by means of a separate
prospectus. The Notes Offering is
contingent upon the consummation
of the Stock Transactions.
</TABLE>
- --------
(a) Does not include an aggregate of up to 2,450,000 shares of Common Stock
reserved for issuance upon exercise of outstanding stock options or
available for grant under the Company's stock option plans.

RISK FACTORS

Prospective purchasers of the Common Stock offered hereby should consider the
factors set forth in "Risk Factors," as well as the other information set forth
in this Prospectus, before making an investment in the Common Stock.

6
<PAGE>

SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

The following table sets forth summary financial data with respect to (a) the
Predecessor for the fiscal years ended June 30, 1991 and 1992 and for the
period July 1, 1992 through March 15, 1993 and (b) the Company for the period
March 16, 1993 through June 30, 1993, for the fiscal years ended June 30, 1994
and 1995 and for the nine months ended March 31, 1995 and 1996. The summary
financial data for the fiscal years ended June 30, 1991 and 1992 are derived
from the unaudited Combined Statement of Net Assets and Combined Statement of
Operating Income of the Predecessor. The summary financial data of the
Predecessor for the period July 1, 1992 through March 15, 1993 are derived from
the unaudited Combined Statement of Net Assets and the audited Combined
Statement of Operating Income of the Predecessor appearing elsewhere in this
Prospectus. The summary financial data for the period March 16, 1993 through
June 30, 1993 and for the fiscal years ended June 30, 1994 and 1995 (except pro
forma amounts) are derived from the audited financial statements of the Company
appearing elsewhere in this Prospectus. The summary financial data for the nine
months ended March 31, 1995 and 1996 are derived from the unaudited financial
statements of the Company appearing elsewhere in this Prospectus. In the
opinion of management such nine month data include all adjustments (consisting
of normal recurring adjustments) necessary for a fair presentation of the
information included therein. The results of operations for the nine months
ended March 31, 1996 are not necessarily indicative of the results for the
entire fiscal year or any other interim period. The data set forth in the
following table should be read in conjunction with the Combined Statement of
Operating Income of the Predecessor and notes thereto, and the combined
consolidated financial statements of the Company and notes thereto, appearing
elsewhere in this Prospectus and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

<TABLE>
<CAPTION>
PREDECESSOR (A) COMPANY (B)
----------------------------- -----------------------------------------------------
JULY 1, MARCH 16,
1992 1993 NINE MONTHS ENDED
YEAR ENDED JUNE 30, THROUGH THROUGH YEAR ENDED JUNE 30, MARCH 31,
------------------- MARCH 15, JUNE 30, -------------------- --------------------
1991 1992 1993 1993 1994 1995 1995 1996
--------- --------- --------- --------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
DATA:
Net sales............... $ 390,690 $ 357,493 $233,460 $113,074 $371,526 $ 408,587 $301,318 $ 338,825
Cost of goods sold (a).. 300,331 293,344 189,808 86,047 291,833 305,150 230,247 237,149
--------- --------- -------- -------- -------- ---------- -------- ----------
Gross margin............ 90,359 64,149 43,652 27,027 79,693 103,437 71,071 101,676
Selling, research and
administrative
expenses:
Company................ -- -- -- 5,996 24,004 24,265 16,446 18,497
C&S Division
allocations (a)....... 25,034 21,357 17,522 -- -- -- -- --
Procter & Gamble
corporate allocations
(a)................... 1,614 6,096 4,764 -- -- -- -- --
--------- --------- -------- -------- -------- ---------- -------- ----------
Operating income........ 63,711 36,696 21,366 21,031 55,689 79,172 54,625 83,179
Net interest and
amortization of debt
costs (c).............. -- -- -- (10,209) (26,545) (21,152) (16,510) (12,784)
Other expense........... -- -- -- (184) (632) (615) (462) (372)
Minority interest (d)... -- -- -- (3,083) (8,291) (23,223) (14,881) (16,628)
Secondary offering
costs.................. -- -- -- -- -- -- -- (1,335)
--------- --------- -------- -------- -------- ---------- -------- ----------
Income before income
taxes and extraordinary
loss................... 63,711 36,696 21,366 7,555 20,221 34,182 22,772 52,060
Income taxes (e)........ -- -- -- 2,851 7,253 12,470 8,308 18,908
--------- --------- -------- -------- -------- ---------- -------- ----------
Income before
extraordinary loss..... 63,711 36,696 21,366 4,704 12,968 21,712 14,464 33,152
Extraordinary loss, net
of tax benefit......... -- -- -- -- -- -- -- 3,949
--------- --------- -------- -------- -------- ---------- -------- ----------
Net income.............. $ 63,711 $ 36,696 $ 21,366 $ 4,704 $ 12,968 $ 21,712 $ 14,464 $ 29,203
========= ========= ======== ======== ======== ========== ======== ==========
Income per share before
extraordinary loss (f). $ 1.58
Extraordinary loss, net
of tax benefit (g)..... (.19)
----------
Net income per share $ 1.39
(f).................... ==========
Weighted average shares
outstanding............ 21,014,032
PRO FORMA DATA (H):
Income before
extraordinary loss..... $ 32,856 $ 38,939
Income per share before
extraordinary loss..... 1.72 2.03
Weighted average shares
outstanding............ 19,147,336 19,147,336
EBITDA (i).............. $ 118,745 $ 109,340
OTHER DATA:
Depreciation and
amortization........... $ 24,993 $ 25,795 $ 19,262 $ 7,436 $ 27,415 $ 26,080 $ 19,566 $ 19,117
Capital expenditures.... 45,960 29,832 17,761 4,898 15,725 24,922 20,713 22,334
EBITDA (i).............. 88,704 62,491 40,628 28,185 81,879 104,088 73,313 102,073
Shipments (thousand
metric tons)........... 493 515 342 161 565 555 423 383
</TABLE>

(continued on following page)

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<PAGE>

<TABLE>
<CAPTION>
MARCH 31, 1996
-----------------
PRO
ACTUAL FORMA(H)
-------- --------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital.............................................. $101,027 $132,848
Total assets................................................. 408,365 522,619
Long-term debt less current portion.......................... 197,364 351,848
Equity....................................................... 127,608 76,928
</TABLE>
- --------
(a) The Predecessor was historically operated as two of the four pulp mills
that comprised the C&S Division of Procter & Gamble. The Predecessor was
allocated certain expenses for services provided by the C&S Division and
Procter & Gamble, including sales services, product supply services,
general management services, information system services, research
services, treasury services, financial audit and reporting services, tax
administration services and employee benefits and insurance administration
services. Costs and expenses of the C&S Division were allocated using
formulas, primarily based on estimates of efforts expended and sales.
Procter & Gamble corporate expenses were allocated primarily based on
sales.
(b) On March 16, 1993, the Company acquired from Procter & Gamble Cellulose the
assets of the Predecessor.
(c) The debt obligations of Procter & Gamble were not specifically identifiable
with individual operating units; accordingly, interest charges are not
reflected in the financial data of the Predecessor.
(d) The minority interest represents Procter & Gamble Cellulose's 50% limited
partnership interest in Buckeye Florida Partners, which ceased on November
28, 1995.
(e) The Predecessor's results of operations were historically included in the
consolidated income tax returns of Procter & Gamble. Procter & Gamble had
no tax sharing agreement for allocating income taxes to operating units.
Accordingly, income tax expense or benefit is not reflected in the
financial data of the Predecessor.
(f) Historical net income per share has not been presented as it is not
considered relevant for periods prior to June 30, 1995, due to the P&G
Acquisitions and the 1995 Business Combination Transactions.
(g) An extraordinary loss of $3,949, net of tax benefit, was recognized on the
early retirement of a majority of the Existing Senior Notes in the second
and third quarters of fiscal 1996.
(h) See "Unaudited Pro Forma Consolidated Financial Data."
(i) EBITDA represents earnings before secondary offering costs, interest,
taxes, minority interest, extraordinary loss, depreciation, depletion,
amortization and other non-cash charges and is intended to facilitate a
more complete analysis of the Company's ability to meet its debt service
requirements. This data should not be considered in isolation and is not
intended to be a substitute for income statement data as a measure of the
Company's profitability.

8
<PAGE>

RISK FACTORS

In addition to the other information contained in this Prospectus,
prospective investors in the Common Stock offered hereby should carefully
consider the following risk factors before making an investment in the Common
Stock.

INDUSTRY CYCLICALITY

The markets for cellulose pulps are cyclical, being characterized by periods
of supply imbalance and sensitivity to changes in industry capacity. The
general economic conditions of global markets are the primary determinants of
the demand for cellulose pulp, as consumption correlates with economic
activity. The factors affecting such conditions are beyond the Company's
control. The production of cellulose pulp is a capital-intensive process with
relatively long lead times to bring new capacity to the market and significant
exit costs associated with capacity reductions. Prices of cellulose pulps can
fluctuate significantly when supply and demand become imbalanced. The
Company's financial performance is influenced by these pricing fluctuations
and the cyclicality of the cellulose pulp market. There can be no assurance
that current price levels will be maintained, that any additional price
increases will be achieved or that the industry will not add new capacity.
Prices for the Company's products may fluctuate substantially in the future.
Any downturn in such prices could have a material adverse effect on the
Company's business, results of operations and financial condition.

DEPENDENCE ON SIGNIFICANT CUSTOMER

Virtually all of the Company's absorbent pulp sales (approximately 39% of
fiscal 1995 net sales) are made to Procter & Gamble pursuant to the Pulp
Supply Agreement between the Company and Procter & Gamble. The Pulp Supply
Agreement provides that Procter & Gamble will purchase, under a take-or-pay
arrangement, a specified tonnage (currently virtually all of the Company's
output) of absorbent pulp annually at a formula price through calendar year
1998, at the higher of the formula price or market price in 1999 and 2000, and
at market price in 2001 and 2002. During fiscal 1994, the formula price paid
for absorbent pulp pursuant to the Pulp Supply Agreement was significantly in
excess of the market prices for absorbent pulp, while in fiscal 1995 the price
paid was slightly in excess of market price. As a result of such formula
pricing, the Company will be partially protected in periods of lower market
prices; however, it may not realize all of the benefits of increasing market
prices. Currently, the formula price paid by Procter & Gamble pursuant to the
Pulp Supply Agreement exceeds the market price for absorbent pulp. On June 27,
1996, Procter & Gamble announced a one-time $150 million after-tax charge to
its fourth quarter and fiscal year-end earnings to increase its reserve for
pulp price fluctuations. Procter & Gamble announced that such action was taken
to reflect the impact of projected pulp prices under the Pulp Supply
Agreement. In the event that Procter & Gamble fails to perform under the Pulp
Supply Agreement for any reason or fails to renew it upon terms favorable to
the Company, the Company's business, results of operations and financial
condition could be materially and adversely affected under certain market
conditions. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business--Sales and Customers."

COST OF RAW MATERIALS

Amounts paid by the Company for timber and cotton linters represent the
largest component of the Company's variable costs of pulp production. The cost
of these materials is subject to market fluctuations caused by factors beyond
the Company's control. Significant increases in the cost of timber or cotton
linters, to the extent not reflected in prices for the Company's products,
could materially and adversely affect the Company's business, results of
operations and financial condition. See "Business--Raw Materials."

COMPETITION

The markets for the Company's products are competitive, and the Company
faces competition from a number of sources in most of its product lines. Some
of the Company's competitors have financial and other resources greater than
those of the Company and are also well established as suppliers to the markets
that the

9
<PAGE>

Company serves. Quality, performance, service and price are generally the
prime competitive factors. There can be no assurance that the Company's
markets will not attract additional competitors. See "Business--Competition."

ENVIRONMENTAL REGULATIONS AND LIABILITIES

The Company's facilities and operations are subject to extensive general and
industry-specific federal, state, local and foreign environmental laws and
regulations. The Company devotes significant resources to maintaining
compliance with such requirements and believes that its facilities and
operations are in substantial compliance with all such requirements. The
Company expects that, due to the nature of its operations, it will be subject
to increasingly stringent environmental requirements (including anticipated
standards applicable to waste water discharges and air emissions) and will
continue to incur substantial costs to comply with such requirements. Based
upon its understanding of current and anticipated requirements, the Company
believes that continued compliance with environmental requirements will not
have a material adverse effect on its business, results of operations or
financial condition and will not adversely affect the Company's competitive
position. However, given the uncertainties associated with predicting the
scope of future requirements, there can be no assurance that the Company will
not in the future incur material environmental compliance costs or
liabilities.

The Foley Plant discharges treated waste water into the Fenholloway River.
The Fenholloway River is currently classified under Florida statutes as a
Class 5 (industrial) stream. Under the federal Clean Water Act, the State of
Florida is required to perform an analysis every three years of the
feasibility of reclassifying the river to Class 3 ("fishable/swimmable")
status. Such an analysis recommending reclassification was completed in early
1994 and approved by the Florida Department of Environmental Protection
("DEP") at an administrative hearing in December 1994. At this administrative
hearing, the Company and the State of Florida reached agreement on a plan to
attain Class 3 objectives, which relies primarily on the laying of extensive
pipeline by the Company to relocate the Foley Plant's waste water discharge
point. The plan also includes process changes in the Foley Plant designed to
reduce the coloration of its waste water discharge, provide oxygen enrichment
of the effluent prior to discharge and restore certain wetlands areas. The
reclassification will not become effective until December 1997 (with a final
compliance deadline of December 1999) to allow the Company to obtain all the
necessary permits for implementation of the approved plan and complete
construction of the pipeline and the treatment upgrades. The Company estimates
that implementation of the approved plan will result in approximately $39.0
million of capital expenditures, the majority of which will likely be expended
during fiscal 1998 and fiscal 1999.

In 1993, the U.S. Environmental Protection Agency ("EPA") issued a set of
proposed regulations for the pulp and paper industry addressing the emissions
of "hazardous air pollutants" under the Clean Air Act and waste water
discharges under the Clean Water Act, commonly known as the "cluster rules."
The Company is examining and evaluating the potential impact of the cluster
rules, as proposed, on its operations and capital expenditures over the next
several years. The Company believes that the proposed cluster rules will
likely be amended significantly prior to their promulgation, which is
anticipated to occur in 1997, with compliance to be phased in between 1999 and
2002. Although the Company anticipates that significant capital expenditures
for environmental control equipment and related costs will be required to
comply with the cluster rules when promulgated (which the Company currently
projects will be approximately $14.0 million through fiscal 2000), such
expenditures are not likely to have a material adverse effect on the Company's
business, results of operations or financial condition.

The Foley Plant is on the EPA CERCLIS (as defined) list of potential
hazardous substance release sites prepared pursuant to CERCLA (as defined).
The EPA conducted a site investigation in early 1995. Although the Company
considers it unlikely that the Foley Plant will be listed on the CERCLA
National Priorities List and hence require remedial action, the possibility of
such listing cannot be ruled out. If the site were to be placed on the
National Priorities List, the costs associated with conducting a CERCLA
remedial action could be material.

10
<PAGE>

probable and reasonably estimable, not all potential future environmental
liabilities are covered by the Company's reserves. Accordingly, there can be
no assurance that the Company's environmental reserves will be sufficient to
meet the Company's obligations, and additional charges to earnings are
possible. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Environmental Matters" and "Business--Environmental
Matters."

SIGNIFICANT LEVERAGE

The Company has significant debt service obligations. As of March 31, 1996,
on a pro forma basis after giving effect to the Company Stock Repurchase, the
Notes Offering and the Temming Acquisition and Alpha Acquisition
(collectively, the "1996 Acquisitions"), the Company would have had total
outstanding long-term indebtedness of $351.8 million and equity of $76.9
million. Furthermore, the Company may incur additional indebtedness in the
future, subject to certain limitations contained in the instruments governing
its indebtedness. The degree to which the Company is leveraged could have
important consequences to holders of Common Stock, including: (i) the
Company's ability to obtain additional financing for working capital, capital
expenditures, acquisitions, general corporate purposes or other purposes may
be impaired in the future; (ii) a substantial portion of the Company's cash
flow from operations must be dedicated to the payment of principal of and
interest on the borrowings under the Bank Credit Facility and interest on the
Existing Notes and the New Notes, thereby reducing the funds available to the
Company for its operations and other purposes; (iii) certain of the Company's
borrowings are and will continue to be at variable rates of interest, which
exposes the Company to the risk of increased interest rates; (iv) the Company
may be substantially more leveraged than certain of its competitors, which may
place the Company at a relative competitive disadvantage; (v) the Bank Credit
Facility, the Existing Notes Indentures and the New Notes Indenture (as
defined) will contain financial and restrictive covenants, the failure to
comply with which may result in an event of default, which, if not cured or
waived, could have a material adverse effect on the Company; and (vi) the
Company may be unable to adjust to rapidly changing market conditions and
could be vulnerable in the event of a downturn in general economic conditions
or its business. See "The Company Stock Repurchase and Related Transactions,"
"Capitalization," "Unaudited Pro Forma Consolidated Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Description of Certain Indebtedness."

CONCENTRATION OF STOCK OWNERSHIP

After giving effect to the Company Stock Repurchase and the Individuals'
Stock Purchase, Robert E. Cannon (and trusts related to Mr. Cannon), Chairman
and Chief Executive Officer, and David B. Ferraro (and a trust related to Mr.
Ferraro), President and Chief Operating Officer, will own 26.1% and 6.5%,
respectively, of the outstanding Common Stock. In addition, such persons may
purchase additional shares in the Offering. Through their respective voting
power, each of Mr. Cannon and Mr. Ferraro will have the ability to influence
significantly the business and affairs of the Company. See "Principal and
Selling Stockholders." Messrs. Cannon and Ferraro may purchase, from time to
time, additional Common Stock, thus increasing their respective stock
ownership.

CERTAIN CHARTER, BY-LAWS AND STATUTORY PROVISIONS; RIGHTS AGREEMENT

The Company's Amended and Restated Certificate of Incorporation and By-laws
provide for a classified Board of Directors, restrict the ability of
stockholders to call special meetings or take stockholder action by written
consent, and contain advance notice requirements for stockholder proposals and
nominations and special voting requirements for the amendment of the Company's
Amended and Restated Certificate of Incorporation and By-laws. These
provisions could delay or hinder the removal of incumbent directors and could
discourage or make more difficult a proposed merger, tender offer or proxy
contest involving the Company or may otherwise have an adverse effect on the
market price of the Common Stock. The Company also is subject to provisions of
Delaware corporate law that restricts the Company from engaging in certain
business combinations with a person who, together with affiliates and
associates, owns 15% or more of the Company's Common Stock (an "Interested
Stockholder") for three years after the person becomes an Interested
Stockholder, unless certain conditions are met or the business combination is
approved by the Company's Board of Directors, and/or its stockholders in a

11
<PAGE>

prescribed manner. These provisions also could render more difficult or
discourage a merger, tender offer or other similar transaction. The Company's
Board of Directors has approved any acquisition of shares by Mr. Cannon and
certain related affiliates that would otherwise result in Mr. Cannon's
becoming an Interested Stockholder. See "Description of Capital Stock--Certain
Provisions of the Amended and Restated Certificate of Incorporation and By-
laws and Statutory Provisions."

The Company's Board of Directors has declared a dividend of one preferred
share purchase right (a "Right") for each share of Common Stock outstanding. A
Right will also be attached to each share of Common Stock subsequently issued.
The Rights will have certain anti-takeover effects. If triggered, the Rights
would cause substantial dilution to a person or group of persons (other than
certain exempt persons) that acquires more than 15% of the Common Stock on
terms not approved by the Company's Board of Directors. The Rights could
discourage or make more difficult a merger, tender offer or other similar
transaction. See "Description of Capital Stock--Rights Agreement."

Pursuant to the Amended and Restated Certificate of Incorporation, shares of
preferred stock may be issued in the future without stockholder approval and
upon such terms and conditions, and having such rights, privileges and
preferences, as the Board of Directors may determine in the exercise of its
business judgment. The rights of the holders of Common Stock are subject to,
and may be adversely affected by, any preferred stock that may be issued in
the future. The issuance of preferred stock, while providing desirable
flexibility in connection with possible acquisitions, financings and other
corporate transactions, could have the effect of discouraging, or making more
difficult, a third party's acquisition of a majority of the Company's
outstanding voting stock. The Company has no present plans to issue any shares
of preferred stock. See "Description of Capital Stock--Preferred Stock."

FORWARD-LOOKING INFORMATION MAY PROVE INACCURATE

This Prospectus contains various forward-looking statements and information
which is based on management's beliefs as well as assumptions made by and
information currently available to management. Statements in this Prospectus
which are not historical statements are forward-looking statements. Such
forward-looking statements are subject to certain risks and uncertainties,
including those identified above. Should one or more of these risks
materialize, or should underlying assumptions prove incorrect, actual results
may differ materially from those anticipated, estimated or projected.

12
<PAGE>

COMPANY HISTORY

The Company has participated in the specialty cellulose pulp market for
nearly 75 years and has developed uses for both wood-based and cotton linter-
based pulps for many specialty pulp applications. In March 1993, an investor
group consisting of MDCP and members of the Company's current management
organized the Company to acquire from the C&S Division of Procter & Gamble
Cellulose substantially all of the assets of the Memphis Plant, as well as
certain other assets of the C&S Division. At the same time, MDCP and members
of current management also organized Buckeye Florida Corporation to serve as
the sole general partner of Buckeye Florida Partners, which simultaneously
acquired from Procter & Gamble Cellulose substantially all of the assets of
the Foley Plant. Procter & Gamble Cellulose retained a 50% interest in this
facility as the sole limited partner of Buckeye Florida Partners and granted
Buckeye Florida Corporation an option to purchase all of Procter & Gamble
Cellulose's limited partnership interest in Buckeye Florida Partners.

In November 1995, the ownership of the Memphis Plant, the Foley Plant and
related assets was combined into a single corporate ownership structure,
Buckeye Florida Corporation became a wholly owned subsidiary of the Company,
and the Company acquired Procter & Gamble Cellulose's remaining equity
interest in Buckeye Florida Partners for approximately $62.1 million pursuant
to the P&G Call Option. Concurrently, the Company and MDCP made an initial
public offering of the Common Stock, and the Company refinanced substantially
all of its outstanding indebtedness (including all indebtedness to Procter &
Gamble Cellulose) through a public offering of $150.0 million aggregate
principal amount of Existing Senior Subordinated Notes and the establishment
of the Bank Credit Facility. The Company also completed an offer to
repurchase, and a related amendment to the terms of, a majority of its
outstanding Existing Senior Notes. As a result of these transactions, Procter
& Gamble Cellulose ceased to have any interest as an equity owner or lender to
Buckeye Florida Partners, a single capital structure for the Company's
businesses was established, MDCP's equity ownership of the Company was reduced
to approximately 34% and the Common Stock was listed for trading on the New
York Stock Exchange.

The Company is incorporated in Delaware and its executive offices are
located at 1001 Tillman Street, Memphis, Tennessee. Its telephone number is
(901) 320-8100.

THE 1996 ACQUISITIONS

TEMMING ACQUISITION

On May 1, 1996, pursuant to the terms of the Umbrella Agreement dated
January 18, 1996 by and among the Company, Peter Temming AG, Steinbeis Temming
Papier GmbH and Steinbeis Temming Papier GmbH & Co., the Company completed the
acquisition of the Temming Business. The Temming Acquisition increased the
Company's annual specialty pulp capacity by approximately 50,000 metric tons,
expanded the Company's product lines and strengthened its ability to serve
specialty cellulose pulp customers in Europe. See "Unaudited Pro Forma
Consolidated Financial Data."

ALPHA ACQUISITION

On April 26, 1996, the Company entered into the Alpha Agreement. Alpha is a
leading worldwide specialty pulp producer serving the market for high-quality
custom paper applications. Subject to the satisfaction of certain conditions
and the expiration or other termination of the applicable waiting period
(including any extensions thereof) under the HSR Act, the transaction is
scheduled to be consummated in early fiscal 1997. The Alpha Agreement provides
each of the parties thereto with an option to terminate the agreement if the
closing of the Alpha Acquisition has not occurred on or before July 25, 1996.
The purchase price to be paid by the Company will be based on the amounts of
certain of Alpha's assets and liabilities as of the closing of the acquisition
and is currently estimated to be approximately $65.0 million, assuming a
closing during July 1996. The Company intends to finance a substantial portion
of the Alpha Acquisition with a portion of the proceeds of the Notes

13
<PAGE>

Offering or, if such proceeds are applied to reduce borrowings under the Bank
Credit Facility pending completion of the Alpha Acquisition, with borrowings
under the Bank Credit Facility. The Alpha Acquisition, if consummated, will
increase the Company's annual specialty pulp capacity by approximately 50,000
metric tons through the addition of Alpha's Lumberton, North Carolina
facility. Alpha manufactures and markets customized paper pulps, which provide
attributes such as color permanence and tear resistance in premium letterhead,
currency paper, stock certificates and many other highly specialized paper
applications in the U.S. and abroad. There is no assurance that the Alpha
Acquisition will be consummated or will be consummated on the currently
contemplated terms.

THE COMPANY STOCK REPURCHASE AND THE RELATED TRANSACTIONS

THE COMPANY STOCK REPURCHASE AND THE INDIVIDUALS' STOCK PURCHASE

In early 1996, the Company's management and MDCP began discussions regarding
the possible disposition by MDCP of its remaining equity ownership interest in
the Company. On June 3, 1996, BKI Investment, a newly formed, wholly owned
subsidiary of the Company, agreed to purchase 2,259,887 shares of Common Stock
from MDCP for $22.125 per share, subject, among other things, to the approval
by each of the Company's and BKI Investment's board of directors of the
repurchase and the completion on or before August 15, 1996 of the Company
Stock Repurchase and related transactions, and the availability to the Company
of debt financing in an amount sufficient to consummate the Company Stock
Repurchase, on terms satisfactory to the Company, which debt financing is
currently anticipated to be provided by the Notes Offering. The aggregate
amount of the purchase price to be paid in the Company Stock Repurchase is
approximately equal to the maximum amount permitted under the terms of the
Existing Notes Indentures. Additionally, on June 3, 1996, MDCP agreed to sell,
and certain individuals employed by the Company and their related trusts
agreed to purchase in an exempt transaction under the Securities Act, an
aggregate of 1,385,269 shares of Common Stock for $22.125 per share
concurrently with the Company Stock Repurchase pursuant to separate stock
purchase agreements with such persons. The purchase price for the Company
Stock Repurchase and the Individuals' Stock Purchase reflects the prevailing
market price when the parties decided to pursue definitive agreements and seek
board approval. On June 3, 1996, the board of directors of each of the Company
and BKI Investment approved the Company Stock Repurchase.

Each of the Stock Transactions is subject, among other things, to the
concurrent completion on or before August 15, 1996 of the other Stock
Transactions and the availability to the Company of debt financing in an
amount sufficient to consummate the Company Stock Repurchase, which debt
financing is currently anticipated to be provided by the Notes Offering. Upon
completion of the Stock Transactions, the Company will have 19,147,336 shares
of Common Stock outstanding, and MDCP's equity ownership interest in the
Company will be reduced to less than 5% of the outstanding Common Stock. The
Company believes that the Company Stock Repurchase is an attractive investment
opportunity for the Company and that the consummation of the Stock
Transactions will increase the depth of the trading market for the Common
Stock and will increase earnings per share. In connection with its
consideration of the Company Stock Repurchase, the Company's board of
directors received an opinion from Salomon Brothers Inc regarding the fairness
from a financial point of view of the price to be paid in the Company Stock
Repurchase.

THE NOTES OFFERING

Concurrently with the closing of the sale of the shares of Common Stock in
the Offering, the Company will issue and sell $100.0 million principal amount
of New Notes in the Notes Offering. The Notes Offering is conditioned upon the
concurrent consummation of the Stock Transactions. See "Description of Certain
Indebtedness."

EFFECTS OF THE STOCK TRANSACTIONS

Upon completion of the Stock Transactions, MDCP's equity ownership interest
in the Company will be reduced to less than 5% of the outstanding Common
Stock, and the officers of the Company will have increased

14
<PAGE>

their respective equity ownership in the Company. See "Principal and Selling
Stockholders." Concurrently with the Stock Transactions and the Notes
Offering, the Bank Credit Facility will be amended to permit the transactions
contemplated by the Company Stock Repurchase and the Notes Offering. As a
result of the Company Stock Repurchase and the Notes Offering, the percentage
of the Company's total capitalization represented by indebtedness will
increase. See "Risk Factors--Significant Leverage," "Capitalization," and
"Unaudited Pro Forma Consolidated Financial Data."

SOURCES AND USES OF FUNDS

The Company will not receive any proceeds from the sale of Common Stock by
the Selling Stockholder in this Offering. The net proceeds to the Company from
the Notes Offering are estimated to be $96.75 million, after payment of
estimated fees and expenses (including underwriting discount). An aggregate of
$50.0 million of the net proceeds from the Notes Offering will be contributed
by the Company to BKI Investment to fund the Company Stock Repurchase.The
Company intends to use the remaining net proceeds to finance a substantial
portion of the Alpha Acquisition or, pending completion of the Alpha
Acquisition or in the event that the Alpha Acquisition is not consummated for
any reason, to reduce outstanding borrowings under the Bank Credit Facility,
which, in the case of LIBOR-based borrowings, may occur on expiration of the
related borrowings. See "The 1996 Acquisitions--Alpha Acquisition."

USE OF PROCEEDS

All of the shares of Common Stock being sold in the Offering are being sold
by the Selling Stockholder. The Company will not receive any proceeds from the
sale of shares of Common Stock by the Selling Stockholder in the Offering.

PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

The following table sets forth the high and low sales information for the
Common Stock for the calendar quarters since the initial public offering of
the Common Stock on November 21, 1995. Prior to the initial public offering,
there was no established trading market for the Common Stock.

<TABLE>
<CAPTION>
CALENDAR 1995 HIGH LOW
------------- ------ ------
<S> <C> <C>
Fourth Quarter (from November 21, 1995).................... $23.00 $19.00
CALENDAR 1996
-------------
First Quarter.............................................. 24.00 21.25
Second Quarter (through June 27, 1996)..................... 29.13 21.88
</TABLE>

The Company has not declared or paid any cash or other dividends on the
Common Stock and intends for the foreseeable future to retain its earnings to
finance the development of its business and for repayment of debt. The
declaration and payment of dividends by the Company are subject to the
discretion of the Board of Directors of the Company. Any future determination
to pay dividends will depend on the Company's results of operations, financial
condition, capital requirements, contractual restrictions and other factors
deemed relevant by the Board of Directors. In addition, each of the Bank
Credit Facility, the New Notes Indenture and the Existing Notes Indentures
contains restrictions on the Company's ability to declare and pay dividends.
See "Description of Certain Indebtedness."

15
<PAGE>

CAPITALIZATION

The following table sets forth the capitalization of the Company at March
31, 1996 on a pro forma basis to reflect the Temming Acquisition and as
adjusted to reflect the Alpha Acquisition, the Notes Offering and the Company
Stock Repurchase. This table should be read in conjunction with the unaudited
pro forma financial data and the combined consolidated financial statements of
the Company and notes thereto included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
MARCH 31, 1996
-------------------------------
PRO FORMA FOR PRO FORMA
TEMMING ACQUISITION AS ADJUSTED
------------------- -----------
(IN THOUSANDS)
<S> <C> <C>
LONG-TERM DEBT:
Existing Senior Notes........................ $ 6,913 $ 6,913
Existing Senior Subordinated Notes........... 149,451 149,451
Bank Credit Facility(a)...................... 69,512 95,484
New Notes.................................... -- 100,000
-------- --------
Total long-term debt....................... 225,876 351,848
-------- --------
EQUITY:
Preferred stock, par value $.01 per share,
5,000,000 shares authorized, no shares
issued and outstanding...................... -- --
Common stock, par value $.01 per share;
60,000,000 shares authorized, 21,407,223
shares issued and outstanding, actual;
19,147,336 shares issued and outstanding as
adjusted(b)................................. 214 214
Additional paid-in capital................... 58,807 58,807
Retained earnings(c)......................... 68,587 67,907
Treasury stock............................... -- (50,000)
-------- --------
Total equity............................... 127,608 76,928
-------- --------
Total capitalization..................... $353,484 $428,776
======== ========
</TABLE>
- --------
(a) As adjusted data include (1) a reduction in the outstanding borrowings
under the Bank Credit Facility of $45,750,000 as a result of the
application of a portion of the proceeds of the Notes Offering pending
completion of the Alpha Acquisition and (2) an increase in borrowings
outstanding under the Bank Credit Facility of $71,722,000 assuming the
Alpha Acquisition occurred as of March 31, 1996 (based on the amount of
assets and liabilities on such date). The purchase price to be paid by the
Company will be based on the amounts of certain of Alpha's assets and
liabilities as of the closing of the Alpha Acquisition and is currently
estimated to be approximately $65,000,000, assuming a closing during July
1996.
(b) Does not include an aggregate of up to 2,450,000 shares of Common Stock
reserved for issuance upon exercise of outstanding stock options or
available for grant under the Company's stock option plans.
(c) The reduction in retained earnings reflects an estimated $680,000 in
secondary offering costs to be incurred by the Company in connection with
the offering of Common Stock by the Selling Stockholder.

16
<PAGE>

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA

The following unaudited pro forma consolidated financial statements give
effect to the Company Stock Repurchase, the Notes Offering, the 1995 Business
Combination Transactions, the Temming Acquisition and the Alpha Acquisition.
There is no assurance that the Alpha Acquisition will be consummated or will
be consummated on the currently contemplated terms.

The pro forma consolidated balance sheet as of March 31, 1996 has been
prepared to give effect to the Company Stock Repurchase, the Notes Offering,
the Temming Acquisition and the Alpha Acquisition as if they had occurred on
that date. The effect of the 1995 Business Combination Transactions is
included in the consolidated balance sheet of the Company at March 31, 1996.
The pro forma consolidated statements of income for the year ended June 30,
1995 and the nine months ended March 31, 1996 have been prepared to give
effect to the 1995 Business Combination Transactions, the Company Stock
Repurchase, the Notes Offering, the Temming Acquisition and the Alpha
Acquisition as if they had occurred on July 1, 1994, except that the
amortization of goodwill has been based on the adjustment to goodwill in the
pro forma consolidated balance sheet as of March 31, 1996. The extraordinary
loss, net of related tax benefit, of $3.9 million recognized on the retirement
of $57.8 million in principal amount of the Existing Senior Notes in the
second and third quarters of fiscal 1996 as well as the $680,000 in estimated
secondary offering costs to be incurred by the Company in connection with the
Offering have not been included in the pro forma consolidated statements of
income.

The financial statements of the Temming Business included in these unaudited
pro forma consolidated financial statements of the Company have been derived
from financial statements prepared in accordance with accounting principles
generally accepted in the Federal Republic of Germany and stated in Deutsche
marks. These financial statements have been conformed to comply with
accounting principles generally accepted in the United States and have been
translated to United States dollars. Such translations should not be construed
as a representation that the Deutsche mark amounts represent, or have been, or
could be converted into, United States dollars at that or any other rate.

THE PRO FORMA CONSOLIDATED FINANCIAL INFORMATION IS NOT NECESSARILY
INDICATIVE OF THE RESULTS THAT WOULD HAVE BEEN OBTAINED HAD THE COMPANY STOCK
REPURCHASE, THE 1995 BUSINESS COMBINATION TRANSACTIONS, THE NOTES OFFERING,
THE TEMMING ACQUISITION AND THE ALPHA ACQUISITION BEEN COMPLETED AS OF THE
DATES PRESENTED OR FOR ANY FUTURE PERIOD. PRO FORMA ADJUSTMENTS ARE BASED UPON
PRELIMINARY ESTIMATES, AVAILABLE INFORMATION AND CERTAIN ASSUMPTIONS THAT
MANAGEMENT DEEMS APPROPRIATE. THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL
DATA SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S COMBINED CONSOLIDATED
FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED ELSEWHERE IN THIS PROSPECTUS.

17
<PAGE>

UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET

MARCH 31, 1996
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
HISTORICAL PRO FORMA ADJUSTMENTS
------------------------------------- ---------------------------------------------
BUCKEYE ALPHA COMPANY STOCK
CELLULOSE CELLULOSE REPURCHASE
CORPORATION TEMMING HOLDINGS, TEMMING AND NOTES ALPHA PRO FORMA
AND AFFILIATES BUSINESS (A) INC. ACQUISITION (B) OFFERING (C) ACQUISITION (D) CONSOLIDATED
-------------- ------------ --------- --------------- ------------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and short-term
investments........... $ 2,900 $ 640 $ 111 $ (317) $ -- $ -- $ 3,334
Accounts receivable--
net................... 48,900 7,891 6,737 (7,891) -- -- 55,637
Inventories............ 90,581 12,889 16,609 (374) -- -- 119,705
Deferred income taxes.. 8,466 -- 780 -- -- -- 9,246
Prepaid expenses and
other................. -- 66 443 (66) -- -- 443
-------- ------- ------- -------- ------- ------- --------
Total current assets. 150,847 21,486 24,680 (8,648) -- -- 188,365
Property, plant &
equipment, net......... 242,589 20,399 27,395 (5,174) -- -- 285,209
Goodwill................ 7,675 -- 3,205 -- -- 21,495 32,375
Deferred debt costs and
other.................. 7,254 -- 1,009 1,443 3,570 3,394 16,670
-------- ------- ------- -------- ------- ------- --------
Total assets............ $408,365 $41,885 $56,289 $(12,379) $ 3,570 $24,889 $522,619
======== ======= ======= ======== ======= ======= ========
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable....... $ 18,305 $ 2,038 $ 1,160 $ (2,038) $ -- $ -- $ 19,465
Accrued expenses and
other liabilities..... 31,515 12,665 4,077 (12,205) -- -- 36,052
Current portion of
long-term debt and
notes payable......... -- 4,513 8,962 (4,513) -- (8,962) --
-------- ------- ------- -------- ------- ------- --------
Total current
liabilities......... 49,820 19,216 14,199 (18,756) -- (8,962) 55,517
Long-term debt:
Existing Notes......... 156,364 -- -- -- -- -- 156,364
Bank Credit Facility... 41,000 -- -- 28,512 (45,750) 71,722 95,484
New Notes.............. -- -- -- -- 100,000 -- 100,000
Other notes............ -- 1,535 27,879 (1,535) -- (27,879) --
-------- ------- ------- -------- ------- ------- --------
Total long-term debt.... 197,364 1,535 27,879 26,977 54,250 43,843 351,848
Postretirement benefit
obligation............. 12,802 534 -- -- -- -- 13,336
Deferred income taxes... 16,450 -- 3,993 -- -- -- 20,443
Other liabilities....... 4,321 41 226 (41) -- -- 4,547
Shareholders' equity.... 127,608 20,559 9,992 (20,559) (50,680) (9,992) 76,928
-------- ------- ------- -------- ------- ------- --------
Total liabilities and
shareholders' equity... $408,365 $41,885 $56,289 $(12,379) $ 3,570 $24,889 $522,619
======== ======= ======= ======== ======= ======= ========
</TABLE>

See Notes to Unaudited Pro Forma Consolidated Financial Statements.

18
<PAGE>

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME

YEAR ENDED JUNE 30, 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
HISTORICAL PRO FORMA ADJUSTMENTS
------------------------------------- ----------------------------------------
1995
BUSINESS COMPANY
BUCKEYE ALPHA COMBINATION STOCK
CELLULOSE CELLULOSE TRANSACTIONS REPURCHASE
CORPORATION TEMMING HOLDINGS, AND TEMMING AND NOTES ALPHA PRO FORMA
AND AFFILIATES BUSINESS (E) INC. (F) ACQUISITION OFFERING ACQUISITION CONSOLIDATED
-------------- ------------ --------- ------------ ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $408,587 $55,637 $48,679 $ -- $ -- $ -- $ 512,903
Cost of goods sold...... 305,150 44,414 32,478 (738)(g) -- -- 381,304
-------- ------- ------- ------- ------- ------- -----------
Gross margin............ 103,437 11,223 16,201 738 -- -- 131,599
Selling, research and
administrative
expenses............... 24,265 11,812 4,784 716 (h) -- 2,000 (h) 43,577
-------- ------- ------- ------- ------- ------- -----------
Operating income (loss). 79,172 (589) 11,417 22 -- (2,000) 88,022
Other income (expense):
Interest income........ 1,138 4 10 (836)(i) -- -- 316
Interest expense and
amortization of debt
costs................. (22,290) (106) (3,369) (919)(i) (6,939)(j) (1,206)(k) (34,829)
Other.................. (615) -- 126 299 (l) -- (717)(l) (907)
Minority interest...... (23,223) -- -- 23,223 (l) -- -- --
-------- ------- ------- ------- ------- ------- -----------
(44,990) (102) (3,233) 21,767 (6,939) (1,923) (35,420)
-------- ------- ------- ------- ------- ------- -----------
Income (loss) before
income taxes.......... 34,182 (691) 8,184 21,789 (6,939) (3,923) 52,602
Income taxes
(benefit)............. 12,470 -- 3,128 8,003 (m) (2,637)(m) (1,218)(m) 19,746
-------- ------- ------- ------- ------- ------- -----------
Net income (loss).... $ 21,712 $ (691) $ 5,056 $13,786 $(4,302) $(2,705) $ 32,856
======== ======= ======= ======= ======= ======= ===========
Weighted average shares
outstanding (n)........ 19,147,336
Net income per
share (n).............. $ 1.72
===========
Ratio of earnings to
fixed
charges (o)............ 2.49x
</TABLE>

See Notes to Unaudited Pro Forma Consolidated Financial Statements.

19
<PAGE>

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME

NINE MONTHS ENDED MARCH 31, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
HISTORICAL PRO FORMA ADJUSTMENTS
---------------------------------------------- --------------------------------------
1995
BUSINESS COMPANY
BUCKEYE COMBINATION STOCK
CELLULOSE ALPHA TRANSACTIONS REPURCHASE
CORPORATION TEMMING CELLULOSE AND TEMMING AND NOTES ALPHA PRO FORMA
AND AFFILIATES BUSINESS (E) HOLDINGS, INC. (F) ACQUISITION OFFERING ACQUISITION CONSOLIDATED
-------------- ------------ ------------------ ------------ ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales.............. $ 338,825 $45,929 $37,480 $ -- $ -- $ -- $ 422,234
Cost of goods sold..... 237,149 40,474 28,765 (945)(g) -- -- 305,443
---------- ------- ------- ------ ------ ------ ----------
Gross margin........... 101,676 5,455 8,715 945 -- -- 116,791
Selling, research and
administrative
expenses.............. 18,497 7,030 2,962 539 (h) -- 1,500 (h) 30,528
---------- ------- ------- ------ ------ ------ ----------
Operating income
(loss)................ 83,179 (1,575) 5,753 406 -- (1,500) 86,263
Other income (expense):
Interest income....... 925 -- 5 (418)(i) -- -- 512
Interest expense and
amortization of debt
costs................ (13,709) (167) (2,385) (1,642)(i) (5,246)(j) (870)(k) (24,019)
Secondary offering
costs................ (1,335) -- -- 1,335 (l) -- -- --
Other................. (372) -- (476) 125 (l) -- (551)(l) (1,274)
Minority interest..... (16,628) -- -- 16,628 (l) -- -- --
---------- ------- ------- ------ ------ ------ ----------
(31,119) (167) (2,856) 16,028 (5,246) (1,421) (24,781)
---------- ------- ------- ------ ------ ------ ----------
Income (loss) before
income taxes and
extraordinary loss... 52,060 (1,742) 2,897 16,434 (5,246) (2,921) 61,482
Income taxes
(benefit)............ 18,908 -- 994 5,535 (m) (1,993)(m) (901)(m) 22,543
---------- ------- ------- ------ ------ ------ ----------
Income (loss) before
extraordinary loss... 33,152 (1,742) 1,903 10,899 (3,253) (2,020) 38,939
========== ======= ======= ====== ====== ====== ==========
Weighted average shares
outstanding (n)....... 21,014,032 19,147,336
Income per share before
extraordinary loss
(n)................... $ 1.58 $ 2.03
========== ==========
Ratio of earnings to
fixed
charges (o)........... 5.92x 3.53x
</TABLE>

See Notes to Unaudited Pro Forma Consolidated Financial Statements.

20
<PAGE>

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)

(a) Reflects the unaudited balances of the Temming Business at December 31,
1995, derived from the financial statements included elsewhere herein and
translated into United States dollars at the December 31, 1995 exchange
rate (DM 1.4312 to $1). The conversion of the balance sheet from German
generally accepted accounting principles to those generally accepted in
the United States resulted in an increase in property, plant and equipment
of $15,456 due to differences in depreciation methods.

(b) Adjustments to reflect the assets and liabilities acquired and assumed in
the Temming Acquisition, borrowings of $28,512 under the Bank Credit
Facility to finance the acquisition, and the estimated allocation of the
purchase price, assuming such acquisition took place at December 31, 1995.
The allocation of the purchase price is based on preliminary estimates of
the respective fair value of assets and liabilities which may differ from
actual fair values.

(c) Adjustments to reflect the issuance of the New Notes. Underwriting fees
and other expenses related to the New Notes are deferred and amortized
over the term of the New Notes. The proceeds of the New Notes will be used
to finance a portion of the Alpha Acquisition and the Company Stock
Repurchase. If the Alpha Acquisition is not consummated, the net proceeds
of the New Notes will be used to reduce outstanding borrowings under the
Bank Credit Facility. Certain expenses incurred in connection with the
offering of Common Stock by the Selling Stockholder will be paid by the
Company and are reflected as a reduction of equity.

(d) Adjustments to reflect the acquisition of the common stock of Alpha,
refinancing of substantially all of Alpha's existing long-term debt,
borrowings of $71,722 under the Bank Credit Facility, and the estimated
allocation of the purchase price. The allocation of the excess of the
purchase price over the recorded value of net assets is based on
preliminary estimates of the respective fair values of assets and
liabilities which may differ from actual fair values. Goodwill is to be
amortized over 30 years.

(e) Reflects the unaudited statement of operations of the Temming Business for
the twelve months ended June 30, 1995 and the nine months ended December
31, 1995, derived from the historical financial statements and translated
into United States dollars using the average exchange rates for the
periods then ended (DM 1.4802 to $1 for the twelve months ended June 30,
1995 and DM 1.4068 to $1 for the nine months ended December 31, 1995.) The
conversion of the statements of operations from German generally accepted
accounting principles to those generally accepted in the United States
resulted in an increase in depreciation expense of $915 and $830 for the
twelve months ended June 30, 1995 and the nine months ended December 31,
1995, respectively. The operating results of the Temming Business for the
three months ended June 30, 1995 have been included in both the pro forma
statements of income for the twelve months ended June 30, 1995 and the
nine months ended December 31, 1995. Net sales and net loss for the
Temming Business for the three months ended June 30, 1995 were $16,410 and
$573, respectively.

(f) Reflects the historical unaudited statement of operations of Alpha for the
twelve months ended September 30, 1995 and the nine months ended March 31,
1996. The operating results of Alpha for the three months ended September
30, 1995 have been included in both the pro forma statements of income for
the twelve months ended June 30, 1995 and the nine months ended March 31,
1996. Alpha's net sales and net income for the three months ended
September 30, 1995 were $11,903 and $984, respectively.

(g) The purchase price allocation of the 1995 Business Combination
Transactions resulted in an increase in depreciation expense based on the
increase in property, plant and equipment of $10,563 as of the acquisition
date. The estimated purchase price allocation of the Temming Acquisition
results in the reduction of depreciation expense for the decrease in
property, plant and equipment of $5,174 as of the acquisition date.

(h) The estimated purchase price allocation of the Temming Acquisition
includes the additional amortization of a $1,432 non-compete agreement
over a two year period. The estimated purchase price allocation of the
Alpha Acquisition includes the additional amortization of a $4,000 non-
compete agreement over a two year period.

21
<PAGE>

(i) Reflects the 1995 Business Combination Transactions and Temming
Acquisition as if they had occurred on July 1, 1994. A reduction of
interest income reflects the use of approximately $14,000 of cash and
short-term investments to consummate these transactions. Adjustments
reflect the net effects of (1) the decrease in interest expense resulting
from the refinancing of existing indebtedness in the 1995 Business
Combination Transactions, (2) the increase in interest expense related to
borrowings under the Bank Credit Facility to finance the Temming
Acquisition and (3) the net increase in amortization of debt issuance
discount and debt issuance costs relating to the Existing Notes and the
Bank Credit Facility. Borrowings under the Bank Credit Facility are at a
LIBOR based rate, determined as of the date of the respective business
combination. An increase of 1/8% in the LIBOR rate when applied to
outstanding borrowings used for the 1995 Business Combination Transactions
and Temming Acquisition for the year ended June 30, 1995 would decrease
pro forma net income by $94.

(j) Adjustments to reflect the amortization of related debt issuance costs
over the term of the New Notes, and the increase in interest expense on
borrowings under the New Notes, net of the reduction in interest expense
related to the repayment of borrowings under the Bank Credit Facility.

(k) Adjustments to reflect the increase in interest expense for borrowings to
finance the Alpha Acquisition and to refinance substantially all of
Alpha's existing long-term debt. Borrowings under the Bank Credit Facility
are assumed to bear interest at LIBOR plus 1/2%. An increase of 1/8% in
the LIBOR rate when applied to outstanding borrowings used for the Alpha
Acquisition, including the refinancing of existing long-term indebtedness,
for the year ended June 30, 1995 would decrease pro forma net income by
$56.

(l) Adjustments to reflect the reduction in goodwill amortization, secondary
offering costs and minority interest as a result of the 1995 Business
Combination Transactions, and the increase in amortization of goodwill
resulting from the Alpha Acquisition. The purchase price allocation in the
1995 Business Combination Transactions reduced goodwill by $8,971.
Goodwill is assumed to generate no tax benefit, and is amortized over 30
years. Secondary offering costs represent non-recurring expenses paid by
the Company on behalf of the selling stockholder in the 1995 Business
Combination Transactions.

(m) Adjustment to record the income tax effects at the statutory rate of 38%,
except as to the amortization of goodwill which is assumed to generate no
tax benefit.

(n) For purposes of calculating pro forma net income per share and pro forma
income per share before extraordinary loss, weighted average shares
outstanding are calculated assuming the Company Stock Repurchase and 1995
Business Combination Transactions were consummated on July 1, 1994.

(o) For purposes of determining the pro forma ratio of earnings to fixed
charges, earnings are defined as income before extraordinary items,
minority interest, accounting changes, and provisions for income taxes and
before fixed charges. Fixed charges consist of pro forma interest expense
on all indebtedness (including amortization of deferred debt issuance
costs) and the interest component of rent expense.

22
<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

The following table sets forth selected financial data with respect to (a)
the Predecessor for the fiscal years ended June 30, 1991 and 1992 and for the
period July 1, 1992 through March 15, 1993 and (b) the Company as of June 30,
1993 and for the period March 16, 1993 through June 30, 1993, for the fiscal
years ended June 30, 1994 and 1995 and for the nine months ended March 31,
1995 and 1996. The selected financial data as of and for the fiscal years
ended June 30, 1991 and 1992 are derived from the unaudited Combined Statement
of Net Assets and Combined Statement of Operating Income of the Predecessor.
The selected financial data of the Predecessor for the period July 1, 1992
through March 15, 1993 are derived from the unaudited Combined Statement of
Net Assets and the audited Combined Statement of Operating Income of the
Predecessor appearing elsewhere in this Prospectus. The selected financial
data for the period March 16, 1993 through June 30, 1993 and for the fiscal
years ended June 30, 1994 and 1995, which appear elsewhere in this Prospectus,
are derived from the audited financial statements of the Company. The selected
financial data for the nine months ended March 31, 1995 and 1996 are derived
from the unaudited financial statements of the Company appearing elsewhere in
this Prospectus. In the opinion of management such nine month data include all
adjustments (consisting of normal recurring adjustments) necessary for a fair
presentation of the information included therein. The results of operations
for the nine months ended March 31, 1996 are not necessarily indicative of the
results for the entire fiscal year or any other interim period. The data set
forth in the following table should be read in conjunction with the Combined
Statement of Operating Income of the Predecessor and notes thereto, and the
combined consolidated financial statements of the Company and notes thereto,
appearing elsewhere in this Prospectus and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

<TABLE>
<CAPTION>
PREDECESSOR (A) COMPANY (B)
--------------------------- ---------------------------------------------------
JULY 1, MARCH 16,
YEAR ENDED 1992 1993 YEAR ENDED NINE MONTHS ENDED
JUNE 30, THROUGH THROUGH JUNE 30, MARCH 31,
----------------- MARCH 15, JUNE 30, ------------------ --------------------
1991 1992 1993 1993 1994 1995 1995 1996
-------- -------- --------- --------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
DATA:
Net sales............... $390,690 $357,493 $233,460 $113,074 $371,526 $408,587 $301,318 $ 338,825
Cost of goods sold (a).. 300,331 293,344 189,808 86,047 291,833 305,150 230,247 237,149
-------- -------- -------- -------- -------- -------- -------- ----------
Gross margin............ 90,359 64,149 43,652 27,027 79,693 103,437 71,071 101,676
Selling, research and
administrative
expenses:
Company................ -- -- -- 5,996 24,004 24,265 16,446 18,497
C&S Division
allocations (a)....... 25,034 21,357 17,522 -- -- -- -- --
Procter & Gamble
corporate allocations
(a)................... 1,614 6,096 4,764 -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- ----------
Operating income........ 63,711 36,696 21,366 21,031 55,689 79,172 54,625 83,179
Net interest and
amortization of debt
costs (c).............. -- -- -- (10,209) (26,545) (21,152) (16,510) (12,784)
Other expense........... -- -- -- (184) (632) (615) (462) (372)
Minority interest (d)... -- -- -- (3,083) (8,291) (23,223) (14,881) (16,628)
Secondary offering
costs.................. (1,335)
-------- -------- -------- -------- -------- -------- -------- ----------
Income before income
taxes and extraordinary
loss................... 63,711 36,696 21,366 7,555 20,221 34,182 22,772 52,060
Income taxes (e)........ -- -- -- 2,851 7,253 12,470 8,308 18,908
-------- -------- -------- -------- -------- -------- -------- ----------
Income before
extraordinary loss..... 63,711 36,696 21,366 4,704 12,968 21,712 14,464 33,152
Extraordinary loss, net
of tax benefit......... -- -- -- -- -- -- -- 3,949
-------- -------- -------- -------- -------- -------- -------- ----------
Net income.............. $ 63,711 $ 36,696 $ 21,366 $ 4,704 $ 12,968 $ 21,712 $ 14,464 $ 29,203
======== ======== ======== ======== ======== ======== ======== ==========
Income per share before
extraordinary loss (f). $ 1.58
Extraordinary loss, net
of tax benefit (g)..... (.19)
----------
Net income per share
(f).................... $ 1.39
==========
Weighted average shares
outstanding............ 21,014,032
OTHER DATA:
Depreciation and
amortization........... $ 24,993 $ 25,795 $ 19,262 $ 7,436 $ 27,415 $ 26,080 $ 19,566 $ 19,117
Capital expenditures.... 45,960 29,832 17,761 4,898 15,725 24,922 20,713 22,334
EBITDA (h).............. 88,704 62,491 40,628 28,185 81,879 104,088 73,313 102,073
Ratio of earnings to
fixed charges (i)...... -- -- -- 1.99x 2.05x 3.54x 3.15x 5.92x
BALANCE SHEET DATA:
Working capital (j)..... $132,494 $126,043 $144,419 $ 98,182 $ 69,330 $ 77,107 $ 83,410 $ 101,027
Total assets............ 445,633 445,454 446,732 403,542 374,204 379,056 381,139 408,365
Long-term debt less
current portion........ -- -- -- 278,713 203,482 166,202 189,937 197,364
Minority interest (d)... -- -- -- 28,083 33,479 52,104 45,523 --
Equity.................. -- -- -- 43,260 62,828 84,621 77,372 127,608
</TABLE>
(footnotes on following page)
23
<PAGE>

- --------
(a) The Predecessor was historically operated as two of the four pulp mills
that comprised the C&S Division of Procter & Gamble. The Predecessor was
allocated certain expenses for services provided by the C&S Division and
Procter & Gamble, including sales services, product supply services,
general management services, information system services, research
services, treasury services, financial audit and reporting services, tax
administration services and employee benefits and insurance administration
services. Costs and expenses of the C&S Division were allocated using
formulas, primarily based on estimates of efforts expended and sales.
Procter & Gamble corporate expenses were allocated primarily based on
sales.
(b) On March 16, 1993, the Company acquired from Procter & Gamble Cellulose
all of the assets of the Predecessor.
(c) The debt obligations of Procter & Gamble were not specifically
identifiable with individual operating units; accordingly, interest
charges are not reflected in the financial data of the Predecessor.
(d) The minority interest represents Procter & Gamble Cellulose's 50% limited
partnership interest in Buckeye Florida Partners, which ceased on November
28, 1995.
(e) The Predecessor's results of operations were historically included in the
consolidated income tax returns of Procter & Gamble. Procter & Gamble had
no tax sharing agreement for allocating income taxes to operating units.
Accordingly, income tax expense or benefit is not reflected in the
financial data of the Predecessor.
(f) Historical net income per share has not been presented as it is not
considered relevant for periods prior to June 30, 1995, due to the P&G
Acquisitions and the 1995 Business Combination Transactions.
(g) An extraordinary loss of $3,949, net of tax benefit, was recognized on the
early retirement of a portion of the Existing Senior Notes in the second
and third quarters of fiscal 1996.
(h) EBITDA represents earnings before secondary offering costs, interest,
taxes, minority interest, extraordinary loss, depreciation, depletion,
amortization and other non-cash charges and is intended to facilitate a
more complete analysis of the Company's ability to meet its debt service
requirements. This data should not be considered in isolation and is not
intended to be a substitute for income statement data as a measure of the
Company's profitability.
(i) For purposes of determining the ratio of earnings to fixed charges,
earnings are defined as income before income taxes and extraordinary loss,
minority interest and fixed charges. Fixed charges consist of interest
expense on all indebtedness (including amortization of deferred debt
issuance costs) and the interest component of rent expense. Historically,
interest expense was not allocated to the Predecessor by Procter & Gamble.
Accordingly, the historical ratios of earnings to fixed charges for the
Predecessor are not meaningful and therefore have not been presented.
(j) During fiscal 1994, inventories were reduced by $17,700 primarily due to
excess finished goods from the Predecessor being sold to improve
operations and generate cash.

24
<PAGE>

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

The following is a discussion of the consolidated financial condition and
results of operations of the Company for each of the fiscal years ended June
30, 1993, 1994 and 1995 and for the nine months ended March 31, 1996. The
Company completed its second full fiscal year of operations under current
ownership on June 30, 1995. Since the Company was acquired from Procter &
Gamble Cellulose on March 16, 1993, the initial fiscal year after such
acquisition encompassed approximately three and one-half months from March 16,
1993 through June 30, 1993. All comparisons to periods prior to March 16, 1993
will include the results of the Predecessor. In general, fiscal years 1995 and
1994 are not necessarily comparable to fiscal year 1993 because of differences
in results due to operations as a stand-alone company versus operations as
part of the C&S Division prior to March 16, 1993. This section should be read
in conjunction with the combined consolidated financial statements of the
Company and the footnotes thereto included elsewhere in this Prospectus.

The merger of Buckeye Florida Corporation and a subsidiary of the Company in
connection with the 1995 Business Combination Transactions was treated for
accounting purposes as a combination of related companies. The Company
accounted for the merger using the historical costs of its and Buckeye Florida
Corporation's assets in a manner similar to a "pooling of interests." All
historical information of the Company set forth in this Prospectus is
presented on such basis. The purchase of Procter & Gamble Cellulose's 50%
interest in Buckeye Florida Partners was accounted for as a purchase and the
allocation of the purchase price was based on an independent appraisal.

OVERVIEW

The Company manufactures and distributes a broad range of specialty pulps to
a variety of customers who require cellulose fibers with chemical or physical
properties that are specifically tailored to their product applications. The
Company's financial results are generally less variable than the results of a
typical producer of commodity cellulose pulp. There are two primary reasons
for this characteristic: (i) the demanding applications for specialty pulps
make substitution of alternative products difficult and expensive, and (ii)
the Pulp Supply Agreement with Procter & Gamble provides a stable volume
demand and an escalating formula-based price for a substantial portion of the
Company's sales (approximately one-third of the Company's sales in fiscal
1995). Nevertheless, specialty pulp pricing is affected by factors influencing
the broader cellulose pulp industry, including price trends for commodity
pulps. Historically, specialty pulp pricing has been more stable and price
changes have tended to lag (on both the upturn and the downturn) price changes
for commodity pulps.

Pricing for cellulose pulp (particularly for commodity pulps) varies with
general economic conditions in worldwide markets as consumption correlates
with economic activity. This variability can be compounded if substantial
additional production capacity is installed at a time when demand is not
growing rapidly enough to absorb the new production. The early 1990s were such
a period of excess capacity, and pulp industry prices reached a cyclical low
in the fourth calendar quarter of 1993. In early 1994, the market began to
recover from this downturn as global economic expansion increased the demand
for cellulose pulps. This recovery continued until late 1995 before the
combination of increased supply and softening demand once again led to lower
pricing.

The Predecessor's financial results for fiscal years 1991 and 1992 and the
first eight and one-half months of fiscal 1993 reflect the declining market
pulp prices characteristic of the pulp industry during this period. As a
result, operating income declined in each period. Operating income in the
final three months of fiscal 1993 and throughout fiscal 1994 began to increase
as the Company's current owners executed a strategy to reduce costs, liquidate
excess inventory, generate cash and pay down debt. The Company began to supply
its major customer, Procter & Gamble, under the pricing formula in the Pulp
Supply Agreement. Unit sales volume was increased substantially by selling to
new customers and competitively pricing products. Management and employees
focused on improving the operating efficiency and productivity of the
Company's manufacturing facilities. Operating and net income in fiscal 1995
improved significantly as a result of higher unit sales prices beginning

25
<PAGE>

in January 1995. The Company's average net prices for fiscal 1995 were 12%
higher than the prior year's average. For the nine months ending March 31,
1996, average net prices were 24% higher than average net prices for the same
period of fiscal 1995.

The Pulp Supply Agreement is a long-term, take-or-pay contract that phases
out in calendar years 2001 and 2002 if it is not extended by mutual consent.
Pricing pursuant to the Pulp Supply Agreement through 1998 is based on an
escalating formula. Pricing for 1999 and 2000 will be at the higher of the
contract formula price or market, and pricing for 2001 and 2002 will be at
market. The formula price has three components: (i) a periodic margin
adjustment, (ii) a general escalation component based on changes in the
Consumer Price Index, and (iii) a provision to adjust for all actual changes
in the price of timber, the major raw material component of the pulp purchased
under the contract. The pricing formula therefore provides considerable
protection against escalating costs. For the fiscal years 1993, 1994 and 1995,
the contract price was, on average, above the market price. The current
contract price is above the market price.

The Company's customer base is broadly diversified both geographically and
by end-use markets. Approximately 70% of fiscal 1995 sales were to customers
outside of the United States, principally in Europe and Asia. Currency
fluctuations do not significantly influence the Company's results of
operations because sales are made, and receivables are paid, in U.S. dollars.
The diversity of the Company's geographic and end-use markets helps to
insulate it from periodic economic downturns in particular areas of the world.

RESULTS OF OPERATIONS

The following table shows, for the periods indicated, various items as a
percentage of net sales.

<TABLE>
<CAPTION>
PREDECESSOR COMPANY
------------ --------------------------------------
NINE MONTHS
JULY 1, 1992 MARCH 16, YEAR ENDED ENDED
THROUGH THROUGH JUNE 30, MARCH 31,(A)
MARCH 15, JUNE 30, ------------ --------------
1993(A) 1993(A) 1994 1995 1995 1996
------------ --------- ----- ----- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Net sales................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold........ 81.3 76.1 78.5 74.7 76.4 70.0
----- ----- ----- ----- ------ ------
Gross margin.............. 18.7 23.9 21.5 25.3 23.6 30.0
Selling, research and
administrative expenses.. (b) 5.3 6.5 5.9 5.5 5.4
----- ----- ----- ------ ------
Operating income.......... (b) 18.6 15.0 19.4 18.1 24.6
Net interest and
amortization............. (b) 9.0 7.1 5.2 5.5 3.8
Other expense............. (b) 0.2 0.2 0.1 0.1 0.1
Minority interest......... (b) 2.7 2.2 5.7 4.9 4.9
Secondary offering costs.. (b) -- -- -- -- 0.4
Income taxes.............. (b) 2.5 2.0 3.1 2.8 5.6
----- ----- ----- ------ ------
Income before
extraordinary loss....... (b) 4.2 3.5 5.3 4.8 9.8
Extraordinary loss, net of
tax benefit.............. (b) -- -- -- -- 1.2
----- ----- ----- ------ ------
Net income................ (b) 4.2% 3.5% 5.3% 4.8% 8.6%
===== ===== ===== ====== ======
</TABLE>
- --------
(a) Results for partial year periods are not necessarily indicative of, and
should not be compared to, full year results.
(b) These items are not directly comparable because the Predecessor operated
as two of the four pulp mills that comprised the C&S Division of Procter &
Gamble Cellulose. See "Selected Consolidated Financial Data" and the
footnotes thereto for a more detailed explanation.

COMPARISON OF NINE MONTHS ENDED MARCH 31, 1996 AND MARCH 31, 1995

Net Sales. Net sales for the nine month period ending March 31, 1996 were
$338.8 million compared to $301.3 million for the same period in 1995, an
increase of $37.5 million or 12%, due primarily to higher unit sales prices,
averaging 24% above the prior period, partially offset by a 9% decrease in
unit sales volume. The lower unit sales volume versus the prior year was
partially due to softer market demand. Although unit sales volume was below
the prior year, it has been stable throughout the current fiscal year.

26
<PAGE>

Gross Margin. Gross margin for the nine month period ended March 31, 1996
was $101.7 million compared to $71.1 million for the same period in 1995, an
increase of $30.6 million or 43%. The increase was entirely due to higher unit
sales prices in all product lines, partially offset by lower sales volume and
higher raw material costs for wood, cotton linters, and process chemicals.

Selling, Research and Administrative Expenses. Selling, research and
administrative expenses for the nine month period ending March 31, 1996 were
$18.5 million compared to $16.4 million for the same period in 1995, an
increase of $2.1 million or 12%, primarily due to increased employment,
computer costs, transition expenses related to the Temming Acquisition and a
non-cash compensation charge of $0.6 million as the result of vesting employee
stock options.

Net Interest and Amortization. Net interest and amortization expenses for
the nine month period ending March 31, 1996 were $12.8 million compared to
$16.5 million for the same period of the prior year, down $3.7 million or 23%,
as a result of (i) prior to the public offering of the Existing Senior
Subordinated Notes and execution of the Bank Credit Facility in November 1995,
lower average debt balances, and (ii) following the public offering of the
Existing Senior Subordinated Notes and the execution of the Bank Credit
Facility, lower interest rates.

Minority Interest. Minority interest was eliminated as the result of the
purchase of P&G Cellulose's 50% limited partnership interest in Buckeye
Florida Partners on November 28, 1995. Minority interest for the nine month
period ending March 31, 1996 was $16.6 million compared to $14.9 million for
the same period of the prior year, an increase of $1.7 million or 12%,
reflecting the higher income of the limited partnership in fiscal 1996 prior
to the purchase of the 50% interest cited above.

Secondary Offering Costs. Secondary offering costs for the nine months
ending March 31, 1996 were $1.3 million and relate to expenses paid on behalf
of the Selling Stockholder in the November 1995 initial public offering of
Common Stock.

Income Taxes. Income taxes for the nine months ended March 31, 1996 were
$18.9 million compared to $8.3 million for the nine months ended March 31,
1995, an increase of $10.6 million, due to higher earnings. The effective tax
rate for the current period is 36.3%, compared to 36.5% for the prior period.

Extraordinary Loss. The extraordinary loss for the nine months ending March
31, 1996 totaled $3.9 million, net of taxes. These losses resulted from the
retirement of $57.8 million (principal amount) of the Existing Senior Notes
during the nine month period, leaving $6.9 million in principal amount
outstanding as of March 31, 1996.

Net Income. Net income for the nine months ended March 31, 1996 was $29.2
million compared to $14.5 million for the nine months ended March 31, 1995, an
increase of $14.7 million or 101%, primarily as a result of the factors
described above.

COMPARISON OF FISCAL YEARS ENDED JUNE 30, 1995 AND JUNE 30, 1994

Net Sales. Net sales for fiscal 1995 were $408.6 million compared to $371.5
million for fiscal 1994, an increase of $37.1 million or 10%. The increase was
due primarily to a 12% average increase in unit selling prices and, to a
lesser extent, by a move to a higher value-added product mix. The sales price
increase reflects strong domestic and international market demand for pulp,
which resulted in sales price increases on the Company's specialty pulps
beginning in January 1995. This increase in unit sales prices was partially
offset by a 2% reduction in unit sales volume. Although the Company operated
at full capacity in both fiscal 1995 and fiscal 1994, inventory reductions in
fiscal 1994 as the Company's new owners reduced surplus inventories built up
by the Predecessor led to a lower sales volume in fiscal 1995.

Gross Margin. Gross margin for fiscal 1995 was $103.4 million compared to
$79.7 million in fiscal 1994, an increase of $23.7 million or 30%. The
increase was entirely attributable to higher unit selling prices in all
product lines, partially offset by higher raw material costs for cotton
linters, timber and process chemicals.

27
<PAGE>

Selling, Research and Administrative Expenses. Selling, research and
administrative expenses for fiscal 1995 were $24.3 million compared to $24.0
million in fiscal 1994, an increase of $0.3 million or 1%.

Net Interest and Amortization. Net interest and amortization of deferred
debt cost for fiscal 1995 was $21.2 million compared to $26.5 million in
fiscal 1994, a decrease of $5.3 million or 20%. The decrease was due to
substantially lower debt levels as cash from operations was used to retire
$51.4 million in long-term debt during fiscal 1995.

Minority Interest. Minority interest for fiscal 1995 was $23.2 million
compared to $8.3 million for fiscal 1994, an increase of $14.9 million. The
increase reflects higher net income of Buckeye Florida Partners, in which
Procter & Gamble Cellulose held a 50% limited partnership interest during the
period.

Income Taxes. Income taxes for fiscal 1995 were $12.5 million compared to
$7.3 million for fiscal 1994, an increase of $5.2 million, due to higher
earnings. The effective tax rate was 36.5% for fiscal 1995 compared to 35.9%
for fiscal 1994.

Net Income. Net income for fiscal 1995 was $21.7 million compared to $13.0
million for fiscal 1994, an increase of $8.7 million or 67%, primarily as a
result of the factors described above.

COMPARISON OF FISCAL YEARS ENDED JUNE 30, 1994 AND JUNE 30, 1993

Net Sales. Net sales for fiscal 1994 were $371.5 million compared to $346.5
million in fiscal 1993, an increase of $25.0 million or 7%. This increase was
entirely due to a 12% increase in unit sales volume. The volume increase was
the result of prompt action taken by the Company's new owners shortly after
the Acquisitions to reduce excess inventories which had been accumulated by
the Predecessor. This increase in unit sales volume was partially offset by a
4% average decrease in unit sales prices. The unit sales price decreases
reflect a pulp market with an excess of supply over demand, which resulted in
strong price competition.

Gross Margin. Gross margin for fiscal 1994 was $79.7 million compared to
$70.7 million in fiscal 1993, an increase of $9.0 million or 13%. The increase
was primarily the result of higher unit sales volume. Lower raw material
prices and manufacturing costs were largely offset by the decrease in sales
prices.

Selling, Research and Administrative Expenses. Selling, research, and
administrative expenses for fiscal 1994 totalled $24.0 million and are not
directly comparable to the combined expenses of the Company and the
Predecessor for the prior year, as described in the footnotes to "Selected
Consolidated Financial Data."

Net Interest and Amortization. Net interest and amortization of deferred
debt costs for fiscal 1994 were $26.5 million compared to $10.2 million in the
period March 16, 1993 through June 30, 1993. The Predecessor did not assign
interest costs to operating units.

Minority Interest. Minority interest for fiscal 1994 totalled $8.3 million
compared to $3.1 million in the period March 16, 1993 through June 30, 1993.

Income Taxes. Income taxes for fiscal 1994 were $7.3 million compared to
$2.9 million in the period March 16, 1993 through June 30, 1993. The
Predecessor's results of operations do not reflect any income tax expense.

Net Income. Net income for fiscal 1994 was $13.0 million compared to $4.7
million for the period March 16, 1993 through June 30, 1993.

LIQUIDITY AND CAPITAL RESOURCES

Since the P&G Acquisitions, cash required for operating expenses, capital
expenditures and debt service obligations has been provided principally by
cash flows from operating activities, the net proceeds from sales of debt and
equity securities, the proceeds of the loans provided by Procter & Gamble
Cellulose in connection with

28
<PAGE>

the P&G Acquisitions, and borrowings under bank credit facilities. Total
indebtedness has been reduced significantly, from $361.9 million at March 16,
1993 to $197.4 million at March 31, 1996, a reduction of $164.5 million.

Cash provided by operating activities was $42.2 million for the nine months
ended March 31, 1996. During this period, inventories increased by $28.6
million as the result of higher lint prices and decreased shipments. Cash
provided by operating activities was $77.8 million for fiscal 1995, $86.4
million for fiscal 1994 and $73.3 million for the period March 16, 1993 to
June 30, 1993, for a cumulative total of $279.7 million since the P&G
Acquisitions. These funds from operations, plus proceeds of $13.1 million from
the sale of Common Stock were used for three primary purposes: (i) to reduce
total indebtedness by $164.5 million, (ii) for capital expenditures totalling
$67.8 million and (iii) to purchase the minority interest of Procter & Gamble
Cellulose in Buckeye Florida Partners for $62.1 million.

Capital expenditures for maintenance, product improvements and cost saving
projects were $22.3 million for the nine months ended March 31, 1996, $24.9
million and $15.7 million for fiscal 1995 and fiscal 1994, respectively, and
$4.9 million for the period March 16, 1993 to June 30, 1993. The Company used
all of the expenditures to purchase, modernize and upgrade production
equipment and to maintain its facilities. Capital expenditures for fiscal 1996
are expected to be approximately $36.0 million. Additionally, the Company
expects to spend over $175.0 million during fiscal 1997 through fiscal 2000 to
maintain facilities, upgrade products and meet environmental capital spending
needs.

At March 31, 1996, the Company's long-term indebtedness was $197.4 million,
including $149.5 million under the Existing Senior Subordinated Notes, $6.9
million under the Existing Senior Notes and $41.0 million under the Bank
Credit Facility, and shareholders' equity was $127.6 million. At such date,
the Company had $2.9 million in short-term investments and $91.1 million of
unused borrowing capacity.

The net proceeds from the Notes Offering will be used for the Company Stock
Repurchase and to finance a substantial portion of the Alpha Acquisition or,
pending completion of the Alpha Acquisition, to reduce outstanding borrowings
under the Bank Credit Facility. The Company's total debt will be approximately
$351.8 million following the Notes Offering and the Alpha Acquisition.

The Company believes that its cash flow from operations, together with
borrowings available under the Bank Credit Facility and the net proceeds from
the Notes Offering, will be sufficient to fund operating expenses, capital
expenditures and debt service requirements for the foreseeable future and to
fund the Company Stock Repurchase and the Alpha Acquisition.

ENVIRONMENTAL MATTERS

The Company has reached an agreement (the "Fenholloway Agreement") with the
Florida Department of Environmental Protection based upon the results of the
recently completed Fenholloway River reclassification analysis. In order to
comply with the Fenholloway Agreement, the Company expects to invest
approximately $39.0 million through fiscal 1999. In addition to capital
spending pursuant to the Fenholloway Agreement, the Company projects that it
will spend approximately $14.0 million in environmental capital expenditure
costs through fiscal 2000, consisting of the estimated costs to comply with
the cluster rule regulations, when promulgated. See "Business--Environmental
Matters."

INFLATION

The Company believes that inflation has not had a material effect on its
results of operations or financial condition during recent periods.

SEASONALITY

The Company's business has generally not been seasonal to any significant
extent.

29
<PAGE>

BUSINESS

GENERAL

The Company is a leading manufacturer and worldwide marketer of high-
quality, value-added specialty cellulose pulps. The Company focuses on a wide
array of technically demanding niche markets in which its proprietary products
and commitment to customer technical service give it a competitive advantage.
Buckeye is the world's only manufacturer of both wood-based and cotton linter-
based specialty cellulose pulps and, as such, produces the broadest range of
specialty pulps in the industry. The Company believes that it has a leading
position in most of the high-end niche markets in which it competes. Buckeye's
focus on niche specialty pulp markets has enabled it to maintain consistently
strong margins, even during downturns in the commodity pulp markets.

The cellulose pulp market generally can be divided into two categories:
commodity pulps and specialty cellulose pulps. The Company participates
exclusively in the estimated $7 billion annual specialty cellulose pulp
market, which accounts for approximately 3% of the total cellulose pulp
market. Specialty cellulose pulps are used to impart unique chemical or
physical characteristics to a broad and diverse range of specialty end
products. Specialty cellulose pulps generally command higher prices and tend
to be less cyclical than commodity pulps. The more demanding performance
requirements for specialty cellulose pulps limit customers' ability to
substitute other products.

The Company has manufactured specialty cellulose pulps for nearly 75 years.
The Company's specialty pulps can be broadly grouped into three categories:
chemical cellulose pulps, absorbent pulps and customized paper pulps. Chemical
cellulose pulps (41% of fiscal 1995 sales) are used to impart purity,
strength, transparency, and viscosity in the manufacture of diversified
products such as food casings, rayon filament, photographic film, transparent
tape, acetate plastics, and thickeners for food, cosmetics, and
pharmaceuticals. Absorbent pulps (39% of fiscal 1995 sales) are used to
increase absorbency and fluid transport in products such as disposable
diapers, feminine hygiene products, and adult incontinence products.
Customized paper pulps (20% of fiscal 1995 sales) are used to provide
porosity, color permanence, and tear resistance in automotive air and oil
filters, premium letterhead, currency paper, stock certificates, and personal
stationery.

The Company's commitment to research and development focuses on introducing
new specialty cellulose pulps, improving the performance of its existing
cellulose pulps, and creating new applications for its products. Buckeye
developed one of the earliest commercial processes to purify cotton linters
for conversion into cellulose acetate for use in photographic film. Buckeye
was also the first to develop a new application that enabled fluff pulp to be
used as the absorbent core of disposable diapers. Today, the Company's
research and development scientists are working on the next generation of
specialty cellulose pulps for both new and current applications such as thin
diapers, high-performance automotive filters and cellulose ethers.

The Company manufactures approximately 600,000 metric tons of specialty pulp
annually at its three plants in the United States and Germany. Since 1983,
Buckeye has invested over $400.0 million in its two U.S. plants and believes
that both are state-of-the-art manufacturing facilities. The Foley Plant has
an annual capacity of approximately 450,000 metric tons. The Memphis Plant has
an annual capacity of approximately 100,000 metric tons. In addition, in May
1996 the Company acquired the Temming Business, which has an annual capacity
of approximately 50,000 metric tons at the Gluckstadt Plant.

30
<PAGE>

changing customer needs have enabled the Company to develop and strengthen
long-term alliances with its customers. Over 70% of fiscal 1995 sales were to
firms who have been customers of Buckeye for over 30 years. Procter & Gamble,
the world's largest diaper manufacturer, purchases virtually all of the
Company's current annual production of absorbent pulps pursuant the Pulp
Supply Agreement. Procter & Gamble is the Company's largest customer,
accounting for approximately 39% of the Company's fiscal 1995 net sales. The
Company's other large customers include Akzo Nobel N.V. (rayon filament and
cellulose ethers), A. Ahlstrom Corporation (automotive filter paper), Hercules
Incorporated (cellulose ethers) and Eastman Chemical Company (cellulose
acetate).

INDUSTRY OVERVIEW

Cellulose pulp is a raw material derived from trees and other plants that is
used in the manufacture of paper, tissue products, packaging materials, and a
vast number of other end-use products. The Company estimates that worldwide
cellulose pulp production totalled over 200 million metric tons in 1994.
Cellulose pulp can generally be divided into two categories, commodity pulps
and specialty pulps.

Commodity pulps account for approximately 97% of cellulose pulp products and
are used in ordinary printing and writing paper, tissue products, and
packaging material. End users of commodity pulps typically maintain
manufacturing flexibility to utilize a large range of alternative cellulose
pulps, with substitution made primarily on the basis of price.

The Company estimates that the worldwide specialty pulp market generates
annual sales of approximately $7 billion. Specialty cellulose pulps are
distinguished from commodity pulps by the unique chemical or physical
characteristics that they impart to a broad and diverse range of end-use
products. These important raw materials are used in the production of food
casings, rayon filament, acetate fibers, photographic film, acetate plastics,
thickening agents, disposable diapers, feminine hygiene products, adult
incontinence products, automotive filters, premium letterhead, currency paper,
stock certificates and personal stationery. Specialty pulps are generally
priced higher than commodity pulps, and the specialty pulps manufactured from
cotton linters are generally priced at the top of the specialty pulp price
range because they are the purest form of cellulose.

Due to the fact that specialty cellulose pulps are used in technically
demanding niches, a higher level of cellulose quality, uniformity, and
customer technical support is required. It is therefore significantly more
difficult for a customer to shift from one specialty pulp to another. Only a
relatively small number of producers can meet the demands of the specialty
cellulose pulp market, and consequently they are insulated from the degree of
price competition and cyclicality experienced in the commodity pulp markets.
To the Company's knowledge, no expansion of specialty cellulose pulp capacity
has been announced or is under construction in the high-end applications in
which the Company primarily competes. The Company believes that expansion in
the specialty pulp market through the construction of new facilities would
take at least two to three years to be completed.

COMPANY STRATEGY

The Company's strategy is to continue to strengthen its position as a
leading supplier of specialty cellulose pulps. The Company believes that it
can continue to expand its market share, increase its profitability, and
decrease its exposure to cyclical downturns by pursuing the following key
strategic objectives:

Focus on Technically Demanding Niche Markets

The Company concentrates on high-end, technically demanding specialty pulp
niches in which only a limited number of cellulose pulp producers have the
ability to compete effectively. Buckeye's specialty cellulose pulps generally
command higher prices and tend to be less cyclical than commodity pulps.
Competition in these niches is based on product performance, technical
service, and, to a lesser extent, price. The Company continues to increase the
portion of its business in the most technically demanding (and therefore least
cyclical)

31
<PAGE>

applications, such as filters, ethers and acetate fibers. Consequently,
Buckeye is reducing its participation in the least technically demanding
specialty pulp applications.

Develop Proprietary Product Innovations

The Company focuses on the development of innovative and proprietary
products that are tailored to the specific chemical and physical requirements
of its customers. Buckeye's research and development activities concentrate on
developing new specialty cellulose pulps, enhancing existing pulps, and
creating new applications for its pulps. Company scientists are working on the
next generation of specialty cellulose pulps for both new and current
applications such as thin diapers, high-performance automotive filters, and
cellulose ethers.

The Company has an extensive record of new product development. The Company
developed one of the earliest commercial processes to purify cotton linters
for conversion into cellulose acetate used in making photographic film.
Buckeye was also among the first to employ cold caustic extraction technology
to produce high-purity wood pulps for use in rayon tire cord and food casings.
In addition, the Company was the first to commercialize mercerized southern
softwood pulp as the porosity-building fiber in automotive air and oil filter
applications. It was also the first to develop a new application to enable
fluff pulp to be used as the absorbent core of disposable diapers. Buckeye's
most recent product developments include a higher-purity pulp for food casings
and a high-viscosity ether pulp yielding superior thickening performance.

Strengthen Long-Term Alliances With Customers

The Company builds long-term alliances with customers who are market leaders
in their industries and in the geographic markets that they serve. Buckeye
works closely with customers through all stages of product development and
manufacture in order to tailor products to meet each customer's unique needs,
making substitution of competing products more difficult. The Company's
commitment to product quality, dedication to customer technical service, and
responsiveness to changing customer needs have enabled the Company to develop
and strengthen long-term alliances with its customers. Over 70% of Buckeye's
fiscal 1995 sales were to purchasers who have been customers of Buckeye for
over 30 years.

Expand Capacity To Support Growing Demand

Buckeye plans to expand its capacity and global presence in specialty
cellulose pulp markets through joint ventures with customers who are leaders
in their respective markets and through selective acquisitions. The Company
will also seek to increase capacity at its existing facilities. To further
this goal, the Company acquired the Temming Business in May 1996.

In April 1996, the Company entered into the Alpha Agreement. The addition of
Alpha's Lumberton, North Carolina facility would increase the Company's annual
capacity by approximately 50,000 metric tons. The Alpha Acquisition, if
consummated, will expand the Company's range of products in the customized
paper pulp market, and will provide synergies in operating costs, product
development and customer service. Subject to the satisfaction of certain
conditions and the expiration or other termination of the applicable waiting
period (including any extensions thereof) under the HSR Act, the consummation
of the Alpha Acquisition is expected to occur in early fiscal 1997. The Alpha
Agreement provides each of the parties thereto with an option to terminate the
agreement if the closing of the Alpha Acquisition has not occurred on or
before July 25, 1996. The Company is also considering other acquisition and
joint venture opportunities to expand capacity, although it has not yet
entered into any agreements to do so.

PRODUCTS

The Company believes that it is the only specialty cellulose pulp producer
offering both wood-based and cotton linter-based products and, accordingly,
produces a broader range of specialty pulps than any of its competitors.
Buckeye believes that it has a leading position in most of the high-end niche
markets in which it competes. The Company's specialty pulps can be broadly
grouped into chemical cellulose pulps, absorbent pulps

32
<PAGE>

and customized paper pulps. The following table summarizes the unique product
attributes and end-use applications of Buckeye's specialty cellulose pulps:

<TABLE>
<CAPTION>
PERCENTAGE
OF FISCAL
PRODUCT 1995 GROSS
GROUPS SALES UNIQUE PRODUCT ATTRIBUTES END-USE APPLICATIONS
------- ---------- ------------------------- --------------------
<S> <C> <C> <C>
CHEMICAL
CELLULOSE
PULPS 41%
Food Purity and strength Hot dog and sausage casings
Casings
Rayon Strength and heat stability Coat linings, fashion wear,
Filament and tire, belt, and hose
reinforcement
Ethers High viscosity, purity, and Thickeners for food, cosmetics,
solution clarity pharmaceuticals, and
construction materials
Acetate Permanent transparency High quality plastics,
Fibers, and uniformity transparent tape, photographic
Films, film and fiber
and
Plastics
ABSORBENT 39% Absorbency and fluid transport Disposable diapers, feminine
PULPS hygiene products, and adult
incontinence products
CUSTOMIZED
PAPER
PULPS 20%
Filters High porosity and product life Automotive, laboratory, and
industrial filters
Premium Aesthetics, color permanence, Letterhead, currency, stock
Papers and tear resistance certificates, and personal
stationery
</TABLE>

Chemical Cellulose Pulps

Chemical cellulose pulps, frequently referred to as dissolving pulps, are
dissolved in chemical solutions which modify the molecular properties of the
cellulose before it is regenerated to form an end-use product. Chemical
cellulose pulp, a highly purified material, is the basic ingredient in the
production of food casings, rayon filament, photographic film, transparent
tape, acetate plastics, and thickeners for food, cosmetics, and
pharmaceuticals. Chemical cellulose pulps are selected for these applications
for their chemical and molecular, rather than physical, properties.

The Company is one of the world's largest manufacturers of chemical
cellulose pulp. Buckeye believes that it is well positioned to participate in
the continued steady growth of the chemical cellulose markets in which it
competes.

Absorbent Pulps

Absorbent pulp, frequently referred to as fluff pulp, is used in
applications such as disposable diapers, feminine hygiene products, and adult
incontinence products. Absorbent pulps are selected for these applications for
their special physical properties. The Company believes that the long, thick-
walled slash pine fiber used in the production of the Company's fluff pulp
contributes to its excellent quality in terms of absorbency, fluid transport,
and structural integrity. The performance of Buckeye's fluff pulp allows
reduced quantities to be used in the manufacture of diapers relative to
competitive pulps.

33
<PAGE>

The Company is one of the world's major producers of absorbent pulps. While
the volume of fluff pulp used in disposable diapers is negatively impacted by
a move to thinner diapers, this has been more than offset by the increased use
of disposable diapers in less developed countries, such as China and India, as
well as growth in the use of training pants and adult incontinence products.
The Company's understanding of the technology of absorbent products positions
it to participate in this growth.

Customized Paper Pulps

Customized paper pulps are selected for their special physical properties in
filter and premium paper applications. Automotive air filters require high
porosity so that large volumes of air can flow freely through the filter while
extraneous particles are removed. Cotton linter pulps are used in currency
paper, stock certificates, and wedding invitations, because the papers need to
be long-lived, retain their original color, and resist tearing in use.
Additionally, the Company's customized paper pulps are used in other high-
performance applications, including laboratory and industrial filters, battery
separators, printed circuits, decorative laminates, maps and personal
stationery.

Buckeye is the world's only manufacturer of both wood-based and cotton
linter-based customized paper pulps. The special nature of the Company's
customized paper pulps allows the Company to participate effectively in the
relatively stable markets for these highly technical applications. Customized
paper pulps for automotive air and oil filters demonstrate steady growth
because a large majority of such filters are sold in the after-market and are
therefore less influenced by variations in the market for new cars.

SALES AND CUSTOMERS

The Company continually seeks to enhance its long-term relationships with
customers who are market or technological leaders in their respective
industries in order to further solidify the customer base for the Company's
products. Buckeye's products are marketed and sold through a highly trained
and technically skilled in-house sales force. The Company maintains sales
offices in Memphis, Tennessee and Geneva, Switzerland. The Company's worldwide
sales are diversified by geographic region as well as end-product application.
Buckeye's sales of specialty pulps are distributed to customers worldwide. The
Company's fiscal 1995 sales reflect this geographic diversity, with 30% of
sales in the United States, 30% in Europe, 26% in Asia and 14% in other
regions.

The high-end, technically demanding specialty pulp niches that Buckeye
serves require a higher level of sales and technical service support than do
commodity pulp sales. The Company's technically trained sales and service
engineers have worked for the Company for an average of over 20 years and
typically began their careers in the Company's manufacturing or product
development operations. These professionals work with customers in their
plants to design pulps tailored precisely to their product needs and
manufacturing processes.

Procter & Gamble, the world's largest diaper manufacturer, is the Company's
largest customer, accounting for 39% of the Company's fiscal 1995 net sales.
The Company and Procter & Gamble have entered into a long-term Pulp Supply
Agreement, which requires Procter & Gamble to purchase a specified tonnage
(currently substantially all of the Company's output) of the Company's fluff
pulp through the year 2002, subject to gradual reduction at either party's
option in the final two years of the agreement if it has not been renewed.
Shipments of fluff pulp under the Pulp Supply Agreement are made to Procter &
Gamble affiliates worldwide, as directed by Procter & Gamble. The price of the
fluff pulp sold pursuant to the Pulp Supply Agreement is based in the first
six years of the Pulp Supply Agreement's term on a formula specified in the
Pulp Supply Agreement. Pricing in the years 1999 and 2000 will be at the
higher of the contract formula price or market and pricing in the years 2001
and 2002 will be at market. The formula price has three components: (i) a
periodic margin adjustment, (ii) a general escalation component based on
Consumer Price Index changes, and (iii) a provision to adjust for all actual
changes in the price of timber, the major raw material component of the pulp
purchased under the contract. Buckeye's other large customers include Akzo
Nobel N.V. (rayon filament and cellulose ethers), A. Ahlstrom

34
<PAGE>

Corporation (automotive filter paper), Hercules Incorporated (cellulose
ethers), and Eastman Chemical Company (cellulose acetate).

Substantially all of the Company's worldwide sales are denominated in U.S.
dollars, and such sales are not subject to exchange rate fluctuations. Because
the cost of shipping is borne by the customer, Buckeye's margin on a sale to
any given customer is similar regardless of a customer's location. The
Company's products are shipped by rail, truck and ocean carrier.

RESEARCH AND DEVELOPMENT

The Company's research and development activities focus on developing new
specialty cellulose pulps, improving existing products, and enhancing process
technologies to further reduce costs and respond to environmental needs.
Buckeye has pilot plant facilities in which to produce experimental pulps for
qualification in customers' plants. The Company has a history of innovation in
specialty cellulose pulps. The Company's latest product developments include:

. a higher porosity automotive air filter pulp providing a 50% increase in
air permeability;

. a higher purity pulp for food casings;

. a highly uniform acetate wood pulp;

. a higher viscosity ether pulp yielding superior thickening performance;
and

. a process technology coupled with customized refining providing improved
cotton linter paper pulps.

RAW MATERIALS

Slash pine timber and cotton linters are the principal raw materials used in
the manufacture of the Company's specialty pulps. The region surrounding the
Foley Plant has a high concentration of slash pine timber, which enables
Buckeye to purchase adequate supplies of a species well suited to its products
at an attractive cost. In order to be better assured of a secure source of
wood at reasonable prices, the Company entered into the Timberlands Agreement
and the Timber Purchase Agreement (collectively, the "Timber Supply
Agreements") with Procter & Gamble. Under the terms of the Timberlands
Agreement, the Company agreed to purchase an annual percentage of the slash
pine timber harvest from specified timberlands near the Foley Plant, which
percentage is initially set at 85% and is gradually reduced to 60% by the
final year of the Timberlands Agreement. The purchase price for such timber is
established according to a market-based formula set forth in the Timberlands
Agreement and is annually adjusted to take into account pricing conditions in
the Florida counties in which the covered timberlands are located. In
addition, the Company has a right of first offer on a substantial portion of
slash pine timber located on the timberlands and not initially purchased
pursuant to the Timberlands Agreement. Under the terms of the Timber Purchase
Agreement, Buckeye agreed to purchase from Procter & Gamble Cellulose its
rights to harvest certain third party timber reserves at a purchase price
determined according to a formula provided in the Timber Purchase Agreement.
In fiscal 1995, timber acquired pursuant to the Timber Supply Agreements
accounted for approximately 33% of the Company's total wood purchases. These
Timber Supply Agreements grant easements to both the Company and the
timberland owners with respect to the areas covered by the Timber Supply
Agreements, including the Foley Plant, to access and use the areas as
necessary to conduct the harvesting operations contemplated by the Timber
Supply Agreements. The Timberlands Agreement has an initial term of ten years
and is subject to two renewals at Buckeye's option for five and three years,
respectively, which, if exercised, would result in the Timberlands Agreement's
extension through 2010. The term of the Timber Purchase Agreement expires in
2003. As of July 8, 1994, all of Procter & Gamble's interests in the
timberlands subject to the Timber Supply Agreements, together with its rights
and obligations with respect to such Timber Supply Agreements (other than
certain expressly excluded obligations retained by Procter & Gamble), were
assigned to Foley Timber and Land Company, L.P., a third party unrelated to
either Procter & Gamble or the Company.

35
<PAGE>

The Company purchases cotton linters either directly from cotton seed oil
mills who remove these short, fuzzy linters before processing the seed into
vegetable oil and animal feed or indirectly through agents or brokers.
Generally, the Company purchases substantially all of its requirements of
cotton linters for the Memphis Plant domestically. The Gluckstadt Plant
purchases cotton linters principally from suppliers in the Middle East.

COMPETITION

The competitive environment in which the Company operates is concentrated
among a relatively few specialty pulp producers when compared with the much
larger commodity pulp market. Buckeye's competitors include Alfa Celulosa de
Mexico S.A. (Mexico), Borregaard Industries Ltd. (Norway), Georgia-Pacific
Corporation (U.S.), International Paper Company (U.S.), Louisiana-Pacific
Corporation (U.S.), Rayonier Inc. (U.S.), Sappi Limited (South Africa),
Southern Cellulose Products Inc. (U.S.), Tembec Inc. (Canada), Western Pulp
Limited Partnership (Canada), and Weyerhaeuser Company (U.S.). Competition in
specialty cellulose pulp markets is based on product performance, technical
service, and, to a lesser extent, price. Southern Cellulose Products Inc. was
recently acquired by Archer Daniels Midland, a subsidiary of which supplies
cotton linters to the Company.

The Company produces a broader range of specialty pulps than any of its
competitors and is the only specialty cellulose pulp producer offering both
wood-based and cotton linter-based products. Buckeye is the world's largest
cotton linter pulp producer. The Company believes that the number of specialty
pulp producers is unlikely to increase significantly in the foreseeable future
given the substantial investment and technological expertise required to enter
this market.

INTELLECTUAL PROPERTY

The Company currently holds four U.S. patents, three foreign patents and has
one application in preparation. In addition, it has access to royalty-free
licenses for five U.S. patents and two foreign patents. Buckeye intends to
maintain its patents, file the application in preparation, and file
applications for any future inventions which are deemed to be important to its
business operations. The Company has four trademarks, including the name
Buckeye(R).

PROPERTIES

Corporate Headquarters and Sales Offices. The Company's corporate
headquarters, research and development laboratories, and pilot plants are
located in Memphis, Tennessee. The Company owns the corporate headquarters,
the Memphis Plant, the Foley Plant and the Gluckstadt Plant and leases sales
offices in Geneva, Switzerland and distribution facilities in Savannah,
Georgia.

Memphis Plant. The Memphis Plant is located on a 60-acre site adjacent to
the headquarters complex. The Company believes that the Memphis Plant utilizes
a state-of-the-art continuous pulping process. During fiscal 1996, its
capacity was expanded to approximately 100,000 annual metric tons. The Memphis
Plant is ISO 9002 certified.

Foley Plant. The Foley Plant is located at Perry, Florida, on a 2,900 acre
site. The Company also owns 13,000 acres of real property near the plant site.
The Foley Plant is a state-of-the-art facility with two separate production
lines and has been continuously modernized and expanded to a current capacity
of approximately 450,000 annual metric tons. The Foley Plant has operated at
full capacity for over 30 years. In 1994, the Foley Plant was selected by
Plant Engineering Magazine and the American Institute of Plant Engineers as
the sole winner of the annual North American Maintenance Excellence Award. The
Foley Plant is ISO 9002 certified.

36
<PAGE>

Gluckstadt Plant. The Gluckstadt Plant is located in close proximity to the
Elbe River near Hamburg. The site is adjacent to the paper plant of Steinbeis
Temming Papier GmbH. Some utilities, including steam, power, water and waste
treatment, are shared between the plants pursuant to various utility
agreements. The Gluckstadt Plant is the largest specialty pulp plant based on
cotton linters in Europe. The plant is ISO 9002 certified.

EMPLOYEES

The Company's U.S. work force includes multi-skilled work teams at both its
Memphis and Foley plants. These multi-skilled teams are technically proficient
and are characterized by low turnover and a high commitment to the success of
the Company. Each employee has the opportunity to earn an annual bonus
predicated on Buckeye's success in achieving its business goals. The Company's
U.S. employees have an average tenure of 17 years.

On May 1, 1996, the Company employed approximately 1,400 individuals at its
facilities in Memphis, Tennessee; Perry, Florida; Savannah, Georgia;
Gluckstadt, Germany; and Geneva, Switzerland. Collective bargaining agreements
are in place at the Foley Plant with the United Paper Workers International
Union, AFL-CIO, Local #1192; and at the Memphis Plant with the Pulp and
Processing Workers of the Retail, Wholesale, and Department Store Union, AFL-
CIO, Local #910. The agreement for the Foley Plant covers the period April 1,
1995 to April 1, 1998. The agreement for the Memphis Plant covers the period
March 18, 1994 to March 18, 1997. Approximately 54% of the Company's employees
are members of these two unions. A Works Council provides employee
representation for all non-management workers at the Gluckstadt Plant.

The Foley Plant has not experienced any work stoppages due to labor disputes
in over 25 years, and the Memphis Plant has not experienced any work stoppages
due to labor disputes in over 45 years. The Company believes its relationship
with its employees is very good.

ENVIRONMENTAL MATTERS

Like its competitors in the pulp and paper industry, the Company's
facilities and operations are subject to extensive general and industry-
specific federal, state, local and foreign environmental laws and regulations.
Buckeye devotes significant resources to maintaining compliance with such
requirements and believes that its facilities and operations are in
substantial compliance with all such requirements. The Company expects that,
due to the nature of its operations, it will be subject to increasingly
stringent environmental requirements (including anticipated standards
applicable to waste water discharges and air emissions) and will continue to
incur substantial costs to comply with such requirements. Based upon its
understanding of current and anticipated requirements, the Company believes
that continued compliance with environmental requirements will not have a
material adverse effect on its business, results of operations or financial
condition and will not adversely affect the Company's competitive position,
because the Company's U.S. competitors are subject to similar requirements. In
addition, the nature of Buckeye's cotton linter pulp process historically has
not given rise to significant environmental compliance or liability issues.
However, given the uncertainties associated with predicting the scope of
future requirements and the retroactive nature of certain environmental
liabilities, there can be no assurance that the Company will not in the future
incur material environmental compliance costs or liabilities.

37
<PAGE>

designed to reduce the coloration of its waste water discharge, provide oxygen
enrichment of the effluent prior to discharge and restore certain wetlands
areas. The reclassification will not become effective until December 1997
(with a final compliance deadline of December 1999) to allow Buckeye to obtain
all the necessary permits for implementation of the approved plan and to
complete construction of the pipeline and the treatment upgrades. The Company
estimates that implementation of the approved plan will result in capital
expenditures of approximately $39.0 million, the majority of which will likely
be expended during fiscal 1998 and fiscal 1999.

Prior to 1992, the Foley Plant discharged waste water to the Fenholloway
River under a federal permit issued in 1987. In June 1992, the EPA issued a
renewal permit imposing more stringent requirements, including the testing for
chronic toxicity and dioxin. Each of the Company and certain environmental
advocacy groups requested an evidentiary hearing before the EPA to contest
portions of the renewal permit. Certain aspects of all such requests were
granted in June 1994, although no date for the hearings has yet been set. The
provisions contested by the Company have been temporarily stayed pending the
hearings, and the Company continues to operate under the 1987 permit and the
uncontested provisions of the 1992 permit. The Company currently expects to
obtain a new permit through DEP's newly delegated NPDES permit program by the
end of 1996 and that issuance of this state permit will render moot the above-
described EPA permit renewal proceeding. The Company does not currently
anticipate any material capital expenditures associated with wastewater
discharge compliance other than those described above with respect to the
Fenholloway River reclassification.

In 1993, the EPA issued a set of proposed regulations for the pulp and paper
industry addressing the emissions of "hazardous air pollutants" under the
Clean Air Act and waste water discharges under the Clean Water Act, commonly
known as the "cluster rules." The Company is examining and evaluating the
potential impact of the cluster rules, as proposed, on its operations and
capital expenditures over the next several years. The Company believes that
the proposed cluster rules will likely be amended significantly prior to their
promulgation, which is currently anticipated to occur in 1997, with compliance
to be phased in between 1999 and 2002. Although the Company anticipates that
significant capital expenditures for environmental control equipment and
related costs will be required to comply with the cluster rules when
promulgated (which the Company currently projects will be approximately $14.0
million through fiscal 2000), such expenditures are not likely to have a
material adverse effect on the Company's business, results of operations or
financial condition.

The Company projects that it will spend approximately $53.0 million in
environmental capital expenditure costs through fiscal 2000, which
expenditures include the costs to implement its river reclassification plan
(the $39.0 million expenditure mentioned above) and estimated costs to comply
with the cluster rule regulations, when promulgated.

The Foley Plant is on the EPA Comprehensive Environmental Response,
Compensation and Liability Information System ("CERCLIS") list of potential
hazardous substance release sites prepared pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA"). The EPA
conducted a site investigation in early 1995. Although the Company considers
it unlikely that the Foley Plant will be listed on the CERCLA National
Priorities List and hence require remedial action, the possibility of such
listing cannot be ruled out. If the site were to be placed on the National
Priorities List, the costs associated with conducting a CERCLA remedial action
could be material.

The Foley Plant has also been the subject of certain additional
environmental and public health assessments, including a study being conducted
by the federal Agency for Toxic Substance and Disease Registry ("ATSDR").
ATSDR advised the Company in early 1993 of its interest in conducting a public
health assessment at the Foley Plant. In the spring of 1994, ATSDR orally
informed the Company that its investigation had not identified any significant
concerns related to the Foley Plant or groundwater conditions. To date ATSDR
has not issued any reports.

38
<PAGE>

The Company is aware that Procter & Gamble Cellulose has been named a
potentially responsible party ("PRP") pursuant to CERCLA with respect to
certain disposal sites associated with its operations of the Foley
Plant and the Memphis Plant prior to the P&G Acquisitions. With respect to all
such sites, Procter & Gamble Cellulose has retained all liability and has
agreed to indemnify the Company. Buckeye has received no notices of potential
liability with respect to any site since the P&G Acquisitions.

Four lawsuits are currently pending in U.S. District Court in Tallahassee,
Florida alleging that hazardous substance releases associated with the Foley
Plant have adversely affected groundwater and property values. Previously, the
court had denied a motion seeking class certification and had dismissed a
number of similar lawsuits against the Company for failure to meet a $50,000
damage threshold for federal jurisdiction. The Company believes that the
remaining four lawsuits are without merit and is defending against them
vigorously. There can be no assurance, however, that adverse judgments will
not be rendered in these matters or that the damages associated with such
judgments would not be material.

In connection with the acquisition of the Foley Plant from the C&S Division,
Procter & Gamble Cellulose agreed to provide certain limited environmental
indemnification rights to the Company, which rights apply, among other things,
to all pre-acquisition offsite disposal of waste from the Foley Plant. In
connection with the Company's acquisition of the Memphis Plant, Procter &
Gamble Cellulose agreed to provide a comprehensive environmental
indemnification to Buckeye with respect to environmental liabilities
(including any "Superfund" liabilities for offsite disposal of waste) arising
from the operation of the Memphis Plant prior to such acquisition.

As of March 31, 1996, the Company had established reserves of $4.2 million
to address certain environmental matters. Because an environmental reserve is
not established until a liability is determined to be probable and reasonably
estimable, not all potential future environmental liabilities are covered by
the Company's reserves. Accordingly, there can be no assurance that the
Company's environmental reserves will be sufficient to meet the Company's
obligations, and additional earnings charges are possible.

LEGAL PROCEEDINGS

The Company is a party to various claims, complaints and other legal actions
that have arisen in the normal course of business from time to time. Other
than the lawsuits relating to the Foley Plant discussed in "Environmental
Matters," the Company is not currently involved in any legal proceedings,
which, in the aggregate, could be expected to have a material adverse effect
on its business, results of operations or financial position.

39
<PAGE>

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth certain information concerning each of the
Company's directors and executive officers as of May 31, 1996:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Robert E. Cannon 66 Chairman of the Board, Chief Executive Officer
and Director
David B. Ferraro 58 President, Chief Operating Officer and Director
Herman P. van Eck 65 Vice President, Sales
George B. Ellis 55 Vice President, Manufacturing
Samuel M. Mencoff 39 Director
Justin S. Huscher 42 Director
Red Cavaney 53 Director
Henry F. Frigon 61 Director
Harry J. Phillips, 66 Director
Sr.
</TABLE>

The Board currently consists of seven directors, who are divided into three
classes as nearly equal in number as possible. At each annual meeting of
stockholders, successors to the class of directors whose term expires at such
meeting will be elected to serve for three-year terms or until their
successors are duly elected and qualified. The Board has the power to appoint
the officers of the Company. Each officer will hold office for such term as
may be prescribed by the Board and until such person's successor is chosen and
qualified or until such person's death, resignation or removal. There are two
committees of the Board: the Compensation Committee and the Audit Committee.

Robert E. Cannon has served as Chairman and Chief Executive Officer of the
Company since the P&G Acquisitions in March 1993. Prior to the P&G
Acquisitions, Mr. Cannon served as Dean of the College of Management, Policy
and International Affairs at Georgia Tech from 1991 through 1992. Mr. Cannon
retired from Procter & Gamble in 1991 as a Senior Vice President of Procter &
Gamble, a position he had occupied since 1989. From 1981 through 1989, Mr.
Cannon served as Group Vice President of Procter & Gamble Industrial Products,
a division which included the operations of the Predecessor. Mr. Cannon also
served as President of the C&S Division from 1971 through 1981 and joined
Procter & Gamble in 1954.

David B. Ferraro has served as President and Chief Operating Officer of the
Company since the P&G Acquisitions in March 1993. Prior to the P&G
Acquisitions, Mr. Ferraro served as Manager of Strategic Planning of Procter &
Gamble from 1991 through 1992. Mr. Ferraro served as the C&S Division's
President from 1989 through 1991, as its Executive Vice President and Manager
of Commercial Operations from 1987 through 1989 and as its Comptroller
beginning in 1973. Mr. Ferraro joined Procter & Gamble in 1964 and held
various management positions.

Herman P. van Eck has served as Vice President, Sales of the Company since
the P&G Acquisitions in March 1993. Mr. van Eck served as Manager of European
Sales of the C&S Division from 1988 until the P&G Acquisitions. Mr. van Eck
joined Procter & Gamble in 1957 and held various sales management positions.

George B. Ellis has served as Vice President, Manufacturing of the Company
since the P&G Acquisitions in March 1993. Prior thereto, Mr. Ellis had served
as Vice President, Product Supply of the C&S Division since 1988. Mr. Ellis
joined Procter & Gamble in 1962 and held various engineering, operations and
manufacturing management positions in the C&S Division.

40
<PAGE>

Samuel M. Mencoff has served as a Director of the Company since the P&G
Acquisitions in March 1993. Mr. Mencoff has been principally employed as a
Vice President of Madison Dearborn Partners, Inc. ("MDP Inc."), the general
partner of Madison Dearborn Partners, L.P. ("MDP"), the general partner of
MDCP, since January 1993. From November 1987 until January 1993, Mr. Mencoff
served as Vice President of First Chicago Venture Capital. Mr. Mencoff is a
member of the operating committees of the general partners of Huntway
Partners, L.P. and Golden Oak Mining Company, L.P., respectively, and a member
of the board of directors of Bay State Paper Holding Company and Riverwood
International Corporation.

Justin S. Huscher has served as a Director of the Company since the P&G
Acquisitions in March 1993. Mr. Huscher has been principally employed as a
Vice President of MDP Inc. since January 1993. From April 1990 until January
1993, Mr. Huscher served as Senior Investment Manager of First Chicago Venture
Capital. Mr. Huscher is a member of the operating committees of the general
partners of Huntway Partners, L.P. and Golden Oak Mining Company, L.P.,
respectively, and a member of the board of directors of Bay State Paper
Holding Company and HomeSide, Inc.

Red Cavaney has served as a Director of the Company since May 1996. Mr.
Cavaney currently acts as President, Chief Executive Officer and a director of
the American Plastics Council, positions he has held since October 1994. Prior
to that time, he served as President of the American Forest & Paper
Association ("AF&PA") since its formation in January 1993 and in a variety of
positions, including as President, of the AF&PA's predecessor, the American
Paper Institute, since March 1983. Mr. Cavaney is also a member of the board
of directors of The National Plastics Center & Museum, the American Society of
Association Executives and the Institute for Research on the Economics of
Taxation.

Henry F. Frigon has served as a Director of the Company since May 1996. Mr.
Frigon served as Executive Vice President--Corporate Development and Strategy
and Chief Financial Officer of Hallmark Cards, Inc., positions he held from
1991 to 1995. Prior to that time, he served as President and Chief Executive
Officer of BATUS Inc. beginning in 1983. Mr Frigon is also a member of the
board of directors of H&R Block Inc., CompuServe, Inc., Dimon International
Inc., Group Technologies Corp. and The Circle K Corp.

Harry J. Phillips, Sr. has served as a Director of the Company since May
1996. Mr. Phillips currently acts as Chairman of the Executive Committee of
the board of directors of Browning-Ferris Industries, Inc. ("Browning-
Ferris"), a position he has held since 1988. Prior to that time, he served as
Chairman and Chief Executive Officer of Browning-Ferris. Mr. Phillips is also
a member of the board of directors of National Commerce Bancorporation,
National Bank of Commerce and RFS Hotel Investors, Inc.

There are no familial relationships between any of the foregoing persons.

COMPENSATION OF DIRECTORS

Directors who are employees of the Company or its subsidiaries are not
entitled to receive any fees for serving as directors. Non-employee directors
of the Company are currently not entitled to receive any fees for serving as
directors. All directors are reimbursed for out-of-pocket expenses related to
their service as directors. Non-employee directors will be entitled to
participate in a formula stock option plan for non-employee directors covering
an aggregate of 200,000 shares of Common Stock (the "Formula Plan").

Under the Formula Plan, an option to purchase 25,000 shares will be
automatically granted to each non-employee director when he or she is elected
or appointed to the Board. The director's right to exercise 5,000 shares will
vest immediately upon grant. Thereafter, the right to exercise an additional
5,000 shares will vest at each of the four succeeding anniversaries of the
grant to such director. The option price per share of Common Stock under the
Formula Plan will be 100% of the fair market value of the Common Stock at the
date of grant. Each option granted under the Formula Plan will be exercisable
for ten years after the date of grant.

41
<PAGE>

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of the Common Stock immediately prior to and immediately following
the Stock Transactions by (i) each person or entity who is known to the
Company to be the beneficial owner of five percent or more of the Common
Stock, (ii) each director of the Company, (iii) the chief executive officer of
the Company and the three other executive officers of the Company, (iv) all
directors and executive officers of the Company as a group and (v) the Selling
Stockholder. To the knowledge of the Company, each of such stockholders has
sole voting and investment power as to the shares shown unless otherwise
noted. Unless otherwise noted, the address of each holder of five percent or
more of the Company's stock is the Company's corporate address.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
PRIOR TO STOCK SHARES BENEFICIALLY OWNED
TRANSACTIONS(A) AFTER STOCK TRANSACTIONS(B)
-----------------------------SHARES BEING -----------------------------
NUMBER OF PERCENT OF OFFERED NUMBER OF PERCENT OF
BENEFICIAL OWNER SHARES TOTAL HEREBY SHARES TOTAL
---------------- --------- ------------------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Madison Dearborn Capital
Partners, L.P.(c)...... 7,290,313 34.1 2,887,935 757,222 4.0
Samuel M. Mencoff(d).... 7,290,313 34.1 2,887,935 757,222 4.0
Justin S. Huscher(d).... 7,290,313 34.1 2,887,935 757,222 4.0
Robert E. Cannon(e)..... 3,974,766 18.6 -- 5,027,195 26.3
David B. Ferraro(f)..... 1,100,887 5.1 -- 1,236,481 6.5
Herman P. van Eck(g).... 256,864 1.2 -- 258,864 1.4
George B. Ellis(h)...... 321,513 1.5 -- 371,513 1.9
Red Cavaney(i).......... 5,600 * -- 5,600 *
Henry F. Frigon(i)...... 7,000 * -- 7,000 *
Harry J. Phillips,
Sr.(i)................. 19,500 * -- 19,500 *
All directors and
executive officers as a
group
(9 persons)(j)(k)...... 12,976,443 60.6 2,887,935 7,683,375 40.1
</TABLE>
- -------
*Less than one percent.
(a) Based on 21,407,223 shares of Common Stock outstanding prior to the Stock
Transactions. Options to purchase 15,000 shares of Common Stock will be
exercisable within 60 days of the consummation of the Stock Transactions.
(b) Based on 19,147,336 shares of Common Stock outstanding after the Stock
Transactions.
(c) All of such shares are held of record by MDCP. MDCP is a limited
partnership. MDP is the general partner of MDCP. Investment and voting
control over securities owned by MDCP is shared by a committee of the
limited partners of MDP (the "L.P. Committee"). MDP Inc. is the general
partner of MDP and exercises voting control over securities owned directly
or indirectly by MDP. The address of MDCP is Three First National Plaza,
Suite 1330, Chicago, Illinois 60602.
(d) All of such shares are held of record by MDCP. Messrs. Mencoff and Huscher
are members of the L.P. Committee. Messrs. Mencoff and Huscher may
therefore be deemed to share investment and voting control with respect to
the shares of Common Stock owned by MDCP and may therefore be deemed to
have beneficial ownership of shares of Common Stock owned by MDCP. Each of
Messrs. Mencoff and Huscher expressly disclaims beneficial ownership of
such shares of Common Stock. The business address of such person is c/o
MDP Inc., Three First National Plaza, Suite 1330, Chicago, Illinois 60602.
(e) Includes 1,873,292 shares held by the Robert E. Cannon Grantor Retained
Annuity Trust, Robert Howard Cannon, Trustee, 1,873,447 shares held by the
Kathryn Gracey Cannon Grantor Retained Annuity Trust, Robert Howard
Cannon, Trustee and 3,995 shares held in the Company's 401(k) and
retirement plans. Kathryn Gracey Cannon is the wife of, and Robert Howard
Cannon is the son of, Robert E. Cannon. The address of each such trust is
432 East Racquet Club Place, Memphis, Tennessee 38117. Mr. Cannon and such
trusts will purchase an aggregate of 1,016,229 shares of Common Stock in
the Individuals' Stock Purchase and approximately 36,200 additional shares
in the Offering.
(f) Includes 442,085 shares held by the David B. Ferraro Grantor Retained
Annuity Trust, Barbara A. Ferraro, Trustee and 3,572 shares held in the
Company's 401(k) and retirement plans. Barbara A. Ferraro is the wife of
David B. Ferraro. Mr. Ferraro and such trust will purchase an aggregate of
135,594 shares of Common Stock in the Individuals' Stock Purchase.
(g) Mr. van Eck will purchase 2,000 shares of Common Stock in the Individuals'
Stock Purchase.
(h) Includes 1,055 shares held in the Company's 401(k) and retirement plans.
Mr. Ellis will purchase 50,000 shares of Common Stock in the Individuals'
Stock Purchase.
(i) Includes 5,000 shares issuable upon exercise of options granted under the
Formula Plan.
(j) Includes 15,000 shares issuable upon exercise of options granted under the
Formula Plan.
(k) Does not include shares beneficially controlled by other officers of the
Company which represent an aggregate of approximately 7.6% of the Common
Stock after giving effect to the Individuals' Stock Purchase.

42
<PAGE>

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In connection with the P&G Acquisitions, the Company and MDP entered into a
professional services agreement pursuant to which the Company paid to MDP a
$1.0 million fee as compensation for MDP's commitment to provide financing to
repay certain indebtedness of the Company in the event alternative financing
was not available by a certain date.

The Company was party to a Corporate Services Agreement with Buckeye Florida
Partners from the time of the P&G Acquisitions until the 1995 Business
Combination Transactions pursuant to which the Company provided Buckeye
Florida Partners with certain sales and administrative services. Under this
agreement, the Company performed all of the sales functions for Buckeye
Florida Partners' products and received a sales commission on certain of such
products. During fiscal 1995, commission income recorded by the Company on
Buckeye Florida Partners' sales was approximately $7.5 million. The Company
also provided to Buckeye Florida Partners corporate management, research,
administrative and other services substantially similar to those historically
provided to the Foley Plant by the C&S Division. Buckeye Florida Partners paid
to the Company an allocated cost of such services based upon the tonnage of
pulp shipped by the Foley Plant. During fiscal 1995, costs allocated to
Buckeye Florida Partners for such services were approximately $12.5 million.
All intercompany transactions have been eliminated from the Company's
financial statements.

Messrs. Cannon and Ferraro have each been issued Master Promissory Notes by
Union Planters National Bank (the "Bank"), both dated March 21, 1994, in the
amounts of approximately $2.3 million and $600,000, respectively, or such
lesser amounts as may be periodically requested by each of the respective
noteholders. Each of the notes is secured, pursuant to two security agreements
between the Bank and Buckeye Florida Partners dated the same date as the
notes, by Bank certificates of deposit in the name of Buckeye Florida Partners
in the amounts of approximately $2.3 million and $600,000, respectively. Both
of the notes, which mature on July 1, 1998, bear interest at a per annum rate
equal to 200 basis points in excess of the respective amounts paid by the Bank
on the certificates of deposit used as collateral for the notes. Such rates
are automatically adjusted every six months to correspond with the adjustments
made at such time to the rates payable on the certificates of deposit. As
security for Buckeye Florida Partners' having provided these certificates of
deposit as collateral for the notes issued to Messrs. Cannon and Ferraro,
Buckeye Florida Partners has entered into Pledge and Security Agreements with
each of Messrs. Cannon and Ferraro, both dated March 22, 1994, pursuant to
which such individuals have pledged specified numbers of shares of Common
Stock, together with subsequently acquired shares, dividend and other rights
with respect thereto, to Buckeye Florida Partners. Subsequent to the 1995
Business Combination Transactions, Messrs. Cannon and Ferraro have been
required to maintain only such shares of Common Stock as are necessary to
provide a collateral amount of at least 115% of the amount of the certificates
of deposit securing their respective note obligations. The pledge and security
agreements will terminate upon payment in full of all amounts payable in
connection with the notes.

In connection with the formation of Buckeye Florida Corporation, MDCP
purchased a $4.0 million promissory note dated March 16, 1993. On March 22,
1994, Buckeye Florida Corporation repaid to MDCP approximately $4.0 million of
principal and accrued interest on such note and issued to MDCP a replacement
promissory note of approximately $482,000. This note, together with accrued
interest thereon, was repaid in connection with the 1995 Business Combination
Transactions.

In connection with the Stock Transactions, the Company and MDCP have entered
into an agreement under which BKI Investment will repurchase 2,259,887 shares
of Common Stock held by MDCP pursuant to the Company Stock Repurchase. See
"The Company Stock Repurchase and the Related Transactions."

43
<PAGE>

DESCRIPTION OF CERTAIN INDEBTEDNESS

BANK CREDIT FACILITY

General. The Company has entered into the Bank Credit Facility with a group
of lenders (the "Lenders"). The following is a summary of the terms governing
the Bank Credit Facility. The Bank Credit Facility provides for revolving
credit loans to the Company in an aggregate amount not to exceed $135.0
million minus the principal amount of Existing Senior Notes outstanding in
excess of $5.0 million. Upon completion of the Alpha Acquisition, such amount
will be increased to $155.0 million. Up to $45.0 million of the Bank Credit
Facility is available for the issuance of letters of credit on behalf of the
Company. In addition, up to $10.0 million of the Bank Credit Facility is
available for swing line loans. The amount available to the Company under the
Bank Credit Facility will be reduced, and any outstanding loans will be
required to be prepaid, to the extent that the Company receives net asset sale
proceeds in excess of both $3.0 million in any year and $15.0 million in the
aggregate (over and above the permitted $3.0 million per year) and occurring
after November 28, 1995, unless such net proceeds are used to acquire other
assets within 270 days after the date of the transaction giving rise to such
net asset sale proceeds. The Company may repay the Bank Credit Facility in
whole or in part at any time without premium or penalty.

Security. The Bank Credit Facility is unsecured; however, it is guaranteed
by each of the Company's domestic subsidiaries and, under certain
circumstances, the Company is required to pledge up to 65% of the stock of
certain foreign subsidiaries acquired by the Company.

Maturity; Reduction of Commitments. The Bank Credit Facility will mature on
November 27, 2000. Beginning on January 1, 1998, the Bank Credit Facility
commitment will be reduced by $3.75 million per quarter through maturity (or,
if the Alpha Acquisition is consummated, by $5.0 million per quarter until
January 2000, and by $6.25 million per quarter thereafter until maturity).

Interest. The interest rate applicable to borrowings (other than swing line
loans) under the Bank Credit Facility is the agent's prime rate minus 1/2% or
LIBOR plus, in the case of LIBOR loans, a margin determined on the basis of
the ratio of the Company's total funded indebtedness to its EBITDA. The margin
applicable to LIBOR loans ranges from 1/2% to 1.0%. The interest rate
applicable to swing line loans is the greater of the agent's (a) prime rate
minus 1/2% or (b) the federal funds rate (as defined in the agreement relating
to the Bank Credit Facility) plus 1/2%. During the continuance of an event of
default, the applicable interest rate will be 2.0% above the interest rate
otherwise in effect. Interest is computed based on actual days elapsed in a
360-day year, payable quarterly in arrears in the case of prime rate loans and
on the last day of each interest period in the case of LIBOR loans.

Covenants. The Bank Credit Facility contains covenants customary for
financings of this type, including, without limitation, minimum consolidated
net worth of at least $70 million plus 50% of consolidated net income for each
quarter after September 30, 1996, maximum ratio of consolidated total debt to
consolidated EBITDA of 300%, minimum consolidated EBITDA equal to or greater
than 325% of consolidated interest expense, and limitations on capital
expenditures, incurrence of indebtedness, liens, contingent obligations,
assets sales, dividends and distributions to the Company's stockholders,
payments to affiliates, issuance of stock and distributions by subsidiaries,
investments, guarantees, voluntary prepayment of other indebtedness, loans and
advances, leases, acquisitions, mergers and consolidations and leasing
transactions.

Events of Default. The Bank Credit Facility contains events of default
customary for financings of this type, including, without limitation, with
respect to failure to pay principal or interest, materially false
representations or warranties, failure to observe covenants and other terms of
the Bank Credit Facility, cross-default to other indebtedness, bankruptcy,
insolvency, ERISA violation, the incurrence of material judgments, change in
control and environmental issues.

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NEW NOTES

The Company is concurrently offering, by means of a separate prospectus (the
"Notes Prospectus"), the New Notes in an aggregate principal amount of $100.0
million. The New Notes, which are senior subordinated notes, will be issued
under an indenture (the "New Notes Indenture") among the Company and Union
Planters National Bank, as trustee (the "Trustee"), a copy of the form of
which is filed as an exhibit to the Registration Statement of which the Notes
Prospectus is a part. The New Notes Indenture is subject to, and is governed
by, the Trust Indenture Act of 1939, as amended. The following summary of the
material provisions of the New Notes Indenture does not purport to be
complete, and is subject to, and qualified in its entirety by reference to,
all of the provisions of the New Notes Indenture, including the definition of
certain terms therein and those terms made a part of the New Notes Indenture
by the Trust Indenture Act of 1939, as amended.

General. The New Notes will mature on September 15, 2008, will be limited to
$100.0 million aggregate principal amount and will be unsecured obligations of
the Company.

Sinking Fund. The New Notes Indenture will not provide for a sinking fund.

Optional Redemption. The New Notes will be subject to redemption at any time
on or after September 15, 2001, at the option of the Company, in whole or in
part, on not less than 30 nor more than 60 days' prior notice in amounts of
$1,000 or an integral multiple thereof at declining redemption prices set
forth in the New Notes Indenture, together with accrued and unpaid interest to
the redemption date.

In addition, up to $30.0 million aggregate principal amount of the New Notes
will be redeemable on or prior to September 15, 1999, at the option of the
Company, from the net proceeds of issuances in one or more Public Equity
Offerings (as defined in the New Notes Indenture) of Common Stock by the
Company after the date the New Notes are issued, within 60 days thereof at a
redemption price to be set forth in the New Notes Indenture, together with
accrued and unpaid interest, if any, to the redemption date; provided that,
after giving effect to any such redemption, at least $70.0 million aggregate
principal amount of the New Notes remains outstanding.

Change in Control Put. If a Change in Control (as defined in the New Notes
Indenture) shall occur at any time, then each holder of the New Notes shall
have the right to require that the Company purchase such holder's New Notes in
whole or in part in integral multiples of $1,000, at a purchase price in cash
in an amount equal to 101% of the principal amount of such New Notes, plus
accrued and unpaid interest, if any, to the date of purchase.

Subordination. The indebtedness represented by the New Notes will be
subordinated in right of payment to the prior payment in full of all Senior
Indebtedness (as defined in the New Notes Indenture) of the Company, including
the indebtedness under the Bank Credit Facility and the Existing Senior Notes.
The New Notes will be senior subordinated indebtedness of the Company ranking
pari passu with all other existing and future senior subordinated indebtedness
of the Company, including the Existing Senior Subordinated Notes, and senior
to all existing and future Subordinated Indebtedness (as defined in the New
Notes Indenture) of the Company. The New Notes will also be effectively
subordinated to all indebtedness of the Company's subsidiaries.

Certain Covenants. The New Notes Indenture will contain a number of
covenants restricting the operations of the Company and its subsidiaries,
including covenants with respect to the following matters: (i) limitation on
Indebtedness (as defined in the New Notes Indenture); (ii) limitation on
restricted payments (in the form of the declaration or payment of certain
dividends or distributions, the purchase, redemption or other acquisition of
any capital stock of the Company (or any affiliate thereof), the voluntary
prepayment of subordinated Indebtedness, the incurrence of any guarantee of
Indebtedness of any affiliate of the Company or an investment in any other
person); (iii) limitation on transactions with affiliates; (iv) limitation on
liens; (v) limitation on sale of assets; (vi) limitation on senior
subordinated indebtedness; (vii) limitation on issuances of certain guarantees
of subordinated and pari passu indebtedness; (viii) requirement to repurchase
the New Notes, at the option of the

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holders of the New Notes, upon a Change in Control; (ix) limitation on capital
stock issuances, sales and transfers by subsidiaries; (x) limitation on
dividends and other payment restrictions affecting subsidiaries; (xi)
limitation on investments by the Company and its subsidiaries in Unrestricted
Subsidiaries (as defined in the New Notes Indenture); and (xii) limitations on
consolidations, mergers and sale of substantially all assets.

Event of Default. The events of default ("Events of Default") under the New
Notes Indenture will include provisions that are typical of senior
subordinated debt financings. Upon occurrence of an Event of Default, the
Trustee and holders of not less than 25% in aggregate principal amount of
outstanding New Notes may, and the Trustee at the request of such holders
shall, declare all unpaid principal of, premium, if any, and accrued interest
on all New Notes to be due and payable as provided in the New Notes Indenture.

EXISTING SENIOR SUBORDINATED NOTES

In November 1995, the Company issued and sold $150.0 million principal
amount of the Existing Senior Subordinated Notes pursuant to an indenture
dated as of November 28, 1995 (the "Existing Senior Subordinated Notes
Indenture") between the Company and Union Planters National Bank, as trustee
(the "Existing Senior Subordinated Notes Trustee"), a copy of which is filed
as an exhibit to the Registration Statement. The following summary of the
material provisions of the Existing Senior Subordinated Notes Indenture as
currently in effect does not purport to be complete, and is subject to, and
qualified in its entirety by reference to, all of the provisions of the
Existing Senior Subordinated Notes Indenture.

General. The Existing Senior Subordinated Notes mature on December 15, 2005,
are limited to $150.0 million aggregate principal amount and are unsecured
obligations of the Company. At March 31, 1996, $150.0 million principal amount
of the Existing Senior Subordinated Notes were outstanding.

Sinking Fund. The Existing Senior Subordinated Notes Indenture does not
provide for a sinking fund.

Optional Redemption. The Existing Senior Subordinated Notes are subject to
redemption at any time on or after December 15, 2000, at the option of the
Company, in whole or in part, on not less than 30 nor more than 60 days' prior
notice in amounts of $1,000 or an integral multiple thereof at declining
redemption prices set forth in the Existing Senior Subordinated Notes
Indenture, together with accrued and unpaid interest to the redemption date.

In addition, up to $50.0 million aggregate principal amount of the Existing
Senior Subordinated Notes are redeemable on or prior to December 15, 1998, at
the option of the Company, from the net proceeds of issuances in one or more
Public Equity Offerings (as defined in the Existing Senior Subordinated Notes
Indenture) of Common Stock by the Company after the date the Existing Senior
Subordinated Notes were issued, within 60 days thereof at a redemption price
to be set forth in the Existing Senior Subordinated Notes Indenture, together
with accrued and unpaid interest, if any, to the redemption date; provided
that, after giving effect to any such redemption, at least $90.0 million
aggregate principal amount of the Existing Senior Subordinated Notes remain
outstanding.

Change in Control Put. If a Change in Control (as defined in the Existing
Senior Subordinated Notes Indenture) shall occur at any time, then each holder
of the Existing Senior Subordinated Notes shall have the right to require that
the Company purchase such holder's Existing Senior Subordinated Notes in whole
or in part in integral multiples of $1,000, at a purchase price in cash in an
amount equal to 101% of the principal amount of such Existing Senior
Subordinated Notes, plus accrued and unpaid interest, if any, to the date of
the purchase.

Subordination. The indebtedness represented by the Existing Senior
Subordinated Notes is subordinated in right of payment to the prior payment in
full of all Senior Indebtedness (as defined in the Existing Senior
Subordinated Notes Indenture) of the Company, including the indebtedness under
the Bank Credit Facility and the outstanding Existing Senior Notes. The
Existing Senior Subordinated Notes are senior subordinated indebtedness of the
Company ranking pari passu with all other existing and future senior
subordinated

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indebtedness of the Company, including the New Notes, and senior to all
existing and future Subordinated Indebtedness (as defined in the Existing
Senior Subordinated Notes Indenture) of the Company. The Existing Senior
Subordinated Notes are also effectively subordinated to all indebtedness of
the Company's subsidiaries.

Certain Covenants. The Existing Senior Subordinated Notes Indenture contains
a number of covenants restricting the operations of the Company and its
subsidiaries, including covenants with respect to the following matters: (i)
limitation on Indebtedness (as defined in the Existing Senior Subordinated
Notes Indenture); (ii) limitation on restricted payments (in the form of the
declaration or payment of certain dividends or distribution, the purchase,
redemption or other acquisition of any capital stock of the Company (or any
affiliate thereof), the voluntary prepayment of subordinated Indebtedness, the
incurrence of any guarantee of Indebtedness of any affiliate of the Company or
an investment in any other person); (iii) limitation on transactions with
affiliates; (iv) limitation on liens; (v) limitation on sale of assets; (vi)
limitation on senior subordinated indebtedness; (vii) limitation on issuances
of certain guarantees of subordinated and pari passu indebtedness; (viii)
requirement to repurchase the Existing Senior Subordinated Notes, at the
option of the holders of the Existing Senior Subordinated Notes, upon a Change
in Control; (ix) limitation on capital stock issuances, sales and transfers by
subsidiaries; (x) limitation on dividends and other payment restrictions
affecting subsidiaries; (xi) limitation on investments by the Company and its
subsidiaries in Unrestricted Subsidiaries (as defined in the Existing Senior
Subordinated Notes Indenture); and (xii) limitations on consolidations,
mergers and sale of substantially all assets.

Events of Default. The events of default ("Existing Senior Subordinated
Notes Events of Default") under the Existing Senior Subordinated Notes
Indenture include provisions that are typical of senior subordinated debt.
Upon occurrence of an Existing Senior Subordinated Notes Event of Default, the
Existing Senior Subordinated Notes Trustee and holders of not less than 25% in
aggregate principal amount of outstanding Existing Senior Subordinated Notes
may, and the Existing Senior Subordinated Notes Trustee at the request of such
holders shall, declare all unpaid principal of, premium, if any, and accrued
interest on all Existing Senior Subordinated Notes to be due and payable as
provided in the Existing Senior Subordinated Notes Indenture.

EXISTING SENIOR NOTES

In May 1993, the Company issued and sold $70.0 million principal amount of
the Existing Senior Notes. Prior to November 1995, the Company repurchased
$5.3 million principal amount of Existing Senior Notes in open market
transactions. In November 1995, the Company repurchased $45.6 million
aggregate principal amount of Existing Senior Notes pursuant to a tender offer
and amended certain covenants of the Existing Senior Notes Indenture to
conform generally with similar covenants contained in the Existing Senior
Subordinated Notes Indenture. In January 1996, the Company repurchased $12.2
million aggregate principal amount of Existing Senior Notes with the net
proceeds from the Company's sale of Common Stock in its November 1995 initial
public stock offering. At March 31, 1996, $6.9 million principal amount of the
Existing Senior Notes was outstanding. A copy of the indenture pursuant to
which the Existing Senior Notes were issued, as amended to date (the "Existing
Senior Notes Indenture" and, together with the Existing Senior Subordinated
Notes Indenture, the "Existing Notes Indentures") is filed as an exhibit to
the Registration Statement.

The Existing Senior Notes mature on May 15, 2001 and are unsecured
obligations of the Company. The Existing Senior Notes are not subordinated in
right of payment to any other indebtedness of the Company. The Existing Senior
Notes Indenture contains a number of covenants restricting the operations of
the Company and its subsidiaries which are generally similar to the covenants
contained in the Existing Senior Subordinated Notes Indenture. The Existing
Senior Notes Indenture also provides for a sinking fund, a change of control
put, the optional redemption of the Existing Senior Notes by the Company at
any time on or after May 15, 1998, and events of default provisions that are
typical of senior debt financings.

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DESCRIPTION OF CAPITAL STOCK

GENERAL MATTERS

The total amount of authorized capital stock of the Company consists of
60,000,000 shares of Common Stock, par value $0.01 per share, and 5,000,000
shares of preferred stock, par value $0.01 per share (the "Preferred Stock").
Upon consummation of this Offering and the Company Stock Repurchase,
19,147,336 shares of Common Stock will be issued and outstanding and no shares
of Preferred Stock will be outstanding. The following summary of certain
provisions of the Company's capital stock describes certain material
provisions of, but does not purport to be complete and is subject to, and
qualified in its entirety by, the Amended and Restated Certificate of
Incorporation and the By-laws of the Company that are included as exhibits to
the Registration Statement of which this Prospectus forms a part and by the
provisions of applicable law.

COMMON STOCK

Upon consummation of this Offering and the Company Stock Repurchase, there
will be 19,147,336 shares of Common Stock outstanding held by approximately
175 holders of record. The issued and outstanding shares of Common Stock are
validly issued, fully paid and nonassessable. Subject to the prior rights of
the holders of any Preferred Stock, the holders of outstanding shares of
Common Stock are entitled to receive dividends out of assets legally available
therefor at such times and in such amounts as the Board may from time to time
determine. See "Price Range of Common Stock and Dividend Policy." The shares
of Common Stock are not redeemable or convertible, and the holders thereof
have no preemptive or subscription rights to purchase any securities of the
Company. Upon liquidation, dissolution or winding up of the Company, the
holders of Common Stock are entitled to receive pro rata the assets of the
Company which are legally available for distribution, after payment of all
debts and other liabilities and subject to the prior rights of any holders of
Preferred Stock then outstanding. Each outstanding share of Common Stock is
entitled to vote on all matters submitted to a vote of stockholders.

The Common Stock is listed for trading on the New York Stock Exchange under
the symbol "BKI."

PREFERRED STOCK

The Board may, without further action by the Company's stockholders, from
time to time, authorize the issuance of shares of Preferred Stock in series
and may, at the time of issuance, determine the rights, preferences and
limitations of each series. Satisfaction of any dividend preferences of
outstanding shares of Preferred Stock would reduce the amount of funds
available for the payment of dividends on shares of Common Stock. Holders of
shares of Preferred Stock may be entitled to receive a preference payment in
the event of any liquidation, dissolution or winding-up of the Company before
any payment is made to the holders of shares of Common Stock. Under certain
circumstances, the issuance of shares of Preferred Stock may render more
difficult or tend to discourage a merger, tender offer or proxy contest, the
assumption of control by a holder of a large block of the Company's securities
or the removal of incumbent management. The Board, without stockholder
approval, may issue shares of Preferred Stock with voting and conversion
rights which could adversely affect the holders of shares of Common Stock.
Currently, there are no shares of Preferred Stock outstanding, and the Company
has no present intention to issue any shares of Preferred Stock.

CERTAIN PROVISIONS OF THE AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
AND BY-LAWS AND STATUTORY PROVISIONS

The Amended and Restated Certificate of Incorporation provides that the
Board will be divided into three classes, with each class, after a
transitional period, serving for three years, and one class being elected each
year. A majority of the remaining directors then in office, though less than a
quorum, or the sole remaining director, will be empowered to fill any vacancy
on the Board which arises during the term of a director. The provision for a
classified board may be amended, altered or repealed only upon the affirmative
vote of the holders of at least 80% of the outstanding shares of the voting
stock of the Company. The classification of the Board may discourage a third
party from making a tender offer or otherwise attempting to gain control of
the Company and may have the effect of maintaining the incumbency of the
Board. See "Management."

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The Amended and Restated Certificate of Incorporation requires that any
action required or permitted to be taken by the Company's stockholders must be
effected at a duly called annual or special meeting of stockholders and may
not be effected by consent in writing. Additionally, the Amended and Restated
Certificate of Incorporation requires that special meetings of the
stockholders of the Company be called only by a majority of the entire Board
or by certain officers. The Amended and Restated Certificate of Incorporation
provides for cumulative voting.

The By-laws provide that stockholders seeking to bring business before or to
nominate directors at any annual meeting of stockholders must provide timely
notice thereof in writing. To be timely, a stockholder's notice must be
delivered to, or mailed and received at, the principal executive offices of
the Company not less than 60 days nor more than 90 days prior to such meeting
or, if less than 70 days' notice was given for the meeting, within 10 days
following the date on which such notice was given. The By-laws also specify
certain requirements for a stockholder's notice to be in proper written form.
These provisions restrict the ability of stockholders to bring matters before
the stockholders or to make nominations for directors at meetings of
stockholders.

The Company is subject to the "business combination" provisions of the
Delaware General Corporation Law. In general, such provisions prohibit a
publicly held Delaware corporation from engaging in various "business
combination" transactions with any "interested stockholder" for a period of
three years after the date of the transaction in which the person became an
"interested stockholder," unless (i) the transaction is approved by the Board
of Directors prior to the date the interested stockholder obtained such
status, (ii) upon consummation of the transaction which resulted in the
stockholder becoming an "interested stockholder," the "interested stockholder"
owned at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced, excluding for purposes of determining the
number of shares outstanding those shares owned by (a) persons who are
directors and also officers and (b) employee stock plans in which employee
participants do not have the right to determine confidentially whether shares
held subject to the plan will be tendered in a tender or exchange offer, or
(iii) on or subsequent to such date the "business combination" is approved by
the board of directors and authorized at an annual or special meeting of
stockholders by the affirmative vote of at least 66 2/3% of the outstanding
voting stock which is not owned by the "interested stockholder." A "business
combination" is defined to include mergers, asset sales and other transactions
resulting in financial benefit to a stockholder. In general, an "interested
stockholder" is a person who, together with affiliates and associates, owns
(or within three years, did own) 15% or more of a corporation's voting stock.
The statute could prohibit or delay mergers or other takeover or change in
control attempts with respect to the Company and, accordingly, may discourage
attempts to acquire the Company. The Company's Board of Directors has approved
any acquisition of shares by Robert E. Cannon, Chairman of the Board of the
Company, that would otherwise result in Mr. Cannon, his spouse or issue, any
trust of which Mr. Cannon and/or his spouse is the grantor or of which Mr.
Cannon, his spouse, his issue or any charity is a beneficiary, including,
without limitation, the Robert E. Cannon Grantor Retained Annuity Trust or the
Kathryn Gracey Cannon Grantor Retained Annuity Trust (the "Cannon Entities"),
becoming an Interested Stockholder. See "Risk Factors--Certain Charter, By-
Laws and Statutory Provisions."

BOARD OF DIRECTORS

The Company's Board of Directors consists of seven persons comprised of two
individuals nominated by MDCP, two individuals nominated by a majority of the
management members and three independent directors.

RIGHTS AGREEMENT

The Company's Board of Directors has declared a dividend of one Right for
each share of Common Stock outstanding. The holders of any additional Common
Stock subsequently issued before the earliest of the Distribution Date (as
hereinafter defined), the redemption of the Rights, the exchange of the Rights
or the expiration of the Rights also will be entitled to one Right for each
such additional share. Each Right entitles the registered holder under certain
circumstances to purchase from the Company one one-thousandth of a share of

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<PAGE>

Junior Participating Preferred Stock, Series A (the "Preferred Stock") at a
price of $60 per one one-thousandth share of Preferred Stock (the "Purchase
Price"), subject to adjustment. The description and terms of the Rights are
set forth in the Rights Agreement.

The Rights will be evidenced by the Common Stock certificates and not by
separate certificates until the earlier of (i) the day following the first
date of public disclosure that a person or group other than an "Exempt Person"
(an "Acquiring Person"), together with persons affiliated or associated with
such Acquiring Person (other than Exempt Persons), has acquired, or obtained
the right to acquire, beneficial ownership of 15% or more of the outstanding
Common Stock (the "Stock Acquisition Date") and (ii) the tenth business day
after the date of commencement or public disclosure of an intention to
commence a tender offer or exchange offer by a person other than an Exempt
Person, the Company and certain related entities if, upon consummation of the
offer, such person or group, together with persons affiliated or associated
with it (other than those that are exempt persons), would acquire beneficial
ownership of 15% or more of the outstanding Common Stock (the earlier of such
dates being called the "Distribution Date"). Until the Distribution Date (or
earlier redemption, exchange or expiration of the Rights), (i) the Rights will
be transferable only with the Common Stock (except with redemption of the
Rights); (ii) Common Stock certificates will contain a notation incorporating
the Rights Agreement by reference; and (iii) the surrender for transfer of any
certificates for Common Stock will also constitute the transfer of the Rights
associated with the Common Stock represented by such certificate. For purposes
of the Rights Agreement, an "Exempt Person" is defined to include, among other
things, MDCP, so long as MDCP does not become the beneficial owner of 45% or
more of the Common Stock, and the Cannon Entities, without regard to the
beneficial ownership of Common Stock by the Cannon Entities.

As soon as practicable following the Distribution Date, separate
certificates evidencing the Rights ("Rights Certificates") will be mailed to
holders of record of the Common Stock as of the close of business on the
Distribution Date. From and after the Distribution Date, such separate Rights
Certificates alone will evidence the Rights.

The Rights will first become exercisable on or after the Distribution Date
(unless sooner redeemed or exchanged). The Rights will expire at the close of
business on the tenth anniversary of the date of initial issuance (the
"Expiration Date"), unless earlier redeemed or exchanged by the Company as
described below.

The Purchase Price payable and the number of shares of Preferred Stock or
other securities, cash or other property issuable upon exercise of the Rights
are subject to adjustment from time to time to prevent dilution (i) in the
event of a stock dividend or distribution on, or a subdivision or combination
of, or reclassification of the Preferred Stock, (ii) upon the grant to holders
of the Preferred Stock of certain rights, options, or warrants to subscribe
for Preferred Stock or securities convertible into Preferred Stock at less
than the current market price of the Preferred Stock, or (iii) upon the
distribution to holders of the Preferred Stock of other securities, cash
(excluding regular periodic cash dividends), property, evidences of
indebtedness, or assets.

If a person becomes an Acquiring Person, the Rights will "flip-in" and
entitle each holder of a Right, except as provided below, to purchase, upon
exercise at the then-current Purchase Price, that number of shares of Common
Stock having a market value of two times such Purchase Price. In addition,
following a "flip-in," the Board has the option of exchanging all or part of
the Rights, except as provided below, for Common Stock.

In the event that, following a "flip-in," the Company is acquired in a
merger or other business combination in which the Common Stock does not remain
outstanding or is exchanged or 50% or more of its consolidated assets or
earning power is sold, leased, exchanged, mortgaged, pledged or otherwise
transferred or disposed of (in one transaction or a series of related
transactions), the Rights will "flip-over" and entitle each holder (other than
the Acquiring Person and certain related persons or transferees) of a Right to
purchase, upon the exercise of the Right at the then-current Purchase Price,
that number of shares of common stock of the acquiring company (or, in certain
circumstances, one of its affiliates) which at the time of such transaction
would have a market value of two times such Purchase Price.

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Any Rights beneficially owned at any time on or after the earlier of the
Distribution Date and the Stock Acquisition Date by an Acquiring Person or an
affiliate or associate (other than an exempt person) of an Acquiring Person
(whether or not such ownership is subsequently transferred) will become null
and void upon the occurrence of a "Triggering Event," and any such holder of
such Rights will have no right to exercise such Rights or have such Rights
exchanged as provided above. A "Triggering Event " will be deemed to occur in
the event that any person becomes an Acquiring Person.

The number of outstanding Rights and the number of one one-thousandths of a
share of Preferred Stock issuable upon exercise of each right and the Purchase
Price are subject to adjustment in the event of a stock dividend on the Common
Stock payable in Common Stock or subdivision or combination of the Common
Stock occurring, in any such case, prior to the Distribution Date.

At any time prior to the earlier of the Stock Acquisition Date and the
Expiration Date, the Company may redeem the Rights.

Until a Right is exercised, the holder thereof, as such, will have no rights
as a stockholder of the Company, including, without limitation, the right to
vote or to receive the dividends or distributions.

At any time prior to the Stock Acquisition Date, a majority of the
Continuing Directors (as defined in the Rights Agreement) may, without the
approval of any holder of the Rights (except, in certain circumstances, an
Exempt Person), supplement or amend any provision of the Rights Agreement
(including the date on which the Distribution Date will occur after
announcement of commencement of a tender offer). Thereafter, the Rights
Agreement may be amended by a majority of the Continuing Directors without the
approval of any holder of the Rights only to cure ambiguities, to correct
defective or inconsistent provisions, or in ways that do not adversely affect
the Rights holders. Notwithstanding the foregoing, the Rights Agreement may
not be amended to change the Purchase Price, the number of shares of Preferred
Stock, other securities, cash or other property obtainable upon exercise of a
Right, the redemption price or the Expiration Date.

The Rights have certain anti-takeover effects. The Rights may cause
substantial dilution to a person or group other than an exempt person that
attempts to acquire the Company on terms not approved by the Board, except
pursuant to an offer conditioned on a substantial number of Rights being
acquired. The Rights should not interfere with any merger or other business
combination approved by the Board of Directors prior to the time a person or
group other than an exempt person has acquired beneficial ownership of 15% or
more of the Common Stock, because until such time the Rights may be redeemed
by the Company at $.01 per Right.

The foregoing description of the Rights does not purport to be complete and
is qualified in its entirety by reference to the Rights Agreement (a copy of
the form of which is filed as an exhibit to the Registration Statement),
including the definitions therein of certain terms.

LIMITATIONS ON LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS

The Amended and Restated Certificate of Incorporation limits the liability
of directors to the fullest extent permitted by the Delaware General
Corporation Law. In addition, the Amended and Restated Certificate of
Incorporation provides that the Company shall indemnify directors and officers
of the Company to the fullest extent permitted by such law.

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for the Common Stock is Union Planters
National Bank.

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<PAGE>

CERTAIN U.S. TAX CONSIDERATIONS APPLICABLE TO
NON-U.S. HOLDERS OF THE COMMON STOCK

The following is a general discussion of certain U.S. federal income and
estate tax consequences of the ownership and disposition of Common Stock by a
person that, for U.S. federal income tax purposes, is a non-resident alien
individual, a foreign corporation, a foreign partnership or a foreign estate
or trust (a "non-U.S. holder"). This discussion does not consider specific
facts and circumstances that may be relevant to a particular non-U.S. holder's
tax position, including whether such non-U.S. holder is a U.S. expatriate, and
does not deal with U.S. state and local or non-U.S. tax consequences. This
discussion is based on provisions of the U.S. Internal Revenue Code of 1986,
as amended (the "Code"), existing and proposed regulations promulgated
thereunder, and administrative and judicial interpretations thereof as of the
date hereof, all of which are subject to change, possibly with retroactive
effect. Each prospective non-U.S. holder is urged to consult a tax advisor
with respect to the U.S. federal tax consequences of holding and disposing of
Common Stock, as well as any tax consequences that may arise under the laws of
any U.S. state, municipality or other taxing jurisdiction.

Subject to certain exceptions, an individual will, among other ways, be
deemed to be a resident alien (as opposed to a non-resident alien) with
respect to any calendar year by virtue of being present in the United States
(a) on at least 31 days during such calendar year and (b) on an aggregate of
at least 183 days during the current calendar year and the two preceding
calendar years (counting for such purposes all of the days present in the
current year, one-third of the days present in the immediately preceding year,
and one-sixth of the days present in the second preceding year). Resident
aliens are subject to U.S. federal tax as if they were U.S. citizens.

Dividends. Dividends paid to a non-U.S. holder of Common Stock will
generally be subject to withholding of U.S. federal income tax at a 30% rate
or such lower rate as may be specified in an applicable income tax treaty,
unless the dividends are effectively connected with the conduct of a trade or
business by the non-U.S. holder within the United States. Dividends that are
effectively connected with such holder's conduct of a trade or business in the
United States are subject to U.S. federal income tax on a net income basis at
applicable graduated individual or corporate rates, and are not generally
subject to withholding if the holder complies with certain certification and
disclosure requirements. Any such effectively connected dividends received by
a foreign corporation may also, under certain circumstances, be subject to an
additional "branch profits tax" at a 30% rate or such lower rate as may be
specified in an applicable income tax treaty.

Under current law, dividends paid to an address outside the United States
are presumed to be paid to a resident of the country of address (unless the
payer has knowledge to the contrary) for purposes of the withholding discussed
above and for purposes of determining the applicability of a lower tax treaty
withholding rate. Under U.S. Treasury regulations that are proposed to be
effective for distributions after 1997 (the "Proposed Regulations"), however,
a non-U.S. holder of Common Stock who wishes to claim the benefit of an
applicable treaty rate would be required to satisfy applicable certification
requirements. In addition, under the Proposed Regulations, in the case of
Common Stock held by a foreign partnership, (x) the certification requirement
would generally be applied to the partners of the partnership and (y) the
partnership would be required to provide certain information, including a
United States taxpayer identification number. The Proposed Regulations also
provide look-through rules for tiered partnerships. It is not certain whether,
or in what form, the Proposed Regulations will be adopted as final
regulations.

A non-U.S. holder of Common Stock that is eligible for a reduced rate of
U.S. withholding tax pursuant to an income tax treaty may obtain a refund of
any excess amounts withheld by filing an appropriate claim for refund with the
U.S. Internal Revenue Service.

Gain on Disposition of Common Stock. A non-U.S. holder generally will not be
subject to U.S. federal income tax in respect of gain recognized on a
disposition of Common Stock unless (i) the gain is effectively connected with
a trade or business of the non-U.S. holder in the United States or, if a tax
treaty applies, is attributable to a permanent establishment maintained by the
non-U.S. holder in the United States, (ii) in the case of a non-U.S. holder
who is an individual and holds the Common Stock as a capital asset, such
holder is present

52
<PAGE>

in the United States for 183 or more days in the taxable year of the sale, or
(iii) the Company is or has been a "U.S. real property holding corporation"
for federal income tax purposes at any time during the five-year period ending
on the date of the disposition. The Company believes that it has not been and
is not a "U.S. real property holding corporation" for U.S. federal income tax
purposes and the Company does not anticipate becoming such a "U.S. real
property holding corporation." If an individual non-U.S. holder falls under
clause (i) above, he or she will be taxed on his or her net gain derived from
the sale at regular graduated U.S. federal income tax rates. If an individual
non-U.S. holder falls under clause (ii) above, he or she will be subject to a
flat 30% tax on the net gain derived from the sale which gain may be offset by
U.S. capital losses. If a non-U.S. holder that is a foreign corporation falls
under clause (i) above, it will be taxed on its gain at regular graduated U.S.
federal income tax rates and may also, under certain circumstances, be subject
to an additional "branch profits tax" at a 30% rate or such lower rate as may
be specified in an applicable income tax treaty. If the Company is a "U.S.
real property holding corporation" at any time during the five-year period
ending on the date of the disposition, a non-U.S. holder who has held more
than 5% of the Common Stock at any time during the five-year period ending on
the date of the disposition (taking into account certain attribution rules)
will be taxed on its gain at regular graduated U.S. federal income tax rates.

The U.S. federal income taxation of gains realized by non-U.S. holders is
subject to change and such change, if adopted, could apply to gains on
investments made prior to the change. Proposals to change the basis for taxing
gains of non-U.S. investors have been made from time to time. For example, the
U.S. Senate passed a bill in October, 1995 which would generally have made
non-U.S. investors subject to U.S. capital gains taxes (subject to certain
exceptions) at graduated rates on gains from an investment in the stock of a
U.S. corporation if the non-U.S. investor owned, or was deemed to own, 10
percent or more of the stock of the U.S. corporation during the five-year
period prior to the disposition of the stock. This provision was not included
in the House tax bill and it was not adopted as part of the tax bill
subsequently reported by the House-Senate Conference Committee.

Federal Estate Taxes. Common Stock owned or treated as owned by a non-U.S.
holder at the time of death will be included in such holder's gross estate for
U.S. federal estate tax purposes, unless an applicable estate tax treaty
provides otherwise.

U.S. Information Reporting Requirements and Backup Withholding Tax. The
Company must report annually to the Internal Revenue Service and to each non-
U.S. holder the amount of dividends paid to such holder and the tax withheld
with respect to such dividends, regardless of whether withholding was
required. Copies of the information returns reporting such dividends and
withholding may also be made available to the tax authorities in the country
in which the non-U.S. holders resides under the provisions of an applicable
income tax treaty.

Under current law, backup withholding (which generally is a withholding tax
imposed at the rate of 31% on certain payments to, among others, persons that
fail to furnish certain information under the U.S. information reporting
requirements) will generally not apply to dividends paid to a non-U.S. holder
at an address outside the United States unless such non-U.S. holder is engaged
in a trade or business in the United States or unless the payer has knowledge
that the payee is a U.S. person. Under the Proposed Regulations, however,
dividend payments generally will be subject to backup withholding unless
applicable certification requirements are satisfied. See the discussion above
with respect to the rules applicable to foreign partnerships under the
Proposed Regulations.

In general, backup withholding and information reporting will not apply to a
payment of the proceeds of a sale of Common Stock to or through a foreign
office of a broker. If, however, such broker is, for U.S. federal income tax
purposes, a U.S. person, a controlled foreign corporation, or a foreign person
that derives 50% or more of its gross income for certain periods from the
conduct of a trade or business in the United States, such payments will not be
subject to backup withholding but will be subject to information reporting,
unless (1) such broker has documentary evidence in its records that the
beneficial owner is a non-U.S. holder and certain other conditions are met, or
(2) the beneficial owner otherwise establishes an exemption.

53
<PAGE>

Payment to or through a U.S. office of a broker of the proceeds of a sale of
Common Stock is generally subject to both backup withholding and information
reporting unless the broker has received from the beneficial owner a
certification made under penalties of perjury that the beneficial owner is a
non-U.S. holder, or the beneficial owner otherwise establishes an exemption.

Any amounts withheld under the backup withholding rules may be allowed as a
refund or a credit against such holder's U.S. federal income tax liability
provided the required information is furnished to the U.S. Internal Revenue
Service.

The backup withholding and information reporting rules are currently under
review by the U.S. Treasury Department and their application to the Common
Stock could be changed by future regulations.

54
<PAGE>

UNDERWRITING

Subject to the terms and conditions set forth in the Underwriting Agreement
among the Company, the Selling Stockholder and Salomon Brothers Inc, Merrill
Lynch, Pierce, Fenner & Smith Incorporated, PaineWebber Incorporated and
Morgan Keegan & Company, Inc., as representatives of the several underwriters
(the "Representatives"), the Selling Stockholder has agreed to sell to the
entities named below (the "Underwriters"), and each of the Underwriters has
severally agreed to purchase from the Selling Stockholder, the aggregate
number of shares of Common Stock set forth opposite its name below.

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
Salomon Brothers Inc........................................... 471,986
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.......................................... 471,983
PaineWebber Incorporated....................................... 471,983
Morgan Keegan & Company, Inc. ................................. 471,983
BT Securities Corporation...................................... 150,000
Dean Witter Reynolds Inc. ..................................... 150,000
Dresdner Securities (USA) Inc. ................................ 150,000
Oppenheimer & Co., Inc. ....................................... 150,000
Robert W. Baird & Co. Incorporated............................. 100,000
Raymond James & Associates, Inc. .............................. 100,000
The Robinson-Humphrey Company, Inc. ........................... 100,000
Wheat First Butcher Singer..................................... 100,000
---------
Total..................................................... 2,887,935
=========
</TABLE>

The Underwriting Agreement provides that the several Underwriters will be
obligated to purchase all the shares of Common Stock being offered (other than
the shares covered by the over-allotment option described below), if any are
purchased.

The Representatives have advised the Company that they propose initially to
offer the Common Stock directly to the public at the public offering price set
forth on the cover page of this Prospectus and to certain dealers at such
price less a concession not in excess of $0.82 per share. The Underwriters may
allow, and such dealers may reallow, a concession not in excess of $0.10 per
share on sales to certain other dealers. After the Offering, the price to
public, and concessions to dealers may be changed.

The Selling Stockholder has granted to the Underwriters an option,
exercisable for 30 days from the date of this Prospectus, to purchase up to
200,000 additional shares of Common Stock at the price to public less the
underwriting discount set forth on the cover page of this Prospectus. The
Underwriters may exercise this option solely for the purpose of covering over-
allotments, if any, incurred in the sale of shares of Common Stock being
offered hereby. To the extent the Underwriters exercise such option, each of
the Underwriters will be obligated, subject to certain conditions, to purchase
the same proportion of such additional shares as the number of shares set
forth opposite such Underwriter's name in the preceding table bears to the
total number of shares of Common Stock offered by the Underwriters hereby.

At the request of the Company, the Underwriters have initially reserved
approximately 980,000 shares of Common Stock for sale at the public offering
price to directors, officers, employees and business associates of the
Company. The number of shares of Common Stock available for sale to the
general public will be reduced to the extent such persons purchase such
reserved shares. Any reserved shares which are not so purchased will be
offered by the Underwriters to the general public on the same basis as the
other shares offered hereby.

The Company, the Selling Stockholder and certain officers and directors of
the Company, have agreed, subject to certain exceptions, including transfers
among existing members of the Company's management and partners of the Selling
Stockholder, not to sell, offer to sell, grant any option for the sale of,
assign, pledge, grant

55
<PAGE>

any security interest in, or otherwise dispose of, or register for sale by
others, any shares of Common Stock or securities convertible into or
exchangeable or exercisable for Common Stock without the prior written consent
of Salomon Brothers Inc, on behalf of the Underwriters, for a period of 90
days after the date of this Prospectus.

The Underwriters (i) have not offered or sold and will not offer or sell any
shares of Common Stock in the United Kingdom by means of any document other
than to persons whose ordinary business it is to buy and sell shares or
debentures (whether as principal or agent) or in circumstances which do not
constitute an offer to the public within the meaning of the Companies Act
1985; (ii) have complied and will comply with all applicable provisions of the
Financial Services Act 1986 with respect to anything done by them in relation
to the shares of Common Stock in, from or otherwise involving the United
Kingdom; and (iii) have only issued or passed on and will only issue or pass
on in the United Kingdom any document received by them in connection with the
issue of the shares of Common Stock to any person who is of a kind described
in Article 9(3) of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1988 or is a person to whom the document may otherwise
lawfully be issued or passed on.

No action has been taken or will be taken in any jurisdiction by the Company
or the Underwriters that would permit a public offering of the shares offered
hereby in any jurisdiction where action for that purpose is required, other
than the United States. Persons who come into possession of this Prospectus
are required by the Company and the Underwriters to inform themselves about
and to observe any restrictions as to the offering of the shares offered
hereby and the distribution of this Prospectus.

Certain of the Underwriters have rendered financial advisory and investment
banking services to the Company and its affiliates from time to time, for
which they have received customary fees. Salomon Brothers Inc is providing
financial advisory services to the Company in connection with the Company
Stock Repurchase and has provided the Company's board of directors with an
opinion regarding the fairness from a financial point of view of the price to
be paid in connection therewith. In addition, certain of the Underwriters are
acting as underwriters in connection with the offering of the New Notes.

The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain civil liabilities, including certain liabilities
under the Securities Act of 1933, as amended (the "Securities Act"), or
contribute to payments the Underwriters may be required to make in respect
thereof. The Company has agreed to indemnify the Selling Stockholder, under
certain circumstances, in respect of payments made by the Selling Stockholder
pursuant to these agreements.

56
<PAGE>

LEGAL MATTERS

The validity of the Common Stock being offered hereby and certain other
legal matters relating to the Offering will be passed upon for the Company and
the Selling Stockholder by Kirkland & Ellis, Chicago, Illinois. Certain legal
matters will be passed upon for the Underwriters by Cravath, Swaine & Moore,
New York, New York.

EXPERTS

The combined consolidated financial statements of Buckeye Cellulose
Corporation and Affiliates as of and for the years ended June 30, 1994 and
1995 and for the period March 16, 1993 through June 30, 1993 and the combined
statement of operating income of the Predecessor for the period July 1, 1992
through March 15, 1993 included in this Prospectus and in the Registration
Statement have been audited by Ernst & Young LLP, independent auditors, as set
forth in their reports thereon appearing elsewhere herein and in the
Registration Statement, and are included in reliance upon such reports given
upon the authority of such firm as experts in accounting and auditing.

The consolidated financial statements of Buckeye Cellulose Corporation as of
and for the years ended June 30, 1994 and 1995 and for the period March 16,
1993 through June 30, 1993 and the combined statement of operating income of
the Memphis Mill Operations of the Procter & Gamble Cellulose Company for the
period July 1, 1992 through March 15, 1993 incorporated by reference in this
Prospectus and in this Registration Statement from the Annual Report on Form
10-K have been audited by Ernst & Young LLP, independent auditors, as set
forth in their reports thereon appearing therein, and are included in reliance
upon such reports given upon the authority of such firm as experts in
accounting and auditing.

The financial statements of the Temming Business as of and for the year
ended December 31, 1995 included in this Prospectus have been audited by
Dipl.-Ing. Wolf Gadecke, Wirtschaftsprufer, independent auditor, as set forth
in his report thereon appearing herein and in the Registration Statement, and
are included in reliance upon such report given upon his authority as an
expert in accounting and auditing.

The consolidated financial statements of Alpha Cellulose Holdings, Inc. and
Subsidiaries at December 31, 1995 and for the year then ended included in this
Prospectus and the Registration Statement have been audited by Deloitte &
Touche LLP, independent auditors, as set forth in their report thereon
appearing herein and elsewhere in the Registration Statement, and have been so
included in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company with the Commission can
be inspected, and copies may be obtained, at the Public Reference Section of
the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates, as well as at the following Regional Offices of the Commission: Seven
World Trade Center, New York, New York 10048; and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Reports, proxy
statements and other information concerning the Company can also be inspected
at the offices of the New York Stock Exchange, Inc., 20 Broad Street, New
York, New York 10005, where the Common Stock of the Company is listed.

The Company has filed with the Commission a Registration Statement on Form
S-3 (as amended, including exhibits, the "Registration Statement") under the
Securities Act, covering the shares of Common Stock offered hereby. This
Prospectus does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. For further information,
reference is hereby made to the Registration Statement.

57
<PAGE>

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents, which have been filed by the Company with the
Commission, are incorporated herein by reference.

1. Annual Report on Form 10-K for the fiscal year ended June 30, 1995.

2. Quarterly Reports on Form 10-Q for the fiscal quarters ended September
30, 1995, December 31, 1995 and March 31, 1996.

3. Current Report on Form 8-K dated May 2, 1996, as amended by the Form
8-K/A dated May 10, 1996.

4. The description of Common Stock contained in the Company's
registration statements on Form 8-A dated October 27, 1995 (relating to the
Common Stock) and November 20, 1995 (relating to the Preferred Share
Purchase Rights) and any amendment or report filed for the purpose of
updating such description.

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

The Company will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, upon the written or
oral request of such person, a copy of any or all of the documents which have
been or may be incorporated by reference in this Prospectus, other than
exhibits to such documents not specifically described above. Requests for such
documents should be directed to the Company.

58
<PAGE>

BUCKEYE CELLULOSE CORPORATION AND AFFILIATES

INDEX OF FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
NO.
----
<S> <C>
BUCKEYE CELLULOSE CORPORATION AND AFFILIATES
Report of Independent Auditors........................................... F-2
Combined Consolidated Balance Sheets--June 30, 1994 and 1995 and March
31, 1996 (unaudited).................................................... F-3
Combined Consolidated Statements of Income--For the period March 16, 1993
through June 30, 1993, for years ended June 30, 1994 and June 30, 1995
and for the nine months ended March 31, 1995 (unaudited) and 1996
(unaudited)............................................................. F-4
Combined Consolidated Statements of Equity--For the period March 16, 1993
through June 30, 1993, for the years ended June 30, 1994 and June 30,
1995.................................................................... F-5
Combined Consolidated Statements of Cash Flows--For the period March 16,
1993 through June 30, 1993, for the years ended June 30, 1994 and June
30, 1995 and for the nine months ended March 31, 1995 (unaudited) and
1996 (unaudited)........................................................ F-6
Notes to Combined Consolidated Financial Statements...................... F-7
THE PROCTER & GAMBLE CELLULOSE COMPANY--MEMPHIS PLANT AND FOLEY PLANT
OPERATIONS
Report of Independent Auditors........................................... F-19
Combined Statement of Operating Income--For the period July 1, 1992
through March 15, 1993.................................................. F-20
Notes to Combined Statement of Operating Income--For the period July 1,
1992 through March 15, 1993............................................. F-21
PETER TEMMING AKTIENGESELLSCHAFT--SPECIALTY PULP BUSINESS
Report of Independent Auditors........................................... F-24
Balance Sheet--December 31, 1995......................................... F-25
Income Statement--For the year ended December 31, 1995................... F-27
Notes to Financial Statements............................................ F-28
ALPHA CELLULOSE HOLDINGS, INC. AND SUBSIDIARIES
Report of Independent Auditors........................................... F-32
Consolidated Balance Sheets--December 31, 1995 and March 31, 1996
(unaudited)............................................................. F-33
Consolidated Statement of Income--for the year ended December 31, 1995
and for the three months ended March 31, 1995 (unaudited) and 1996
(unaudited)............................................................. F-34
Consolidated Statements of Stockholder' Equity--for the year ended
December 31, 1995....................................................... F-35
Consolidated Statements of Cash Flows--for the year ended December 31,
1995 and for the three months ended March 31, 1995 (unaudited) and 1996
(unaudited)............................................................. F-36
Notes to Consolidated Financial Statements............................... F-37
</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT AUDITORS

Board of Directors
Buckeye Cellulose Corporation and Affiliated Companies

We have audited the accompanying combined consolidated balance sheets as of
June 30, 1994 and 1995, of Buckeye Cellulose Corporation and affiliates, and
the related combined consolidated statements of income, equity, and cash flows
for the period March 16, 1993 through June 30, 1993 and for the years ended
June 30, 1994 and 1995. These financial statements are the responsibility of
the company's management. Our responsibility is to express an opinion on these
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 combined consolidated financial statements referred to
above present fairly, in all material respects, the combined consolidated
financial position at June 30, 1994 and 1995, of Buckeye Cellulose Corporation
and affiliates, and the combined consolidated results of their operations and
their cash flows for the period March 16, 1993 through June 30, 1993 and for
the years ended June 30, 1994 and 1995 in conformity with generally accepted
accounting principles.

Ernst & Young LLP

Memphis, Tennessee
July 28, 1995

F-2
<PAGE>

BUCKEYE CELLULOSE CORPORATION AND AFFILIATES

COMBINED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)

<TABLE>
<CAPTION>
JUNE 30,
----------------- MARCH 31,
1994 1995 1996
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................... $ 7,101 $ 11,789 $ --
Short-term investments......................... 10,775 9,706 2,900
Accounts receivable--trade, net of allowance
for doubtful accounts of $2,494, $1,152 and
$1,028 at June 30, 1994 and 1995 and March 31,
1996, respectively............................ 38,631 43,519 48,427
Accounts receivable--other..................... 727 548 473
Inventories.................................... 65,046 61,947 90,581
Deferred income taxes.......................... 1,206 541 2,666
Prepaid expenses and other..................... 1,222 2,530 5,800
-------- -------- --------
Total current assets......................... 124,708 130,580 150,847
Property, plant and equipment:
Land and land improvements..................... 3,972 3,980 3,990
Buildings...................................... 35,881 36,842 37,687
Machinery and equipment........................ 212,627 232,653 234,068
Construction in progress....................... 6,264 8,696 17,226
-------- -------- --------
258,744 282,171 292,971
Less allowances for depreciation............... 30,853 54,072 50,382
-------- -------- --------
227,891 228,099 242,589
Goodwill......................................... 17,613 16,998 7,675
Other............................................ 3,992 3,379 7,254
-------- -------- --------
Total assets................................. $374,204 $379,056 $408,365
======== ======== ========
LIABILITIES AND EQUITY
Current liabilities:
Trade accounts payable......................... $ 9,565 $ 14,908 $ 18,305
Accounts payable--Procter & Gamble............. 3,148 688 --
Accrued expenses............................... 28,411 27,937 30,222
Income taxes payable........................... -- 1,230 1,222
Notes payable.................................. -- 8,500 --
Current portion of long-term debt.............. 14,108 -- --
Other liabilities.............................. 146 210 71
-------- -------- --------
Total current liabilities.................... 55,378 53,473 49,820
Long-term debt................................... 203,482 166,202 197,364
Accrued postretirement benefit obligation........ 12,024 12,400 12,802
Deferred income taxes............................ 2,334 5,848 16,450
Other liabilities................................ 4,679 4,408 4,321
Minority interest................................ 33,479 52,104 --
Equity:
Common stock: Buckeye Cellulose Corporation.... 2 2 214
Common stock: Buckeye Florida Corporation...... 2 2 --
Additional paid-in capital..................... 45,152 45,233 58,807
Retained earnings.............................. 17,672 39,384 68,587
-------- -------- --------
Total equity................................. 62,828 84,621 127,608
-------- -------- --------
Total liabilities and equity................. $374,204 $379,056 $408,365
======== ======== ========
</TABLE>

See accompanying notes.

F-3
<PAGE>

BUCKEYE CELLULOSE CORPORATION AND AFFILIATES

COMBINED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 16, 1993 YEAR ENDED JUNE 30, MARCH 31,
THROUGH -------------------- --------------------
JUNE 30, 1993 1994 1995 1995 1996
-------------- --------- --------- -------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales............... $113,074 $ 371,526 $ 408,587 $301,318 $ 338,825
Cost of goods sold...... 86,047 291,833 305,150 230,247 237,149
-------- --------- --------- -------- ----------
Gross margin............ 27,027 79,693 103,437 71,071 101,676
Selling, research and
administrative
expenses............... 5,996 24,004 24,265 16,446 18,497
-------- --------- --------- -------- ----------
Operating income........ 21,031 55,689 79,172 54,625 83,179
Other income (expense):
Interest income......... 351 314 1,138 704 925
Interest expense and
amortization of debt
costs.................. (10,560) (26,859) (22,290) (17,214) (13,709)
Other................... (184) (632) (615) (462) (372)
Minority interest....... (3,083) (8,291) (23,223) (14,881) (16,628)
Secondary offering
costs.................. -- -- -- -- (1,335)
-------- --------- --------- -------- ----------
(13,476) (35,468) (44,990) (31,853) (31,119)
-------- --------- --------- -------- ----------
Income before income
taxes and extraordinary
loss................... 7,555 20,221 34,182 22,772 52,060
Income taxes............ 2,851 7,253 12,470 8,308 18,908
-------- --------- --------- -------- ----------
Income before
extraordinary loss..... 4,704 12,968 21,712 14,464 33,152
Extraordinary loss, net
of tax benefit......... (3,949)
-------- --------- --------- -------- ----------
Net income.............. $ 4,704 $ 12,968 $ 21,712 $ 14,464 $ 29,203
======== ========= ========= ======== ==========
Earnings per share:
Income before extraor-
dinary loss.......... $ 1.58
Extraordinary loss,
net of tax benefit... (0.19)
----------
Net income per share.... $ 1.39
==========
Weighted average shares
outstanding............ 21,014,032
==========
</TABLE>

See accompanying notes.

F-4
<PAGE>

BUCKEYE CELLULOSE CORPORATION AND AFFILIATES

COMBINED CONSOLIDATED STATEMENTS OF EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
COMMON
STOCK
----------- ADDITIONAL
CLASS CLASS PAID-IN RETAINED
A B CAPITAL EARNINGS TOTAL
----- ----- ---------- -------- -------
<S> <C> <C> <C> <C> <C>
Balance at March 16, 1993.............. $ $ $ $ $
Issuance of 100,000 Class A and
100,000 Class B shares of BCC common
stock............................... 1 1 17,554 -- 17,556
Issuance of 100,000 Class A and
100,000 Class B shares of BFC common
stock............................... 1 1 20,998 -- 21,000
Net income........................... -- -- -- 4,704 4,704
--- --- ------- ------- -------
Balance at June 30, 1993............... 2 2 38,552 4,704 43,260
Issuance of 12,500 Class A and 43,125
Class B shares of BCC common stock.. -- -- 2,552 -- 2,552
Issuance of 12,500 Class A and 43,125
Class B shares of BFC common stock.. -- -- 3,048 -- 3,048
Partners' capital contribution....... -- -- 1,000 -- 1,000
Net income........................... -- -- -- 12,968 12,968
--- --- ------- ------- -------
Balance at June 30, 1994............... 2 2 45,152 17,672 62,828
Issuance of 3,377 Class B shares of
BCC common stock.................... -- -- 38 -- 38
Issuance of 4,287 Class B shares of
BFC common stock.................... -- -- 43 -- 43
Net income........................... -- -- -- 21,712 21,712
--- --- ------- ------- -------
Balance at June 30, 1995............... $ 2 $ 2 $45,233 $39,384 $84,621
=== === ======= ======= =======
</TABLE>

See accompanying notes.

F-5
<PAGE>

BUCKEYE CELLULOSE CORPORATION AND AFFILIATES

COMBINED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED JUNE NINE MONTHS
MARCH 16, 1993 30, ENDED MARCH 31,
THROUGH ---------------- -----------------
JUNE 30, 1993 1994 1995 1995 1996
-------------- ------- ------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income................ $ 4,704 $12,968 $21,712 $14,464 $ 29,203
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Extraordinary loss, net
of tax benefit......... -- -- -- -- 3,949
Minority interest....... 3,083 8,291 23,223 14,881 16,628
Depreciation............ 6,541 24,613 23,784 17,874 18,127
Amortization of debt
costs and other........ 629 2,009 2,113 1,876 1,625
Interest on Class B
senior secured notes... 210 770 592 592 --
Provision for
postretirement
benefits............... 434 1,611 376 282 402
Deferred income taxes... 287 2,743 4,179 2,828 3,329
Loss on disposal of
equipment.............. 86 202 947 830 241
Changes in operating
assets and liabilities:
Accounts receivable... 27,452 4,702 (4,709) (5,551) (4,833)
Inventories........... 5,974 17,683 3,099 9,542 (28,634)
Prepaid expenses and
other assets......... (1,357) 1,463 (1,124) (1,706) (3,479)
Accounts payable and
other current
liabilities.......... 25,213 9,333 3,595 5,576 5,634
--------- ------- ------- ------- --------
Net cash provided by
operating activities..... 73,256 86,388 77,787 61,488 42,192
INVESTING ACTIVITIES
Purchase of Memphis and
Foley Plants, net of cash
acquired................. (20,676) -- -- -- --
Purchase of minority
interest in Buckeye
Florida Partners......... -- -- -- -- (62,078)
Purchases of property,
plant and equipment...... (4,898) (15,725) (24,922) (20,713) (22,334)
Purchases of short-term
investments.............. -- (14,743) (13,616) (10,186) (2,920)
Proceeds from sales of
short-term investments... -- 3,968 14,685 10,803 9,726
Other..................... (722) 704 (1,074) (1,120) (686)
--------- ------- ------- ------- --------
Net cash used in investing
activities............... (26,296) (25,796) (24,927) (21,216) (78,292)
FINANCING ACTIVITIES
Proceeds from sale of
equity interests......... 38,556 6,600 81 81 13,149
Proceeds from revolving
line of credit and long-
term debt................ 90,444 6,000 8,500 -- 207,439
Payments for debt issuance
costs.................... (3,773) -- -- -- (5,506)
Partners' capital
distributions............ -- (2,895) (4,598) (2,838) (1,590)
Principal payments on
revolving line of credit,
long-term debt and other. (161,000) (74,383) (52,155) (28,245) (189,181)
--------- ------- ------- ------- --------
Net cash (used in)
provided by financing
activities............... (35,773) (64,678) (48,172) (31,002) 24,311
--------- ------- ------- ------- --------
Increase (decrease) in
cash and cash
equivalents.............. 11,187 (4,086) 4,688 9,270 (11,789)
Cash and cash equivalents
at beginning of period... -- 11,187 7,101 7,101 11,789
--------- ------- ------- ------- --------
Cash and cash equivalents
at end of period......... $ 11,187 $ 7,101 $11,789 $16,371 $ --
========= ======= ======= ======= ========
</TABLE>

See accompanying notes.

F-6
<PAGE>

BUCKEYE CELLULOSE CORPORATION AND AFFILIATES

NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS

1. ACCOUNTING POLICIES

Business Description and Basis of Presentation

The combined consolidated financial statements of Buckeye Cellulose
Corporation and affiliates (the "Company") include Buckeye Cellulose
Corporation ("BCC") and subsidiary, Buckeye Florida Corporation ("BFC") and
subsidiary and Buckeye Partners. These entities are under the common ownership
of Madison Dearborn Capital Partners ("MDCP") and management.

Under an agreement dated March 16, 1993, the assets comprising the cotton
linter pulp business and certain assets of the headquarters of the Cellulose
and Specialties Division of The Procter & Gamble Cellulose Company ("Procter &
Gamble Cellulose") were acquired for cash of $19,322,256, the issuance of an
$89,000,000 bridge note (the "Bridge Note"), and other acquisition costs of
approximately $1,583,000 by BCC, a newly incorporated company formed by MDCP.

Under an agreement dated March 16, 1993, BFC, then a wholly-owned subsidiary
of MDCP, and Procter & Gamble Cellulose formed Buckeye Florida, Limited
Partnership ("Buckeye Florida Partners"). BFC contributed cash of $25,000,000
for a 50% general partnership interest in Buckeye Florida Partners, and
Procter & Gamble Cellulose contributed accounts receivable of $25,000,000 for
a 50% limited partnership interest in Buckeye Florida Partners.
Simultaneously, Buckeye Florida Partners acquired all of the assets of the
wood pulp business located in Foley, Florida from Procter & Gamble Cellulose
for cash of $25,000,000, the issuance of notes payable of $266,503,419 and
other acquisition costs of approximately $4,426,000.

The wood pulp assets and cotton linter pulp assets so acquired are
hereinafter referred to collectively as the "Predecessor" and the acquisitions
of such assets are hereinafter referred to collectively as the "Acquisitions."
The Acquisitions were accounted for using the purchase method of accounting.

The Company manufactures and distributes a broad variety of wood and cotton
linter based specialty pulp used in numerous applications including disposable
diapers, engine air and oil filters, food casings, rayon textile filament,
tapes, thickeners, and papers.

Change in Inventory Valuation Method

Buckeye Florida Partners changed its method of allocating manufacturing
overhead costs to inventory to base the allocation upon the proportionate
percentage of total tonnage produced by each respective plant line. The new
method results in a more appropriate cost allocation to products produced on
each plant line. The change was retroactively applied to all periods
presented.

Principles of Consolidation

The consolidated financial statements of BCC include the accounts of its
wholly-owned subsidiary, Buckeye Cellulose S.A. The consolidated financial
statements of BFC include the accounts of Buckeye Florida Partners, in which
BFC has a 50% general partnership interest. BFC has a controlling financial
interest in Buckeye Florida Partners because it has sole voting control. The
limited partner's interest in Buckeye Florida Partners is included in the
combined consolidated financial statements as a minority interest. All
significant intercompany accounts and transactions have been eliminated in
combination and consolidation.

Cash and Cash Equivalents

The Company considers cash equivalents to be temporary cash investments with
a maturity of three months or less when purchased.

F-7
<PAGE>

BUCKEYE CELLULOSE CORPORATION AND AFFILIATES

NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Short-term Investments

Short-term investments consist primarily of government backed securities and
commercial paper of an investment grade.

Inventories

Pulpwood, raw cotton lint inventories, the lint component of finished linter
pulp, chemicals and storeroom supplies are stated at lower of cost (determined
on the average cost method) or market. The remaining components of finished
pulp, including other raw materials, labor, and overhead are stated at lower
of cost (determined on a first-in, first-out basis) or market.

Property, Plant and Equipment

Property, plant and equipment purchased in the Acquisitions was restated to
its fair market value at the date of the Acquisitions. All property, plant and
equipment purchased since the Acquisitions, is stated at cost. Depreciation is
computed by the straight-line method over the estimated useful lives of the
assets. The cost of maintenance, repairs, and minor renewals and betterments
are expensed as incurred. The cost of major renewals and betterments are
capitalized.

Intangible Assets

Goodwill is amortized by the straight-line method over thirty years.
Deferred debt costs are amortized by the interest method over the life of the
related debt. Goodwill is net of accumulated amortization of $815,438 and
$1,429,561 and deferred debt costs are net of accumulated amortization of
$683,095 and $1,190,706 at June 30, 1994 and 1995, respectively. During the
year ended June 30, 1994, the Company recorded a non-current deferred tax
asset of $511,687 and reduced goodwill by the same amount due to a state tax
credit generated by the purchase of certain assets in connection with the
Acquisitions.

Income Taxes

The Company has provided for income taxes under the provisions of Statement
of Financial Accounting Standards No. 109, Accounting for Income Taxes.
Accordingly, deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.

Credit Risk

The Company generally obtains credit insurance or requires the customer to
provide a letter of credit for export sales. Credit limits have been
established for each domestic customer and those foreign customers where
credit insurance is not available. Credit limits are monitored routinely. It
is not the Company's policy to require collateral or other security for
domestic or foreign sales.

Environmental Costs

Liabilities are recorded when environmental assessments are probable, and
the cost can be reasonably estimated. Generally, the timing of these accruals
coincides with the earlier of completion of a feasibility study or the
Company's commitment to a plan of action based on the then known facts.

Revenue Recognition

Revenues from domestic and export sales are recognized at the time products
are shipped. Net sales is comprised of sales reduced by sales allowances and
distribution costs.

F-8
<PAGE>

BUCKEYE CELLULOSE CORPORATION AND AFFILIATES

NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Historical Earnings Per Share

Earnings per share has not been presented for periods prior to June 30,
1995, as it is not considered relevant to the historical combined consolidated
financial statements.

Unaudited Interim Financial Statements

The unaudited combined consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the nine months ended
March 31, 1996 are not necessarily indicative of the results that may be
expected for the year ended June 30, 1996.

2. INVENTORIES

The components of inventories are as follows (in thousands):

<TABLE>
<CAPTION>
JUNE 30,
--------------- MARCH 31,
1994 1995 1996
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials.................................... $ 7,513 $ 9,317 $13,867
Finished goods................................... 41,824 36,887 62,244
Storeroom and other supplies..................... 15,709 15,743 14,470
------- ------- -------
$65,046 $61,947 $90,581
======= ======= =======
</TABLE>

3. ACCRUED EXPENSES

The components of accrued expenses are as follows (in thousands):

<TABLE>
<CAPTION>
JUNE 30,
---------------
1994 1995
------- -------
<S> <C> <C>
Retirement plans.......................................... $ 9,824 $12,731
Vacation pay.............................................. 3,326 3,003
Shutdown accrual.......................................... 6,720 3,527
Rebate accrual............................................ 1,749 3,154
Other..................................................... 6,792 5,522
------- -------
$28,411 $27,937
======= =======
</TABLE>

4. DEBT

Long-term debt consists of the following (in thousands):

<TABLE>
<CAPTION>
JUNE 30,
-----------------
1994 1995
-------- --------
<S> <C> <C>
10 1/4% Senior Notes due May 15, 2001........................ $ 70,000 $ 64,720
10% Class A Senior Secured Notes due March 16, 2000.......... 58,000 26,000
Non-interest Bearing Class B Senior Secured Notes due March
16, 1995 effective interest rate of 9%...................... 8,108 --
12% Subordinated Secured Notes due March 16, 2003............ 75,000 75,000
10% Class D Senior Secured Note (Revolving Line of Credit)... 6,000 --
5.29% Promissory Note due March 22, 1999..................... 482 482
-------- --------
$217,590 $166,202
Less current portion......................................... 14,108 --
-------- --------
$203,482 $166,202
======== ========
</TABLE>

F-9
<PAGE>

BUCKEYE CELLULOSE CORPORATION AND AFFILIATES

NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The unsecured notes consist of senior notes issued by BCC on May 27, 1993 in
a public offering of debt securities totaling $70,000,000 bearing interest at
10 1/4% with a maturity date of May 15, 2001 (the "Existing Notes"). These
Existing Notes are unsecured senior obligations and are equal (pari passu) in
the right of payment with all existing and future indebtedness of BCC which is
not subordinated indebtedness. During the year ended June 30, 1995, BCC
purchased and retired $5,280,000 of its debt securities.

The Existing Notes are redeemable at the option of BCC, in whole or in part,
at any time on or after May 15, 1998, at the redemption prices (expressed as
percentages of principal amount) set forth below, if redeemed during the 12
month period beginning May 15 of the years indicated below in each case
together with accrued and unpaid interest to the date of redemption.

<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
---- ----------------
<S> <C>
1998.................... 103.875%
1999.................... 101.937
2000 and thereafter..... 100.000
</TABLE>

In addition, up to $14,000,000 aggregate principal amount of the Existing
Notes will be redeemable prior to May 20, 1996, at the option of BCC within
180 days of the consummation of any public offering at 106% of the principal
amount together with accrued and unpaid interest to the date of redemption.

As a mandatory sinking fund for the redemption of the Existing Notes, BCC
will deposit with a trustee on each of May 15, 1999 and May 15, 2000, 33% of
the original aggregate principal plus accrued interest to the redemption date.
If less than all of the Existing Notes are to be redeemed, the trustee shall
select the Existing Notes or portions thereof to be redeemed by lot or by any
other method the trustee shall deem fair and reasonable. BCC may, at its
option, receive a credit against sinking fund obligations equal to 100% of the
aggregate principal amount of Existing Notes acquired by BCC and surrendered
to the trustee for cancellation and of Existing Notes redeemed or called for
redemption otherwise than through operation of the sinking fund that have not
previously been so credited for such purpose by the trustee.

The secured notes issued by Buckeye Florida Partners are secured by land,
buildings, machinery and equipment of the Company and are held by Procter &
Gamble Cellulose under a financing agreement (the "Financing Agreement"). The
Financing Agreement requires Buckeye Florida Partners to maintain certain
financial ratios and limits the amount of annual capital expenditures. In
addition, these notes are subject to mandatory prepayment based on available
cash flow at the end of each fiscal year as defined by the Financing
Agreement. All prepayments made will be applied to the Class A Senior Secured
Notes until the principal amount has been reduced to zero and then to the
Subordinated Secured Notes.

Buckeye Florida Partners has an available line of credit under the Class D
Senior Secured Note agreement which allows for borrowings up to $30,000,000,
provided by Procter & Gamble Cellulose expiring on March 16, 2003. Amounts
outstanding under the revolving credit facility bear interest at a rate of
10%. At June 30, 1995, there were no outstanding borrowings under the line of
credit.

The Financing Agreement restricts partner distributions to those necessary
for the partners to make income tax payments on the partnership's taxable
income.

BCC has a $15,000,000 credit facility which provides for a revolving line of
credit, with interest, at BCC's option, at either the bank's prime rate plus
1.25%, or at the 30-day LIBOR rate plus 2.50%, and letters of credit. BCC is
required, among other things, to pay a commitment fee of 1/2% per annum on the
average unused portion of the revolving credit facility and a letter of credit
fee of 1% per annum of the average daily face amount of outstanding letters of
credit. At June 30, 1994 and 1995, there was no outstanding balance on the
credit facility.

F-10
<PAGE>

BUCKEYE CELLULOSE CORPORATION AND AFFILIATES

NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
At June 30, 1995, there are three letters of credit totaling $1,007,000 for
workers' compensation claims outstanding, which expire in 1996. The unused
portion of the credit facility is $13,993,000 at June 30, 1995. Obligations
under the credit facility, which expires May 27, 1998, are secured by a lien
upon all of BCC's securities and a negative pledge with respect to BCC's other
assets. Pursuant to the terms of the credit facility, BCC is required to
maintain certain financial ratios, is limited in the amount of capital
expenditures, and is prohibited from paying dividends.

Buckeye Florida Partners has a line of credit available for borrowings up to
$10,000,000 with a financial institution expiring on June 30, 1996. Amounts
outstanding under the line of credit bear interest at the bank's floating
prime rate less 1.5% (7.5% at June 30, 1995). Buckeye Florida Partners has the
right to fix any portion of the commitment for periods of 30, 60 or 90 days at
a rate of LIBOR plus 1% (7.125% at June 30, 1995). The line of credit is
secured by a standby letter of credit issued by The Procter & Gamble Company
("Procter & Gamble"). At June 30, 1995, $1,500,000 was available for
additional borrowings under the line of credit.

Total interest paid by the Company for the period March 16, 1993 through
June 30, 1993 and for the years ended June 30, 1994 and 1995 was $8,937,000,
$25,866,000, and $21,755,000, respectively.

5. EQUITY

BCC

BCC has authorized and outstanding Class A and Class B Common Stock, both
with a $.01 par value. Authorized shares of Class A Common Stock are 200,000,
and issued and outstanding shares of Class A Common Stock are 112,500 shares
at June 30, 1994 and 1995. Authorized shares of Class B Common Stock are
300,000, and issued and outstanding are 143,125 shares and 146,502 shares at
June 30, 1994 and 1995, respectively.

During the year ended June 30, 1994, BCC finalized the "1994 Incentive Stock
Option Plan for Management Employees of BCC". Under the provisions of the
plan, options to purchase 25,000 shares of Class B Common Stock at a purchase
price of $11.20 per share were granted. The options are exercisable over three
to five year periods based on achieving certain performance targets. During
the years ended June 30, 1994 and 1995, 5,625 and 3,377 options were
exercised, respectively. At June 30, 1995, 15,998 options were outstanding of
which 5,197 were exercisable.

Holders of Class A Common Stock are entitled to a priority distribution.
Distributions by BCC to holders of Class A and Class B Common Stock shall be
made in the following priority: (1) the aggregate unpaid yield on Class A
Common Stock at 12% per annum calculated quarterly on the sum of the
unreturned yield base of $155.56 and the amount of unpaid yield for all prior
quarters ($5,157,000 at June 30, 1995); (2) the unreturned yield base on Class
A Common Stock; (3) distributions in excess of priority distributions on Class
A Common Stock will be made to holders of Class A and Class B Common Stock
ratably based upon the number of common shares held by each such holder as of
the time of such distribution.

BFC

BFC has authorized and outstanding Class A and Class B Common Stock, both
with a $.01 par value. Authorized shares of Class A Common Stock are 200,000,
and issued and outstanding shares of Class A Common Stock are 112,500 shares
at June 30, 1994 and 1995. Authorized shares of Class B Common Stock are
300,000, and issued and outstanding are 143,125 shares and 147,412 shares at
June 30, 1994 and 1995, respectively.

F-11
<PAGE>

BUCKEYE CELLULOSE CORPORATION AND AFFILIATES

NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
During the year ended June 30, 1994, BFC finalized the "1994 Incentive Stock
Option Plan for Management Employees of BFC". Under the provisions of the
plan, options to purchase 25,000 shares of Class B Common Stock at a purchase
price of $10.00 per share were granted. The options are exercisable over three
to five year periods based on achieving certain performance targets. During
the years ended June 30, 1994 and 1995, 5,625 and 4,287 options were
exercised, respectively. At June 30, 1995, 15,088 options were outstanding, of
which 4,287 were exercisable.

Holders of BFC Class A Common Stock are entitled to a priority distribution.
Distributions by BFC to holders of Class A and Class B Common Stock shall be
made in the following priority: (1) the aggregate unpaid yield on Class A
Common Stock at 13% per annum calculated quarterly on the sum of the
unreturned yield base of $200.00 and the amount of unpaid yield for all prior
quarters ($7,257,000 at June 30, 1995); (2) the unreturned yield base on Class
A Common Stock; (3) distributions in excess of priority distributions on Class
A Common Stock will be made to holders of Class A and Class B Common Stock
ratably based upon the number of common shares held by each such holder as of
the time of such distribution.

At March 16, 1993, BFC and Procter & Gamble Cellulose entered into a Call
Option Agreement (the P&G Call Option) whereby BFC has the irrevocable and
unconditional option to purchase Procter & Gamble Cellulose's limited
partnership interest in Buckeye Florida Partners at any time prior to March
16, 2000. The P&G Call Option may only be exercised if Procter & Gamble
Cellulose and all Procter & Gamble affiliates cease to hold Class A Senior
Secured Notes, Subordinated Secured Notes and Class D Senior Secured Notes
issued by Buckeye Florida Partners on March 16, 1993. If BFC exercises the P&G
Call Option on or before March 16, 1998, the call price will be the sum of
$35,000,000 plus interest thereon at the rate of 23.4% per annum, compounded
annually, calculated from March 16, 1993 until the date the P&G Call Option is
exercised. If BFC exercises the P&G Call Option subsequent to March 16, 1998
and on or before March 16, 2000, the call price shall be the sum of
$100,148,360 plus interest of $41,096 per day for each day from the first day
of the period commencing March 16, 1998 to the date that the P&G Call Option
is exercised.

At March 16, 1993, BFC and Procter & Gamble Cellulose entered into a Put
Agreement (the "Put") whereby BFC has the irrevocable and unconditional option
to require Procter & Gamble Cellulose to purchase BFC's general partnership
interest in Buckeye Florida Partners during the period beginning March 16,
1998 and ending June 16, 1998. The Put may also be exercised in certain
circumstances in which the P&G Loans are accelerated. If the Put is exercised
on or after March 16, 1998, the exercise price will be $25,000,000. If the Put
is exercised prior to March 16, 1998, the exercise price will be $25,000,000,
discounted at a rate of 6% per annum.

Buckeye Partners

Buckeye Partners has outstanding the following partnership units at June 30,
1994 and 1995:

<TABLE>
<CAPTION>
UNITS AMOUNT
------- ----------
<S> <C> <C>
Class A Common Units................................... 112,500 $ 985,000
Class B Common Units................................... 137,500 13,750
Class C Common Units................................... 12,500 625
Class D Common Units................................... 12,500 625
------- ----------
Partners' Capital...................................... 275,000 $1,000,000
======= ==========
</TABLE>

Class A Common Units have a priority distribution equivalent to the amount
outstanding at June 30, 1995. Partners' contributions have been included in
additional paid-in capital.

F-12
<PAGE>

BUCKEYE CELLULOSE CORPORATION AND AFFILIATES

NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

6. INCOME TAXES

The provision for income taxes consists of the following (in thousands):

<TABLE>
<CAPTION>
YEAR ENDED
MARCH 16, 1993 JUNE 30,
THROUGH --------------
JUNE 30, 1993 1994 1995
-------------- ------ -------
<S> <C> <C> <C>
Current:
Federal................................... $2,202 $4,366 $ 7,256
State and other........................... 362 144 1,035
------ ------ -------
$2,564 $4,510 $ 8,291
Deferred:
Federal................................... 283 2,499 3,652
State..................................... 4 244 527
------ ------ -------
287 2,743 4,179
------ ------ -------
Total................................... $2,851 $7,253 $12,470
====== ====== =======
</TABLE>

Significant components of the Company's deferred tax assets (liabilities)
are as follows (in thousands):

<TABLE>
<CAPTION>
JUNE 30,
--------------------------------------
1994 1995
------------------- ------------------
CURRENT NONCURRENT CURRENT NONCURRENT
------- ---------- ------- ----------
<S> <C> <C> <C> <C>
Deferred tax liabilities:
Tax over book depreciation............. $ -- $(3,490) $-- $(5,934)
Book income in excess of tax income
from partnership (Buckeye Florida
Partners)............................. -- (3,364) -- (7,454)
Other.................................. (176) (11) (205) (251)
Deferred tax assets:
Postretirement benefit plan obligation. -- 1,353 -- 1,399
Inventory costs capitalized for tax in
excess of book costs.................. 683 -- 359 --
State tax credit carryforward.......... -- 401 -- 452
Alternative minimum tax credit
carryforward.......................... -- 2,777 -- 4,984
Nondeductible reserves................. 466 -- 332 --
Other.................................. 233 -- 55 956
------ ------- ---- -------
Net deferred tax assets
(liabilities)....................... $1,206 $(2,334) $541 $(5,848)
====== ======= ==== =======
</TABLE>

The provision for income taxes differs from the amount computed by applying
the statutory federal income tax rate of 35% due to the following (in
thousands):

<TABLE>
<CAPTION>
MARCH 16, 1993 YEAR ENDED JUNE 30,
THROUGH ---------------------
JUNE 30, 1993 1994 1995
-------------- --------- ----------
<S> <C> <C> <C>
Federal tax expense at statutory
rate.............................. $ 2,644 $ 7,077 $ 11,932
State taxes, net of federal tax
benefit........................... 238 426 693
Other, net......................... (31) (250) (155)
------- --------- ----------
$ 2,851 $ 7,253 $ 12,470
======= ========= ==========
</TABLE>

The Company paid income taxes of $7,040,000 and $6,884,000 during the fiscal
years ended June 30, 1994 and 1995, respectively.

The Company has a state tax credit carryforward of approximately $452,000
which expires in 2010 and alternative minimum tax carryforwards of
approximately $4,984,000 which have no expiration date.

F-13
<PAGE>

BUCKEYE CELLULOSE CORPORATION AND AFFILIATES

NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

7. EMPLOYEE BENEFIT PLANS

Effective July 1, 1993 the Company has a defined contribution retirement
plan covering substantially all employees. The Company contributes 1% of the
employee's base compensation plus 1/2% for each year of service up to a
maximum of 11% of the employee's base compensation. The plan also provides for
additional contributions by the Company contingent upon the Company's results
of operations. Expense for the years ended June 30, 1994 and 1995 was
$6,336,000 and $7,125,000, respectively.

Effective July 1, 1993, the Company also adopted a profit sharing plan
covering substantially all employees. Under the plan, the Company provides
contributions contingent upon the Company's results of operations and
employees may contribute up to 10% of gross salary. During the period March
16, 1993 through June 30, 1993, contributions were made in accordance with the
Procter & Gamble profit sharing plan. Profit sharing expense under these plans
was $2,017,000, $3,668,000, and $5,625,000, for the period March 16, 1993
through June 30, 1993 and for the years ended June 30, 1994 and 1995,
respectively.

Also, the Company provides medical, dental, and life insurance
postretirement plans covering employees who meet specified age and service
requirements. Certain employees who met specified age and retirement
eligibility requirements on March 15, 1993 are covered by the Procter & Gamble
plans and are not covered by these plans. Service considered for participants
in the Company's plan includes former service with the Predecessor company.
The Company has accounted for its obligation related to these plans in
accordance with Statement of Financial Accounting Standards No. 106,
Employers' Accounting for Postretirement Benefits Other Than Pensions.

The Company's current policy is to fund the cost of these benefits as
payments to participants are required. The accrued post retirement benefit
obligation consists of the following (in thousands):

<TABLE>
<CAPTION>
JUNE 30,
----------------
1994 1995
------- -------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Fully eligible active plan participants............... $ 11 $ 115
Retirees.............................................. 17 56
Other active plan participants........................ 12,731 6,476
------- -------
12,759 6,647
Unrecognized prior service cost......................... -- 6,556
Unrecognized net loss................................... (735) (803)
------- -------
Accrued postretirement benefit obligation............... $12,024 $12,400
======= =======
</TABLE>

Net periodic postretirement benefit cost includes the following components
(in thousands):

<TABLE>
<CAPTION>
YEAR ENDED
MARCH 16, 1993 JUNE 30,
THROUGH -----------
JUNE 30, 1993 1994 1995
-------------- ------ ----
<S> <C> <C> <C>
Service cost................................. $200 $ 720 $539
Interest cost................................ 234 891 487
Amortization of unrecognized prior service
cost........................................ -- -- (650)
---- ------ ----
Net periodic postretirement benefit cost..... $434 $1,611 $376
==== ====== ====
</TABLE>

The Company amended its postretirement plans effective July 1, 1994. The
amendments changed the plans' eligibility requirements and benefit schedules,
created required retiree contributions, and implemented limits on the
Company's postretirement benefit costs. The effect of the amendments was to
reduce the accumulated postretirement benefit obligation by approximately
$7,206,000 to $5,553,000 at July 1, 1994. The reduction in the accumulated
postretirement benefit obligation is being recognized as a reduction to net
periodic

F-14
<PAGE>

BUCKEYE CELLULOSE CORPORATION AND AFFILIATES

NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
postretirement benefit cost over approximately eleven years, the average
remaining service of active participants not yet eligible for benefits.

The weighted average annual assumed rate of increase in the per capita cost
of covered benefits (i.e., health care cost trend rate) for the medical plans
is 11% for 1996 and is assumed to decrease gradually to 6% in 2004 and remain
at that level thereafter. Due to the benefit costs limitations in the plan,
the health care cost trend rate assumption does not have a significant effect
on the amounts reported. For example, increasing the assumed health care cost
trend rate by one percentage point would increase the accumulated
postretirement benefit obligation for the medical plans as of June 30, 1995 by
$34,405 and the aggregate of the service and interest cost components of net
periodic postretirement benefit cost for the year ended June 30, 1995 by
$6,412.

The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 8% at June 30, 1994 and 1995.

8. RELATED PARTY TRANSACTIONS

In connection with the Acquisitions, the Company and Procter & Gamble
entered into a transition agreement pursuant to which Procter & Gamble
provides to the Company, for a period of up to 18 months following the closing
of the Acquisitions, certain of the administration and support services which
were historically provided to the Predecessor by Procter & Gamble and which
are necessary for the operation of the Company's business, including services
relating to communications, payments and collections, human resources, caustic
purchases, technical support and advice and accounting support. The Company
paid for such services at prices equal to those historically charged by
Procter & Gamble to the Predecessor or, with respect to certain services,
either the prices Procter & Gamble charges to its affiliates or the cost to
Procter & Gamble of providing such services. The amount charged to expense for
such services was approximately $417,000 for the period March 16, 1993 through
June 30, 1993 and approximately $374,000 for the year ended June 30, 1994. No
costs were incurred for the year ended June 30, 1995.

The Company and Madison Dearborn Partners, L.P. ("MDP"), the general partner
of MDCP, have entered into a professional services agreement pursuant to which
the Company paid to MDP a $1.0 million fee as compensation for MDP's
commitment to provide financing to repay the Bridge Note in the event
alternative financing was not available prior to June 30, 1993.

Buckeye Florida Partners has entered into an agreement with Procter & Gamble
whereby Procter & Gamble will purchase a specified tonnage (currently
substantially all of the Company's output) of fluff pulp from Buckeye Florida
Partners per year. The agreement expires on December 31, 2002. Shipments of
fluff pulp under the agreement are made to Procter & Gamble affiliates
worldwide, as directed by Procter & Gamble. In accordance with the terms of
the agreement, Procter & Gamble will reimburse Buckeye Florida Partners for
distribution costs related to shipments to Procter & Gamble affiliates. At
June 30, 1994 and 1995, Buckeye Florida Partners has recorded $740,547 and
$1,763,394, respectively, of prepaid expenses representing delivery costs
which will be reimbursed by Procter & Gamble. During the period March 16, 1993
through June 30, 1993 and the years ended June 30, 1994 and 1995, Procter &
Gamble reimbursed Buckeye Florida Partners $7,172,435, $23,567,512 and
$21,669,075, respectively, for distribution costs on shipments to Procter &
Gamble affiliates. Net sales to Procter & Gamble for the period March 16, 1993
through June 30, 1993 and for the years ended June 30, 1994 and 1995 were
$50,801,397, $148,195,746 and $157,901,186, respectively.

On March 16, 1993, Buckeye Florida Partners entered into two agreements with
Procter & Gamble Cellulose relating to the purchase of timber. Under these
agreements, Buckeye Florida Partners was required to purchase certain of the
timber from specified tracts of land available to harvest. Buckeye Florida
Partners purchased $5,123,182 and $18,644,404 of timber from Procter & Gamble
Cellulose during the period March 16, 1993 through

F-15
<PAGE>

BUCKEYE CELLULOSE CORPORATION AND AFFILIATES

NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
June 30, 1993 and the year ended June 30, 1994, respectively. In July 1994,
Procter & Gamble Cellulose sold the tracts of land and timber rights specified
in these agreements to a non-affiliated company, and Buckeye Florida Partners'
commitment under these agreements was assigned to the acquiror (See note 11).

Included in short-term investments is a $2.9 million certificate of deposit
which Buckeye Florida Partners has pledged as collateral to secure loans
obtained by certain officers of the Company.

9. EXPORT SALES

Gross export sales by geographic areas as a percent of total gross sales are
as follows:

<TABLE>
<CAPTION>
YEAR ENDED
MARCH 16, 1993 JUNE 30,
THROUGH -------------
JUNE 30, 1993 1994 1995
-------------- ----- -----
<S> <C> <C> <C>
Europe..................................... 38% 35% 30%
Asia....................................... 12 22 26
South America.............................. 2 2 4
Other...................................... 13 11 10
--- ----- -----
65% 70% 70%
=== ===== =====
</TABLE>

10. RESEARCH AND DEVELOPMENT EXPENSES

Research and development expenses of $916,000, $2,960,000 and $3,044,000,
were charged to expense as incurred in the period March 16, 1993 through June
30, 1993 and for the years ended June 30, 1994 and 1995, respectively.

11. PURCHASE COMMITMENTS

BCC has entered into purchase contracts with several vendors for the
purchase of cotton lint. At June 30, 1995, these commitments, which total
approximately $12,460,000, are expected to be fulfilled by October 1995.

At June 30, 1995, under three separate agreements expiring at various dates
through December 31, 2002, Buckeye Florida Partners is required to purchase
certain of the timber from specified tracts of land that is available for
harvest. At the option of Buckeye Florida Partners, certain of these timber
purchase commitments may be extended through December 31, 2010. The contract
price under terms of these agreements is either at the then current market
price or at fixed prices as stated in the contract. The fixed and determinable
purchase obligations related to these contracts, based on contract prices as
of June 30, 1995, are as follows (in thousands):

<TABLE>
<CAPTION>
TIMBER PURCHASE
COMMITMENTS
---------------
<S> <C>
1996..................... $15,674
1997..................... 16,549
1998..................... 13,997
1999..................... 12,740
2000..................... 11,720
Thereafter............... 24,552
-------
Total.................. $95,232
=======
</TABLE>

Purchases under these agreements for the year ended June 30, 1995 were
$21,818,603.

On July 24, 1995, Buckeye Florida Partners entered into an agreement to
purchase certain timber from specified tracts of land that is available for
harvest through fiscal year 2002 at a fixed contract price. Future purchase
commitments under this agreement are $19,200,000 and are estimated to be
spread equally over the contract term.

F-16
<PAGE>

BUCKEYE CELLULOSE CORPORATION AND AFFILIATES

NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

12. CONTINGENCIES

Procter & Gamble has been named as a defendant in 21 lawsuits involving
approximately 188 individual plaintiffs claiming unspecified compensatory and
punitive damages, costs and legal fees for alleged diminished property value
and fear of illness asserting that the Foley Plant discharged toxic pollutants
into the nearby Fenholloway River and into treatment ponds from which the
pollutants entered and allegedly contaminated the underground water. Buckeye
Florida Partners assumed the obligation for any costs related to this matter
on the date of the acquisition of the Foley Plant on March 16, 1993. Buckeye
Florida Partners intends to vigorously defend these suits and contends that
the discharge from the Foley Plant is in compliance with federal and state
permits.

Additionally, the Company is subject to various state and federal
environmental laws and regulations. Buckeye Florida Partners has reached an
agreement (the "Fenholloway Agreement") with the Florida Department of
Environmental Regulation based upon the results of an environmental study of
Buckeye Florida Partners' operations. Compliance with the Fenholloway
Agreement will require Buckeye Florida Partners to invest up to $39,000,000
through 1999 to modify its facilities. In addition to the cost of compliance
with the Fenholloway Agreement, the cost of future compliance with other
environmental regulations will depend on environmental regulations which are
subject to change and the subsequent definition of the necessary technology to
meet the changing regulations. Therefore, it is difficult to determine the
total amount of expenditures that may be required in the future. However,
Buckeye Florida Partners estimates that capital spending for environmental
compliance based on certain regulations expected to be promulgated in addition
to compliance with the Fenholloway Agreement could be up to $14,000,000
through the year 2000.

As of June 30, 1995, the Company has established reserves of $4,300,000 to
address certain environmental matters. Based on current information and
requirements, the Company believes that such reserves are adequate. Because an
environmental reserve is not established until a liability is determined to be
probable and reasonably estimable, not all potential future environmental
liabilities are covered by the Company's reserves. Accordingly, there can be
no assurance that the Company's environmental reserves will be sufficient to
meet the Company's obligations, and additional earnings charges are possible.

The Foley Plant is on the EPA CERCLIS list of potential hazardous substance
release sites prepared pursuant to CERCLA. The EPA conducted a site
investigation in early 1995. Although the Company considers it unlikely that
the Foley Plant will be listed on the CERCLA National Priorities List and
hence require remedial action, the possibility of such listing cannot be ruled
out. If the site were to be placed on the National Priorities List, the costs
associated with conducting a CERCLA remedial action could be material.

The Company is involved in certain legal actions and claims arising in the
ordinary course of business. It is the opinion of management that such
litigation and claims will be resolved without material adverse effect on the
Company's financial position or results of operations.

13. FAIR VALUES OF FINANCIAL INSTRUMENTS

For certain of the Company's financial instruments, including cash and cash
equivalents, short-term investments, accounts receivable, accounts payable,
other accrued liabilities and notes payable, the carrying amounts approximate
fair value due to their short maturities. The fair value of BCC's long-term
debt is based on an average of the $101 bid and $102 offer price on June 30,
1995. The fair value of Buckeye Florida Partners' long-term debt is estimated
using discounted cash flow analyses, based on Buckeye Florida Partners'
current incremental borrowing rate. The carrying value and fair value of long-
term debt at June 30, 1995, is $169,102,000 and $178,976,000, respectively.

14. SUBSEQUENT EVENTS (UNAUDITED)

Effective May 1, 1996, Buckeye Cellulose GmbH, a wholly owned subsidiary of
the Company, purchased the property, plant, equipment and inventories of the
specialty pulp business of Peter Temming AG for approximately $29 million. The
acquisition will be accounted for as a purchase.

F-17
<PAGE>

BUCKEYE CELLULOSE CORPORATION AND AFFILIATES

NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

On April 30, 1996, the Company entered into a definitive agreement to
purchase all of the common stock of Alpha Cellulose Holdings, Inc. ("Alpha")
of Lumberton, North Carolina. Subject to the fulfillment of certain conditions
and regulatory approval, the acquisition is expected to be completed in early
fiscal 1997.

In November 1995, shareholders of Buckeye Florida Corporation exchanged all
of their outstanding common stock for common stock of Buckeye Cellulose
Corporation and Buckeye Florida Corporation became a wholly-owned subsidiary
of Buckeye Cellulose Corporation. All prior interim periods presented have
been restated to reflect this combination of equity interests. Concurrently,
the Company exercised an option to acquire Procter & Gamble Cellulose's 50%
limited partnership interest in Buckeye Florida Partners, of which Buckeye
Florida Corporation is the general partner, for $62.1 million in cash, plus
assumed liabilities. This acquisition has been recorded using the purchase
method of accounting. The allocation of the purchase price is based on the
respective fair value of assets and liabilities at the date of acquisition
based on an independent appraisal and resulted in an increase to property,
plant and equipment of $10.6 million and a reduction in goodwill of $9.0
million. The purchase included at fair value current assets of $45.6 million,
property, plant and equipment of $93.8 million, and the assumption of current
liabilities of $17.3 million, non-current liabilities of $6.5 million and
long-term debt of $46.9 million. The operations of Buckeye Florida Partners
are consolidated in the accompanying financial statements and the 50% limited
partnership interest is recorded as minority interest prior to the date of
acquisition. The charge to minority interest was discontinued at the date of
acquisition of the Procter & Gamble Cellulose 50% limited partnership
interest.

The following pro forma results of operations assume the acquisition of the
Procter & Gamble Cellulose limited partnership interest in Buckeye Florida
Partners and the combination of equity interests of Buckeye Florida
Corporation with the Company occurred as of the beginning of the periods
presented and excludes the impact on interest expense and certain other costs,
which in the aggregate is not material:

<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
-----------------
1995 1996
-------- --------
(IN THOUSANDS,
EXCEPT
PER SHARE DATA)
<S> <C> <C>
Net sales.............................................. $301,318 $338,825
Operating income....................................... 54,625 83,179
Income before extraordinary loss....................... 23,917 43,741
Net income............................................. 23,917 39,792
Earnings per common share:
Income before extraordinary loss..................... -- 2.08
Net income........................................... -- 1.89
</TABLE>

The pro forma information is presented for information purposes only and is
not necessarily indicative of the operating results that would have occurred
had the acquisition and combination been consummated as of the above dates,
nor is it necessarily indicative of future operating results.

During November 1995, the Company completed a public offering of $150
million principal amount of 8 1/2% Senior Subordinated Notes due December 15,
2005, which were sold for 99.626% of their principal amount, and 747,500
shares of common stock were sold through an underwriten public offering. The
Company also entered into a new credit facility providing for borrowings of up
to $135 million of which $56 million was borrowed at closing of the
transactions described above. The new credit facility matures November 28,
2000, and beginning in 1998 availability reduces by $3.75 million per quarter.
Borrowings under the new credit facility bear interest at the lender's prime,
LIBOR plus a spread, or a money market based rate, at the option of the
Company. Under the terms of both the notes and new credit facility, the
Company is required to comply with certain covenants including minimum net
worth, interest coverage ratio and limitations on levels of indebtedness.

The proceeds from the notes and bank credit facility were used to repay $90
million of outstanding loans from Procter & Gamble, purchase Procter & Gamble
Cellulose's interest in Buckeye Florida Partners, finance a tender offer for
the Company's outstanding 10 1/4% Senior Notes due 2001, repay $482,000 of
Madison Dearborn Capital Partners debt and pay fees and expenses incurred in
connection with these transactions. In the quarter ended March 31, 1996, an
additional $12.2 million of 10 1/4% Senior Notes were retired using the
proceeds to the Company from its initial public stock offering.

F-18
<PAGE>

REPORT OF INDEPENDENT AUDITORS

Boards of Directors
Buckeye Cellulose Corporation and Affiliated Companies

We have audited the accompanying combined statement of operating income of
the Memphis operations and the Foley operations (the "Plants") of The Procter
& Gamble Cellulose Company ("Procter & Gamble Cellulose"), a subsidiary of The
Procter & Gamble Company ("Procter & Gamble") for the period July 1, 1992
through March 15, 1993. This combined statement of operating income is the
responsibility of the management of the Memphis Plant and Foley Plant. Our
responsibility is to express an opinion on this combined statement of
operating income based on our audit.

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

As described in Note 1, the accompanying combined statement of operating
income includes the revenues and expenses which are specifically identifiable
with the Plants, as well as certain allocated expenses. This combined
statement of operating income may not necessarily reflect the results of
operations of the Plants had they been operated as stand-alone entities. Under
agreements dated March 16, 1993, the Memphis Plant was purchased from Procter
& Gamble Cellulose by Buckeye Cellulose Corporation ("BCC") and the Foley
Plant was purchased from Procter & Gamble Cellulose by Buckeye Florida,
Limited Partnership ("Buckeye Florida Partners").

In our opinion, the combined statement of operating income referred to above
presents fairly, in all material respects, the combined results of operations
of the Plants for the period July 1, 1992 through March 15, 1993, as described
in Note 1, in conformity with generally accepted accounting principles.

Ernst & Young LLP

Memphis, Tennessee
July 28, 1995

F-19
<PAGE>

MEMPHIS PLANT AND FOLEY PLANT OPERATIONS

COMBINED STATEMENT OF OPERATING INCOME
(IN THOUSANDS)

JULY 1, 1992 THROUGH MARCH 15, 1993

<TABLE>
<S> <C>
Net sales............................................................. $233,460
Cost of goods sold.................................................... 189,808
--------
Gross margin.......................................................... 43,652
Selling, research, and administrative expenses:
Procter & Gamble Cellulose division allocations..................... 17,522
Procter & Gamble corporate allocations.............................. 4,764
--------
22,286
--------
Operating income...................................................... $ 21,366
========
</TABLE>

See accompanying notes.

F-20
<PAGE>

MEMPHIS PLANT AND FOLEY PLANT OPERATIONS

NOTES TO COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS)

FOR THE PERIOD JULY 1, 1992 THROUGH MARCH 15, 1993

1. ACCOUNTING POLICIES

Business Description and Basis of Presentation

The Memphis Plant and Foley Plant (the "Plants") of Procter & Gamble
Cellulose produce cotton linter pulp and wood pulp, respectively. The Plants
have historically operated as two of several pulp mills comprising the
Cellulose & Specialties Division (the "C&S Division") of Procter & Gamble
Cellulose. Under an agreement dated March 16, 1993, the assets and business
comprising the Memphis Plant and certain
C&S Division headquarters assets were purchased from Procter & Gamble
Cellulose by BCC, a newly-formed company.

Also, under a separate agreement dated March 16, 1993, Buckeye Florida
Partners was formed by Buckeye Florida Corporation and Procter & Gamble
Cellulose. Simultaneously, Buckeye Florida Partners acquired substantially all
of the assets and liabilities of the wood pulp plant located in Foley,
Florida.

BCC and Buckeye Florida Partners are commonly owned by Madison Dearborn
Capital Partners, L.P. ("MDCP") and certain management members of BCC and
Buckeye Florida Partners. The combined statement of operating income (the
"Statement") does not reflect the effects of the purchase transactions.

The accompanying Statement includes the revenues and expenses which are
specifically identifiable with the Plants as well as certain allocated
expenses for services provided by the C&S Division and by Procter & Gamble.
The C&S Division costs are allocated using formulas including estimates of
effort expended and sales. Procter & Gamble corporate expenses are allocated
based primarily on sales. The Statement may not necessarily reflect the
results of operations of the Plants had they been operated as stand-alone
entities.

Procter & Gamble provides a centralized cash management function. Many of
the Plants' disbursements and collections are settled through intercompany
accounts; therefore, no statement of cash flows is presented.

The Plants' results of operations have historically been included in the
consolidated income tax returns of Procter & Gamble. There is no tax sharing
agreement for allocating income taxes to operating units. Accordingly, the
Statement does not reflect any income tax expense or benefit.

The debt obligations of Procter & Gamble are not specifically identifiable
with individual operating units; accordingly, interest charges are not
reflected in the results of operations of the Plants.

Inventories

Raw cotton lint inventories, the lint component of finished pulp, and
storeroom supplies of the Memphis Plant are stated at lower of cost
(determined on the average cost method) or market. The remaining components of
finished pulp costs including other raw materials, labor and overhead are
stated at lower of cost (determined on a first-in, first-out basis) or market.

Inventories of the Foley Plant, other than storeroom supplies and chemicals,
are valued at the lower of cost (first-in, first-out method) or market.
Storeroom supplies and chemicals are stated at lower of cost (determined on
the average cost method) or market.

Revenue Recognition

Revenue is generally recognized at the time products are shipped. Net sales
is comprised of sales reduced by sales allowances and distribution costs.

F-21
<PAGE>

MEMPHIS PLANT AND FOLEY PLANT OPERATIONS

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

Depreciation

Depreciation is computed on the straight-line basis over the estimated
useful lives of the assets.

Environmental Costs

Liabilities are recorded when environmental assessments are probable, and
the cost can be reasonably estimated. Generally, the timing of these accruals
coincides with the earlier of completion of a feasibility study or the Plants'
commitment to a plan of action based on the then known facts.

2. RELATED PARTY TRANSACTIONS

As discussed in Note 1, certain expenses reflected in the Statement include
allocations of expenses from the C&S Division and from Procter & Gamble. C&S
Division allocations include product supply services of $222 which is included
in the cost of goods sold. C&S Division selling, research and administrative
allocations include administrative costs of general management, information
systems management, costs of operations and maintenance of a C&S Division
airplane, and other miscellaneous services. Selling costs include allocated
costs of domestic and foreign sales offices. Research and development costs
allocated by the C&S Division were $3,923 for the period July 1, 1992 through
March 15, 1993. Allocations related to the C&S Division airplane were $614 for
the period July 1, 1992 through March 15, 1993.

Procter & Gamble corporate allocations include product supply services of
$131 which are included in cost of goods sold. Procter & Gamble corporate
allocations also include costs of general management, treasury, franchise
taxes and tax administration, financial audit, financial reporting, benefits
administration, insurance, public affairs, information systems management, and
other miscellaneous services.

Net sales to Procter & Gamble for the period July 1, 1992 through March 15,
1993 were $101,969, which represents 44% of total net sales for the period.

3. EXPORT SALES

Gross export sales by geographic area as a percent of total gross sales for
the period are as follows:

<TABLE>
<S> <C>
Europe............................... 41%
Asia................................. 11
South America........................ 3
Other................................ 10
---
65%
===
</TABLE>

4. RETIREMENT PLANS

Profit Sharing Plan

Substantially all Plant employees are covered by The Procter & Gamble Profit
Sharing Trust and Employee Stock Ownership Plan, an employer-funded, defined
contribution profit sharing plan which provides retirement benefits. Annual
credits to participants' accounts are based on individual base salary and
years of service.

Profit sharing expense allocable to the Plants were $4,980 for the period
July 1, 1992 through March 15, 1993.

F-22
<PAGE>

MEMPHIS PLANT AND FOLEY PLANT OPERATIONS

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

Other Retiree Benefits

Certain health care and life insurance benefits are provided for retired
employees. The net cost of these benefits is charged to individual operating
units in the year the claims and premiums are paid. The net costs related to
the Plants were $941 for the period July 1, 1992 through March 15, 1993. Under
the terms of the purchase agreements discussed in Note 1, Procter & Gamble
will retain all future costs related to current retirees.

Statement of Financial Accounting Standards No. 106, Accounting for
Postretirement Benefits Other than Pensions, had not been adopted by the
Plants as of March 15, 1993. This statement requires the use of an accrual
basis of accounting to recognize the related expense over the period of active
employment.

5. DEPRECIATION, AMORTIZATION AND CAPITAL EXPENDITURES

Depreciation, amortization, and capital expenditures for the period were as
follows:

<TABLE>
<S> <C>
Depreciation..................... $18,713
Amortization..................... 549
Capital expenditures............. 17,761
</TABLE>

6. CONTINGENCIES

Procter & Gamble has been named as a defendant in 21 lawsuits involving
approximately 188 individual plaintiffs claiming unspecified compensatory and
punitive damages, costs and legal fees for alleged diminished property value
and fear of illness asserting that the Foley Plant discharged toxic pollutants
into the nearby Fenholloway River and into treatment ponds from which the
pollutants entered and allegedly contaminated the underground water. Buckeye
Florida Partners assumed the obligation for any costs at the acquisition (see
Note 1). Buckeye Florida Partners intends to vigorously defend these suits and
contends that the discharge from the Foley Plant is in compliance with federal
and state permits.

The Plants are involved in certain other legal actions and claims arising in
the ordinary course of business. Additionally, the Plants are subject to
various state and federal laws and regulations concerning the protection of
the environment.

7. SUBSEQUENT EVENT

In December 1994, Buckeye Florida Partners reached an agreement in principle
with the State of Florida Department of Environmental Regulation based upon an
environmental study of Buckeye Florida Partners' operations. Compliance with
the agreement (the "Fenholloway Agreement") will require Buckeye Florida
Partners to invest up to $39 million through 1999 to modify its facilities. In
addition to the cost of compliance with the Fenholloway Agreement, the cost of
future compliance with other environmental regulations will depend on
environmental regulations which are subject to change and the subsequent
definition of the necessary technology to meet the changing regulations.
Therefore, it is difficult to determine the total amount of expenditures that
may be required in the future. However, Buckeye Florida Partners estimates
that capital spending for environmental compliance in addition to compliance
with the Fenholloway Agreement could be up to $14 million through the year
2000.

F-23
<PAGE>

REPORT OF DIPL.-ING. WOLF GADECKE, WIRTSCHAFTSPRUFER, INDEPENDENT AUDITOR

Board of Directors
Buckeye Cellulose Corporation

I have audited the accompanying balance sheet of the cotton linter pulp
division of Peter Temming AG (the "Specialty Pulp Business") as of December
31, 1995, and the related statement of income for the year then ended. These
financial statements are the responsibility of the Specialty Pulp Business
management. My responsibility is to express an opinion on these financial
statements based on my audits.

I conducted my audit in accordance with generally accepted auditing
standards in the Federal Republic of Germany, which in my opinion do not
differ significantly from generally accepted auditing standards in the United
States of America. Those standards require that I plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatements. 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. I believe that my audit provides a
reasonable basis for my opinion.

As described in the Accounting and Valuation Method's footnote to the
financial statements, the accompanying financial statements include the
revenues and expenses which are specifically identifiable with the Specialty
Pulp Business, as well as certain allocated expenses. The financial statements
may not necessarily reflect the results of operations of the Specialty Pulp
Business had it been operated as a stand-alone entity.

In my opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Specialty Pulp Business
at December 31, 1995 and the results of its operations for the year then ended
in conformity with generally accepted accounting principles of the Federal
Republic of Germany.

Dipl.-Ing. Wolf Gadecke
Wirtschaftsprufer

Hamburg, Germany
April 29, 1996

F-24
<PAGE>

PETER TEMMING AKTIENGESELLSCHAFT--SPECIALTY PULP BUSINESS
BALANCE SHEET AS PER DECEMBER 31, 1995

ASSETS
<TABLE>
<CAPTION>
DM DM
------------- -------------
<S> <C> <C>
A. FIXED ASSETS
I.Intangible Assets
Industrial and similar rights, software....... 96.00
II.Tangible Assets
1. Land, land rights and buildings including
buildings on third party land.................. 3,743,152.00
2. Technical equipment and machines............. 2,691,700.00
3. Other equipment, factory and office
equipment...................................... 639,818.00
4. Payments on account and assets under
construction................................... 0.00 7,074,670.00
-------------
III.Financial Assets
Other loans................................... 0.00

B. CURRENT ASSETS
I.Inventories
1. Raw materials and supplies................... 13,518,705.00
2. Work in process.............................. 7,960.00
3. Finished goods............................... 4,920,800.00 18,447,465.00
-------------
II.Receivables and other assets
1. Trade receivables............................ 11,292,865.95
2. Other assets................................. 94,503.00 11,387,368.95
-------------
III.Cash-in-hand, postal giro balances, bank
balances......................................... 916,425.00
-------------
37,826,024.95
=============
</TABLE>

F-25
<PAGE>

PETER TEMMING AKTIENGESELLSCHAFT--SPECIALTY PULP BUSINESS
BALANCE SHEET AS PER DECEMBER 31, 1995

EQUITY AND LIABILITIES

<TABLE>
<CAPTION>
DM DM
------------- -------------
<S> <C> <C>
A.EQUITY AND LIABILITIES
I. Subscribed capital........................... 7,000,000.00
II. Results from ordinary activities............ 303,320.36 7,303,320.36
-------------
B.SPECIAL RESERVES FOR TAX PURPOSES............... 58,701.00
C.ACCRUALS
1. Accruals for pensions and similar
obligations.................................... 610,291.00
2. Other accruals............................... 2,447,197.00 3,057,488.00
-------------
D.LIABILITIES
1. Liabilities to banks......................... 8,655,788.00
2. Trade payables............................... 2,916,838.06
3. Payables to pension fund..................... 154,663.00
4. Other liabilities............................ 15,679,226.53
of which taxes: DM 348,345.60
of which relating to social security
and similar obligations: DM 401,117.00
of which affiliated companies: DM 14,434,359.35 27,406,515.59
------------- -------------
37,826,024.95
=============
</TABLE>

F-26
<PAGE>

PETER TEMMING AKTIENGESELLSCHAFT--SPECIALTY PULP BUSINESS

INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 1995

<TABLE>
<CAPTION>
DM DM
------------- --------------
<S> <C> <C>
1.Sales........................................ 87,015,212.18
2.Increase in finished goods inventories and
work in process............................. 1,926,199.00
3.Production for own plant equipment
capitalized................................. 37,298.00
4.Other operating income....................... 950,599.59
5.Material cost
Cost of raw materials, consumables and
supplies and of purchased merchandise........ (53,445,177.00)
--------------
6.Gross result................................. 36,484,131.77
7.Personnel expenses
a)Wages and salaries.......................... 14,619,679.00
b)Social security and other pension cost, of
which in respect of old age pensions: DM
95,587.00................................. 2,966,859.00 (17,586,538.00)
-------------
8.Depreciation on intangible fixed assets and
tangible assets............................. (1,924,734.00)
9.Other operating expenses..................... (16,388,790.41)
--------------
10.Operational result........................... 584,069.36
11.Income from other investments and long term
loans....................................... 80.00
12.Other interest and similar income............ 13,328.00
13.Interest and similar expenses (mainly for
liabilities to banks)....................... (294,157.00)
-------------
14.Financial result............................. (280,749.00)
--------------
15.Results from ordinary activities............. 303,320.36
==============
</TABLE>

F-27
<PAGE>

PETER TEMMING AKTIENGESELLSCHAFT--SPECIALTY PULP BUSINESS

NOTES TO FINANCIAL STATEMENTS--1995--(CONTINUED)

GENERAL MATTERS

The cotton linter pulp division of Peter Temming Aktiengesellschaft
(hereinafter Peter Temming AG) (the "Specialty Pulp Business") has
historically been operated as one segment of several segments comprising Peter
Temming AG. Under a letter of intention signed in January 1996, the assets and
business comprising the Specialty Pulp Business, including the production
plant in Gluckstadt, Germany, are to be purchased from Peter Temming AG by
Buckeye Cellulose Corporation, Memphis, Tennessee, USA, respectively, by
Buckeye Cellulose GmbH, Kappeln, Germany.

The accompanying financial statements of the Specialty Pulp Business have
been derived from the audited year end financial statements of Peter Temming
AG, with the Specialty Pulp Business to be transferred being treated as a
dependent permanent establishment. The financial statements include the
assets, liabilities, revenues and expenses which are specifically identifiable
with the Specialty Pulp Business as well as certain allocated expenses for
shared services, including cash management activities. The expenses are
allocated using formulas including estimates of effort expended and sales. The
financial statements may not necessarily reflect the results of operations of
the Specialty Pulp Business had it been operated as a standalone entity.

No allocation or calculation of income and asset taxes have been undertaken.
As a result, the income statement ends with the results from ordinary
activities.

ACCOUNTING AND VALUATION METHODS

The annual financial statements of the Specialty Pulp Business were prepared
according to accounting and valuation regulations specified in the Commercial
Code and the Aktiengesetz ("AktG") in the Federal Republic of Germany.

Peter Temming AG provides a centralized cash management function. Many of
the Specialty Pulp Business's disbursements and collections are settled
through intercompany accounts; therefore, no statement of cash flows is
presented.

Intangible assets are capitalized at their acquisition cost reduced by
ordinary amortization.

Tangible fixed assets are recorded at acquisition cost reduced by ordinary
depreciation. For personal computers and accessories a fixed value is
established. The difference between depreciation permissible under the
Commercial Code and under tax law regulations was recorded as special reserves
for tax purposes.

Declining depreciation rates are used for buildings in agreement with German
tax regulations (par. 7 Abs. 5 EStG). The useful life of buildings generally
ranges from 10 to 30 years; 40 years are applied for older buildings.

The declining balance depreciation method is generally used for additions to
technical equipment and machines as well as to other equipment, factory and
office equipment, up to the year in which the straight line method results in
higher depreciation charges.

Depreciation of subsequent acquisition cost is applied using the adequate
useful life.

Movable, low value assets are expensed according to tax law regulations.

Raw materials and supplies are capitalized at the lower of acquisition cost
or current market prices valid at the balance sheet date. The acquisition cost
for raw lint includes also the internal discharging fee.

Work in process is valued at proportional manufacturing cost.

F-28
<PAGE>

PETER TEMMING AKTIENGESELLSCHAFT--SPECIALTY PULP BUSINESS

NOTES TO FINANCIAL STATEMENTS--1995--(CONTINUED)

Finished goods, sorted by product, are valued at the lower of actual
manufacturing cost or net realizable value at the balance sheet date.
Manufacturing costs include direct costs as well as appropriate manufacturing
overhead and administrative expenses in relation to the manufacturing process.

Receivables and other assets are recorded at their nominal value. All
foreseeable valuation risk of trade accounts receivables and other assets are
provided for via adequate specific allowances. The general credit risk is
provided for via a general allowance taking specific conditions of different
countries into account.

The special reserve for tax purposes exclusively includes the difference
between depreciation permissible under the Commercial Code and under tax
regulations and will be released over the useful life of the assets concerned.
The special reserve for tax purposes represents an allowance of fixed assets.

Accruals take into account all recognizable risks. Direct pension payments
are accrued for according to actuarial science principles based on an interest
rate of 6%.

Liabilities are recorded at the repayment value.

Receivables and liabilities in a foreign currency (i.e. other than Deutsch
mark) are valued at the exchange rate at year end. Losses resulting from
fluctuations in exchange rates as of the transaction date and as of the
balance sheet date are included in income.

EXPLANATION WITH RESPECT TO THE BALANCE SHEET

Fixed Assets

Intangible assets cover purchased software.

Additions to tangible assets of (000) DM 1,557 reflect generally building
cost for the expansion of the shipment stock, an out-building and other
remodelings at the machine-house, of (000) DM 817 for a Yokogawa control-
system, reconstruction to a scroll-cutter and other technical equipment and
machines and of (000) DM 546 for other factory and office equipment.

Current Assets

Trade accounts receivables have been reduced by allowances of (000) DM 234.
Other assets mainly represent receivables from tax authorities and receivables
from an energy entity.

Subscribed Capital

The capital of the Specialty Pulp Business, derived from Peter Temming AG
balance sheet, amounts to (000) DM 7,000.

Profit on Ordinary Activities

The 1995 profit on ordinary activities for the Specialty Pulp Business as a
dependent permanent establishment amounts to (000) DM 303. Although the item
is allocated as equity (retained earnings), it was assumed that the profits
are to be distributed in full.

Special Reserve for Tax Purposes

The special reserve for tax purposes exclusively reflects depreciation in
accordance with par. 6b EStG (Income tax law) which is in excess of
depreciation under regulations of the Commercial Code.

The release of the reserve will result in income taxes at a rate of 50% as
far as profits will occur.

F-29
<PAGE>

PETER TEMMING AKTIENGESELLSCHAFT--SPECIALTY PULP BUSINESS

NOTES TO FINANCIAL STATEMENTS--1995--(CONTINUED)

Accruals

The accrual for pension includes amounts as high as possible under tax
regulations. A portion of pension obligations are due from a separate pension
entity. Pension obligations are totally funded by assets of the pension entity
and pension accruals.

Other accruals primarily include waste water charges--(000) DM 1,090;
obligations to employees--(000) DM 890; repair and maintenance--(000) DM 141;
and open invoices of (000) DM 306.

Liabilities

Liabilities are made up as follows:

<TABLE>
<CAPTION>
FALLING DUE
-----------------------------
TOTAL AMOUNT LESS THAN 1 1-5 MORE THAN 5
(000) DM YEAR YEARS YEARS
------------ ----------- ----- -----------
<S> <C> <C> <C> <C>
Liabilities to banks............. 8,656 6,459 2,197 --
Trade payable.................... 2,917 2,917 -- --
Payables to pensions fund........ 154 -- -- 154
Other liabilities................ 15,679 15,679 -- --
------ ------ ----- ---
27,406 25,055 2,197 154
====== ====== ===== ===
</TABLE>

Liabilities to banks are secured by mortgages of (000) DM 2,656 on company
real estate.

EXPLANATIONS TO THE INCOME STATEMENT

The income statement was classified applying the total cost method.

Sales

Sales are recorded without VAT. They include Specialty Pulp Business sales
only.

Total sales according to regions are as follows:

<TABLE>
<CAPTION>
FOREIGN COUNTRIES FEDERAL REPUBLIC
(DM) OF GERMANY (DM) TOTAL DM
----------------- ---------------- -------------
<S> <C> <C> <C>
Specialty Pulp Business. 60,345,336.28 26,669,875.90 87,015,212.18
</TABLE>

Other operating income

Other operating income primarily contains income from the reversal of other
accruals of (000) DM 419, the release of the general allowance of (000) DM 200
and the profit on foreign exchange (000) DM 157.

The position includes income amounting to (000) DM 748 relating to another
business year.

Depreciation

Depreciation contains ordinary depreciation on intangible and tangible
assets.

Other operating expenses

Other operating expenses mainly reflect expenses from sideline business
repair and maintenance expenses, waste and waste water charges, administration
and operating expenses as well as rent and lease expenses, other
administrative cost, travel expenses, provisions, freight and insurance
expenses.

F-30
<PAGE>

PETER TEMMING AKTIENGESELLSCHAFT--SPECIALTY PULP BUSINESS

NOTES TO FINANCIAL STATEMENTS--1995--(CONTINUED)

Other Remarks

Average number of employees working for the company during the business year:

<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Hourly employees................................................ 109 108
Salaried employees.............................................. 49 48
--- ---
158 156
=== ===
</TABLE>

BOARD OF DIRECTORS:

Michael Steinbeis (chairman)
Franz Stimmel
Gerhard Wanko

Gluckstadt, April 18, 1996

F-31
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors
Alpha Cellulose Holdings, Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheet of Alpha
Cellulose Holdings, Inc. and subsidiaries (the "Company") as of December 31,
1995, and the related consolidated statements of income, stockholders' equity
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.

We conducted our audit 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 audit provides a reasonable basis
for our opinion.

In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Alpha Cellulose Holdings,
Inc. and subsidiaries as of December 31, 1995, and the results of their
operations and their cash flows for the year then ended, in conformity with
generally accepted accounting principles.

Deloitte & Touche LLP

February 29, 1996

F-32
<PAGE>

ALPHA CELLULOSE HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $ 186,386 $ 110,891
Receivables:
Trade............................................. 5,675,744 6,660,999
Related parties (Note 8).......................... 60,000 61,000
Other............................................. 6,749 15,429
Inventory (Note 3).................................. 14,910,692 16,608,688
Prepaid expenses and other assets................... 163,500 442,597
Deferred income tax (Note 6)........................ 594,000 780,000
----------- -----------
Total current assets............................ 21,597,071 24,679,604
----------- -----------
Property, plant and equipment, net (Note 4)........... 27,391,460 27,395,557
Intangible assets, net (Note 5)....................... 4,528,386 4,214,100
----------- -----------
Total assets.................................... $53,516,917 $56,289,261
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term obligations (Note 7)... $ 7,122,053 $ 9,236,579
Accounts payable.................................... 1,951,302 1,160,131
Accrued expenses.................................... 2,935,802 3,239,912
Income tax payable.................................. 146,327 562,827
----------- -----------
Total current liabilities....................... 12,155,484 14,199,449
----------- -----------
Long-term obligations (Notes 7 and 8)................. 28,089,544 28,104,556
Deferred income tax (Note 6).......................... 4,135,000 3,993,000
Commitments (Note 9)
Stockholders' equity:
Common stock, $.01 par value, 1,000,000 shares
authorized and outstanding......................... 10,000 10,000
Preferred stock, $.01 par value, 50,000 shares
authorized and outstanding......................... 500 500
Paid-in capital..................................... 3,989,500 3,993,475
Retained earnings................................... 5,136,889 5,988,281
----------- -----------
Total stockholders' equity...................... 9,136,889 9,992,256
----------- -----------
Total liabilities and stockholders' equity...... $53,516,917 $56,289,261
=========== ===========
</TABLE>

See notes to consolidated financial statements.

F-33
<PAGE>

ALPHA CELLULOSE HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31,
DECEMBER ------------------------
31, 1995 1995 1996
----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Sales.................................... $54,850,902 $14,077,753 $14,726,579
Less allowances........................ (4,516,483) (1,176,311) (1,534,007)
----------- ----------- -----------
Net sales............................ 50,334,419 12,901,442 13,192,572
Cost of sales............................ 35,477,777 7,988,781 10,348,757
----------- ----------- -----------
Gross profit......................... 14,856,642 4,912,661 2,843,815
Selling and administrative expenses...... 4,084,565 1,420,703 847,868
----------- ----------- -----------
Operating income..................... 10,772,077 3,491,958 1,995,947
----------- ----------- -----------
Other income (expense):
Interest income (Note 8)............... 7,077 2,435 1,293
Interest expense (Note 8).............. (3,265,474) (807,535) (780,564)
Trucking income, net................... 31,465 16,469 (15,697)
Miscellaneous, net..................... (445,651) 438 (25,605)
----------- ----------- -----------
Total other expense.................. (3,672,583) (788,193) (820,573)
----------- ----------- -----------
Income before income taxes............... 7,099,494 2,703,765 1,175,324
Provision for income taxes (Note 6)...... 2,682,000 1,022,000 323,982
----------- ----------- -----------
Net income............................... $ 4,417,494 $ 1,681,765 $ 851,392
=========== =========== ===========
</TABLE>

See notes to consolidated financial statements.

F-34
<PAGE>

ALPHA CELLULOSE HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
COMMON PREFERRED PAID-IN RETAINED
STOCK STOCK CAPITAL EARNINGS TOTAL
------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1995.. $ 9,700 $500 $3,929,800 $ 961,437 $4,901,437
Common stock, 30,000
shares issued.......... 300 59,700 60,000
Dividends............... (242,042) (242,042)
Net income.............. 4,417,494 4,417,494
------- ---- ---------- ---------- ----------
Balance, December 31,
1995..................... $10,000 $500 $3,989,500 $5,136,889 $9,136,889
Net income (unaudited).. 851,392 851,392
Other capital
transactions
(unaudited)............ 3,975 3,975
------- ---- ---------- ---------- ----------
Balance, March 31, 1996
(unaudited).............. $10,000 $500 $3,993,475 $5,988,281 $9,992,256
======= ==== ========== ========== ==========
</TABLE>

See notes to consolidated financial statements.

F-35
<PAGE>

ALPHA CELLULOSE HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, ------------------------
1995 1995 1996
------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income............................. $ 4,417,494 $1,531,266 $851,392
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation and amortization........ 2,961,534 722,180 889,611
Deferred income tax.................. 146,000 36,830 (328,000)
Net loss on disposal of assets....... 445,850 -- --
Provision for bad debts.............. 75,000 -- --
Changes in operating assets and
liabilities:
Receivables........................ (970,274) (1,404,853) (994,935)
Inventory.......................... (6,514,711) (930,644) (1,697,996)
Prepaid expenses and other assets.. 174,304 1,556 (279,097)
Accounts payable................... (582,958) (1,389,606) (791,171)
Accrued expenses and income tax
payable........................... 163,238 1,116,010 720,610
----------- ---------- ----------
Net cash provided by (used in)
operating activities.................. 315,477 (317,261) (1,629,586)
----------- ---------- ----------
INVESTING ACTIVITIES:
Proceeds from sale of equipment........ 119,747 -- --
Receipts/Payments related to
acquisition of Alpha Cellulose, Inc... 636,084 (16,800) --
Purchases of equipment................. (2,082,335) (208,354) (579,422)
----------- ---------- ----------
Net cash used in investing activities.. (1,326,504) (225,154) (579,422)
----------- ---------- ----------
FINANCING ACTIVITIES:
Borrowings on line of credit, net...... 2,097,487 -- 2,490,321
Proceeds from issuance of stock........ 60,000 -- --
Principal payments on long-term
obligations........................... (1,449,198) (101,661) (360,783)
Dividends paid to shareholders......... (242,042) -- --
Other capital transactions............. -- -- 3,975
----------- ---------- ----------
Net cash provided by financing
activities............................ 466,247 (101,661) 2,133,513
----------- ---------- ----------
Net decrease in cash and cash
equivalents........................... (544,780) (644,076) (75,495)
Cash and cash equivalents, beginning of
period................................ 731,166 731,166 186,386
----------- ---------- ----------
Cash and cash equivalents, end of
period................................ $ 186,386 $ 87,090 $ 110,891
=========== ========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for:
Interest (net of amount capitalized). $ 3,736,792
-----------
Income taxes......................... $ 2,401,917
===========
</TABLE>

See notes to consolidated financial statements.

F-36
<PAGE>

ALPHA CELLULOSE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEAR ENDED DECEMBER 31, 1995

1. BASIS OF PRESENTATION

Alpha Cellulose Holdings, Inc. ("Holdings") was incorporated in the State of
Delaware on July 11, 1994 through the issuance of 50,000 shares of preferred
stock and 970,000 shares of common stock for $2,970,000 in cash, note
receivable of $60,000 and property with a fair value of $910,000.

On August 7, 1994, Holdings acquired all of the outstanding capital stock of
Alpha Cellulose, Inc. ("Alpha") in a business combination for an aggregate
purchase price of $42,352,105 (the "Acquisition"). The Acquisition was funded
as follows:

<TABLE>
<S> <C>
Exchange of stock............................................ $ 3,940,000
Borrowings on revolving line of credit....................... 5,366,940
Borrowings on term loan...................................... 23,000,000
Borrowings on subordinated notes............................. 9,000,000
Noncompete agreement......................................... 1,045,165
-----------
$42,352,105
===========
</TABLE>

The Acquisition has been accounted for in accordance with the purchase
method of accounting and the accompanying consolidated financial statements of
the Company reflect the purchase price allocated to assets acquired and
liabilities assumed based on their fair values as of the acquisition date. The
fair values of assets and liabilities were based on independent appraisals and
estimates by management. The following is a summary of the purchase price
allocation as of the date of acquisition:

<TABLE>
<S> <C>
Current assets............................................... $17,093,737
Property, plant and equipment................................ 28,336,547
Intangible assets............................................ 6,001,005
Liabilities assumed.......................................... (9,079,184)
-----------
Total purchase price..................................... $42,352,105
===========
</TABLE>

All goodwill resulting from the purchase is being amortized over 40 years.
The noncompete asset is being amortized over the three year life of the
agreement.

In 1995, $636,084 was received in settlement of certain contingent
obligations existing at the acquisition date. Accordingly, goodwill has been
reduced by $636,084 to reflect this settlement.

Operations--Alpha is the leading worldwide manufacturer of cotton pulp used
by specialty papermills in the production of a variety of fine writing and
other specialty papers.

2. SIGNIFICANT ACCOUNTING POLICIES:
a. Principles of Consolidation--The consolidated financial statements
include the accounts of Alpha Cellulose Holdings, Inc. and its wholly-owned
subsidiaries Alpha and Alpha Cellulose Exports, Inc. All intercompany balances
and transactions have been eliminated.

b. Unaudited Financial Statements--In the opinion of management, the
Consolidated Statements of Income and the Consolidated Statements of Cash
Flows for the three months ended March 31, 1995 and 1996 and the Consolidated
Balance Sheet as of March 31, 1996 include all adjustments (which include only
normal recurring adjustments) necessary to present fairly the financial
position and Results of Operations and Cash Flows for the period then ended in
accordance with generally accepted accounting principles.

c. Statement of Cash Flows--For the purposes of reporting cash flows, cash
and cash equivalents include cash on hand and amounts due from banks and
investments in money market accounts.

d. Inventory--Inventory is stated at the lower of cost or market. Cost is
determined using the first-in, first-out (FIFO) method. Obsolete and possible
excess quantities are reduced to estimated net realizable value.

F-37
<PAGE>

ALPHA CELLULOSE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

e. Property, Plant and Equipment--Additions and improvements are capitalized
at cost. Maintenance and repairs are charged to expense as incurred.
Depreciation is provided on both straight-line and accelerated methods for
financial statement and income tax purposes over the following useful lives:

<TABLE>
<S> <C>
Land improvements........................................... 10-30 years
Leasehold improvements...................................... 5-10 years
Buildings................................................... 10-31.5 years
Machinery and equipment..................................... 3-20 years
</TABLE>

f. Intangible Assets--Intangible assets consist primarily of goodwill
resulting from the purchase of Alpha Cellulose, Inc. and a noncompete
agreement with a former officer of the Company. The goodwill is being
amortized over 40 years and the noncompete agreement over the three year term
of the agreement.

g. Deferred Income Taxes--Deferred income taxes are accounted for in
accordance with Statement of Financial Standards ("SFAS") No. 109, accounting
for income taxes. Deferred income taxes (benefits) are provided on temporary
differences between the financial statement carrying values and the tax bases
of assets and liabilities.

h. Environmental Remediation and Compliance--Environmental remediation costs
are accrued based on estimates of known environmental remediation exposures.
Environmental compliance costs include maintenance and operating costs with
respect to pollution control facilities, costs of ongoing monitoring programs
and similar costs. Such costs are expensed as incurred.

i. Employee Benefit Costs--Alpha has a cash option thrift plan [401(k)]
which covers substantially all employees. The Company matches employee
contributions to the plan up to 5% of the employee's gross compensation.
Thrift plan costs charged to operations were $229,764 for 1995.

j. Use of 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 recorded amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

3. INVENTORY

Inventory consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
------------ -----------
(UNAUDITED)
<S> <C> <C>
Supplies......................................... $ 623,055 $ 694,228
Raw materials.................................... 10,823,700 11,563,768
Finished goods................................... 3,463,937 4,350,692
----------- -----------
Total inventory.............................. $14,910,692 $16,608,688
=========== ===========
</TABLE>

F-38
<PAGE>

ALPHA CELLULOSE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment, at cost, consists of the following at December
31, 1995:

<TABLE>
<CAPTION>
1995
-----------
<S> <C>
Land and improvements........................................ $ 1,298,652
Leasehold improvements....................................... 72,641
Buildings.................................................... 6,058,911
Machinery and equipment...................................... 22,313,951
Construction in progress..................................... 848,282
-----------
30,592,437
Less accumulated depreciation and amortization............... (3,200,977)
-----------
Property, plant and equipment, net........................... $27,391,460
===========
</TABLE>

5. INTANGIBLE ASSETS

Intangible assets consist of the following at December 31, 1995 and are
related to the purchase of Alpha by Holdings on August 7, 1994 (see Note 1).

<TABLE>
<CAPTION>
1995
----------
<S> <C>
Goodwill...................................................... $3,361,117
Noncompete agreement.......................................... 1,045,165
Deferred financing fees....................................... 936,514
Other......................................................... 22,125
----------
5,364,921
Less accumulated amortization................................. (836,535)
----------
Intangible assets, net........................................ $4,528,386
==========
</TABLE>

Amounts are being amortized using straight-line and effective interest
methods over lives ranging from 3 to 40 years.

6. INCOME TAXES

The components of the income tax provision for the year ended December 31,
1995 are as follows:

<TABLE>
<S> <C>
Current:
Federal..................................................... $2,022,000
State....................................................... 514,000
----------
Total current............................................. 2,536,000
----------
Deferred:
Federal..................................................... 116,000
State....................................................... 30,000
----------
Total deferred............................................ 146,000
----------
Total provision for income taxes.......................... $2,682,200
==========
</TABLE>

F-39
<PAGE>

ALPHA CELLULOSE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The approximate tax effect on each of the temporary differences that gave
rise to the Company's net deferred income tax liability at December 31, 1995
under SFAS 109 are as follows:

<TABLE>
<S> <C>
Current deferred income tax (assets) liabilities:
Deferred compensation....................................... $ (262,000)
Inventory capitalization.................................... (119,000)
Accrued liabilities......................................... (213,000)
----------
Current deferred income tax asset............................. $ (594,000)
==========
Noncurrent deferred income tax (assets) liabilities:
Depreciation................................................ $ 694,000
Property, plant and equipment purchase price adjustments.... 3,532,000
Amortization of noncompete agreement........................ (136,000)
Other....................................................... 45,000
----------
Noncurrent deferred income tax liability...................... $4,135,000
==========
</TABLE>

A reconciliation between anticipated income taxes, computed at the statutory
federal income tax rate applied to pretax accounting income, and the provision
for income taxes included in the consolidated statements of income for the
year ended December 31, 1995 is as follows:

<TABLE>
<S> <C>
Anticipated income taxes at the statutory federal rate........ $2,414,000
State income taxes, net of federal tax benefit................ 375,000
Amortization of goodwill...................................... 37,000
Meals and entertainment....................................... 8,000
Foreign sales corporation income tax benefit.................. (168,000)
Other, net.................................................... 16,000
----------
Provision for income taxes.................................... $2,682,000
==========
</TABLE>

F-40
<PAGE>

ALPHA CELLULOSE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

LONG-TERM OBLIGATIONS

Long-term obligations consist of the following at December 31, 1995:

<TABLE>
<CAPTION>
1995
-----------
<S> <C>
Term loan; the term loan is with a commercial bank and bears
interest at a variable rate of the greater of the prime
rate (8.5% at December 31, 1995), base CD rate (5.68% at
December 31, 1995) plus 1%, or the federal funds effective
rate (5.38% at December 31, 1995) plus 1.25%. The Company
has the option to convert any term loan exclusive of the
revolving line of credit to a eurodollar loan for three to
six month periods. The interest rate for the applicable
period is the LIBOR plus 2.75%. All eurodollar loans are to
be made net of regularly scheduled debt service payments
that fall within the eurodollar loan period. Payments are
due quarterly in amounts ranging from $250,000 to $375,000
in 1996, plus accrued interest. The loan is secured by all
assets of the Company...................................... $21,970,867
Subordinated notes; the subordinated notes are with
shareholders of the Company and bear interest at 9.25% with
interest payable semi-annually on May 25 and November 25 of
each year. Principal amounts are due in two equal
installments of $4,500,000 on November 25, 2003 and 2004... 9,000,000
Revolving line of credit; the revolving line of credit is
with a commercial bank and allows borrowings of up to
$7,000,000 but not to exceed 80% of eligible receivables
plus 50% of eligible inventory. Borrowings bear interest at
a variable rate based on the greater of the prime rate
(8.5% at December 31, 1995), base CD rate (5.68% at
December 31, 1995) plus 1%, or the federal funds effective
rate (5.38% at December 31, 1995) plus 1.25%. Interest is
payable on the first business day of January, April, July
and October of each year. During 1995, the line of credit
was modified to reflect monthly net cash receipts
(disbursements) as reductions from (additions to) the
outstanding balance. The line of credit expires August 8,
1997....................................................... 3,347,484
Noncompete agreement; the noncompete agreement is with a
former officer of the Company. The agreement requires the
Company to make monthly payments of $33,333 (includes
interest) through January 1998. Interest was imputed at a
rate of 9.2% on the outstanding balance.................... 587,278
Note payable; the note payable was established for the
purchase of a warehouse. The note bears interest at a rate
of 6.5% and is payable in monthly installments of $9,000
through February 1998...................................... 215,968
Note payable--related party; the note payable--related party
was established to revalue certain property and equipment
to its fair value at the acquisition date. The note bears
interest at a rate of 8% and is payable in August 2001..... 90,000
-----------
Total obligation........................................ 35,211,597
Less current portion.................................... 7,122,053
-----------
Total long-term obligations............................. $28,089,544
===========
</TABLE>

F-41
<PAGE>

ALPHA CELLULOSE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The term loan and the revolving line of credit are subject to terms and
conditions of a credit agreement, which provides for certain covenants. At
December 31, 1995, the Company was in compliance with, or had obtained waivers
from, all covenants. In addition, the credit agreement provides for a
mandatory prepayment of the loans (including accrued interest) to be made
within 90 days after year-end, contingent upon the results of certain
financial ratios. At December 31, 1995, $1,941,000 was included in the current
portion of long-term obligations relating to such mandatory prepayment.

Principal payments on long-term obligations, excluding deferred compensation
amounts, are due as follows:

<TABLE>
<S> <C>
1996......................... $ 7,122,053
1997......................... 2,579,635
1998......................... 3,265,857
1999......................... 4,250,000
2000......................... 4,500,000
Thereafter................... 13,494,052
-----------
$35,211,597
===========
</TABLE>

8. RELATED-PARTY TRANSACTIONS

At December 31, 1995, there were outstanding notes receivable from a
director and an employee of the Company for $60,000. Interest earned from
these notes receivable during the year ended December 31, 1995 totaled
approximately $5,000.

At December 31, 1995, there was an outstanding note payable to an officer of
the Company for $90,000. Interest expense related to the note payable for the
year ended December 31, 1995 totaled approximately $7,500.

The Company paid management fees to an owner of the Company of approximately
$203,000 for the year ended December 31, 1995.

9. COMMITMENTS

At December 31, 1995, the Company had outstanding purchase commitments of
$8,200,000 to purchase cotton linters and other raw materials.

* * * * * * * * * *

F-42
<PAGE>

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE
BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE
UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATES AS OF WHICH
INFORMATION IS GIVEN IN THIS PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER OR A SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER
OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 9
Company History........................................................... 13
The 1996 Acquisitions..................................................... 13
The Company Stock Repurchase and Related Transactions..................... 14
Use of Proceeds........................................................... 15
Price Range of Common Stock and Dividend Policy........................... 15
Capitalization............................................................ 16
Unaudited Pro Forma Consolidated Financial Data........................... 17
Selected Consolidated Financial Data...................................... 23
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 25
Business.................................................................. 30
Management................................................................ 40
Principal and Selling Stockholders........................................ 42
Certain Relationships and Related Transactions............................ 43
Description of Certain Indebtedness....................................... 44
Description of Capital Stock.............................................. 48
Certain U.S. Tax Considerations Applicable to Non-U.S. Holders of the
Common Stock............................................................. 52
Underwriting.............................................................. 55
Legal Matters............................................................. 57
Experts................................................................... 57
Available Information..................................................... 57
Incorporation of Certain Documents by Reference........................... 58
Index to Financial Statements............................................. F-1
</TABLE>

2,887,935 SHARES

BUCKEYE CELLULOSE CORPORATION

COMMON STOCK
($.01 PAR VALUE)

LOGO

SALOMON BROTHERS INC
MERRILL LYNCH & CO.
PAINEWEBBER INCORPORATED
MORGAN KEEGAN & COMPANY, INC.

PROSPECTUS

DATED JUNE 27, 1996
<PAGE>

GRAPHIC APPENDIX

The inside front cover page of the Prospectus contains a series of multi-
colored pictures of certain end-use applications of specialty cellulose pulps
produced by the Company. The pictures depict: (i) a baby wearing a disposable
diaper which contains a core comprised of absorbent cellulose pulps; (ii) an
automotive air filter manufactured from customized paper pulps; (iii) motion
picture and photographic film manufactured from chemical cellulose pulps; (iv)
an individual writing on stationery produced from customized paper pulps; (v) a
dessert cup of ice cream which contains thickening ethers produced from chemical
cellulose pulps; and (vi) a child eating a hot dog with casing purified and
strengthened by chemical cellulose pulps. Across the top of the inside front
cover page are the words "END-USE APPLICATIONS OF BUCKEYE CELLULOSE CORPORATION
PRODUCTS."

The inside back cover page of the Prospectus contains a series of multi-
colored pictures of the Company's Memphis, Tennessee headquarters building, its
Perry, Florida manufacturing facility and its Memphis, Tennessee manufacturing
facility. First, a ground-level view of the headquarters building is depicted,
with the words "MEMPHIS HEADQUARTERS" beneath. Second, an aerial view of the
Perry manufacturing facility is depicted, with the words "FOLEY PLANT" beneath.
Third, an aerial view of the Memphis manufacturing facility is depicted, with
the words "MEMPHIS PLANT" beneath.