FORT HOWARD CORP, 10-K, 1996-02-07

FORT HOWARD CORP
10-K, 1996-02-07
PAPER MILLS

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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to

Commission file number: 0-20473

FORT HOWARD CORPORATION
(Exact name of registrant as specified in its charter)

Delaware 39-1090992
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)

1919 South Broadway, Green Bay, Wisconsin 54304
(Address of principal executive offices) (Zip Code)

Registrant's telephone number including area code: 414/435-8821

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

Securities registered pursuant to Section 12(g) of the Act:

Title of each class
-------------------
Common Stock $.01 par value

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

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

The aggregate market value of Common Stock held by nonaffiliates of the
Registrant, based on the closing price reported by the Nasdaq National Market
on January 15, 1996, was $797,248,627.

As of January 15, 1996, 63,370,794 shares of $.01 par value Common Stock were
outstanding.

The sections of the Proxy Statement for the Annual Meeting of Stockholders to
be held on May 14, 1996, captioned "Election of Directors," "Ownership of
Common Stock by Management," "Principal Stockholders," "Certain Transactions,"
"Committees of the Board of Directors; Meetings and Compensation of
Directors," "Executive Compensation," "Committee Report on Executive
Compensation" and "Performance Graph" are incorporated by reference into this
Form 10-K at Part III, Items 10, 11, 12 and 13.

PART I

ITEM 1. BUSINESS

THE COMPANY

Founded in 1919, Fort Howard is a leading manufacturer, converter and
marketer of sanitary tissue products, including specialty dry form products,
in the United States and the United Kingdom. Its principal products, which
are sold in the commercial (away-from-home) and consumer (at-home) markets,
include paper towels, bath tissue, table napkins, wipers and facial tissue
manufactured from virtually 100% recycled fibers. The Company believes that
it has the leading market share of tissue products in the domestic commercial
market of approximately 26% and has focused approximately 60% of its capacity
on this segment of the tissue market. In the domestic consumer market, where
the Company has an approximate 10% market share, its principal brands include
Mardi Gras printed napkins (which hold the leading domestic market position)
and paper towels, Soft'n Gentle bath and facial tissue, So-Dri paper towels,
and Green Forest, the leading domestic line of environmentally positioned,
recycled tissue paper products. Fort Howard also manufactures and distributes
its products in the United Kingdom where it currently has the third largest
market share primarily in the consumer segment of the market.

DOMESTIC TISSUE OPERATIONS

Products

Commercial Products. Fort Howard's commercial tissue products include
folded and roll towels, bath and facial tissue, bulk and dispenser napkins,
disposable wipers, specialty printed merchandise and dispensers. Competition
in this market is based upon attaining a competitive level of product
attributes at prices which provide a good value to customers. Another
competitive factor is the ability to provide reliable and timely service.

In addition, the Company also produces parent rolls for sale to
converters in international markets, including Latin America and the Middle
East.

Consumer Products. Fort Howard's consumer product growth strategy has
targeted the value brand and private label segments of the market. The
Company's value brand products such as Mardi Gras, Soft'n Gentle and
Green Forest offer a high level of softness, absorbency and brightness at a
substantial price savings versus the premium brands. The appeal of Mardi Gras
napkins and paper towels is enhanced by their multi-color prints with changing
patterns and special seasonal designs.

Fort Howard is the leading tissue producer in the growing consumer
private label business with an estimated market share of approximately 40% in
1995. Many national grocery chains have focused on the development of private
label tissue products to support the positioning of the chain with their
shoppers as well as to enhance margins. Typically offered on a limited
supplier basis, private label products enable the Company to form close
relationships with many of the nation's fastest growing, leading grocery
chains and mass merchandisers and afford opportunities for sales of
Fort Howard's branded products with these same customers.

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Marketing

Commercial Market. Approximately 60% of the Company's products are sold
through paper, institutional food and janitorial distributors into the
commercial market. These products are produced in a broad range of weights,
textures, sizes, colors and package configurations providing Fort Howard with
distinct advantages as a full-line manufacturer. The Company also creates and
prints logos, commercial messages and artistic designs on paper napkins and
place mats for commercial customers and party goods and specialty print
merchandisers. The Company sells its commercial products under its own brand
names which include Envision, Generation II and Preference Ultra and under the
Fort Howard name.

Fort Howard's commercial sales force of approximately 200 salaried
representatives combines broad geographical reach and frequency of contact
with the Company's major commercial customers, including large distributors,
national accounts and club warehouses. Because the commercial sales force is
dedicated to the sale of the Company's commercial tissue products, the
Company's sales representatives are able to devote substantial time to
developing end user demand, an important selling point for the Company's
distributors. In addition, the Company's sales force includes specialized
sales teams focused on selling wiper products and its premium quality
products.

Consumer Market. Approximately 40% of the Company's products are sold
through independent brokers to major food store chains and wholesale grocers
or directly to mass merchandisers for at-home use. Most consumer products are
sold under Company-owned brand names, with a significant percentage of
products being sold under private labels. Principal brand names of consumer
products include Mardi Gras, Soft'n Gentle, So-Dri and Green Forest. Regional
sales managers focus on maintaining close relationships with brokers and
retailers by emphasizing Fort Howard's historic strengths--attractive product
attributes at a good value for the consumer and enhanced margins for
retailers. The Company's national accounts sales force focuses on mass
merchandisers and on implementing their "everyday low pricing" strategies.
The private label sales team markets directly to national accounts and through
food brokers to their customers. In contrast to tissue producers who
emphasize marketing of their consumer products through advertising and
promotion to the end consumer, Fort Howard incurs minimal advertising expense.
Rather, the Company focuses its marketing efforts for consumer products on
trade promotion and incentive programs targeted to grocery and mass
merchandising retailers.

INTERNATIONAL TISSUE OPERATIONS

The Company's international tissue operations principally consist of its
tissue business in the United Kingdom, Fort Sterling Limited ("Fort
Sterling"). The Company also entered into a small joint venture to convert
parent rolls into finished products in the People's Republic of China in 1995
which will begin operations in the first half of 1996, and opened direct sales
operations in Mexico in 1995. For an analysis of net sales, operating income
(loss) and identifiable operating assets in the United States and
internationally, see Note 12 to the audited consolidated financial statements.

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Products

Fort Sterling's primary thrust has been in the larger consumer segment of
the United Kingdom tissue market where approximately 85% of its converted
product sales are targeted. In a market where private label represents about
one-half of all tissue sales, the Company believes that Fort Sterling
maintains a leading share of the consumer private label market. Approximately
two-thirds of Fort Sterling's consumer business in 1995 was sold under private
labels to large grocers and convenience stores. Fort Sterling's principal
brand is its Nouvelle line of tissue paper products. Overall, Fort Sterling's
consumer market share approximated 16% in 1995.

Fort Sterling has approximately 5% of the market share in the commercial
segment.

Marketing

Fort Sterling maintains a direct sales force serving large national
grocers, independent grocers and mass merchandisers in the consumer market.
Fort Sterling has a commercial sales force which markets the Company's
products via a network of independent distributors. A separate national
accounts sales team targets commercial foodservice, health care and national
industrial accounts.

CAPITAL EXPENDITURES

The Company has invested heavily in its manufacturing operations.
Capital expenditures in the Company's tissue business were approximately
$674 million for the five year period ended December 31, 1995, $476 million of
which was incurred for capacity expansion projects. In addition, the
Company's annual capital spending program includes significant investments for
the ongoing modernization of each of its mills. For example, as new deinking
technologies and converting equipment are developed, the Company adds such
technology and equipment at each mill to maintain its low cost structure.

In 1994, the Company completed the installation of a fifth tissue paper
machine, environmental protection equipment and associated facilities at its
Muskogee tissue mill. Total expenditures for the expansion were approximately
$140 million. In 1993, the Company completed an expansion of its Green Bay
tissue mill, including the addition of a new tissue paper machine and related
environmental protection, pulp processing, converting, and steam generation
equipment. The new tissue paper machine at the Green Bay mill commenced
production in August 1992. Total expenditures for the expansion project were
$180 million. Also in 1993, Fort Sterling completed a $96 million expansion
which doubled the capacity of its paper mill. The expansion project added a
206-inch tissue paper machine and related deinking and pulp processing plants.

RAW MATERIALS AND ENERGY SOURCES

The principal raw materials and supplies used to manufacture tissue
products are wastepaper (which is processed to reclaim fiber), chemicals,
corrugated shipping cases and packaging materials. Fort Howard uses 100%
wastepaper for all but a limited number of dry form and specialty products
representing approximately 3% of its volume. Currently, Fort Howard recycles
over 1.4 million tons of wastepaper annually into tissue products. Beginning

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in July 1994, wastepaper prices for the grades of wastepaper used in
Fort Howard's products have been volatile. See Management's Discussion and
Analysis of Consolidated Financial Condition and Results of Operations. The
deinking technology employed by the Company allows it to use a broad range of
wastepaper grades, which effectively increases both the number of sources and
the quantity of wastepaper available for its manufacturing process.

The Company manufactures some of the process chemicals required for the
Company's tissue production at each of its domestic mill locations. The
balance of its chemical requirements is purchased from outside sources. The
Company also purchases significant quantities of coal and petroleum coke for
generation of electrical power and steam at all three of its domestic tissue
mills. The Company seeks to maintain inventories of wastepaper, other raw
materials and supplies which are adequate to meet its anticipated
manufacturing needs.

The Company's major sources of energy for its domestic tissue mills are
coal, petroleum coke and, to a lesser extent, natural gas. These fuels are
burned to provide steam and electrical power to process wastepaper, operate
machinery and dry paper. Coal is received in Green Bay in self-unloading
vessels during the Great Lakes shipping season and at the Muskogee and
Savannah mills by rail. Petroleum coke is received in Green Bay and Savannah
by rail. The Company maintains adequate inventories of these fuels at each of
its domestic mills. The Savannah mill can also generate electrical power by
burning natural gas or fuel oil in combustion turbines. The primary sources
of energy for the Company's United Kingdom tissue facilities are purchased
electrical power and natural gas.

COMPETITION

All the markets in which the Company sells its products are extremely
competitive. The Company's tissue products compete directly with those of a
number of large diversified paper companies, including Chesapeake Corporation,
Georgia-Pacific Corporation, James River Corporation of Virginia,
Kimberly-Clark Corporation, Pope & Talbot, Inc. and the Procter & Gamble
Company, as well as regional manufacturers, including converters of tissue
into finished products who buy tissue directly from tissue mills. Many of the
Company's competitors are larger and more strongly capitalized than the
Company which may enable them to better withstand periods of declining prices
and adverse operating conditions in the tissue industry. Customers generally
take into account price, quality, distribution and service as factors when
considering the purchase of products from the Company.

CUSTOMERS AND BACKLOG

The Company principally markets its products to customers in the United
States and the United Kingdom, and to a lesser extent, Mexico, Canada and the
Middle East. The business of the Company is not dependent on a single
customer.

The Company's products are manufactured with relatively short production
time from basic materials. Products marketed under the Company's trademarks
and stock items are sold from inventory. The backlog of customer orders is
not significant in relation to sales.

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RESEARCH AND DEVELOPMENT

The Company maintains laboratory facilities with a permanent staff of
engineers, scientists and technicians who are responsible for improving
existing products, developing new products and processes, product quality,
process control and providing technical assistance in adhering to regulatory
standards. Continuing emphasis is being placed upon expanding the Company's
capability to deink a broader range of wastepaper grades, designing new
products, further automating manufacturing operations and developing improved
manufacturing and environmental processes.

PATENTS, LICENSES, TRADEMARKS AND TRADE NAMES

While the Company owns or is a licensee of a number of patents, its
operations and products are not materially dependent on any patent. The
Company relies on trade secret protection for its proprietary deinking
technology which is not covered by patent. The Company's domestic tissue
products for at-home use are sold under the principal brand names Mardi Gras,
Soft'n Gentle, So-Dri and Green Forest. For the Company's domestic commercial
tissue business, principal brand names include Envision, Generation II and
Preference. All brand names are registered trademarks of the Company. A
portion of the Company's tissue products are sold under private labels or
brand names owned by customers.

EMPLOYEES

At December 31, 1995, the Company's worldwide employment was
approximately 6,800, of which 5,800 persons were employed in the United States
and 1,000 persons were employed in the United Kingdom. There is no union
representation at any of the Company's domestic facilities. The Company's
employees at its facilities in the United Kingdom are unionized and the union
contracts generally require annual renegotiation of employee wage awards. The
Company considers its relationship with its employees to be good.

ENVIRONMENTAL MATTERS

The Company is subject to substantial regulation by various federal,
state and local authorities in the U.S., and by national and local authorities
in the United Kingdom concerned with the impact of the environment on human
health, the limitation and control of emissions and discharges to the air and
waters, the quality of ambient air and bodies of water and the handling, use
and disposal of specified substances and solid waste at, among other
locations, the Company's process waste landfills.

Compliance with existing laws and regulations presently requires the
Company to incur substantial capital expenditures and operating costs. In
addition, environmental legislation and regulations and the interpretation and
enforcement thereof are expected to become increasingly stringent. Such
further environmental regulation is likely to limit the operating flexibility
of the Company's manufacturing operations. Because other paper manufacturers
are generally subject to similar environmental restrictions, the Company
believes that compliance with environmental laws and regulations is not likely
to have a material adverse effect on its competitive position.

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In 1995, the Company made capital expenditures of $4 million with respect
to pollution abatement and environmental compliance. The Company expects to
commit to approximately $9 million of capital expenditures to maintain
compliance with environmental control standards and enhance pollution control
at its mills during 1996 and 1997. Because the impact of further
environmental regulation cannot be determined with certainty at this time, it
is possible that there will be additional capital expenditures during these
years, including but not limited to those described below.

The U.S. Environmental Protection Agency (the "U.S. EPA") has proposed
new air emission and revised wastewater discharge standards for the pulp and
paper industry which are commonly known as the "Cluster Rules." U.S. EPA has
not formally indicated when the components of the Cluster Rules that deal with
wastewater discharges are to be finalized. If the final rules on wastewater
discharges are substantially the same as the proposed rules, the Company
estimates that it will incur additional aggregate capital expenditures of
approximately $1.2 million.

Components of the currently proposed Cluster Rules that address air
emissions will have little impact on deinking paper mills such as the
Company's mills. However, additional installments of the Cluster Rules,
expected to be proposed during 1996 with expected compliance deadlines as late
as the year 2000, are expected to specifically address air emissions from
deinking mills and likely will have a greater impact on the Company. The
Company is presently unable to estimate that impact since the applicable rules
have not been proposed and therefore no assurances can be given as to whether
the impact will be material to the Company.

The Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA") imposes liability, without regard to fault or to the legality of
the original action, on certain classes of persons (referred to as potentially
responsible parties or PRPs) associated with a release or threat of a release
of hazardous substances into the environment. Financial responsibility for
the clean-up or other remediation of contaminated property or for natural
resource damages can extend to previously owned or used properties, waterways
and properties owned by third parties, as well as to properties currently
owned and used by the Company even if contamination is attributable entirely
to prior owners. The Company is involved in a voluntary investigation and
potential clean-up of the Lower Fox River and has been named a PRP for alleged
natural resource damages to the Fox River, both of which are discussed in
"Legal Proceedings" below. Other than the United States Department of
Interior, Fish and Wildlife Service ("FWS") assessment of the Fox River
described in "Legal Proceedings," the Company is currently named as a PRP at
only one CERCLA-related site. The Company believes its liability, if any, at
such site is de minimis. However, there can be no certainty that the Company
will not be named as a PRP at any other sites in the future or that the costs
associated with additional sites would not be material to the Company's
financial condition or results of operations.

The Company has $20 million of accrued liabilities as of December 31,
1995 for estimated or anticipated liabilities and legal and consulting costs
relating to environmental matters arising from past operations. The Company
expects these costs to be incurred over an extended number of years. While
the accrued liabilities reflect the Company's current estimate of the cost of
these environmental matters, there can be no assurance that the amount accrued
will be adequate.

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ITEM 2. PROPERTIES

Fort Howard produces its domestic tissue products at three mills: its
original mill in Green Bay, Wisconsin; its Muskogee, Oklahoma mill constructed
as a greenfield site which commenced papermaking production in 1978; and its
greenfield mill near Savannah, Georgia, which commenced production in 1987.
Each of these mills is a world-class, fully integrated tissue mill that can
deink and process fiber from low cost wastepaper to provide virtually all of
the mill's tissue fiber. Each mill is geographically located to minimize
distribution costs to its regional markets.

In Green Bay, Wisconsin, the Company operates nine tissue paper machines,
including two world-class 270-inch tissue paper machines completed in 1984 and
1992. In addition, the Green Bay mill contains two dry form machines which
commenced operation in 1978 and 1989. Although the Green Bay mill is the
Company's original mill, having commenced production in 1920, it is well
maintained, includes virtually all of Fort Howard's latest technologies and
equipment and is cost competitive with the Company's newer mills. The
Company's Muskogee, Oklahoma mill contains a new 270-inch tissue paper machine
which was added during the first quarter of 1994, and another 270-inch and
three 200-inch tissue paper machines which were installed between 1978 and
1985. Fort Howard's greenfield mill located near Savannah, Georgia contains
four 270-inch tissue paper machines that commenced production in 1987, 1988,
1989 and 1991.

Each of the Company's domestic mills also includes a coal-fired
cogeneration power plant capable of producing all of the mill's steam and
electricity, a modern deinking and pulp processing plant that processes
virtually all of the mill's fiber requirements from wastepaper, a chemical
plant that produces high volume chemicals used in whitening fibers, high speed
converting equipment for cutting, folding, printing and packaging paper into
the Company's finished products and related facilities and warehousing. The
Muskogee mill also includes a polywrap manufacturing plant that processes
approximately one-half of the polywrap required by the Company's domestic
mills and the Green Bay mill includes a large machine shop that services all
the Company's domestic mills.

Fort Sterling currently operates three tissue paper machines and a
deinking and wastepaper processing plant at its Ramsbottom paper mill. The
Company cuts, folds, prints and packages paper into finished tissue products
at its Bolton and Wigan converting facilities. All of Fort Sterling's
locations are in Greater Manchester, England.

Except for certain facilities and equipment constructed or acquired in
connection with sale and leaseback transactions pursuant to which the Company
continues to possess and operate such facilities and equipment, substantially
all the Company's manufacturing facilities and equipment are owned in fee.
The Company's domestic and United Kingdom tissue manufacturing facilities are
pledged as collateral under the terms of the Company's debt agreements. See
Note 5 to the audited consolidated financial statements.

The Green Bay, Muskogee, Savannah, and United Kingdom facilities
generally operate tissue paper machines at full capacity seven days per week,
except for downtime for routine maintenance. Converting facilities are
generally operated on a 24-hour per day, 5-day per week basis or a 7-day per
week schedule. Converting capacity could be expanded by working additional
hours and/or adding converting equipment.

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ITEM 3. LEGAL PROCEEDINGS

In December 1994, the Company was notified by the U.S. Department of
Justice of a civil antitrust investigation into possible agreements in
restraint of trade in connection with sales of sanitary paper products. The
Company has cooperated in the investigation and in the first and second
quarters of 1995 responsed to the Civil Investigative Demand served on the
Company.

Since July 1992, the Company has been participating with a coalition
consisting of industry, local government, Wisconsin Department of Natural
Resources ("WDNR") and public interest members studying the nature and extent
of PCB (polychlorinated biphenyl) and other sediment contamination of the
Lower Fox River in northeast Wisconsin. The objective of the coalition is to
identify, recommend and implement cost effective remediation of contaminated
deposits which can be implemented on a voluntary basis. The Company
anticipates that any remediation of sediment contamination will begin in an
area approximately 35 miles upstream of the Company's Green Bay mill. The
Company's participation in the studies undertaken by the coalition is
voluntary and its contributions to funding those activities to date have not
been significant. The Company's participation in the coalition is not an
admission of liability for any portion of any remediation and the Company does
not believe its participation will prejudice any defenses available to the
Company. In addition to its participation in the activities of the coalition,
the Company, together with four other companies with facilities along the Fox
River (the "Five Companies"), is engaged in discussions with the WDNR
regarding their liability in connection with the remediation and restoration
of sediment contamination caused by alleged PCB releases to the Fox River.
Based upon available information, the Company believes the WDNR has identified
other parties, some of whom have substantial resources, whose manufacturing
practices allegedly resulted in the release of PCBs to the Fox River.

On June 20, 1994, the FWS, a federal natural resources trustee, informed
each of the Five Companies that they had been identified as PRPs for purposes
of federal claims for natural resources damages under CERCLA, commonly known
as the "Superfund Act," and the Federal Water Pollution Control Act arising
from alleged releases of PCBs to the Fox River and Green Bay system (the
"Federal Claims"). The FWS alleges that natural resources including
endangered species, fish, birds and tribal lands or lands held by the United
States in trust for various tribes have been exposed to PCBs that were
released from facilities located along the Fox River. The FWS has stated that
it is undertaking an assessment to determine and quantify the nature and
extent of injury to natural resources. The FWS has invited the Five Companies
to participate in the development of the type and scope of the assessment and
in the performance of the assessment, pursuant to federal regulations. The
Five Companies are engaged in discussions with the FWS concerning the nature
of their participation in assessment. Based upon presently available
information, the Company believes that there are additional parties, some of
which may have substantial resources, who may be identified as PRPs for
alleged natural resource damages.

On July 15, 1992, Region V of the U.S. EPA issued a Finding of Violation
to the Company concerning the No. 8 boiler at its Green Bay mill. The Finding
alleged violation of regulations issued by the U.S. EPA under the Clean Air
Act relating to New Source Performance Standards for Fossil Fuel Fired Steam
Generators. On October 5, 1994, the Company and the U.S. EPA, with
concurrence from the U.S. Department of Justice, reached an agreement in
principle whereby the Company, without admitting any wrongdoing, has agreed to

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make certain modifications to the boiler which will limit its physical
capacity to the level specified in the alleged relevant New Source Performance
Standards. The physical modifications, which require expenditures of
approximately $40,000, will not affect the utility of the No. 8 boiler. In
addition, the Company has agreed to pay $350,000 to settle this matter. The
Company anticipates that the settlement will be completed in 1996.

In 1992, the Internal Revenue Service (the "IRS") disallowed income tax
deductions for the 1988 tax year which were claimed by the Company for fees
and expenses, other than interest, related to 1988 debt financing and
refinancing transactions. The Company deducted the balance of the disallowed
fees and expenses related to the 1988 debt instruments during the tax years
1989 through 1995. In disallowing these deductions, the IRS relied on Code
Section 162(k) (which denies deductions for otherwise deductible amounts paid
or incurred in connection with stock redemptions). The Company is contesting
the disallowance. In August 1994, the U.S. Tax Court issued its opinion in
which it essentially adopted the interpretation of Code Section 162(k)
advanced by the IRS and disallowed the deductions claimed by the Company.

At present, the U.S. Tax Court is preparing to enter its decision in
which it will determine the amount of the tax deficiency owed by the Company.
The Company intends to appeal the U.S. Tax Court decision as it bears on the
interpretation of Code Section 162(k) to the U.S. Court of Appeals for the
Seventh Circuit.

In anticipation of its appeal, the Company has paid to the IRS tax of
approximately $5 million potentially due for its 1988 tax year pursuant to the
U.S. Tax Court opinion along with $4 million for the interest accrued on such
tax. If the decision of the U.S. Tax Court is ultimately sustained, the
Company estimates that the potential amount of additional taxes due on account
of such disallowance for the period 1989 through 1995 would be approximately
$38 million exclusive of interest. While the Company is unable to predict the
final result of its appeal of the U.S. Tax Court decision with certainty, it
has accrued for the potential tax liability as well as for the interest
charges thereon for the period 1989 through 1995 and thus the Company believes
that the ultimate resolution of this case will not have a material adverse
effect on the Company's financial condition or on its results of operations.

The Company and its subsidiaries are parties to other lawsuits and state
and federal administrative proceedings in connection with their businesses.
Although the final results in all suits and proceedings cannot be predicted
with certainty, the Company presently believes that the ultimate resolution of
all such lawsuits and proceedings, after taking into account the liabilities
accrued with respect to such matters, will not have a material adverse effect
on the Company's financial condition or results of operations.

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

There were no matters submitted to a vote of the security holders during
the fourth quarter of 1995.

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ITEM 1a. EXECUTIVE OFFICERS OF THE REGISTRANT

The following table provides certain information about each of the
current executive officers of the Company. All executive officers are elected
by, and serve at the discretion of, the Board of Directors. None of the
executive officers of the Company are related by blood, marriage or adoption
to any other executive officer or director of the Company.

Present Principal Occupation or
Name and Position Employment; Five-Year Employment
With the Company Age History and other Directorships
----------------- --- --------------------------------
Donald H. DeMeuse .............. 59 Chairman of the Board of Directors and
Chairman of the Board and Chief Executive Officer since March
Chief Executive Officer 1992; President and Chief Executive
Officer from July 1990 to March
1992. Director of Associated Bank
Green Bay.
Kathleen J. Hempel ............. 45 Vice Chairman and Chief Financial
Vice Chairman and Officer since March 1992; Senior
Chief Financial Officer Executive Vice President and Chief
Financial Officer prior to that
time. Director of Whirlpool
Corporation.
Michael T. Riordan ............. 45 President and Chief Operating Officer
President and since March 1992; Vice President
Chief Operating Officer prior to that time.
Andrew W. Donnelly ............. 53 Executive Vice President for more than
Executive Vice President five years.
John F. Rowley ................. 55 Executive Vice President for more than
Executive Vice President five years.
James C. Bowen, Jr.............. 50 Vice President since July 1995; Director
Vice President of Consumer Sales prior to that time.
George F. Hartmann, Jr. ........ 53 Vice President for more than five years.
Vice President
R. Michael Lempke .............. 43 Vice President since September 1994;
Vice President and Treasurer Treasurer since November 1989.
James W. Nellen II ............. 48 Vice President and Secretary for more
Vice President and Secretary than five years.
Daniel J. Platkowski ........... 44 Vice President for more than five years.
Vice President
Timothy G. Reilly .............. 45 Vice President for more than five years.
Vice President
James H. Riehl, Jr.............. 43 Vice President since July 1995; Director
Vice President of Consumer Marketing prior to that
time.
Donald J. Schneider ............ 59 Vice President for more than five years.
Vice President
Charles L. Szews ............... 39 Vice President since September 1994;
Vice President and Controller Controller since November 1989.
Charles D. Wilson .............. 50 Vice President since June 1994; Director
Vice President of Government Affairs prior to that
time.
David K. Wong .................. 46 Vice President since June 1993; Director
Vice President of Personnel prior to that time.
David A. Stevens ............... 46 Assistant Vice President for more than
Assistant Vice President five years.

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ITEM 1b. STATEMENT REGARDING FORWARD LOOKING DISCLOSURE

Except for the historical information contained in this Annual Report on
Form 10-K, certain matters discussed herein, including (without limitation) in
particular under Part I, Item 1, "Business -- Environmental Matters," Item 3,
"Legal Proceedings" and under Part II, Item 7, "Management's Discussion and
Analysis of Consolidated Financial Condition and Results of Operations," are
forward looking statements that involve risks and uncertainties, including
(without limitation) the effect of economic and market conditions, wastepaper
prices, costs related to environmental matters, and the impact of current or
pending legislation and regulation.

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS

During the fiscal year ended December 31, 1994, there was no market for
the Company's Common Stock. The Company's Common Stock began trading under
the symbol FORT on the Nasdaq National Market on March 10, 1995. The range of
high and low trade prices of the Company's stock during quarters in which
there was an active public trading market is as follows:

Common Stock Trade Prices
-------------------------
High Low Close
---- --- -----
Quarter Ended
-------------

March 31, 1995.................... $12.875 $12.00 $12.625
June 30, 1995..................... 15.00 12.00 14.125
September 30, 1995................ 16.25 13.375 15.375
December 31, 1995................. 23.25 14.375 22.50

The number of holders of record of the Company's Common Stock at
December 31, 1995 was approximately 800.

The Company anticipates that all its earnings in the near future will be
used for the repayment of indebtedness and for the development and expansion
of its business and, therefore, does not anticipate paying dividends on its
Common Stock in the foreseeable future. The 1995 Bank Credit Agreement and
the Company's outstanding debt obligations limit, in each case with certain
exceptions, the ability of the Company to pay dividends on the Common Stock.
Subject to such restrictions, any determination to pay cash dividends in the
future will be at the discretion of the Company's Board of Directors and will
be dependent upon the Company's results of operations, financial condition,
contractual restrictions and other factors deemed relevant at the time by the
Board of Directors.

- 12 -

ITEM 6. SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(In millions, except ratios and per share amounts)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales .............................. $ 1,621 $ 1,274 $ 1,187 $ 1,151 $ 1,138
Cost of sales (a)........................ 1,139 867 784 726 713
------- ------- ------- ------- -------
Gross income............................. 482 407 403 425 425
Selling, general, and
administrative (a)(b).................. 122 110 97 97 98
Amortization of goodwill (c)............. -- -- 43 57 57
Goodwill write-off (c)................... -- -- 1,980 -- --
Environmental charge (d)................. -- 20 -- -- --
------- ------- ------- ------- -------
Operating income (loss) (d).............. 360 277 (1,717) 271 270
Interest expense......................... 310 338 342 338 371
Other (income) expense, net ............. (2) -- (3) 2 (3)
------- ------- ------- ------- -------
Income (loss) before taxes (d)........... 52 (61) (2,056) (69) (98)
Income taxes (credit).................... 18 (19) (16) -- (24)
------- ------- ------- ------- -------
Income (loss) before equity earnings,
extraordinary items and
adjustment for accounting change....... 34 (42) (2,040) (69) (74)
Equity in net loss of
unconsolidated subsidiaries (e)........ -- -- -- -- (32)
------- ------- ------- ------- -------
Net income (loss) before extraordinary
items and adjustment for accounting
change................................. 34 (42) (2,040) (69) (106)
Extraordinary items - losses on debt
repurchases (net of income taxes)...... (19) (28) (12) -- (5)
Adjustment for adoption of SFAS No. 106
(net of income taxes) (f).............. -- -- -- (11) --
------- ------- ------- ------- -------
Net income (loss) (a)(d)................. $ 15 $ (70) $(2,052) $ (80) $ (111)
======= ======= ======= ======= =======
Earnings (loss) per share (d)(g)......... $ 0.25 $ (1.85) $(53.85) $ (2.10) $ (3.17)

OTHER DATA:
EBITDA (h)............................... $ 459 $ 393 $ 387 $ 410 $ 444
EBITDA as a percent of net sales (h)..... 28.3% 30.8% 32.6% 35.6% 39.0%
Depreciation of property, plant
and equipment (a)...................... $ 99 $ 96 $ 88 $ 81 $ 116
Non-cash interest expense................ 13 74 101 140 141
Capital expenditures..................... 47 84 166 233 144
Weighted average number of shares
of Common Stock outstanding
(in thousands) (g)..................... 58,228 38,103 38,107 38,107 34,868

BALANCE SHEET DATA (at end of
period):
Total assets............................. $ 1,652 $ 1,681 $ 1,650 $ 3,575 $ 3,470
Working capital (deficit)................ (35) (98) (92) (124) 2
Long-term debt (including current
portion) and Common Stock with
put right.............................. 2,966 3,318 3,234 3,104 2,947
Shareholders' equity (deficit)........... (1,838) (2,148) (2,081) (29) 62
</TABLE>

- 13 -<PAGE>

(a) Effective January 1, 1992, the Company prospectively changed its estimates
of the depreciable lives of certain machinery and equipment. The change had
the effect of reducing depreciation expense by approximately $38 million and
net loss by $24 million in 1992.

(b) Selling, general and administrative expense in 1993 reflects an $8 million
reduction for the reversal of all employee stock compensation expense accrued
prior to 1993. See Note 9 of the Company's audited consolidated financial
statements.

(c) During the third quarter of 1993, the Company wrote off the remaining
unamortized balance of its goodwill of $1.98 billion and, accordingly, there
is no amortization of goodwill for periods subsequent to September 30, 1993.
See "Management's Discussion and Analysis of Consolidated Financial Condition
and Results of Operations" and Note 3 of the Company's audited consolidated
financial statements.

(d) During the fourth quarter of 1994, the Company recorded an environmental
charge totaling $20 million. Excluding the effects of the environmental
charge, the Company's operating income, loss before taxes, net loss and loss
per share in 1994 would have been $297 million, $41 million, $56 million and
$1.47 per share, respectively.

(e) As of December 31, 1991, the Company had sold all its international cup
operations and had discontinued recording equity in net losses of its residual
interest in its former domestic cup operations because the Company's carrying
value of such residual investment was reduced to zero.

(f) Reflects the cumulative effect on years prior to 1992 of adopting SFAS No.
106, "Employers' Accounting for Postretirement Benefits Other Than Pensions."
This change in accounting principle, excluding the cumulative effect,
decreased operating income for 1992 by $1 million.

(g) The computation of earnings (loss) per share is based on the weighted
average number of shares of Common Stock outstanding during the period plus
(in periods in which they have a dilutive effect) the effect of shares of
Common Stock contingently issuable upon the exercise of stock options.

(h) EBITDA represents operating income plus depreciation of property, plant
and equipment, amortization of goodwill, the goodwill write-off, the 1994
environmental charge and the effects of 1993 employee stock compensation
(credits). EBITDA is presented here as a measure of the Company's debt
service ability. Certain financial and other restrictive covenants in the
1995 Bank Credit Agreement and other instruments governing the Company's
indebtedness are based on the Company's EBITDA, subject to certain
adjustments.

- 14 -

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

RESULTS OF OPERATIONS
Year Ended December 31,
----------------------------
1995 1994 1993
---- ---- ----
(In millions, except percentages)
Net sales:
Domestic tissue......................... $1,320 $ 1,060 $ 1,004
International operations................ 164 131 143
Harmon.................................. 137 83 40
------ ------- -------
Consolidated............................ $1,621 $ 1,274 $ 1,187
====== ======= =======
Operating income (loss):
Domestic tissue (a)(b)(c)............... $ 337 $ 264 $(1,715)
International operations (a)............ 18 8 (1)
Harmon (a).............................. 5 5 (1)
------ ------- -------
Consolidated (a)(b)(c).................. 360 277 (1,717)
Amortization of goodwill and goodwill
write-off (a)........................... -- -- 2,023
Depreciation.............................. 99 96 89
Environmental charge (b).................. -- 20 --
Employee stock compensation (c)........... -- -- (8)
------ ------- -------
EBITDA(d)............................... $ 459 $ 393 $ 387
====== ======= =======
Consolidated net income (loss)............ $ 15 $ (70) $(2,052)
====== ======= =======
EBITDA as a percent of net sales(d)....... 28.3% 30.8% 32.6%

_____________________

(a) During the third quarter of 1993, the Company wrote off the remaining
unamortized balance of its goodwill of $1.98 billion. See Note 3 to the
Company's audited consolidated financial statements.

(b) During the fourth quarter of 1994, operating income for domestic tissue
operations was reduced by a $20 million environmental charge. See Note 11 to
the Company's audited consolidated financial statements.

(c) Selling, general and administrative expense in 1993 reflects an $8 million
reduction for the reversal of all employee stock compensation expense accrued
prior to 1993. See Note 9 to the Company's audited consolidated financial
statements.

(d) EBITDA represents operating income plus depreciation of property, plant
and equipment, amortization of goodwill, the goodwill write-off, the 1994
environmental charge and the effects of 1993 employee stock compensation
(credits). EBITDA is presented here as a measure of the Company's debt
service ability. Certain financial and other restrictive covenants in the
1995 Bank Credit Agreement and other instruments governing the Company's
indebtedness are based on the Company's EBITDA, subject to certain
adjustments.

- 15 -
FISCAL YEAR 1995 COMPARED TO FISCAL YEAR 1994

Net Sales. Consolidated net sales for 1995 increased 27.2% compared to
1994. Domestic tissue net sales for 1995 increased 24.6% compared to 1994 due
to net selling price increases of 22.4%, converted products volume increases
of 4.4% and reduced parent roll export volume. The significant increase in
domestic net selling prices in 1995 reflects commercial market price increase
announcements effective January 1995, April 1995, July 1995 and September 1995
and consumer market price increase announcements effective January 1995 and
July 1995, all in response to rising raw material costs and improving
operating rates in the tissue industry. Domestic volume of the Company's
commercial products was flat for the full year 1995 compared to 1994.
Significant volume growth in the first quarter of 1995 was offset by volume
declines in succeeding quarters. The Company's firm implementation of price
increases led to the commercial volume declines beginning in the second
quarter of 1995. Domestic consumer volume was significantly higher throughout
1995 compared to 1994 due to strong consumer market demand for the Company's
products.

Net sales of the Company's international operations increased 24.8% for
1995 compared to 1994 due to a significant increase in net selling prices,
slightly higher volume of converted products and the benefit from the change
in foreign exchange rates, while parent roll volume was reduced. Net sales of
the Company's wastepaper brokerage subsidiary, Harmon Associates Corp.
("Harmon"), increased 63.8% for 1995 due to higher selling prices and slightly
higher volume.

Gross income. For 1995, consolidated gross income increased 18.3% due to
higher selling prices and to a much lesser degree, higher domestic volume,
partially offset by higher raw material costs. Consolidated gross margins
decreased to 29.7% for 1995 from 31.9% for 1994 and 34.0% for 1993 as a result
of significant raw material cost increases that began in mid-1994 and
continued until mid-1995. However, beginning in the second quarter of 1995,
as net selling price increases began to offset raw material cost increases,
consolidated gross margins began to recover and reached 34.0% in the fourth
quarter of 1995, the same rate achieved in full year 1993. Domestic tissue
gross margins in 1995 exhibited trends similar to consolidated gross margins.
Beginning in July 1994, domestic wastepaper prices rose sharply until
flattening in the second and third quarters of 1995. Average wastepaper
prices in the fourth quarter of 1995 were higher than average wastepaper
prices in the fourth quarter of 1994. However, wastepaper prices fell
significantly in the fourth quarter of 1995 from the third quarter of 1995 and
by December 1995 were significantly below wastepaper prices in December 1994.
Wastepaper price trends are expected to remain positive for the first quarter
of 1996, however, the direction of wastepaper price trends in succeeding
quarters is uncertain due to general economic factors, virgin market pulp
price trends and expected increases in demand for wastepaper arising from
scheduled start-ups of deinked market pulp mills and from export markets.
Costs of other raw materials also increased during 1995 compared to 1994 but
to a much lesser extent, while all other costs were flat or declined due to
efficiencies achieved from higher volumes.

Gross margins of international operations increased in 1995 compared to
1994 in spite of significantly higher wastepaper prices due to the benefits
achieved from product rationalization in 1994 and the success of 1995 price
increases. Wastepaper price trends in the U.K. were similar to those in the
U.S. in 1995.

- 16 -
Consolidated gross margins were negatively affected in 1995 by the
increased proportion of net sales represented by the Company's wastepaper
brokerage subsidiary which typically has very low margins compared to domestic
tissue operations.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses, as a percent of net sales, decreased to 7.5% for 1995
compared to 8.6% for 1994. The decrease occurred principally due to the
effects of significantly higher net sales.

Operating Income. Operating income increased to $360 million in 1995
compared to $277 million in 1994. Excluding the environmental charge from
1994 results, operating income would have been $297 million in 1994.
Operating income as a percent of net sales decreased to 22.2% in 1995 compared
to 23.3% in 1994, as adjusted for the environmental charge. Domestic tissue
operating income as a percent of net sales decreased to 25.5% in 1995 from
26.9% in 1994, also as adjusted for the environmental charge. The decreases
are due to significantly higher raw material costs in 1995 partially offset by
significantly higher net selling prices and higher domestic volume. Operating
income as a percent of net sales began to recover beginning in the second
quarter of 1995, similar to gross margin trends, such that consolidated and
domestic tissue operating income as a percent of net sales reached 25.5% and
27.9%, respectively, in the fourth quarter of 1995.

Extraordinary Loss. The Company's net income in 1995 was decreased by an
extraordinary loss of $19 million (net of income taxes of $12 million)
representing the redemption premiums and write-offs of deferred loan costs
associated with the Recapitalization (see below).

Net Income. The Company reported net income of $15 million for 1995
compared to a net loss of $70 million for 1994.

FISCAL YEAR 1994 COMPARED TO FISCAL YEAR 1993

Net Sales. Consolidated net sales for 1994 increased 7.3% compared to
1993 due to increases in domestic tissue net sales and a significant net sales
increase by the Company's wastepaper brokerage subsidiary. Domestic tissue
net sales increased 5.5% for 1994 compared to 1993 due to higher net selling
prices principally in the commercial market and higher sales volume in the
consumer and parent roll export markets that were partially offset by a volume
decrease in the commercial market. Overall, domestic tissue sales volume for
1994 increased slightly over 1993. The Company's decision to implement net
selling price increases in the commercial market during each of the first
three quarters of 1993 and to follow with a price increase in the second
quarter of 1994 led to the decline in commercial volume during 1994.

Net sales of the Company's international operations decreased 8.4% for
1994 compared to 1993. The decrease in international net sales in 1994 was
due to significantly lower net selling prices on flat volume. The
international net selling price declines were attributable to product mix
changes and continued competitive conditions. The significant increase in net
sales of the Company's wastepaper brokerage subsidiary during 1994 compared to
1993 principally reflects higher net selling prices.

- 17 -
Gross income. For 1994, consolidated gross margins decreased to 31.9%
from 34.0% in 1993, principally due to lower margins in domestic tissue
operations where unit manufacturing cost increases exceeded net selling price
increases. Such cost increases primarily resulted from higher wastepaper and
other raw material costs, lower converting volume, higher depreciation expense
resulting from the start-up of a new paper machine at the Muskogee mill late
in the first quarter of 1994 and higher maintenance costs. From July to
December 1994, wastepaper prices for the grades of wastepaper used in
Fort Howard's products more than doubled.

Gross margins of international operations declined in 1994 compared to
1993 principally due to the lower net selling prices and the effects of
product rationalization. In addition, from July to December 1994, wastepaper
prices for the grades of wastepaper used by international operations increased
approximately 65%. Consolidated gross margins also were negatively affected
in 1994 by the increased proportion of net sales represented by the Company's
wastepaper brokerage subsidiary which typically has lower margins than
domestic tissue operations.

Selling, General and Administrative Expenses. In the third quarter of
1993, the Company reversed all previously accrued employee stock compensation
expense resulting in a reduction of selling, general and administrative
expenses of $8 million for 1993. Excluding the effects of the reversal,
selling, general and administrative expenses, as a percent of net sales, were
8.6% for 1994 compared to 8.8% for 1993. The decrease resulted principally
from the increased proportion of net sales represented by the Company's
wastepaper brokerage subsidiary and, to a lesser degree, cost containment.

Amortization of Goodwill. As a result of the goodwill write-off in the
third quarter of 1993, there was no amortization of goodwill in 1994 compared
to $43 million for 1993.

Environmental Charge. The Company recorded a $20 million charge in the
fourth quarter of 1994 for estimated or anticipated liabilities and legal and
consulting costs relating to environmental matters arising from past
operations. The Company expects these costs to be incurred over an extended
number of years. See "Environmental Matters" and "Legal Proceedings" and
Note 11 of the Company's audited consolidated financial statements.

Operating Income (Loss). Operating income increased to $277 million in
1994 compared to an operating loss of $1,717 million in 1993. The operating
loss in 1993 resulted entirely from the goodwill write-off in the third
quarter of 1993. Excluding the environmental charge from 1994 results and
amortization of goodwill, the goodwill write-off and the reversal of employee
stock compensation expense from 1993 results, operating income would have
declined to $297 million in 1994 from $299 million in 1993.

Extraordinary Losses. The Company's net loss in 1994 was increased by an
extraordinary loss of $28 million (net of income taxes of $15 million)
representing the redemption premiums and the write off of deferred loan costs
associated with the repayment of long-term debt from the proceeds of the
issuance of the 8 1/4% Notes and 9% Notes in 1994.

Net Loss. The Company reported a net loss of $70 million for 1994
compared to a net loss of $2,052 million in 1993. The significant net loss
for 1993 resulted principally from the goodwill write-off in the third quarter
of 1993.

- 18 -
FINANCIAL CONDITION

Year Ended December 31, 1995

During 1995, cash increased $524,000. Capital additions of $47 million,
debt repayments of $1,811 million, including the prepayment or repurchase of
all of the 1988 Term Loan, the 1988 Revolving Credit Facility, the 1993 Term
Loan and the Senior Secured Notes, repayment of the 1995 Receivables Facility
and the redemption of all the outstanding 12 5/8% Debentures and 14 1/8%
Debentures, were funded principally by cash provided from operations of
$157 million (including proceeds of $63 million from the sale of certain
domestic tissue receivables), net proceeds of $284 million from the sale of
Common Stock and borrowings of $1,418 million (net of $50 million of debt
issuance costs) pursuant to the Recapitalization (see below).

Receivables decreased $25 million during 1995 due principally to the sale
of certain domestic tissue receivables of $63 million, which was largely
offset by the effects of an increase in net sales and significantly higher net
selling prices in all the Company's businesses. Inventories increased by
$32 million principally due to an increase in inventory quantities. Parent
roll and wastepaper inventories were increased to reflect currently lower
priced wastepaper and to maximize the flexibility of existing productive
capacity. The liability for interest payable decreased $20 million due to the
early payment of interest in connection with the Recapitalization.
Principally as a result of all these changes and the $53 million reduction in
the current portion of long-term debt, the net working capital deficit
decreased to $35 million at December 31, 1995, from a deficit of $98 million
at December 31, 1994.

Year Ended December 31, 1994

During 1994, cash increased $195,000. Capital additions of $84 million
and debt repayments of $759 million, including the prepayment of $100 million
of the 1988 Term Loan, the repurchases of all outstanding 12 3/8% Notes and of
$238 million of the 12 5/8% Debentures, a reduction in the 1988 Revolving
Credit Facility and the purchase of interest rate cap agreements for
$10 million were funded by cash provided from operations of $125 million and
net proceeds of the sale of 8 1/4% Notes and 9% Notes of $728 million in
February 1994.

Receivables increased $17 million during 1994 due principally to higher
net selling prices in the domestic tissue and wastepaper brokerage operations
and sales volume increases in domestic tissue operations in the fourth quarter
of 1994. The $13 million increase in inventories in 1994 resulted from
increases in inventory quantities to improve service levels and the
revaluation of inventories to reflect higher manufacturing costs. The
liability for interest payable increased $29 million due to a change in
interest payment schedules resulting from the 1994 debt repurchases from the
net proceeds of the sale of the 8 1/4% Notes and 9% Notes in 1994 and for the
liability with respect to the 14 1/8% Debentures for interest accruing in cash
commencing on November 1, 1994. Principally as a result of all these changes,
the net working capital deficit increased to $98 million at December 31, 1994,
from a deficit of $92 million at December 31, 1993. The $15 million increase
in long-term other liabilities in 1994 principally reflects the classification
of $18 million of the environmental charge taken in the fourth quarter as a
long-term liability. Deferred and other long-term income taxes declined

- 19 -
$34 million from 1993 to 1994 principally due to the reversal of deferred
income taxes related to continuing operations and the extraordinary item.

Cash provided from operations declined in 1994 compared to 1993
principally due to increased interest payments resulting from the 1993
repurchases of all outstanding 14 5/8% Debentures (which accrued interest in
kind) from the net proceeds of the sale of the 9 1/4% Notes and 10% Notes in
1993 (which accrue interest in cash) and higher floating interest rates. Cash
provided from operations was further impacted by the increases in receivables
and inventories.

Liquidity and Capital Resources

The Company's principal uses of cash for the next several years will be
interest and principal payments on its indebtedness and capital expenditures.

On April 15, 1995, the Company completed a recapitalization plan (the
"Recapitalization") to prepay or redeem a substantial portion of its
indebtedness in order to reduce the level and overall cost of its debt, extend
certain debt maturities, increase shareholders' equity and enhance its access
to capital markets. The Recapitalization included the following components:
(1) the offer and sale by the Company of 25,269,555 shares of Common Stock in
March and April 1995, at $12.00 per share (the "Offering"); (2) entering into
a bank credit agreement (the "1995 Bank Credit Agreement") consisting of a
$300 million revolving credit facility (the "1995 Revolving Credit Facility"),
an $810 million term loan and a $330 million term loan and entering into a
receivables credit agreement consisting of a $60 million term loan (the "1995
Receivables Facility"); (3) the application in March and April 1995 of the net
proceeds of the Offering, together with borrowings under the 1995 Bank Credit
Agreement and the 1995 Receivables Facility, to prepay or redeem all the
Company's indebtedness outstanding under the 1988 Bank Credit Agreement, 1993
Term Loan, Senior Secured Notes, 14 1/8% Debentures (at par) and 12 5/8%
Debentures (at 102.5% of the principal amount thereof); and (4) the payment of
transaction costs. Following the Recapitalization, the Company has payment
obligations of $63 million in 1996, $114 million in 1997, $138 million in
1998, $152 million in 1999 and $158 million in 2000.

In September 1995, the Company entered into receivables sales agreements
which segregate certain domestic tissue receivables from the Company's other
assets and liabilities for the purpose of effecting the sales of such
receivables in order to achieve a lower cost of borrowing based on the credit
quality of the receivables. As a result, receivables were reduced by
$60 million, the 1995 Receivables Facility was repaid and the interest cost on
the 1995 Receivables Facility of 2.5% over LIBOR has been effectively replaced
by financing costs equal to 0.25% to 0.65% over LIBOR on $60 million. In
connection with these agreements, additional revolving funds of up to
$25 million may be available to the Company, resulting in further decreases in
receivables and interest costs. At December 31, 1995, the Company had drawn
$3 million against the additional revolving funds under these agreements.

Capital expenditures were $47 million, $84 million and $166 million in
1995, 1994 and 1993, respectively, including an aggregate of $175 million
during those periods for capacity expansions. Subject to market conditions,
the Company's current plans to support growth in domestic tissue shipments
include adding one world-class (270-inch) tissue paper machine over the next
five years. The 1995 Bank Credit Agreement imposes limits for domestic

- 20 -
capital expenditures, with certain exceptions, of $75 million per year. The
Company is also permitted to spend up to $250 million for domestic expansion
projects including, without restriction, an additional tissue paper machine at
one of its existing domestic mills. Other domestic expansion projects are
restricted unless certain conditions are met. In addition, the Company is
permitted to make capital expenditures for international expansion of up to
$40 million through June 30, 1996, and up to $100 million in the aggregate
after June 30, 1996 if certain conditions are met. Under the 1995 Bank Credit
Agreement, the Company may carry over to one or more years (thereby increasing
the scheduled permitted limit for capital expenditures in respect of such
year) the amount by which the scheduled permitted limit for each year
(beginning with fiscal year 1995) exceeded the capital expenditures actually
made in respect of such prior year. At December 31, 1995, the capital
expenditures carryover available to the Company totaled $31 million. The
Company does not believe such limitations will impair its plans for capital
expenditures. Capital expenditures are projected to approximate $90 to
$100 million annually for the next several years, plus domestic expansion
capital spending that is subject to market conditions. The portions of the
above capital expenditures which are attributable to environmental matters are
described in "Environmental Matters."

The Company's 1995 Revolving Credit Facility, which may be used for
general corporate purposes, has a final maturity of March 16, 2002. At
December 31, 1995, the Company had $221 million in available capacity under
the 1995 Revolving Credit Facility.

The Company believes that cash provided from operations, unused borrowing
capacity under the 1995 Revolving Credit Facility and access to financing in
public and private markets will be sufficient to enable it to fund capital
expenditures (including planned capital expenditures for environmental
matters) and to meet its debt service requirements for the foreseeable future.

Refer to Note 4 to the audited consolidated financial statements for a
description of certain matters related to income taxes. Also see "Legal
Proceedings."

Seasonality

Historically, a slightly higher amount of the Company's revenues and
operating income have been recognized during the second and third quarters.
The Company expects to fund seasonal working capital needs from the 1995
Revolving Credit Facility.

- 21 -

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING

The management of Fort Howard Corporation is responsible for the
preparation, integrity and fair presentation of the following financial
statements. These financial statements have been prepared by management in
accordance with generally accepted accounting principles and where necessary
include amounts based on management's judgments and estimates. Management
also prepared the other information in this annual report and is responsible
for its integrity and consistency with the financial statements.

Fort Howard Corporation is committed to conducting its business with
integrity and in accordance with all applicable laws, rules and regulations.
This commitment is reflected in the Company's Code of Conduct. The Code of
Conduct is annually communicated to employees and compliance is monitored
regularly to provide reasonable assurance that the Company's business is being
conducted in accordance with the Code of Conduct.

The Company maintains a system of internal accounting controls designed
to provide reasonable assurance that the Company's assets are safeguarded and
that transactions are executed and recorded according to management's
authorizations in order to create financial records reliable for the
preparation of financial statements. Management continuously evaluates its
system of internal accounting controls in response to changes in business
conditions and operations, staff turnover and development of new technologies
and, as a result, enhances existing controls with the objective of maintaining
a strong internal control environment. In addition, the Company's internal
audit staff monitors the effectiveness of internal controls through
operational audits of this system, reporting their findings and
recommendations for improvement to management.

The financial statements of the Company have been audited by
Arthur Andersen LLP. The independent accountants were provided with
unrestricted access to all financial records and related data in order to
perform their tests and other procedures. Their opinion on the fairness of
the Company's financial statements appears on the next page.

The Audit Committee of the Board of Directors, composed solely of outside
directors, meets periodically with the Company's management, internal auditors
and independent accountants to review the adequacy of significant internal
control systems, the nature, extent and results of internal and external
audits and reported financial results. The Audit Committee maintains direct
and independent access with the independent accountants.

In conclusion, management believes that as of December 31, 1995, the
Company's internal control systems over financial reporting are adequate and
operating effectively in all material respects.

Donald H. DeMeuse, Chairman and Kathleen J. Hempel, Vice Chairman
Chief Executive Officer and Chief Financial Officer

- 22 -

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors of FORT HOWARD CORPORATION:

We have audited the accompanying consolidated balance sheets of
Fort Howard Corporation (a Delaware corporation) and subsidiaries as of
December 31, 1995 and 1994, and the related consolidated statements of income
and cash flows for the years ended December 31, 1995, 1994 and 1993. 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Fort Howard Corporation and subsidiaries as of December 31, 1995 and 1994,
and the consolidated results of their operations and their cash flows for the
years ended December 31, 1995, 1994 and 1993, in conformity with generally
accepted accounting principles.

ARTHUR ANDERSEN LLP

Milwaukee, Wisconsin,
January 30, 1996.

- 23 -

FORT HOWARD CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)

For the Years Ended December 31,
--------------------------------
1995 1994 1993
---- ---- ----

Net sales............................. $1,620,903 $ 1,274,445 $ 1,187,387
Cost of sales......................... 1,139,378 867,357 784,054
---------- ----------- -----------
Gross income.......................... 481,525 407,088 403,333
Selling, general and administrative... 121,406 110,285 96,966
Amortization of goodwill.............. -- -- 42,576
Goodwill write-off.................... -- -- 1,980,427
Environmental charge.................. -- 20,000 --
---------- ----------- -----------
Operating income (loss)............... 360,119 276,803 (1,716,636)
Interest expense...................... 309,915 337,701 342,792
Other (income) expense, net........... (1,662) 118 (2,996)
---------- ----------- -----------
Income (loss) before taxes............ 51,866 (61,016) (2,056,432)
Income taxes (credit)................. 18,401 (18,891) (16,314)
---------- ----------- -----------
Income (loss) before extraordinary
items............................... 33,465 (42,125) (2,040,118)
Extraordinary items--losses on
debt repurchases (net of income
taxes of $11,986 in 1995, $14,731
in 1994 and $7,333 in 1993)......... (18,748) (28,170) (11,964)
---------- ----------- -----------
Net income (loss)..................... $ 14,717 $ (70,295) $(2,052,082)
========== =========== ===========

Earnings (loss) per share:
Net income (loss) before
extraordinary items............... $ 0.57 $ (1.11) $ (53.54)
Extraordinary items................. (0.32) (0.74) (0.31)
---------- ----------- -----------
Net income (loss)................... $ 0.25 $ (1.85) $ (53.85)
========== =========== ===========

The accompanying notes are an integral part of these consolidated financial
statements.

- 24 -

FORT HOWARD CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)

December 31,
-------------------
1995 1994
---- ----

Assets
Current assets:
Cash and cash equivalents.................. $ 946 $ 422
Receivables, less allowances of $2,883
in 1995 and $1,589 in 1994............... 97,707 123,150
Inventories................................ 163,076 130,843
Deferred income taxes...................... 29,000 20,000
Income taxes receivable.................... 700 5,200
----------- -----------
Total current assets..................... 291,429 279,615
Property, plant and equipment................ 1,971,641 1,932,713
Less: Accumulated depreciation............. 706,394 611,762
----------- -----------
Net property, plant and equipment........ 1,265,247 1,320,951
Other assets................................. 95,761 80,332
----------- -----------
Total assets........................... $ 1,652,437 $ 1,680,898
=========== ===========

Liabilities and Shareholders' Deficit
Current liabilities:
Accounts payable........................... $ 112,384 $ 100,981
Interest payable........................... 64,375 84,273
Income taxes payable....................... 1,339 224
Other current liabilities.................. 85,351 75,450
Current portion of long-term debt.......... 62,720 116,203
----------- -----------
Total current liabilities................ 326,169 377,131
Long-term debt............................... 2,903,299 3,189,644
Deferred and other long-term income taxes.... 225,043 209,697
Other liabilities............................ 36,355 41,162
Common Stock with put right.................. -- 11,711
Shareholders' deficit:
Common Stock............................... 634 381
Additional paid-in capital................. 895,652 600,090
Cumulative translation adjustment.......... (2,844) (2,330)
Retained deficit........................... (2,731,871) (2,746,588)
----------- -----------
Total shareholders' deficit.............. (1,838,429) (2,148,447)
----------- -----------
Total liabilities and shareholders'
deficit.............................. $ 1,652,437 $ 1,680,898
=========== ===========

The accompanying notes are an integral part of these consolidated financial
statements.

- 25 -

FORT HOWARD CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
For the Year Ended December 31,
-------------------------------
1995 1994 1993
---- ---- ----
Cash provided from (used for) operations:
Net income (loss)........................ $ 14,717 $(70,295) $(2,052,082)
Depreciation and amortization............ 98,882 95,727 130,671
Goodwill write-off....................... -- -- 1,980,427
Non-cash interest expense................ 12,925 74,238 100,844
Deferred income taxes (credit)........... 4,418 (33,832) (17,874)
Environmental charge..................... -- 20,000 --
Employee stock compensation.............. -- -- (7,832)
Pre-tax loss on debt repurchases......... 30,734 42,901 19,297
(Increase) decrease in receivables....... 25,443 (17,316) (2,343)
Increase in inventories.................. (32,233) (12,574) (17,294)
(Increase) decrease in income taxes
receivable............................. 4,500 4,300 (7,000)
Increase (decrease) in accounts payable.. 11,403 (684) (2,740)
Increase (decrease) in interest payable.. (19,898) 29,419 21,797
Increase (decrease) in income taxes
payable................................ 1,115 102 (1,670)
All other, net........................... 4,930 (6,799) 6,854
---------- -------- -----------
Net cash provided from operations.... 156,936 125,187 151,055

Cash used for investment activities:
Additions to property, plant and
equipment.............................. (47,296) (83,559) (165,539)

Cash provided from (used for)
financing activities:
Proceeds from long-term borrowings....... 1,467,800 750,000 887,088
Repayment of long-term borrowings........ (1,810,966) (759,202) (841,399)
Debt issuance costs...................... (50,054) (32,134) (31,160)
Issuance (repurchase) of Common
Stock, net of offering costs........... 284,104 (97) (6)
---------- -------- -----------
Net cash provided from (used for)
financing activities............... (109,116) (41,433) 14,523
---------- -------- -----------
Increase (decrease) in cash................ 524 195 39
Cash, beginning of year.................... 422 227 188
---------- -------- -----------
Cash, end of year.................... $ 946 $ 422 $ 227
========== ======== ===========

Supplemental Cash Flow Disclosures:
Interest paid............................ $ 317,866 $237,650 $ 228,360
Income taxes paid (refunded), net........ (5,728) 2,483 4,432

The accompanying notes are an integral part of these consolidated financial
statements.

- 26 -

FORT HOWARD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995

1. SIGNIFICANT ACCOUNTING POLICIES

(A) OPERATIONS -- The Company operates in one industry segment as a
manufacturer, converter and marketer of a diversified line of single-use
tissue products for the commercial and consumer markets, primarily in the
United States and United Kingdom.

(B) PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements
include the accounts of Fort Howard Corporation and all domestic and foreign
subsidiaries and are prepared in conformity with U.S. generally accepted
accounting principles. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates. Assets and liabilities of foreign subsidiaries are translated at
the rates of exchange in effect at the balance sheet date. Income amounts are
translated at the average of the monthly exchange rates. The cumulative
effect of translation adjustments is deferred and classified as a cumulative
translation adjustment in the consolidated balance sheet. The Company
currently does not hedge its translation exposure. The Company does not
engage in material hedging activity with respect to foreign currency
transaction risks. All significant intercompany accounts and transactions
have been eliminated. Certain reclassifications have been made to conform
prior years' data to the current format.

(C) CASH AND CASH EQUIVALENTS -- The Company considers all highly liquid
investments with a maturity of three months or less when purchased to be cash
equivalents. The carrying amount of cash equivalents approximates fair value
due to the short maturity of the investments.

(D) INVENTORIES -- Inventories are carried at the lower of cost or
market. Cost is principally determined on a first-in, first-out basis, with a
lesser portion determined on an average cost by specific lot method.

(E) PROPERTY, PLANT AND EQUIPMENT -- Effective with the Acquisition (as
defined below), property, plant and equipment were adjusted to their estimated
fair values and are being depreciated on a straight-line basis over useful
lives of 30 to 50 years for buildings and 2 to 25 years for equipment. In
1995, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of" ("SFAS No. 121"). The
Company's adoption of SFAS No. 121 effective January 1, 1995 had no effect on
the 1995 consolidated financial statements.

Assets under capital leases principally arose in connection with sale and
leaseback transactions as described in Note 6 and are stated at the present
value of future minimum lease payments. These assets are amortized over the
respective periods of the leases which range from 15 to 25 years.
Amortization of assets under capital leases is included in depreciation
expense.

- 27 -
The Company follows the policy of capitalizing interest incurred in
conjunction with major capital expenditure projects. The amounts capitalized
in 1995, 1994 and 1993 were $2,096,000, $4,230,000 and $8,369,000,
respectively.

(F) REVENUE RECOGNITION -- Sales of the Company's tissue products are
recorded upon shipment of the products.

(G) ENVIRONMENTAL EXPENDITURES -- Environmental expenditures that relate
to current operations are expensed or capitalized as appropriate.
Expenditures that relate to an existing condition caused by past operations,
and which do not contribute to current or future revenue generation, are
expensed. Liabilities are recorded when material environmental assessments
and/or remedial efforts are probable, and the cost can be reasonably
estimated. Recoveries of environmental remediation costs from other
potentially responsible parties and recoveries from insurance carriers are not
recorded as assets until such time as their receipt is deemed probable and the
amounts are reasonably estimable.

(H) GOODWILL -- In 1988, FH Acquisition Corp., a company organized on
behalf of The Morgan Stanley Leveraged Equity Fund II, L.P. ("MSLEF II"),
acquired the Company in a leveraged buyout and was subsequently merged with
and into the Company (the "Acquisition"). Goodwill (the acquisition costs in
excess of the fair value of net assets of acquired businesses) acquired in
connection with the Acquisition and the purchases of other businesses was
amortized on a straight-line basis over 40 years through the third quarter of
1993 when the Company wrote off its remaining goodwill balance (see Note 3).

(I) EMPLOYEE BENEFIT PLANS -- A substantial majority of the Company's
employees are covered under defined contribution plans. The Company makes
annual discretionary contributions under the plans. Participants may also
contribute a certain percentage of their wages to the plans. Costs charged to
operations for defined contributions plans were approximately $13,231,000,
$12,716,000 and $12,725,000 for 1995, 1994 and 1993, respectively.

The Company follows SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" which requires that the expected
cost of postretirement health care benefits be charged to expense during the
years that employees render service (see Note 7). Employees retiring prior to
February 1, 1990 from the Company's U.S. tissue operations who had met certain
eligibility requirements are entitled to postretirement health care benefit
coverage. These benefits are subject to deductibles, copayment provisions, a
lifetime maximum benefit and other limitations. In addition, employees who
retire after January 31, 1990 and meet certain age and years of service
requirements may purchase health care benefit coverage from the Company up to
age 65. The Company has reserved the right to change or terminate this
benefit for active employees at any time. Employees of the Company's U.K.
tissue operations are not entitled to Company-provided postretirement benefit
coverage.

(J) INTEREST RATE CAP AGREEMENTS -- The costs of interest rate cap
agreements are amortized over the respective lives of the agreements.

- 28 -
(K) INCOME TAXES -- The Company follows SFAS No. 109, "Accounting for
Income Taxes." As a result, deferred income taxes are provided to recognize
temporary differences between the financial reporting basis and the tax basis
of the Company's assets and liabilities using enacted tax rates in effect in
the years in which the differences are expected to reverse. The principal
difference relates to depreciation expense. Deferred income tax expense
represents the change in the deferred income tax asset and liability balances,
excluding the deferred tax benefit related to extraordinary losses.

(L) EARNINGS (LOSS) PER SHARE -- Earnings (loss) per share has been
computed on the basis of the average number of common shares outstanding
during the years, after giving retroactive effect to a 6.5-for-one stock split
on January 31, 1995. The average number of shares used in the computation was
58,227,712, 38,103,215 and 38,107,154 for 1995, 1994 and 1993, respectively.
The assumed exercise of all outstanding stock options has been excluded from
the computation of earnings (loss) per share in 1995, 1994 and 1993 because
the result was not material or was antidilutive.

2. BALANCE SHEET INFORMATION

December 31,
------------------
1995 1994
---- ----
(In thousands)
Inventories

Raw materials and supplies........................ $ 80,134 $ 63,721
Finished and partly-finished products............. 82,942 67,122
---------- ----------
$ 163,076 $ 130,843
========== ==========

Property, Plant and Equipment

Land.............................................. $ 45,523 $ 44,422
Buildings......................................... 326,207 325,395
Machinery and equipment........................... 1,586,627 1,527,865
Construction in progress.......................... 13,284 35,031
---------- ----------
$1,971,641 $1,932,713
========== ==========

Capital Lease Assets (Included in Property, Plant
and Equipment Totals Above)

Buildings......................................... $ 4,008 $ 4,012
Machinery and equipment........................... 187,007 186,281
---------- ----------
Total assets under capital leases............. $ 191,015 $ 190,293
========== ==========

- 29 -
December 31,
-------------------
1995 1994
---- ----
(In thousands)
Other Assets

Deferred loan costs, net of accumulated amortization.. $89,180 $76,640
Prepayments and other................................. 6,581 3,692
------- -------
$95,761 $80,332
======= =======
Other Current Liabilities

Salaries and wages.................................... $51,797 $41,959
Contributions to employee benefit plans............... 13,226 12,816
Taxes other than income taxes......................... 6,442 5,615
Other accrued expenses................................ 13,886 15,060
------- -------
$85,351 $75,450
======= =======

3. GOODWILL

Low industry operating rates and aggressive competitive activity among
tissue producers resulting from a recession, additions to capacity and other
factors adversely affected tissue industry operating conditions and the
Company's operating results from 1991 through September 30, 1993. The Company
determined that its projected results would not support the future
amortization of the Company's remaining goodwill balance at September 30,
1993. Accordingly, the Company wrote-off its remaining goodwill balance of
$1.98 billion in the third quarter of 1993.

4. INCOME TAXES

Year Ended December 31,
----------------------------
1995 1994 1993
---- ---- ----
(In thousands)
Income Tax Provision

Current
Federal.................................. $ (304) $ 1,800 $ (6,012)
State.................................... 768 509 465
Foreign.................................. 1,533 (2,099) (225)
------- -------- --------
Total current........................ 1,997 210 (5,772)
Deferred
Federal.................................. 17,227 (18,826) (7,731)
State.................................... (2,739) (2,793) (2,956)
Foreign.................................. 1,916 2,518 145
------- -------- --------
Total deferred....................... 16,404 (19,101) (10,542)
------- -------- --------
$18,401 $(18,891) $(16,314)
======= ======== ========

- 30 -
Year Ended December 31,
-----------------------------
1995 1994 1993
---- ---- ----
(In thousands)
Effective Tax Rate Reconciliation

U.S. federal tax rate...................... 35.0% (34.0)% (34.0)%
Amortization of intangibles................ -- -- 33.4
State income taxes, net.................... 2.1 (4.1) (0.1)
Interest on long-term income taxes......... -- 3.3 --
Permanent differences related to accruals.. -- 3.3 --
Other, net................................. (1.6) 0.5 (0.1)
------- -------- --------
Effective tax rate......................... 35.5% (31.0)% (0.8)%
======= ======== ========

Income (Loss) Before Income Taxes

Domestic................................... $39,067 $(62,711) $(2,048,746)
Foreign.................................... 12,799 1,695 (7,686)
------- -------- -----------
$51,866 $(61,016) $(2,056,432)
======= ======== ===========

The net deferred income tax liability at December 31, 1995 includes
$242 million related to property, plant and equipment offset by the
recognition of federal and state loss and tax credit carryforwards totaling
$71 million. All other components of the gross deferred income tax assets and
gross deferred income tax liabilities are individually not significant. The
Company has not recorded a valuation allowance with respect to any deferred
income tax asset.

- 31 -
of such disallowance for the period 1989 through 1995 would be approximately
$38 million exclusive of interest. While the Company is unable to predict the
final result of its appeal of the U.S. Tax Court decision with certainty, it
has accrued for the potential tax liability as well as for the interest
charges thereon for the period 1989 through 1995 and thus the Company believes
that the ultimate resolution of this case will not have a material adverse
effect on the Company's financial condition or on its results of operations,
and could result in a reversal of previously provided income taxes in the
event of a resolution of the matter in the favor of the Company. It is
possible that certain legislative activities could bring resolution to this
matter in 1996. Should the matter proceed to the U.S. Court of Appeals, it is
likely that it will not be resolved until 1997 or later.

Assuming a favorable resolution of the U.S. Tax Court decision, the
Company will have approximately $137 million of net operating loss
carryforwards as of December 31, 1995 for federal income tax purposes which
expire as follows: $8 million in 2007, $47 million in 2008, $69 million in
2009 and $13 million in 2010. The aggregate amount of net operating loss
carryforwards available to the Company as of December 31, 1995 could be
reduced to approximately $66 million if the U.S. Tax Court decision is
affirmed. During 1994, the Company reclassified $11 million from the
liability for other long-term income taxes to the liability for current income
taxes principally to reflect the payments totaling $9 million made to the IRS
with respect to the 1988 tax year.

- 32 -
5. LONG-TERM DEBT

Long-term debt and capital lease obligations, including amounts payable
within one year, are summarized as follows:

December 31,
----------------
1995 1994
---- ----
(In thousands)
1995 Term Loan A, due in varying semi-annual
repayments with a final maturity of
March 16, 2002 (a).................................. $ 810,000 $ --
1995 Term Loan B, due in varying semi-annual
repayments with a final maturity of
December 31, 2002 (b)............................... 330,000 --
1995 Revolving Credit Facility, due
March 16, 2002 (i).................................. 79,400 --
Senior Unsecured Notes, 9 1/4%, due March 15, 2001.... 450,000 450,000
Senior Unsecured Notes, 8 1/4%, due February 1, 2002.. 100,000 100,000
Senior Subordinated Notes, 9%, due February 1, 2006... 650,000 650,000
Subordinated Notes, 10%, due March 15, 2003........... 300,000 300,000
Capital lease obligations, at interest rates
approximating 10.9%................................. 175,161 182,936
Pollution Control Revenue Refunding Bonds, 7.90%,
due October 1, 2005................................. 42,000 42,000
Debt of foreign subsidiaries, at rates ranging from
7.60% to 8.66%, due in varying annual installments
through March 2001.................................. 29,458 47,193
1988 Term Loan, repaid in 1995........................ -- 224,534
1988 Revolving Credit Facility, repaid in 1995........ -- 196,500
1993 Term Loan, repaid in 1995........................ -- 100,000
Senior Secured Notes, repaid in 1995.................. -- 300,000
Subordinated Debentures, 12 5/8%, redeemed in 1995.... -- 145,815
Junior Subordinated Discount Debentures, interest
payable in kind at 14 1/8%, redeemed in 1995........ -- 566,869
---------- ----------
2,966,019 3,305,847
Less: Current portion of long-term debt............... 62,720 116,203
---------- ----------
$2,903,299 $3,189,644
========== ==========
_____________________

(a) Interest on the 1995 Term Loan A and the 1995 Revolving Credit Facility
is payable at prime plus 1.5% or, subject to certain limitations, at a reserve
adjusted LIBOR rate plus 2.5% subject to downward adjustment if certain
financial criteria are met (at a weighted average rate of 8.26% at
December 31, 1995).

(b) Interest on the 1995 Term Loan B is payable at prime plus 1.5% or at a
reserve adjusted LIBOR rate plus 3.0% (at a weighted average rate of 8.74% at
December 31, 1995).

As a part of the Recapitalization and Offering (see Note 8), the Company
entered into a bank credit agreement (the "1995 Bank Credit Agreement")
consisting of a $300 million revolving credit facility and $1,140 million of

- 33 -
term loans; and entered into a receivables credit agreement consisting of a
$60 million term loan (the "1995 Receivables Facility"). The net proceeds of
the Offering, together with borrowings of $1,414 million under the 1995 Bank
Credit Agreement and 1995 Receivables Facility, were used to prepay or
repurchase all the outstanding indebtedness under the 1988 Bank Credit
Agreement, the 1993 Term Loan and the Senior Secured Notes, to redeem all
outstanding 14 1/8% Debentures (at par) and 12 5/8% Debentures (at 102.5% of
the principal amount thereof) and to pay transaction costs.

The Company incurred extraordinary losses of $19 million, $28 million and
$12 million, net of income taxes of $12 million, $15 million and $7 million,
in the first quarters of 1995, 1994 and 1993, respectively, representing
redemption premiums and write-offs of deferred loan costs associated with
refinancing transactions in each of those years.

Among other restrictions, the 1995 Bank Credit Agreement, the debt of
foreign subsidiaries and the Company's indentures: (1) restrict payments of
dividends, repayments of subordinated debt, purchases of the Company's Common
Stock, additional borrowings and acquisition of property, plant and equipment;
(2) require that certain financial ratios be maintained at prescribed levels;
(3) restrict the ability of the Company to make fundamental changes and to
enter into new lines of business, the pledging of the Company's assets and
guarantees of indebtedness of others and (4) limit dispositions of assets and
investments which might be made by the Company. The Company believes that
such limitations should not impair its plans for continued maintenance and
modernization of facilities or other operating activities.

The Company is charged a 0.5% fee with respect to any unused balance
available under its $300 million 1995 Revolving Credit Facility, and a 2.75%
fee with respect to any letters of credit issued under the 1995 Revolving
Credit Facility. At December 31, 1995, $79 million of borrowings reduced
available capacity under the 1995 Revolving Credit Facility to $221 million.

The aggregate annual maturities of long-term debt and capital lease
obligations for the five years succeeding December 31, 1995, are as follows:
1996-$62,720,000; 1997-$114,353,000; 1998-$137,687,000; 1999-$152,342,000 and
2000-$158,371,000.

In September 1995, the Company entered into agreements expiring in
July 2000 (the "1995 Receivables Sales Agreements") whereby substantially all
the Company's domestic tissue receivables are sold. The Company has retained
substantially the same credit risk as if the receivables had not been sold.
The Company received $60 million from such initial sales which was applied to
the repayment of the 1995 Receivables Facility and may receive up to $25
million of additional proceeds on a revolving basis. The Company retains a
residual interest in the receivables sold, thus receivables in the
accompanying consolidated balance sheet are only reduced by the net proceeds
from the sales which totaled $63 million as of December 31, 1995. Under the
terms of the 1995 Receivables Sales Agreements, the ongoing costs to the
Company from this program are based on LIBOR, plus 0.25% to 0.65%, on the net
proceeds received.

At December 31, 1995, receivables totaling $94 million, inventories
totaling $163 million and property, plant and equipment with a net book value
of $1,258 million were pledged as collateral or held in trust under the terms
of the 1995 Bank Credit Agreement, the 1995 Receivables Sales Agreements, the
debt of foreign subsidiaries and under the indentures for sale and leaseback
transactions.

- 34 -

Fair Market Value Disclosures

The aggregate fair values of the Company's long-term debt and capital
lease obligations approximated $2,975 million and $3,152 million compared to
aggregate carrying values of $2,966 million and $3,306 million at December 31,
1995 and 1994, respectively. The fair values of the long-term debt and
capital lease obligations have been determined principally based on secondary
market transactions or trading activity in the securities.

Obligations under the 1995 Bank Credit Agreement and debt of foreign
subsidiaries bear interest at floating rates. The Company's policy is to
enter into interest rate cap agreements as a hedge to effectively fix or limit
its exposure to floating interest rates to, at a minimum, comply with the
terms of its senior secured debt agreements. The Company is a party to LIBOR-
based interest rate cap agreements which limit the interest cost to the
Company with respect to $500 million of floating rate obligations to 6% plus
the Company's borrowing margin until June 1, 1996 and to 8% plus the Company's
borrowing margin from June 1, 1996 until June 1, 1999. At current market
rates at December 31, 1995, the fair value of the Company's interest rate cap
agreements is $2 million compared to a carrying value of $11 million. The
counterparties to the Company's interest rate cap agreements consist of major
financial institutions. While the Company is exposed to credit risk to the
extent of nonperformance by these counterparties, management monitors the risk
of default by the counterparties and believes that the risk of incurring
losses due to nonperformance is remote.

6. SALE AND LEASEBACK TRANSACTIONS

Certain buildings and machinery and equipment at the Company's tissue
mills were sold and leased back from various financial institutions. These
leases are treated as capital leases in the accompanying consolidated
financial statements. Future minimum lease payments at December 31, 1995, are
as follows:

Year Ending December 31, Amount
------------------------ ------
(In thousands)

1996................................... $ 22,540
1997................................... 23,649
1998................................... 23,649
1999................................... 23,272
2000................................... 22,980
2001 and thereafter.................... 333,467
--------
Total payments......................... 449,557
Less imputed interest at
rates approximating 10.9%............ 274,396
--------
Present value of capital
lease obligations.................... $175,161
========

- 35 -
7. EMPLOYEE POSTRETIREMENT BENEFIT PLANS

Effective January 1, 1995, the Company revised the eligibility
requirements for postretirement medical benefits resulting in a reduction in
the number of active employees eligible to receive these benefits. An
additional change was made to freeze the amount of the monthly postretirement
medical benefit at the 1995 amount. As a result of these changes, the
accumulated postretirement benefit obligation as of December 31, 1995 was
reduced by $10.6 million and the Company recognized a curtailment gain of
$3.4 million in 1995. The decrease in the obligation is being amortized over
12 years, the average remaining service period of active employees.

Year Ended December 31,
-----------------------
1995 1994 1993
---- ---- ----
(In thousands)
Net Periodic Postretirement Benefit Cost

Service cost...................................... $ 82 $1,138 $1,140
Interest cost..................................... 871 1,719 1,800
Curtailment gain recognized....................... (3,389) -- --
Amortization of prior service cost (benefit)...... (671) 85 99
------- ------ ------
Net periodic postretirement benefit cost (gain). $(3,107) $2,942 $3,039
======= ====== ======

December 31,
----------------
1995 1994
---- ----
(In thousands)
Unfunded Accumulated Postretirement Benefit Obligation

Accumulated postretirement benefit obligation:
Retirees............................................ $ 8,127 $ 7,068
Fully eligible active plan participants............. 1,305 3,411
Other active plan participants...................... 1,980 11,505
------- -------
11,412 21,984
Unrecognized prior service benefit.................... 7,385 --
Unrecognized actuarial gains (losses)................. (435) 457
------- -------
Accrued postretirement benefit cost................... $18,362 $22,441
======= =======

The medical trend rate assumed in the determination of the accumulated
postretirement benefit obligation at December 31, 1995 begins at 10.5% in
1996, decreases 1% per year to 6.5% for 2000 and remains at that level
thereafter. Increasing the assumed medical trend rates by one percentage
point in each year would have no material effect on the accumulated
postretirement benefit obligation as of December 31, 1995 or net periodic
postretirement benefit cost.

The discount rate used in determining the accumulated postretirement
benefit obligation was 7.5% and 8% compounded annually with respect to the
1995 and 1994 valuations, respectively.

- 36 -
8. SHAREHOLDERS' DEFICIT

In March 1995, the Certificate of Incorporation was restated to create
two classes of stock and eliminate the formerly authorized nonvoting Common
Stock.

The Company is authorized to issue up to 100,000,000 shares of $.01 par
value Common Stock. At December 31, 1995, 63,377,326 shares were issued and
63,370,794 shares were outstanding. At December 31, 1994, 38,107,778 shares
were issued and 38,101,239 shares were outstanding (after giving retroactive
effect to a 6.5-for-one stock split on January 31, 1995). The Company is
authorized to issue up to 50,000,000 shares of $.01 par value Preferred Stock
none of which were issued or outstanding at December 31, 1995. At
December 31, 1994, 600,000 shares of $.01 par value nonvoting Common Stock had
been authorized, of which none were issued or outstanding.

In March and April of 1995, the Company issued 25,269,555 shares of
Common Stock at $12.00 per share in a public offering (the "Offering").
Proceeds from the Offering, net of underwriting commissions and other related
expenses totaling $19 million, were $284 million. The Offering was part of a
recapitalization plan (the "Recapitalization") implemented by the Company to
prepay or redeem a substantial portion of its indebtedness in order to reduce
the level and overall cost of its debt, extend certain debt maturities,
increase shareholders' equity and enhance its access to capital markets (see
Note 5).

The balance of Common Stock with put right outstanding at the date of the
Offering of approximately $12 million was reclassified to Common Stock and
Additional Paid-In Capital in the accompanying consolidated financial
statements because the put right terminated effective with the consummation of
the Offering.

- 37 -

Changes in Shareholders' Deficit Accounts

Additional Cumulative
Common Paid-in Translation Retained
Stock Capital Adjustment Deficit
------ ---------- ----------- --------
(In millions)

Balance, December 31, 1992..... $0.4 $600.1 $(3.9) $ (625.6)
Net loss....................... -- -- -- (2,052.1)
Decrease in fair market
value of Common
Stock with put right......... -- -- -- 1.4
Foreign currency translation
adjustment................... -- -- (1.2) --
---- ------ ----- ---------
Balance, December 31, 1993..... 0.4 600.1 (5.1) (2,676.3)
Net loss....................... -- -- -- (70.3)
Foreign currency translation
adjustment................... -- -- 2.8 --
---- ------ ----- ---------
Balance, December 31, 1994..... 0.4 600.1 (2.3) (2,746.6)
Net income..................... -- -- -- 14.7
Common Stock offering.......... 0.2 283.9 -- --
Reclass of Common Stock with
put right.................... 0.0 11.7 -- --
Foreign currency translation
adjustment................... -- -- (0.5) --
---- ------ ----- ---------
Balance, December 31, 1995..... $0.6 $895.7 $(2.8) $(2,731.9)
==== ====== ===== =========

9. STOCK OPTIONS

On January 31, 1995, the Company's shareholders approved the 1995 Stock
Incentive Plan under which a total of 3,359,662 shares of Common Stock are
reserved for awards to officers and key employees as stock options, stock
appreciation rights, restricted stock, performance shares, stock equivalents
and dividend equivalents and approved the 1995 Stock Plan for Non-Employee
Directors under which a total of 80,000 shares of Common Stock are reserved
for grant to non-employee directors. In addition, 3,740,158 stock options
were granted and remain outstanding at December 31, 1995 under predecessor
stock plans. All options issued or to be issued subject to the 1995 Stock
Incentive Plan will expire not later than ten years after the date on which
they are granted. The vesting schedule and exercisability of stock options
under the 1995 Stock Incentive Plan will be determined by the compensation and
nominating committee of the Board of Directors. In December 1995, 1,231
shares were granted pursuant to the 1995 Stock Plan for Non-Employee
Directors.

- 38 -
Prior to the Offering, the Company amortized the excess of the fair
market value of its Common Stock over the strike price of options granted to
employees over the periods the options vested. Subsequent to the Offering, no
amortization is required because the options are not putable to the Company.
There was no employee stock compensation expense in 1995 or 1994. Due to the
effects of adverse tissue industry operating conditions on its long-term
earnings forecast as of September 30, 1993, the Company decreased the
estimated fair market valuation of its Common Stock and, as a result, reversed
all previously accrued employee stock compensation expense in 1993. The
reversal of the accrued employee stock compensation expense resulted in a
credit to operations of $8 million for 1993.

Changes in Stock Options Outstanding

Exercise
Number Of Price
Options Per Option
--------- ---------------
Balance, December 31, 1992..................... 3,737,506 $15.38 to 18.46
Options Granted.............................. 98,800 18.46
Options Cancelled............................ (10,660) 15.38 to 18.46
--------- ---------------
Balance, December 31, 1993..................... 3,825,646 15.38 to 18.46
Options Cancelled............................ (82,888) 15.38 to 18.46
--------- ---------------
Balance, December 31, 1994..................... 3,742,758 15.38 to 18.46
Options Granted.............................. 743,000 19.75
Options Cancelled............................ (2,600) 18.46
--------- ---------------
Balance, December 31, 1995..................... 4,483,158 $15.38 to 19.75
========= ===============
Exercisable at December 31, 1995............... 3,740,158 $15.38 to 18.46
========= ===============
Shares available for future grant at
December 31, 1995............................ 2,616,662
=========

In October 1995, SFAS No. 123, "Accounting for Stock-Based Compensation"
was issued. Beginning in 1996, the Company will begin to make pro forma
disclosures of stock-based compensation cost utilizing the fair value based
method of accounting pursuant to SFAS No. 123, but currently intends to
continue to report stock-based compensation expense in its consolidated
financial statements for years following 1995 under the intrinsic value based
method permitted under Accounting Principles Board Opinion No. 25 and SFAS
No. 123.

10. RELATED PARTY TRANSACTIONS

Morgan Stanley Group Inc. ("Morgan Stanley Group") and an affiliate
acquired a substantial majority equity interest in the Company to effect the
Acquisition. At December 31, 1995, Morgan Stanley Group and certain of its
affiliates controlled 37.8% of the Company's Common Stock.

- 39 -
Morgan Stanley & Co. Incorporated ("MS&Co") has served as lead
underwriter with respect to the Offering and periodic public debt offerings
and has received underwriting fees of $7 million in 1995, $20 million in 1994
and $20 million in 1993 in connection with such public offerings. Since the
Acquisition, MS&Co has also been a market maker with respect to the Company's
public debt securities. Pursuant to an agreement terminated effective
December 31, 1994, MS&Co provided financial advisory services to the Company
for which the Company paid MS&Co $1 million in each of 1994 and 1993. The
Company is a party to several interest rate cap agreements (see Note 5)
including one such agreement with MS&Co which was purchased in 1994 for
$2 million.

11. COMMITMENTS AND CONTINGENCIES

The Company is subject to substantial regulation by various federal,
state and local authorities in the U.S. and national and local authorities in
the U.K. concerned with the impact of the environment on human health, the
limitation and control of emissions and discharges to the air and waters, the
quality of ambient air and bodies of water and the handling, use and disposal
of specified substances and solid wastes. Financial responsibility for the
clean-up or other remediation of contaminated property or for natural resource
damages can extend to previously owned or used properties, waterways and
properties owned by third parties as well as to prior owners. The Company is
involved in a voluntary investigation and potential clean-up of the Lower Fox
River in Wisconsin and has been named as a potentially responsible party for
alleged natural resource damages related to the Lower Fox River and Green Bay
system. In addition, the Company makes capital expenditures and incurs
operating expenses for clean-up obligations and other environmental matters
arising in its on-going operations.

The Company recorded a $20 million charge in the fourth quarter of 1994
for estimated or anticipated liabilities and legal and consulting costs
relating to environmental matters arising from past operations. The Company
expects these costs to be incurred over an extended number of years and as of
December 31, 1995 continues to have accrued liabilities for environmental
matters of approximately $20 million. The ultimate cost to the Company for
environmental matters cannot be determined with certainty due to the often
unknown magnitude of the contamination to be addressed, the varying cost of
remediation methods that could be employed, the evolving nature of remediation
technologies and government regulations and the inability to determine the
Company's share of multiparty obligations or the extent to which contributions
will be available from other parties. While the accrued liabilities reflect
the Company's current estimate of the cost of these environmental matters,
there can be no assurance that the amount accrued will be adequate.

The Company and its subsidiaries are parties to other lawsuits and state
and federal administrative proceedings in connection with their businesses.
Although the final results in all such suits and proceedings cannot be
predicted with certainty, the Company currently believes that the ultimate
resolution of all of such lawsuits and proceedings, after taking into account
the liabilities accrued with respect to such matters, will not have a material
adverse effect on the Company's financial condition or on its results of
operations.

- 40 -
12. GEOGRAPHIC INFORMATION

United United
States Kingdom Consolidated
------ ------- ------------
(In thousands)
1995
Net sales........................ $ 1,457,136 $163,767 $ 1,620,903
Operating income................. 342,534 17,585 360,119
Identifiable operating assets.... 1,490,426 162,011 1,652,437
1994
Net sales........................ $ 1,143,205 $131,240 $ 1,274,445
Operating income................. 268,620 8,183 276,803
Identifiable operating assets.... 1,517,992 162,906 1,680,898
1993
Net sales........................ $ 1,044,174 $143,213 $ 1,187,387
Operating loss................... (1,715,777) (859) (1,716,636)
Identifiable operating assets.... 1,486,166 163,621 1,649,787

Intercompany sales and charges between geographic areas and export sales
are not material.

In 1993, the Company determined that its projected results would not
support the future amortization of the Company's remaining goodwill balance.
Accordingly, the Company wrote off its remaining goodwill balance of
$1,980 million in the third quarter of 1993, resulting in charges of $1,968
million and $12 million to the operating income of the United States and
United Kingdom operations, respectively.

13. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

First Second Third Fourth Total
Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- -----
(In millions, except per share data)
1995
Net sales................ $ 367 $ 412 $ 426 $ 416 $ 1,621
Gross income............. 100 115 126 141 482
Operating income......... 71 88 95 106 360
Net income (loss) before
extraordinary item..... (9) 7 15 21 34
Extraordinary item-loss
on debt repurchases.... (19) -- -- -- (19)
Net income (loss)........ (28) 7 15 21 15
Earnings (loss) per share:
Net income (loss) before
extraordinary item... (0.22) 0.12 0.23 0.33 0.57
Extraordinary item-loss
on debt repurchases.. (0.44) -- -- -- (0.32)
Net income (loss)
per share............ (0.66) 0.12 0.23 0.33 0.25
Dividends per share...... -- -- -- -- --

- 41 -

First Second Third Fourth Total
Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- -----
(In millions, except per share data)
1994
Net sales................ $ 275 $ 315 $ 340 $ 344 $ 1,274
Gross income............. 87 107 113 100 407
Operating income......... 60 79 85 53 277
Net loss before
extraordinary item..... (15) (2) -- (25) (42)
Extraordinary item-loss
on debt repurchases.... (28) -- -- -- (28)
Net loss................. (43) (2) -- (25) (70)
Loss per share:
Net (loss) before
extraordinary item... (0.40) (0.05) 0.01 (0.65) (1.11)
Extraordinary item-loss
on debt repurchases.. (0.74) -- -- -- (0.74)
Net loss per share..... (1.14) (0.05) 0.01 (0.65) (1.85)
Dividends per share...... -- -- -- -- --

- 42 -

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT

For information regarding executive officers see Item 1a. on this form.

For information regarding directors and compliance with Section 16(a) of
the Securities and Exchange Act of 1934, see the Proxy Statement for the
Annual Meeting of Shareholders to be held on May 14, 1996, under the captions
"Election of Directors" and "Compliance with Section 16(a) of the Securities
Exchange Act of 1934" which are incorporated by reference herein.

ITEM 11. EXECUTIVE COMPENSATION

See the Proxy Statement for the Annual Meeting of Shareholders to be
held on May 14, 1996, under the captions "Committees of the Board of
Directors; Meetings and Compensation of Directors," "Executive Compensation,"
"Committee Report on Executive Compensation" and "Performance Graph," which
are incorporated by reference herein.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

See the Proxy Statement for the Annual Meeting of Shareholders to be
held on May 14, 1996, under the captions "Ownership of Common Stock by
Management," "Principal Stockholders" and "Executive Compensation--Management
Incentive Plan and 1995 Stock Incentive Plan," which are incorporated by
reference herein.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

See the Proxy Statement for the Annual Meeting of Shareholders to be
held on May 14, 1996, under the caption "Certain Transactions," which is
incorporated by reference herein.

PART IV

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

a. 1. Financial Statements of Fort Howard Corporation

Included in Part II, Item 8:

Report of Independent Public Accountants.

Consolidated Statements of Income for the years ended December 31, 1995,
1994 and 1993.

- 43 -
Consolidated Balance Sheets as of December 31, 1995 and 1994.

Consolidated Statements of Cash Flows for the years ended December 31,
1995, 1994 and 1993.

Notes to Consolidated Financial Statements.

Separate financial statements and supplemental schedules of the Company
and its consolidated subsidiaries are omitted since the Company is primarily
an operating corporation and its consolidated subsidiaries included in the
consolidated financial statements being filed do not have a minority equity
interest or indebtedness to any other person or to the Company in an amount
which exceeds five percent of the total assets as shown by the consolidated
financial statements as filed herein.

a. 2. Financial Statement Schedules

Report of Indendent Public Accountants

Schedule II -- Valuation and Qualifying Accounts

All other schedules are omitted because they are not applicable, or not
required, or because the required information is included in the audited
consolidated financial statements or notes thereto.

a. 3. Exhibits

Exhibit No. Description
----------- -----------

3.1 Restated Certificate of Incorporation of the Company.
(Incorporated by reference to Exhibit 3.1 as filed with the
Company's Annual Report on Form 10-K for the year ended
December 31, 1994.)

3.2 Amended and Restated By-Laws of the Company. (Incorporated by
reference to Exhibit 3.2 as filed with the Company's Annual
Report on Form 10-K for the year ended December 31, 1994.)

4.1 Credit Agreement dated as of March 8, 1995 among the
Company, the lenders named therein, and Bankers' Trust Company,
Bank of America National Trust and Savings Association and
Chemical Bank as arrangeers, and Bankers' Trust Company as
administrative agent. (Incorporated by reference to Exhibit 4.0
as filed with the Company's Annual Report on Form 10-K for the
year ended December 31, 1994.)

4.2 Form of 9 1/4% Senior Note Indenture dated as of March 15, 1993
between the Company and Norwest Bank Wisconsin, N.A., Trustee.
(Incorporated by reference to Exhibit 4.1 as filed with the
Company's Amendment No. 2 to Form S-2 on March 4, 1993.)

4.3 Form of 10% Subordinated Note Indenture dated as of March 15,
1993 between the Company and the United States Trust Company of
New York, Trustee. (Incorporated by reference to Exhibit 4.2 as
filed with the Company's Amendment No. 2 to Form S-2 on March 4,
1993.)

- 44 -

4.4 Form of 9% Senior Subordinated Note Indenture dated as of
February 1, 1994 between the Company and The Bank of New York,
Trustee. (Incorporated by reference to Exhibit 4.2 as filed
with the Company's Form S-2 on December 17, 1993.)

Registrant agrees to provide copies of instruments defining the rights
of security holders, including indentures, upon request of the
Commission.

*10.1 Employment Agreements dated October 15, 1993 with the Company's
Chief Executive Officer, Chief Operating Officer and Chief
Financial Officer. (Incorporated by reference to Exhibit No. 10
as filed with the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1993.)

*10.1(A) Amendments dated January 1, 1995 to Employment Agreements dated
October 15, 1993, with the Company's Chief Executive Officer,
Chief Operating Officer and Chief Financial Officer.
(Incorporated by reference to Exhibit No. 10.6(A) as filed with
the Company's Amendment No. 1 to Form S-1 on February 8, 1995.)

*10.2 Employment Agreements dated December 10, 1993 with certain
executive officers of the Company. (Incorporated by reference
to Exhibit 10.13 as filed with the Company's Form S-2 on
December 17, 1993.)

*10.2(A) Amendments to Employment Agreements with certain executive
officers of the Company. (Incorporated by reference to Exhibit
No. 10.13(A) as filed with the Company's Amendment No. 1 to
Form S-1 on February 8, 1995.)

*10.3 Amended and Restated Stockholders Agreement dated as of
March 1, 1995, among the Company, Morgan Stanley Group,
MSLEF II, certain institutional investors and the Management
Investors which amends and restates the Stockholders Agreement
dated as of December 7, 1990, as amended. (Incorporated by
reference to Exhibit 10.3(A) as filed with the Company's Form
10-K for the year ended December 31, 1994.)

*10.4 Management Incentive Plan as amended and restated as of
December 19, 1994. (Incorporated by reference to Exhibit
No. 10.2 as filed with the Company's Amendment No. 1 to
Form S-1 on February 8, 1995.)

*10.5 Supplemental Retirement Plan. (Incorporated by reference to
Exhibit No. 10.7 as filed with Amendment No. 2 to the Company's
Form S-1 on October 25, 1988.)

*10.5(A) Amendment No. 1 to the Supplemental Retirement Plan.
(Incorporated by reference to Exhibit 10.P as filed with the
Company's Annual Report on Form 10-K for the year ended
December 31, 1988.)

*10.6 Form of Supplemental Retirement Agreement for the Company's
Chief Executive Officer as Amended. (Incorporated by reference
to Exhibit 10.M as filed with the Company's Annual Report on
Form 10-K for the year ended December 31, 1988.)

- 45 -

*10.7 Supplemental Retirement Agreements for certain directors and
officers. (Incorporated by reference to Exhibit 10.T as filed
with the Company's Annual Report on Form 10-K for the year ended
December 31, 1989.)

*10.7(A) Form of Amendment No. 1 to Supplemental Retirement Agreements
for certain directors and officers. (Incorporated by reference
to Exhibit 10.U as filed with the Company's Form 10-K for the
year ended December 31, 1990.)

*10.8 Amended and Restated Management Equity Participation Agreement
dated as of August 1, 1988. (Incorporated by reference to
Exhibit No. 10.9 as filed with the Company's Amendment No. 2 to
Form S-1 on October 25, 1988.)

*10.8(A) Letter Agreement dated June 27, 1990, which modifies Amended and
Restated Management Equity Participation Agreement.
(Incorporated by reference to Exhibit 10.V as filed with the
Company's Form 10-K for the year ended December 31, 1990.)

*10.8(B) Letter Agreement dated July 31, 1990, among the Company and the
Principal Management Investors which amends Amended and Restated
Management Equity Participation Agreement. (Incorporated by
reference to Exhibit 10.W as filed with the Company's Form 10-K
for the year ended December 31, 1990.)

*10.8(C) Letter Agreement dated July 31, 1990, between the Company and
the Management Investor Committee which amends Amended and
Restated Management Equity Participation Agreement.
(Incorporated by reference to Exhibit 10.X as filed with the
Company's Form 10-K for the year ended December 31, 1990.)

*10.8(D) Letter Agreement dated February 7, 1991, between the Company and
the Management Investors Committee which amends the Amended and
Restated Management Equity Participation Agreement.
(Incorporated by reference to Exhibit 10.GG as filed with the
Company's Form 10-K for the year ended December 31, 1990.)

*10.8(E) Form of Letter Agreement dated February 7, 1991, among the
Company, the Management Investors Committee and Management
Investors which cancels certain stock options, grants new stock
options and amends the Amended and Restated Management Equity
Participation Agreement. (Incorporated by reference to Exhibit
10.HH as filed with the Company's Form 10-K for the year ended
December 31, 1990.)

*10.8(F) Letter Agreement dated March 1, 1995, between the
Company and the Management Investors Committee which amends the
Amended and Restated Management Equity Participation Agreement.
(Incorporated by reference to Exhibit 10.8(F) as filed with the
Company's Annual Report on Form 10-K for the year ended
December 31, 1994.)

*10.9 Management Equity Plan. (Incorporated by reference to
Exhibit 10.H as filed with the Company's Form 10-K for the year
ended December 31, 1991.)

- 46 -

*10.9(A) Amendment dated December 28, 1993 to Management Equity Plan.
(Incorporated by reference to Exhibit 10.9(A) as filed with
the Company's Form 10-K for the year ended December 31, 1993.)

*10.9(B) Amendment dated March 1, 1995 to the Management Equity Plan.
(Incorporated by reference to Exhibit 10.9(B) as filed with the
Company's Annual Report on Form 10-K for the year ended
December 31, 1994.)

*10.10 Form of Management Equity Plan Agreement. (Incorporated by
reference to Exhibit 10.I as filed with the Company's Form 10-K
for the year ended December 31, 1991.)

10.11 Participation Agreement dated as of October 20, 1989, among the
Company, Philip Morris Credit Corporation, the Loan Participants
listed therein, the Connecticut National Bank, Owner Trustee,
and Wilmington Trust Company, Indenture Trustee. (Incorporated
by reference to Exhibit 10.15 as filed with the Company's
Post-Effective Amendment No. 2 to Form S-1 on February 8, 1990.)

10.12 Facility Lease Agreement dated as of October 20, 1989, between
the Connecticut National Bank in its capacity as Owner Trustee,
the Lessor and the Company as Lessee. (Incorporated by
reference to Exhibit 10.16 as filed with the Company's
Post-Effective Amendment No. 2 to Form S-1 on February 8, 1990.)

10.13 Power Installation Lease Agreement dated as of October 20, 1989,
between The Connecticut National Bank, not in its individual
capacity but solely as Owner Trustee, and the Company.
(Incorporated by reference to Exhibit 10.HH as filed with the
Company's Form 10-K for the year ended December 31, 1991.)

10.14 Equipment Lease Agreement dated as of October 20, 1989, between
The Connecticut National Bank, not in its individual capacity
but solely as Owner Trustee, and the Company. (Incorporated by
reference to Exhibit 10.II as filed with the Company's Form 10-K
for the year ended December 31, 1991.)

10.15 Participation Agreement dated as of December 23, 1990, among the
Company, Bell Atlantic Tricon Leasing Corporation, Bankers Trust
Company, The Connecticut National Bank, Owner Trustee, and
Wilmington Trust Company, Indenture Trustee. (Incorporated by
reference to Exhibit 10.BB as filed with the Company's Form 10-K
for the year ended December 31, 1990.)

10.16 Amended and Restated Equipment Lease Agreement [1990] dated as
of December 19, 1991, between The Connecticut National Bank, not
in its individual capacity but solely as Owner Trustee under the
Trust Agreement, as Lessor, and the Company, as Lessee.
(Incorporated by reference to Exhibit 10.W as filed with the
Company's Form 10-K for the year ended December 31, 1991.)

10.17 Facility Lease Agreement dated as of December 19, 1991, between
The Connecticut National Bank, not in its individual capacity
but solely as Owner Trustee, and the Company. (Incorporated by
reference to Exhibit 10.EE as filed with the Company's Form 10-K
for the year ended December 31, 1991.)

- 47 -

10.18 Equipment Lease Agreement [1991] dated as of December 19, 1991,
between The Connecticut National Bank, not in its individual
capacity but solely as Owner Trustee, and the Company.
(Incorporated by reference to Exhibit 10.FF as filed with the
Company's Form 10-K for the year ended December 31, 1991.)

10.19 Power Plant Lease Agreement dated as of December 19, 1991,
between The Connecticut National Bank, not in its individual
capacity but solely as Owner Trustee, and the Company.
(Incorporated by reference to Exhibit 10.GG as filed with the
Company's Form 10-K for the year ended December 31, 1991.)

10.20 Amended and Restated Participation Agreement dated as of
October 21, 1991, among the Company, Bell Atlantic Tricon
Leasing Corporation, Bankers Trust Company, The Connecticut
National Bank, Owner Trustee, and Wilmington Trust Company,
Indenture Trustee and the Form of the First Amendment thereto
dated as of December 13, 1991. (Incorporated by reference to
Exhibit 4.3 as filed with the Company's Amendment No. 3 to
Form S-3 on December 13, 1991).

*10.21 Deferred Compensation Plan for Non-Employee Directors.
(Incorporated by reference to Exhibit No. 10.14 as filed with
the Company's Amendment No. 1 to Form S-1 on February 8, 1995).

*10.22 1995 Stock Incentive Plan. (Incorporated by reference to
Exhibit No. 10.15 as filed with the Company's Amendment No. 1 to
Form S-1 on February 8, 1995).

+*10.22(A) Form of Nonqualified Stock Option Agreement dated December 6,
1995.

*10.23 1995 Stock Plan for Non-Employee Directors. (Incorporated by
reference to Exhibit No. 10.16 as filed with the Company's
Amendment No. 1 to Form S-1 on February 8, 1995).

+12.1 Statement of Deficiency of Earnings Available to Cover Fixed
Charges.

+12.2 Statement of Computation of Ratio of Earnings to Fixed Charges.

+21 Subsidiaries of Fort Howard Corporation.

+23 Consent of Arthur Andersen LLP (included in Part IV at page 51).

+25 Powers of Attorney (included as part of signature page).

+27 Financial Data Schedule for year ended December 31, 1995.

- --------------------
*Management contract or compensatory plan or arrangement.
+Filed herewith.

b. Reports on Form 8-K

No reports on Form 8-K were filed during the quarter ended December 31,
1995.

- 48 -

SIGNATURES

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

FORT HOWARD CORPORATION
Green Bay, Wisconsin
February 6 1996 By /s/ Donald H. DeMeuse
----------------------------------
Donald H. DeMeuse, Chairman of the
Board and Chief Executive Officer

POWER OF ATTORNEY

The undersigned directors and officer of Fort Howard Corporation hereby
constitute and appoint Donald H. DeMeuse, Kathleen J. Hempel and James W.
Nellen II and each of them, with full power to act without the other and with
full power of substitution and resubstitution, our true and lawful attorneys-
in-fact with full power to execute in our name and behalf in the capacities
indicated below any and all amendments to this Annual Report on Form 10-K and
to file the same, with all exhibits thereto and other documents in connection
therewith with the Securities and Exchange Commission and hereby ratify and
confirm all that such attorneys-in-fact, or any of them, or their substitutes
shall lawfully do or cause to be done by virtue hereof.

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

/s/ Donald H. DeMeuse Chairman of the Board, February 6, 1996
Donald H. DeMeuse Chief Executive Officer
and Director

/s/ Kathleen J. Hempel Vice Chairman, Chief February 6, 1996
Kathleen J. Hempel Financial Officer and
Director

/s/ Michael T. Riordan President, Chief February 6, 1996
Michael T. Riordan Operating Officer and
Director

/s/ Donald Patrick Brennan Director February 2, 1996
Donald Patrick Brennan

/s/ James L. Burke Director February 2, 1996
James L. Burke

/s/ Dudley J. Godfrey Director February 2, 1996
Dudley J. Godfrey

/s/ David I. Margolis Director February 1, 1996
David I. Margolis

- 49 -

/s/ Robert H. Niehaus Director February 2, 1996
Robert H. Niehaus

/s/ Frank V. Sica Director February 2, 1996
Frank V. Sica

/s/ Charles L. Szews Vice President and February 6, 1996
Charles L. Szews Controller and Principal
Accounting Officer

- 50 -

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements of Fort Howard Corporation included in this
Form 10-K and have issued our report thereon dated January 30, 1996. Our
audits were made for the purpose of forming an opinion on those statements
taken as a whole. Schedule II is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.

ARTHUR ANDERSEN LLP

Milwaukee, Wisconsin,
January 30, 1996.

______________________

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the incorporation of
our reports included in this Form 10-K, into the Company's previously filed
Registration Statement Nos. 33-63099, 33-64841 and 333-00019.

ARTHUR ANDERSEN LLP

Milwaukee, Wisconsin
February 5, 1996.

- 51 -

Schedule II

FORT HOWARD CORPORATION

VALUATION AND QUALIFYING ACCOUNTS
(In thousands)

For the Years Ended
December 31,
---------------------------------
ALLOWANCE FOR DOUBTFUL ACCOUNTS: 1995 1994 1993
---- ---- ----

Balance at beginning of year.......... $1,589 $2,366 $1,376
Additions charged to earnings......... 1,209 (92) 1,633
Charges for purpose for which
reserve was created............... 85 (685) (643)
------ ------ ------
Balance at end of year................ $2,883 $1,589 $2,366
====== ====== ======

- 52 -

INDEX TO EXHIBITS

Exhibit No.
- -----------

*3.1 Restated Certificate of Incorporation of the Company.
(Incorporated by reference to Exxhibit 3.1 as filed with the
Company's Annual Report on Form 10-K for the year ended
December 31, 1994.)

3.2 Amended and Restated By-Laws of the Company. (Incorporated by
reference to Exhibit 3.2 as filed with the Company's Annual
Report on Form 10-K for the year ended December 31, 1994.)

Registrant agrees to provide copies of instruments defining the rights
of security holders, including indentures, upon request of the
Commission.

- 53 -

*10.5 Supplemental Retirement Plan. (Incorporated by reference to
Exhibit No. 10.7 as filed with Amendment No. 2 to the Company's
Form S-1 on October 25, 1988.)

*10.5(A) Amendment No. 1 to the Supplemental Retirement Plan.
(Incorporated by reference to Exhibit 10.P as filed with the
Company's Annual Report on Form 10-K for the year ended
December 31, 1988.)

- 54 -

*10.9 Management Equity Plan. (Incorporated by reference to
Exhibit 10.H as filed with the Company's Form 10-K for the year
ended December 31, 1991.)

*10.9(A) Amendment dated December 28, 1993 to Management Equity Plan.
(Incorporated by reference to Exhibit 10.9(A) as filed with
the Company's Form 10-K for the year ended December 31, 1993.)

*10.10 Form of Management Equity Plan Agreement. (Incorporated by
reference to Exhibit 10.I as filed with the Company's Form 10-K
for the year ended December 31, 1991.)

- 55 -

- 56 -

*10.21 Deferred Compensation Plan for Non-Employee Directors.
(Incorporated by reference to Exhibit No. 10.14 as filed with
the Company's Amendment No. 1 to Form S-1 on February 8, 1995).

*10.22 1995 Stock Incentive Plan. (Incorporated by reference to
Exhibit No. 10.15 as filed with the Company's Amendment No. 1 to
Form S-1 on February 8, 1995).

+*10.22(A) Form of Nonqualified Stock Option Agreement dated December 6,
1995.

*10.23 1995 Stock Plan for Non-Employee Directors. (Incorporated by
reference to Exhibit No. 10.16 as filed with the Company's
Amendment No. 1 to Form S-1 on February 8, 1995).

+12.1 Statement of Deficiency of Earnings Available to Cover Fixed
Charges.

+12.2 Statement of Computation of Ratio of Earnings to Fixed Charges.

+21 Subsidiaries of Fort Howard Corporation.

+23 Consent of Arthur Andersen LLP (included in Part IV at page 51).

+25 Powers of Attorney (included as part of signature page).

+27 Financial Data Schedule for year ended December 31, 1995.

- --------------------
*Management contract or compensatory plan or arrangement.
+Filed herewith.

b. Reports on Form 8-K

No reports on Form 8-K were filed during the quarter ended December 31,
1995.

- 57 -

EXHIBIT 10.22(A)

FORM OF NONQUALIFIED STOCK OPTION AGREEMENT

STOCK OPTION AGREEMENT dated as of December 6, 1995, (the "Award
Agreement") between FORT HOWARD CORPORATION, a Delaware corporation (the
"Company"), and the other party signatory hereto (the "Participant").

WHEREAS, the Participant is currently an officer or key employee
of the Company or one of its Subsidiaries and, pursuant to the Company's 1995
Stock Incentive Plan (the "Plan") and upon the terms and subject to the
conditions hereinafter set forth, the Company desires to provide the
Participant with an additional incentive to remain in its employ or the employ
of one of its Subsidiaries and to increase his or her interest in the success
of the Company by granting to the Participant Nonqualified Stock Options (the
"Stock Options") to purchase shares of Common Stock, par value $.01 per share,
of the Company (the "Common Stock");

NOW, THEREFORE, in consideration of the covenants and agreements
herein contained, the parties hereto agree as follows:

1. Definitions; Incorporation of Plan Terms. Capitalized terms
used herein without definition shall have the meanings assigned to them in the
Plan, a copy of which is attached hereto. This Award Agreement and the Stock
Options shall be subject to the Plan, the terms of which are hereby
incorporated herein by reference, and in the event of any conflict or
inconsistency between the Plan and this Award Agreement, the Plan shall
govern. The date of grant with respect to the Stock Options (the "Date of
Grant") shall be the date specified at the foot of the signature page hereof.

2. Certain Restrictions. None of the Stock Options or any
rights or interests therein may be sold, transferred, assigned, pledged, or
otherwise encumbered or disposed of, except by will or the laws of descent and
distribution or pursuant to a "qualified domestic relations order" as defined
in the Code or Title I of the Employee Retirement Income Security Act of 1974,
as amended, and the rules and regulations thereunder. During the
Participant's lifetime, a Stock Option shall be exercisable only by the
Participant (or an "alternate payee" under a "qualified domestic relations
order" as defined in the Code or Title I of the Employee Retirement Income
Security Act of 1974, as amended, and the rules and regulations thereunder).
Each transferee of a Stock Option by will or the laws of descent and
distribution or pursuant to a qualified domestic relations order shall, as a
condition to the transfer thereof, execute an agreement pursuant to which it
shall become a party to this Award Agreement.

3. Grant of Stock Options. Subject to the terms and conditions
contained herein and in the Plan, the Company hereby grants to the
Participant, effective as of the Date of Grant, the number of Stock Options
specified at the foot of the signature page hereof. Each such Stock Option
shall entitle the Participant to purchase, upon payment of the exercise price
(the "Exercise Price") specified at the foot of the signature page hereof, one
share of Common Stock. The Stock Options shall be exercisable as hereinafter
provided.

4. Terms and Conditions of Options. The Stock Options
evidenced hereby are subject to the following terms and conditions:

(a) Vesting. Unless previously vested or forfeited in
accordance with the terms of the Plan or this Award Agreement, 20% of the
Participant's Stock Options shall vest and become exercisable as of each of
the first five anniversaries of the Date of Grant; provided, however, that in
the event of the death or Disability of the Participant, or a termination of
the Participant's employment by the Company or any of its Subsidiaries without
Cause (as defined below), 100% of the Participant's Stock Options shall vest
and become exercisable as of the date of death, Disability or termination;
provided further, however, that no Stock Option shall under any circumstances
be exercisable during the first six months after the Date of Grant. In the
event of a Change in Control and except as the Committee (as constituted
immediately prior to such Change in Control) may otherwise determine in its
sole discretion, all Stock Options then outstanding, whether or not vested,
(other than any Stock Option granted within six months of such Change in
Control) shall become fully exercisable as of the date of the Change in
Control. For purposes of this Award Agreement, "Cause" (i) has the meaning
specified in an employment agreement applicable to the Participant, or (ii) in
the event the Participant does not have an employment agreement that defines
"Cause", means the occurrence of any of the following circumstances:

(A) the wilful and continued failure by the Participant to
substantially perform his or her duties with the Company in his or her
established position on a full-time basis (other than any such failure
resulting from Disability) after a written demand for substantial
performance is delivered to the Participant by the Company's Chief
Executive Officer, which demand specifically identifies the manner in
which the Board believes that he or she has not substantially performed
such duties;

(B) the wilful engaging by the Participant in conduct which is
significantly injurious to the Company, monetarily or otherwise, after a
written demand for cessation of such conduct is delivered to the
Participant by the Company's Chief Executive Officer, which demand
specifically identifies the manner in which the Board believes that the
Participant has engaged in such conduct and the injury to the Company;

(D) the Participant's abuse of illegal drugs or other controlled
substances or habitual intoxication.

For purposes of the foregoing definition of "Cause", no act, or failure to
act, on the part of the Participant shall be deemed wilful unless knowingly
done, or omitted to be done, by the Participant not in good faith and without
reasonable belief that such action or omission was in the best interests of
the Company.

(b) Option Period. The Stock Options shall not be exercisable
following the tenth anniversary of the Date of Grant, and shall be subject to
earlier termination as provided herein and in the Plan. Upon termination of
the Participant's employment with the Company or any of its Subsidiaries for
any reason, the Participant (or the Participant's legal representative or
beneficiary) may exercise any Stock Option to the extent it was exercisable on
the date of termination in accordance with, and subject to the terms and
conditions of, Section 13 of the Plan; provided, however, that if such
termination of the Participant's employment is by reason of death, Disability
or Retirement, the Stock Options, to the extent exercisable on the date of
termination, shall remain exercisable for a period (the "Exercise Period")
equal to the remainder of the stated term of such Stock Options, and if the
Participant dies during the Exercise Period, any unexercised Stock Option may
thereafter be exercised to the extent it was exercisable on the date of
Disability or Retirement, by the legal representative or beneficiary of the
Participant, for the remainder of the Exercise Period; provided further,
however, that if such termination of the Participant's employment is by the
Company or any of its Subsidiaries without Cause, the Stock Options, to the
extent exercisable on the date of termination, shall remain exercisable for a
period equal to the shorter of two years from the date of termination and the
remainder of the stated term of such Stock Options. Upon termination of the
Participant's employment with the Company or any of its Subsidiaries for any
reason, any Stock Options which have not theretofore vested (and which do not
vest by reason of such termination of employment) shall terminate and be
cancelled without any consideration being paid therefor. Notwithstanding the
foregoing, in the event that the Participant's employment with the Company or
any of its Subsidiaries terminates for any reason within six months of the
Date of Grant, the Participant's Stock Options shall terminate and be
cancelled as of the date of such termination without any consideration being
paid therefor.

(c) Notice of Exercise. Subject to Sections 4(d) and 4(f)
hereof, the Participant may exercise any or all of the Participant's vested
Stock Options by giving written notice of exercise to the Secretary of the
Company (and, if such exercise is pursuant to a "cashless exercise" procedure
adopted pursuant to, and on the terms and conditions specified in, Section
7(f) of the Plan, to the applicable broker or dealer) in accordance with
Section 7(f) of the Plan. The date of exercise of a Stock Option shall be the
later of (i) the date on which the Company (and such broker or dealer, if
applicable) receives such written notice or (ii) the date on which the
conditions provided in Sections 4(d) and 4(f) hereof are satisfied.

(d) Payment. Prior to the issuance of a certificate pursuant to
Section 4(g) hereof evidencing the shares of Common Stock acquired pursuant to
the exercise of Stock Options, the Participant shall have paid to the Company
(i) the aggregate Exercise Price of all vested Stock Options which shall have
been exercised, in cash, certified or bank check, note or other instrument
acceptable to the Committee and (ii) such amount as may be necessary to
satisfy the tax withholding requirements described in Section 7(b) hereof.
Unless otherwise determined by the Committee in its sole discretion, payment
of the Exercise Price may also be made in full or in part by delivery of
shares of Common Stock (or a certification of ownership of such Common Stock
acceptable to the Company) with a Fair Market Value (determined as of the date
of exercise of such Stock Option) at least equal to such full or partial
payment; provided, however, that unless otherwise determined by the Committee
in its sole discretion, the payment of the Exercise Price in shares of Common
Stock shall not be permitted if such payment or any rights in respect thereof
would result in adverse accounting consequences to the Company. Unless
otherwise determined by the Committee in its sole discretion, the Participant
may also exercise a Stock Option through a "cashless exercise" procedure
adopted pursuant to, and on the terms and conditions specified in, Section
7(f) of the Plan.

(e) Shareholder Rights. The Participant shall have no rights as
a shareholder with respect to any shares of Common Stock issuable upon the
exercise of a Stock Option until a certificate or certificates evidencing such
shares shall have been issued to the Participant, and, subject to Sections
15(b) and 15(c) of the Plan, no adjustment shall be made for dividends or
distributions or other rights in respect of any share for which the record
date is prior to the date on which the Participant shall become the holder of
record thereof.

(f) Limitation on Exercise. A Stock Option shall not be
exercisable unless and until (i) a registration statement under the Securities
Act of 1933, as amended, has been duly filed and declared effective pertaining
to the Common Stock subject to such Stock Option and such Common Stock shall
have been qualified under applicable state "blue sky" laws, or (ii) the
Committee in its sole discretion determines that such registration and
qualification are not required as a result of the availability of an exemption
from such registration and qualification. The exercise of a Stock Option or
the disposition of any shares of Common Stock issuable upon the exercise of a
Stock Option shall be subject to the Company's policies and procedures
relating to employee trading in the Company's securities.

(g) Issuance of Certificate. As soon as practicable following
the exercise of any Stock Options, a certificate evidencing the number of
shares of Common Stock issued in connection with such exercise shall be issued
in the name of the Participant.

5. Representations and Warranties. The Participant is aware of
and familiar with the restrictions imposed on the transfer of any Stock
Options. The Participant represents that (i) this Award Agreement has been
duly executed and delivered by the Participant and constitutes a legal, valid
and binding agreement of the Participant, enforceable against the Participant
in accordance with its terms, except as limited by any applicable bankruptcy,
insolvency, reorganization, moratorium or similar law affecting creditors'
rights generally and by general principles of equity and (ii) the Participant
is acquiring shares of Common Stock hereunder for investment, solely for his
own account and not with a view to, or for resale with, the distribution or
other disposition thereof.

6. Engaging in Competition with the Company. (i) For a period
of two years from the date of termination of the employment of the Participant
with the Company or any direct or indirect Subsidiary of the Company, the
Participant shall not become an employee, owner (except for passive
investments of not more than three percent of the outstanding shares of, or
any other equity interest in any company or entity listed or traded on a
national securities exchange or in an over-the-counter securities market),
officer, agent or director of any firm or Person which either directly
competes with a line or lines of business of the Company or any Subsidiary
accounting for ten percent (10%) or more of the Company's or such Subsidiary's
gross sales, revenues or earnings before taxes or derives ten percent (10%) or
more of such firm's or Person's gross sales, revenues or earnings before taxes
from a line or lines of business which directly competes with the Company or
any Subsidiary. In the event of a breach by the Participant of the non-
compete provisions set forth in the first sentence of this Section 6(i) (or
the provisions of Section 6(ii) below), the Committee, in its sole discretion,
may require that the Participant promptly pay to the Company, in the case of
any Stock Options exercised within six (6) months of (or subsequent to) such
termination of employment, an amount in cash equal to the difference between
the Fair Market Value of a share of Common Stock on the date of exercise of
such Stock Options and the Exercise Price of such Stock Options multiplied by
the number of shares of Common Stock subject to such Stock Options. If, in
any judicial proceeding, a court shall refuse to enforce all of the separate
covenants deemed included in the first sentence of this Section 6(i), the
Company and the Participant intend that those of such covenants which, if
eliminated, would permit the remaining separate covenants to be enforced in
such proceedings shall, for the purpose of such proceedings, be deemed
eliminated from such provisions.

(ii) The Participant agrees to observe the terms of any
confidentiality, secrecy or other non-competition agreement that he or she has
previously entered into with the Company (the terms of which shall be
incorporated by reference into this Award Agreement) and agrees that, in the
event of any breach of any such agreement by the Participant, he or she shall
be subject to the provisions of the second sentence of Section 6(i) above.

7. Miscellaneous.

(a) No Rights to Grants or Continued Employment. The
Participant shall not have any claim or right to receive grants of Stock
Options or other Awards under the Plan. Nothing in the Plan or in any Award
or in this Award Agreement shall confer upon the Participant any right to
continued employment with the Company or any Subsidiary, as the case may be,
or interfere in any way with the right of the Company or a Subsidiary to
terminate the employment of the Participant at any time, with or without
cause.

(b) Tax Withholding. It shall be a condition to the obligation
of the Company to deliver any certificates evidencing Common Stock pursuant to
the exercise of a Stock Option that the Participant pay to the Company such
amount as may be required by the Company for the purpose of satisfying any
federal, state, or local tax withholding requirements. Prior to the Company's
determination of such withholding liability, the Participant may make an
irrevocable election to satisfy, in whole or in part, such obligation to remit
taxes by (i) delivering shares of Common Stock (or a certification of
ownership of such Common Stock acceptable to the Company) with a Fair Market
Value (determined as of the date of exercise or such other appropriate date as
may be determined by the Company) at least equal to the tax due, (ii)
directing the Company to withhold shares of Common Stock that would otherwise
be received by the Participant, or (iii) utilizing a "cashless exercise"
procedure adopted pursuant to Section 7(f) of the Plan; provided, however,
that unless otherwise determined by the Committee in its sole discretion,
payment of such taxes in shares of Common Stock shall not be permitted if such
payment or any rights in respect thereof would result in adverse accounting
consequences to the Company. Any such election may be denied by the Committee
in its sole discretion, or may be made subject to certain conditions specified
by the Committee, including, without limitation, conditions intended to avoid
the imposition of liability against the Participant under Section 16(b) of the
Exchange Act.

(c) No Restriction on Right of Company to Effect Corporate
Changes. Neither the Plan nor this Award Agreement shall affect or restrict
in any way the right or power of the Company or its shareholders to make or
authorize any adjustment, recapitalization, reorganization or other change in
the capital structure or business of the Company, or any merger or
consolidation of the Company, or any issue of stock or of options, warrants or
rights to purchase stock or of bonds, debentures, preferred or prior
preference stocks whose rights are superior to or affect the Common Stock or
the rights thereof or which are convertible into or exchangeable for Common
Stock, or the dissolution or liquidation of the Company, or any sale or
transfer of all or any part of the assets or business of the Company, or any
sale or transfer of all or any part of its assets or business, or any other
corporate act or proceeding, whether of a similar character or otherwise.

(d) Exchange Act. Notwithstanding anything contained in the
Plan or this Award Agreement to the contrary, if the consummation of any
transaction under the Plan or this Award Agreement would result in the
possible imposition of liability on the Participant pursuant to Section 16(b)
of the Exchange Act, the Committee shall have the right, in its sole
discretion, but shall not be obligated, to defer such transaction to the
extent necessary to avoid such liability, but in no event for a period in
excess of 180 days.

8. Survival; Assignment.

(a) All agreements, representations and warranties made herein
and in any certificates delivered pursuant hereto shall survive the issuance
to the Participant of the Stock Options and any shares of Common Stock and,
notwithstanding any investigation heretofore or hereafter made by the
Participant or the Company or on the Participant's or the Company's behalf,
shall continue in full force and effect. Except as expressly provided in the
Plan or this Award Agreement, the Participant may not assign any of his rights
hereunder. Whenever in this Agreement any of the parties hereto is referred
to, such reference shall be deemed to include the heirs and permitted
successors and assigns of such party; and all agreements herein by or on
behalf of the Company, or by or on behalf of the Participant, shall bind and
inure to the benefit of the heirs and permitted successors and assigns of such
parties hereto.

(b) The Company shall have the right to assign to any of its
affiliates any of its rights, or to delegate to any of its affiliates any of
its obligations, under this Award Agreement.

9. Certain Remedies. Without intending to limit the remedies
available to the Company, the Participant agrees that damages at law will be
an insufficient remedy in the event the Participant violates the terms of this
Award Agreement. The Participant agrees that the Company may apply for and
have injunctive or other equitable relief in any court of competent
jurisdiction to restrain the breach or threatened breach of, or otherwise
specifically to enforce, any of the provisions hereof.

10. Arbitration. Any dispute or controversy arising under or in
connection with this Award Agreement shall be settled exclusively by
arbitration in a location mutually agreed to by the Company and the
Participant before one arbitrator of exemplary qualifications and stature who
shall be jointly selected by the Company and the Participant, or if the
Company and the Participant cannot agree on the selection of the arbitrator,
such arbitrator shall be selected by the American Arbitration Association.
The parties agree to use their best efforts to cause (i) the arbitrator to be
appointed within 30 days of the date that either party hereto notifies the
other party that a dispute or controversy exists that necessitates the
appointment of an arbitrator, and (ii) any arbitration hearing to be held
within 30 days of the date of selection of the arbitrator and, as a condition
to his or her selection, such arbitrator must consent to be available for a
hearing at such time. Judgment may be entered on the arbitrator's award in
any court having jurisdiction. The parties hereto also agree that the
arbitrator shall be empowered to enter an equitable decree mandating specific
enforcement of the terms of this Award Agreement. The Company shall bear all
expenses of the arbitrator incurred in any arbitration hereunder, provided
that in the event that the Participant seeks arbitration and the arbitrator
determines that such claims are frivolous in nature or were not brought or
pursued in good faith, the Participant will promptly reimburse the Company for
all amounts paid by the Company for such expenses. Each party hereto will pay
its own legal fees in connection with any such arbitration.

11. Notices. All notices and other communications provided for
herein shall be in writing and shall be delivered by hand or sent by certified
or registered mail, return receipt requested, postage prepaid, addressed, if
to the Participant, to his attention at the mailing address set forth at the
foot of this Award Agreement (or to such other address as the Participant
shall have specified to the Company in writing) and, if to the Company, to it
at 1919 South Broadway, Green Bay, Wisconsin 54304, Attention: Secretary.
All such notices shall be conclusively deemed to be received and shall be
effective, if sent by hand delivery, upon receipt, or if sent by registered or
certified mail, on the fifth day after the day on which such notice is mailed.

12. Waiver. The waiver by either party of compliance with any
provision of this Award Agreement by the other party shall not operate or be
construed as a waiver of any other provision of this Award Agreement, or of
any subsequent breach by such party of a provision of this Award Agreement.

13. Entire Agreement; Governing Law. This Award Agreement and
the Plan set forth the entire agreement and understanding between the parties
hereto and supersede all prior agreements and understandings relating to the
subject matter hereof. This Award Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same agreement. The
headings of sections and subsections herein are included solely for
convenience of reference and shall not affect the meaning of any of the
provisions of this Award Agreement. This Award Agreement shall be governed
by, and construed in accordance with, the laws of the State of Wisconsin
without giving effect to conflicts of law principles.

IN WITNESS WHEREOF, the Company has caused this Award Agreement to
be executed by its duly authorized officer and the Participant has executed
this Award Agreement, both as of the day and year first above written.

FORT HOWARD CORPORATION

By: ___________________________________
Cheryl A. Thomson
Assistant Secretary

PARTICIPANT

_______________________________________
Name:
Address:

Number of Stock Options:

Exercise Price: $19.75

Date of Grant: December 6, 1995

EXHIBIT 12.1

FORT HOWARD CORPORATION

DEFICIENCY OF EARNINGS AVAILABLE TO COVER FIXED CHARGES
(In thousands)

For the Years Ended
December 31,
-------------------------------------------
1994 1993 1992 1991
---- ---- ---- ----

Earnings:
Loss before taxes.......... $(61,016) $(2,056,432) $ (69,800) $ (97,999)
Interest expense........... 337,701 342,792 338,374 371,186
One-fourth of operating
lease rental expense..... 1,881 1,731 1,632 1,356
-------- ----------- --------- ---------

$278,566 $(1,711,909) $ 270,206 $ 274,543
======== =========== ========= =========

Fixed Charges:
Interest expense........... $337,701 $ 342,792 $ 338,374 $ 371,186
Capitalized interest....... 4,230 8,369 11,047 5,331
One-fourth of operating
lease rental expense..... 1,881 1,731 1,632 1,356
-------- ----------- --------- ---------

$343,812 $ 352,892 $ 351,053 $ 377,873
======== =========== ========= =========

Deficiency of Earnings
Available to Cover
Fixed Charges (1).......... $(65,246) $(2,064,801) $ (80,847) $(103,330)
======== =========== ========= =========

(1) For purposes of these computations, earnings consist of consolidated
loss before taxes plus fixed charges (excluding capitalized interest) of both
consolidated and unconsolidated subsidiaries. Fixed charges consist of
interest on indebtedness (including capitalized interest and amortization of
deferred loan costs) plus that portion (deemed to be one-fourth) of operating
lease rental expense representative of the interest factor.

EXHIBIT 12.2

FORT HOWARD CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(In thousands, except ratio)

For the Year Ended
December 31, 1995
------------------

Earnings:
Income before taxes.................................. $ 51,866
Interest expense..................................... 309,915
One-fourth of operating lease rental expense......... 2,168
--------
$363,949
========

Fixed Charges:
Interest expense..................................... $309,915
Capitalized interest................................. 2,096
One-fourth of operating lease rental expense......... 2,168
--------
$314,179
========

Ratio of Earnings to Fixed Charges..................... 1.2
===

EXHIBIT 21

SUBSIDIARIES OF FORT HOWARD CORPORATION

NAME OF SUBSIDIARY STATE OR COUNTRY OF INCORPORATION
- ------------------ ---------------------------------

FORT HOWARD EXPORT, LTD. U.S. VIRGIN ISLANDS

FORT STERLING LIMITED ENGLAND

HARMON ASSOC., CORP. NEW YORK

FORT HOWARD DE MEXICO S.A. DE C.V. MEXICO

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FORT HOWARD CORPORATION'S UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000038195
<NAME> FORT HOWARD CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<CASH> 946
<SECURITIES> 0
<RECEIVABLES> 100,590
<ALLOWANCES> 2,883
<INVENTORY> 163,076
<CURRENT-ASSETS> 291,429
<PP&E> 1,971,641
<DEPRECIATION> 706,394
<TOTAL-ASSETS> 1,652,437
<CURRENT-LIABILITIES> 326,169
<BONDS> 2,903,299
<COMMON> 634
0
0
<OTHER-SE> (1,839,063)
<TOTAL-LIABILITY-AND-EQUITY> 1,652,437
<SALES> 1,620,903
<TOTAL-REVENUES> 1,620,903
<CGS> 1,139,378
<TOTAL-COSTS> 1,139,378
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 309,915
<INCOME-PRETAX> 51,866
<INCOME-TAX> 18,401
<INCOME-CONTINUING> 33,465
<DISCONTINUED> 0
<EXTRAORDINARY> (18,748)
<CHANGES> 0
<NET-INCOME> 14,717
<EPS-PRIMARY> 0.25
<EPS-DILUTED> 0.25

</TABLE>