RIVERWOOD HOLDING INC, 10-K405, 1999-03-05

RIVERWOOD HOLDING INC
10-K405, 1999-03-05
PAPERBOARD MILLS

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM 10-K

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

FOR THE FISCAL PERIOD ENDED DECEMBER 31, 1998

[ ] 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: 1-11113

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RIVERWOOD HOLDING, INC.
(Exact name of registrant as specified in its charter)

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DELAWARE 58-2205241
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)

SUITE 350
1013 CENTRE ROAD
WILMINGTON, DELAWARE 19805
(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code:
c/o Riverwood International Corporation (770) 644-3000

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

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. Yes [X] No [ ]

As of March 3, 1999 there were 7,061,450 shares and 500,000 shares of the
registrant's Class A Common Stock, par value $0.01 per share (the "Class A
Common Stock"), and Class B Common Stock, par value $0.01 per share (the "Class
B Common Stock," and together with the Class A Common Stock, "Holding Common
Stock"), respectively, outstanding.
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TABLE OF CONTENTS TO FORM 10-K

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PAGE
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PART I......................................................................... 1
ITEM 1. BUSINESS.................................................... 1
ITEM 2. PROPERTIES.................................................. 7
ITEM 3. LEGAL PROCEEDINGS........................................... 8
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......... 9

PART II........................................................................ 9
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS......................................... 9
ITEM 6. SELECTED FIVE-YEAR FINANCIAL DATA........................... 10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................... 12
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK... 34
ITEM 8. FINANCIAL STATEMENTS........................................ 36
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.................................... 89

PART III....................................................................... 89
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.......... 89
ITEM 11. EXECUTIVE COMPENSATION...................................... 93
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.................................................. 97
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 99
PART IV........................................................................ 101

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K......................................................... 101
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As used in this Form 10-K, unless the context otherwise requires: "RIC"
refers to the corporation formerly named Riverwood International Corporation;
the "Predecessor" or the "Predecessor Company" refers to RIC and its
subsidiaries in respect of periods prior to the Merger (as defined herein); the
"Company" refers to the registrant, Riverwood Holding, Inc., a Delaware
corporation ("Holding") and its subsidiaries; "RIC Holding" refers to RIC
Holding, Inc., a Delaware corporation, successor by merger to RIC and a
wholly-owned subsidiary of Holding; and "Riverwood" refers to Riverwood
International Corporation, a Delaware corporation formerly named Riverwood
International USA, Inc. and a wholly-owned subsidiary of RIC Holding.

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PART I

ITEM 1. BUSINESS

OVERVIEW

The Company is a leading provider of paperboard and paperboard packaging
solutions, either directly or through independent converters, to multinational
beverage and consumer products companies, such as Anheuser-Busch Companies,
Inc., Miller Brewing Company, numerous Coca-Cola bottling companies, PepsiCo,
Inc., Sara Lee Corporation and Mattel, Inc. The Company is one of only two major
manufacturers of coated unbleached kraft paperboard ("CUK Board"). CUK Board,
which serves as the principal raw material for the Company's packaging products,
is a specialized high-quality grade of paperboard with superior strength
characteristics and printability for high-resolution graphics that make it
particularly well suited for a variety of packaging applications. The Company's
Coated Board business segment accounted for approximately 93% of the Company's
net sales for the year ended December 31, 1998. The Company also manufactures
and sells linerboard, corrugating medium and kraft paper (collectively,
"containerboard") through its Containerboard business segment.

Holding, its wholly-owned subsidiary RIC Holding and the corporation
formerly named CDRO Acquisition Corporation ("Acquisition Corp.") were organized
to acquire RIC. Holding, RIC Holding and Acquisition Corp. were incorporated in
1995 under the laws of the State of Delaware. On March 27, 1996, Holding,
through its wholly-owned subsidiaries, acquired all of the outstanding shares of
common stock of RIC. On such date, Acquisition Corp. was merged (the "Merger")
into RIC. RIC, as the surviving corporation in the Merger, became a wholly-owned
subsidiary of RIC Holding. On March 28, 1996, RIC transferred substantially all
of its properties and assets to Riverwood, other than the capital stock of
Riverwood, and RIC was merged (the "Subsequent Merger") into RIC Holding.
Thereupon, Riverwood was renamed "Riverwood International Corporation."

COATED BOARD

Overview

The Company's primary focus is the production and sale of CUK Board for use
as multiple packaging beverage cartons ("carrierboard") for beer, soft drinks
and other beverages, and folding cartons ("folding cartonboard") for
confectionary, frozen and dry foods, toys and other consumer products. The
Company sells carrierboard under the brand name Aqua-Kote(R) and folding
cartonboard under the brand names Pearl-Kote(R) and OmniKote(R). In 1998,
carrierboard accounted for approximately 60% of the Company's total CUK Board
shipments.

The Company utilizes over three-fourths of its carrierboard production in
its integrated beverage business and sells the remainder in the open market to
independent converters, including licensees of the Company's proprietary carton
designs, principally for use in the beverage packaging market. In its integrated
beverage business, the Company provides integrated beverage packaging solutions
that generally include each of the following elements: (i) the production of
carrierboard, (ii) the printing and cutting, or conversion, of carrierboard into
beverage cartons for use on packaging machines and (iii) the sale to customers
of converted beverage cartons for use on proprietary packaging machines
designed, manufactured and installed by the Company. As part of the Company's
integrated beverage business, particularly in its international operations, the
Company's carrierboard may be sold to and converted by licensees of the
Company's beverage carton designs who, in turn, sell converted beverage cartons
to end-users for use on the Company's proprietary packaging machines. The
Company's integrated beverage business also includes sales of Company produced
and converted carrierboard to customers for use on third party packaging
machines.

The Company produces and sells folding cartonboard principally in the open
market to independent converters for use in folding cartons for packaging a
variety of consumer products. The Company focuses on folding cartonboard
applications for consumer products companies seeking the strength and
printability of CUK Board. The Company's ability to produce either carrierboard
or folding cartonboard on its CUK Board paper machines enables the Company to
respond to changes in supply and demand in these businesses.
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Additionally, at its paper mill in Norrkoping, Sweden (the "Swedish Mill"), the
Company manufactures white lined chip board ("WLC"), a coated 100% recycled
paperboard grade used principally in European folding carton applications.

CUK Board Production

The Company produces CUK Board at its West Monroe, Louisiana paper mill
(the "West Monroe Mill") and its Macon, Georgia paper mill (the "Macon Mill").
These mills have a current total combined annual production capacity of over one
million tons of CUK Board. In June 1997, the Company completed the conversion of
the second Macon Mill linerboard machine to CUK Board production at a cost of
approximately $85 million, and commenced CUK Board production on the machine.
The Company expects that the machine will achieve its full, annual production
capacity of approximately 250,000 tons of reduced caliper CUK Board by June
1999. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Business Trends and Initiatives."

The Company's CUK Board total production at its West Monroe Mill was
approximately 672,000 tons during the year ended December 31, 1998. CUK Board
total production at its Macon Mill was approximately 388,000 tons of CUK Board
during the year ended December 31, 1998.

CUK Board is manufactured from pine and hardwood fibers and, in some cases,
recycled fibers, such as old corrugated containers ("OCC") and clippings from
the Company's converting operations. Virgin fiber is obtained in the form of
wood chips or pulp wood acquired through open market purchases. These chips are
chemically treated to form softwood and hardwood pulp, which are then blended
(together, in some cases, with recycled fibers). In the case of carrierboard, a
chemical is added to increase moisture resistance. The pulp is then processed
through the mill's paper machines, which consist of a paper-forming section, a
press section (where water is removed by pressing the wet paperboard between
rolls), a drying section and the coating section. Coating on CUK Board,
principally a mixture of pigments, binding agents and water, provides a white,
smooth finish, and is applied in multiple steps to achieve desired levels of
brightness, smoothness and shade. After the CUK Board is coated, it is wound
into rolls, which are then shipped to the Company's converting plants or to
outside converters.

Converting Operations

The Company converts CUK Board as well as other grades of paperboard into
cartons at ten carton converting plants at nine sites that it operates in the
United States, the United Kingdom, Spain and France, as well as through
converting plants associated with its joint ventures in Brazil, Japan and
Denmark and licensees in other markets outside the United States. The converting
plants print, cut and glue paperboard on multi-color printing presses, cutting
lines and gluing lines into cartons designed to meet customer specifications.

The Company's U.S. converting plants are dedicated to converting
carrierboard produced by the Company into beverage cartons. The Company
continues to invest in its domestic converting plants in order to improve their
process capabilities. The Company's international converting plants convert
carrierboard and folding cartonboard produced by the Company, as well as
paperboard supplied by outside producers, into cartons.

On March 12, 1998, the Company entered into an agreement with Carter Holt
Harvey ("Carter Holt") for the sale of Riverwood's folding carton business in
Australia. Proceeds from the sale totaling $46.7 million were received on March
30, 1998. Under the terms of the agreement for such sale, the Company sold to
Carter Holt substantially all of Riverwood's Australian folding carton assets,
and Carter Holt assumed certain specified liabilities. The Company retained
substantially all of its beverage multiple packaging business in Australia.
Under the agreement, Carter Holt agreed to purchase from the Company a portion
of its coated board requirements in Australia and to supply beverage cartons to
meet the Company's needs for its Australian beverage business.

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Proprietary Packaging Machinery and Carton Designs

The Company employs a "pull through" marketing strategy in its integrated
beverage business, the key elements of which are (i) the design and manufacture
of proprietary packaging machines, (ii) the installation of the machines at
beverage customer locations under multi-year machinery use arrangements and
(iii) the development of proprietary beverage cartons with high-resolution
graphics for use on those machines. The Company leases substantially all of its
packaging machines to customers, typically under machinery use agreements with
original terms of three to six years. The Company continues to shift its mix of
packaging machinery placements from the U.S. to international markets. Packaging
machinery placements during the year ended December 31, 1998 decreased
approximately 20% when compared to the number of packaging machines placed
during 1997. The Company expects an increase in the number of new packaging
machinery placements in 1999, as well as an increase in beverage cartonboard
tonnage as the number of packaging machines in service and the cartonboard
throughput per machine increases. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations-Business Trends and Initiatives".

The Company's packaging machines are designed to package Polyethylene
Terephthalate ("PET") bottles and glass bottles, cans and other primary
containers, using beverage cartons designed by the Company, made from the
Company's CUK Board and converted into beverage cartons by the Company, its
joint venture partners or its licensees. In order to meet customer requirements,
the Company has developed an extensive portfolio of packaging machines
consisting of several principal machinery lines. The Company's machines package
cans and PET or glass bottles in a number of formats including baskets, clips,
trays, wraps and fully enclosed cartons. These machines have packaging ranges
from two to 36 cans per package and have the ability to package cans at speeds
of up to 3,000 cans per minute. The Company also manufactures ancillary
equipment, such as machines for taping cartons and placing coupons in cartons.

The Company designs cartons and designs, tests and manufactures prototype
packaging machinery at its Product Development Center (the "PDC") in Marietta,
Georgia, which was established in 1992. At the PDC, the Company integrates
carton and packaging machinery designs to create packaging solutions to meet
customer needs. The Company manufactures and also designs packaging machinery at
its principal U.S. manufacturing facility in Crosby, Minnesota and at a facility
near Barcelona, Spain. By manufacturing packaging machinery in one U.S. and one
European location, the Company expects to improve customer service, simplify its
work processes and reduce costs.

Marketing and Distribution

The Company markets its CUK Board and CUK Board-based products principally
to multinational brewers, soft drink bottlers, food companies and other consumer
products companies that use printed packaging for retail display, multiple
packaging and shipment of their products. The Company also sells CUK Board in
the open market to carrierboard and cartonboard converters. The Company markets
CUK Board under the names Aqua-Kote(R), Pearl-Kote(R) and OmniKote(R).

Carrierboard. In its carrierboard operations, the Company's major
customers for beverage cartons include Anheuser-Busch Companies, Inc., Miller
Brewing Company, numerous Coca-Cola bottling companies and PepsiCo, Inc. The
Company also sells carrierboard in the open market to independent converters,
including licensees of the Company's proprietary carton designs, for the
manufacture of beverage cartons. During 1998, net sales to Anheuser-Busch
Companies, Inc. represented 11% of the Company's total net sales.

Folding Cartonboard. In its folding cartonboard operations, the Company
sells substantially all of its folding cartonboard to numerous independent
converters that convert the folding cartonboard into cartons for consumer
products. In many cases, the Company has a relationship with multinational
end-user consumer products companies, such as Sara Lee Corporation and Mattel,
Inc., but sells its folding cartonboard to an independent converter that
manufactures folding cartons and, in turn, sells these cartons to the end-user.
The Company has established account relationships with a number of major
independent converters. These relationships involve multi-year commitments by
the Company to supply a significant portion of these customers' requirements for
CUK Board. If the customer decides to purchase CUK Board, it has agreed to
purchase a significant portion of its CUK Board requirements from the Company.
The terms of these
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arrangements include certain limitations on the Company's ability to raise the
selling prices of its folding cartonboard.

Distribution and Sales. Distribution of carrierboard and folding
cartonboard is primarily accomplished through direct sales offices in the United
States, Australia, Brazil, Cyprus, Hong Kong, Italy, Japan, Mexico, Singapore,
Sweden and the United Kingdom.

Joint Ventures. The Company is a party to joint ventures with Rengo
Company Limited and Danapak Holding A/S to market machinery-based packaging
systems in Japan and Scandinavia, respectively. The joint ventures cover CUK
Board supply, use of proprietary carton designs and marketing and distribution
of packaging systems. The Company is considering additional joint venture
opportunities and similar arrangements. In addition, a Brazilian joint venture
produces and markets cartons for machinery-based multiple packaging customers in
Argentina, Brazil, Paraguay and Uruguay, with carrierboard and packaging
machines supplied by the Company.

Raw Materials

Pine pulpwood, hardwood and recycled fibers are the principal raw materials
used in the manufacture of the Company's CUK Board products. With the October
1996 sale of the Company's timberlands in Louisiana and Arkansas, the Company
now relies on private landowners and the open market for its fiber requirements.
Under the terms of the sale of those timberlands, the Company and the buyer,
Plum Creek Timber Company, L.P., entered into a 20-year supply agreement, with a
10-year renewal option, for the purchase by the Company, at market-based prices,
of a majority of the West Monroe Mill's requirements for pine pulpwood and
residual chips, as well as a portion of the Company's needs for hardwood
pulpwood at the West Monroe Mill. The Company purchases the remainder of the
wood fiber used in CUK Board production at the West Monroe Mill from other
private landowners in this region. The Company believes that adequate supplies
of open market timber currently are available to meet its fiber needs at the
West Monroe Mill.

The Macon Mill purchases most of its fiber requirements on the open market,
and is a significant consumer of recycled fiber, primarily in the form of
clippings from the Company's domestic converting plants as well as OCC and other
recycled fibers. The Company has not experienced any significant difficulties
obtaining sufficient OCC or other recycled fibers for its Macon Mill operations,
which it purchases in part from brokers located in the eastern United States.
OCC pricing, however, tends to be very volatile since it is based largely on the
demand for this fiber from recycled paper and containerboard mills. The Macon
Mill purchases all of its virgin pine and hardwood requirements from private
landowners in central and southern Georgia. Because of the adequate supply and
large concentration of private landowners in this area, the Company believes
that adequate supplies of pine and hardwood timber currently are available to
meet its fiber needs at the Macon Mill.

The Company purchases a variety of other raw materials for the manufacture
of its paperboard, primarily process chemicals and coating chemicals such as
kaolin and titanium dioxide.

All such raw materials are readily available, and the Company is not
dependent upon any one source of such raw materials.

White Lined Chip Production

The Company produces WLC at its Swedish Mill, which shipped approximately
138,200 tons of such board during 1998. WLC is used for a variety of folding
carton applications principally throughout Europe.

Competition

There are only two major producers of CUK Board, the Company and Mead
Corporation ("Mead"). The Company faces significant competition in its CUK Board
business segment from Mead. Like the Company, Mead produces and converts CUK
Board, designs and places packaging machinery with customers and sells CUK Board
in the open market. The Company also faces competition from other manufacturers
of packaging machinery.
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In the beverage packaging industry, cartons made from CUK Board compete
with plastics and corrugated packaging for packaging glass or plastic bottles,
cans and other primary containers. Although plastics and corrugated packaging
generally provide lower cost and/or moderately faster packaging solutions, the
Company believes that cartons made from CUK Board offer advantages over these
materials, in areas such as distribution, high quality graphics, carton designs,
environmental friendliness and design flexibility.

In the folding cartonboard markets, the Company's CUK Board competes
principally with Mead's CUK Board, recycled clay-coated news ("CCN") and solid
bleached sulphate board ("SBS") and, internationally, WLC and folding boxboard.
Folding cartonboard grades compete based on price, strength and printability.
CUK Board has generally been priced in a range that is higher than CCN and lower
than SBS. CUK Board has slightly better tear strength characteristics than SBS
and significantly better tear strength and cross-direction stiffness than CCN.
There are a large number of producers of paperboard for the folding cartonboard
markets, which are subject to significant competitive and other business
pressures.

CONTAINERBOARD

In the United States, the Company manufactures
containerboard -- linerboard, corrugating medium and kraft paper -- which is
sold in the open market. Corrugating medium is combined with linerboard to make
corrugated containers. Kraft paper is used primarily to make grocery bags and
sacks. The Company's principal paper machines have the capacity to produce both
linerboard and CUK Board. The Company has in the past used its CUK Board
machines to produce linerboard and expects to continue to produce and sell
linerboard to respond to changes in supply and demand in its businesses. The
Company also continues to operate paper machines dedicated to the production of
corrugating medium and kraft paper.

In 1998, the Company shipped approximately 50,200 tons of linerboard from
the Macon Mill and approximately 126,700 tons of corrugating medium, 33,800 tons
of kraft bag paper and 15,800 tons of linerboard from its West Monroe Mill. The
Company also shipped approximately 51,800 tons of various other paperboard
products, principally off-specification coated board.

The primary customers for the Company's U.S. containerboard production are
independent and integrated corrugated converters. The Company sells corrugating
medium and linerboard through direct sales offices in the United States. Outside
of the United States, linerboard is primarily distributed through independent
sales representatives.

The Company's Containerboard business segment operates within a highly
fragmented industry. Most products within this industry are viewed as
commodities; consequently, selling prices tend to be cyclical, being affected by
economic activity and industry capacity.

In addition to the Company's U.S. Containerboard operations, the Company
currently owns 50% of Igaras Papeis e Embalagens S.A. ("Igaras"), an integrated
containerboard producer located in Brazil. The Company and Companhia Suzano
Papel e Celulose, S.A. ("Suzano") each currently own 50% of the common stock of
Igaras. Igaras operates two mills and three corrugated box plants and owns or
leases approximately 176,000 acres of timberlands which are used exclusively for
wood chip and energy requirements of the paper mills. In 1996 Igaras completed
the construction of a multiple packaging plant in Brazil. At its mills, Igaras
operates three paper machines primarily for the production of linerboard, with a
fourth paper machine for production of corrugating medium. Igaras's total
containerboard shipment in 1998 was approximately 397,500 tons. Igaras sold
approximately 17% of its 1998 containerboard production in export markets.
Igaras also sells linerboard, corrugating medium and corrugated boxes through
direct sales offices in Brazil. Outside of Brazil, Igaras distributes linerboard
primarily through independent sales representatives. In January 1998, Igaras
acquired Ponte Nova Papeis e Embalagens Ltda. whose assets include two
corrugated containers plants and a recycling pulp and paper plant. See Note 12
to the Consolidated Financial Statements of Igaras. On January 14, 1999, the
Central Bank of Brazil changed the foreign exchange policy by eliminating the
exchange rate band, which had been used as a means to control the fluctuation of
the Brazilian currency ("Real") against the U.S. dollar. The exchange rate is
now determined by market forces. As a consequence of such change, the Real
suffered a significant devaluation related to the U.S. dollar during the
beginning of 1999. At this time it is not practicable to determine whether or at
what level the exchange rate will stabilize as
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well as the effect of such exchange rate fluctuation on Igaras' operations. See
Note 13 to the Consolidated Financial Statements of Igaras.

PATENTS, TRADEMARKS AND LICENSES

The Company has a large patent portfolio, presently owning, controlling or
holding rights to approximately 1,920 U.S. and foreign patents, with 1,930
patent applications currently pending. The Company's patents fall into two
principal categories: packaging machinery and structural carton designs.

The Company is a plaintiff in several actions against Mead claiming
infringement of Riverwood patents for its packaging machines, as to which Mead
has filed counterclaims asserting that the Riverwood patents are invalid. In the
furthest advanced of these actions, on November 18, 1998, a federal court
entered an order refusing to adopt a special master's recommended finding that
the Riverwood patent in issue was invalid, and ruled that Mead had been
unlawfully infringing Riverwood's patent. On February 16, 1999, Mead filed an
appeal from that decision.

EMPLOYEES AND LABOR RELATIONS

As of December 31, 1998, the Company had approximately 4,200 employees
worldwide (excluding employees of joint ventures), approximately 3,000 of whom
were members of unions and covered by collective bargaining agreements.

There are four unions representing the Company's U.S. employees, one of
which, the United Paperworkers International Union, is associated with the West
Monroe Mill and converting facility where it represents approximately 1,200, and
the Macon Mill where it represents 300 of the 400 employees, through three local
unions.

In the second quarter of 1998, the Company and the three unions at the
Macon Mill signed a new six-year collective bargaining agreement. The contract
runs through December 31, 2003. The new contract includes industry-average
economic increases over six years and retains language that allows the Company
to outsource work and sell mill assets.

The current union contract covering the West Monroe Mill was negotiated and
ratified by the union in February 1997 and covers the six-year period from March
1, 1997 to February 28, 2003. The contract covering employees at the adjacent
converting plants was negotiated and ratified by the union in 1996 and covers
the four-year period from September 1, 1996 through August 31, 2000.

The Company's other U.S. converting plants, other than its converting
facility in Perry, Georgia, are represented by unions. The Clinton, Mississippi
converting plant contract was negotiated and ratified by the union in January
1997 and covers the six-year period from February 1, 1997 through January 31,
2003. The Cincinnati, Ohio converting plant completed a wage and benefit
reopener negotiations for its labor agreement which covers the six-year period
from February 1, 1995 through January 1, 2001. The Fort Akinson, Wisconsin
converting plant labor agreement will be up for negotiation in September 1998.

The Company's international employees are represented by unions in the
United Kingdom, Sweden, France and Spain. As part of an ongoing restructuring of
the Company's international folding carton converting operations, the Company
expects to reduce its European workforce by approximately 300 employees in 1999.

ENVIRONMENTAL MATTERS

The Company is committed to compliance with all applicable environmental
laws and regulations throughout the world. Environmental law is, however,
dynamic rather than static. As a result, costs, which are unforeseeable at this
time, may be incurred when new laws are enacted, and when environmental agencies
promulgate or revise rules and regulations.

States pulp and paper mills. The cluster rules were promulgated in April 1998,
and the Company estimates that the capital spending that may be required to
comply with the cluster rules could reach $55 million to be spent at its two
U.S. paper mills over a seven-year period beginning in 1999.

In late 1995, the Louisiana Department of Environmental Quality ("DEQ")
notified the Predecessor of potential liability for the remediation of hazardous
substances at a wood treatment site in Shreveport, Louisiana that the
Predecessor or its predecessors previously operated, and at a former oil
refinery site in Caddo Parish, Louisiana which is on land that the Company
currently owns. In response to these notices, the Company has provided
additional information concerning these sites and has commenced its own
evaluation of any claims and remediation liabilities for which it may be
responsible. Subsequent to receipt in May 1996 of a Special Demand Letter from
DEQ to remediate the site in Shreveport, the Company entered into an agreement
with DEQ to perform a soil and groundwater investigation at the site. The
Company expects this investigation to be completed during 1999. In September
1996, the Company received a Special Demand Letter from DEQ to remediate the
site in Caddo Parish. The Company performed a waste inventory and treatability
study at the site and is discussing with DEQ its responsibility and the
participation of other potentially responsible parties at the site, as well as
remediation options at the site.

The Company is involved in environmental remediation projects for certain
properties currently owned or operated by the Company, certain properties
divested by the Company for which responsibility was retained and waste sites
where waste was shipped by predecessors of the Company or for which the Company
might have corporate successor liability. Certain of these projects are being
carried out under federal and state statutes, such as the Comprehensive
Environmental Response, Compensation and Liability Act and the state law
counterparts. The Company's costs in some instances cannot be reliably estimated
until the remediation process is substantially underway or liability at
multiparty sites has been addressed. To address these contingent environmental
costs, the Company has accrued reserves when such costs are probable and can be
reasonably estimated. The Company believes that, based on current information
and regulatory requirements, the accruals established by the Company for
environmental expenditures are adequate. Based on current knowledge, to the
extent that additional costs may be incurred that exceed the accrued reserves,
such amounts are not expected to have a material impact on the results of
operations, cash flows or financial condition of the Company, although no
assurance can be given that material costs will not be incurred in connection
with clean-up activities at these properties, including the Shreveport and Caddo
Parish sites referred to above.

ITEM 2. PROPERTIES

HEADQUARTERS

Holding and RIC Holding are headquartered in Delaware. Riverwood is
headquartered and currently leases approximately 70,000 square feet of office
space in Atlanta, Georgia.

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MANUFACTURING FACILITIES

A listing of the major plants and properties owned, or leased, and operated
by the Company is set forth below. The Company's buildings are adequate and
suitable for the business of the Company. The Company also leases certain
facilities, warehouses and office space throughout the United States and in
foreign countries.

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APPROX. NO. OF
SQ. FEET OF PRINCIPAL PRODUCTS MANUFACTURED
TYPE OF FACILITY AND LOCATION(1) FLOOR SPACE OR USE OF FACILITY
- -------------------------------- -------------- -------------------------------------------
<S> <C> <C>
PAPERBOARD MILLS:
West Monroe, LA............................ 1,535,000 CUK Board; linerboard; corrugating medium;
kraft paper
Macon, GA.................................. 756,000 CUK Board; linerboard
Norrkoping, Sweden......................... 417,000 White lined chip board

CONVERTING PLANTS:
West Monroe, LA (2 plants)................. 621,000 Beverage carriers
Cincinnati, OH............................. 241,800 Beverage carriers
Clinton, MS................................ 210,000 Beverage carriers
Perry, GA(2)............................... 130,000 Beverage carriers
Ft. Atkinson, WI........................... 120,000 Beverage carriers
Bristol, Avon, United Kingdom.............. 428,000 Beverage carriers; folding cartons
Igualada, Barcelona, Spain................. 131,000 Beverage carriers; folding cartons
Beauvois en Cambresis, France.............. 70,000 Folding cartons
Le Pont de Claix, France................... 120,000 Folding cartons

PACKAGING MACHINERY/OTHER:
Crosby, MN................................. 188,000 Packaging machinery engineering design and
manufacturing
Marietta, GA............................... 64,000 PDC -- Research and development; packaging
machinery engineering design and carton
engineering design
Igualada, Barcelona, Spain................. 12,000 Packaging machinery engineering design and
manufacturing
</TABLE>

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

(1) The Company leases the facilities in Marietta, Georgia; Clinton, Mississippi
(part only); Beauvois en Cambresis, France; and Le Pont De Claix, France.
All other facilities listed are owned by the Company.
(2) The facility located in Perry, Georgia is leased from the Middle Georgia
Regional Development Authority in consideration of the issuance of
industrial development bonds by such entity.

ITEM 3. LEGAL PROCEEDINGS

The Company is a party to a number of lawsuits arising out of the ordinary
conduct of its business. While there can be no assurance as to their ultimate
outcome, the Company does not believe that these lawsuits will have a material
impact on the results of operations, cash flows or financial condition of the
Company.

8
<PAGE> 12

concerning its review of the strategic alternatives was false and (ii) there was
no causal relationship between plaintiff's purchase of Riverwood common stock
and the Individual Defendants' exercise of SARs. On October 14, 1998, the U.S.
Court of Appeals for the Eleventh Circuit affirmed the dismissal. The Court of
Appeals ruled that (i) none of the statements attributable to the Company
concerning its review of strategic alternatives was false and (ii) the SARs were
not securities. On November 5, 1998, Clay filed a motion seeking rehearing en
banc. The court has not yet ruled on that motion.

On August 21, 1998, William D. Tatum, C. Steven Clark, Thomas W. Brabston,
Sr., and Joe O. Harper, Jr. ("Plaintiffs"), all former employees of the Company,
commenced a purported class action lawsuit in the Superior Court of Fulton
County, Georgia, against the Company and certain current and former officers of
the Company. In the complaint, Plaintiffs alleged generally that the Company and
such officers (1) breached the terms of the contracts between Plaintiffs and the
Predecessor governing Premium Stock Appreciation Rights ("PSARs") as a result of
a suspension requested on August 23, 1995, (2) breached an implied covenant of
good faith and fair dealing in connection with both the suspension and the
lifting of that suspension and (3) engaged in fraud and negligent
misrepresentation in connection with the lifting of the suspension by (a)
failing to tell Plaintiffs that certain officers of the Predecessor were
planning to exercise PSARs on September 21, 1995 and (b) failing to inform
Plaintiffs of the status of the Predecessor's review of strategic alternatives
as of September 21, 1995. Plaintiffs sought (i) an order granting class
certification, (ii) an award of compensatory damages, (iii) pre-judgment
interest, (iv) punitive damages in an amount to be determined by the jury and
(v) litigation expenses, including attorneys' fees. The defendants have answered
the complaint. In addition, on October 16, 1998, the defendants moved to strike
the class allegations in the complaint, and, on October 30, 1998, moved to
dismiss the complaint. On January 6, 1999, the court granted the motion to
strike the class allegations and denied the motion to dismiss the complaint. One
additional plaintiff has been added. The parties are now engaged in discovery.

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

During the fourth quarter of 1998, there were no matters submitted to a
vote of security holders.

PART II

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

There is no established public trading market for the Class A Common Stock
or Class B Common Stock of Holding. The shares of Class A Common Stock and Class
B Common Stock were held of record by 59 stockholders and one stockholder,
respectively, at December 31, 1998. Holding did not pay any dividends on either
class of Common Stock during 1998, 1997 or 1996. The Company's debt instruments
restrict the ability of the Company to pay dividends. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Financial Condition, Liquidity and Capital Resources -- Covenant
Restrictions."

9
<PAGE> 13

ITEM 6. SELECTED FIVE-YEAR FINANCIAL DATA

On March 27, 1996, Holding, through its wholly-owned subsidiaries, acquired
all of the outstanding shares of common stock of RIC. The purchase method of
accounting was used to record assets acquired and liabilities assumed by
Holding. As a result of the Merger, purchase accounting and the effect of the
disposition of substantially all of the U.S. Timberlands/Wood Products business
segment (see Notes 1 and 25 in Notes to Consolidated Financial Statements) and
certain Other Costs of the Predecessor, the accompanying financial statements of
the Predecessor and the Company are not comparable in all material respects
since the financial statements report results of operations and cash flows of
these two separate entities.

<TABLE>
<CAPTION>
COMPANY PREDECESSOR
------------------------------------------ ------------------------------------------
NINE MONTHS THREE MONTHS
YEAR ENDED YEAR ENDED ENDED ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, MARCH 27, DECEMBER 31, DECEMBER 31,
(IN THOUSANDS OF DOLLARS) 1998 1997 1996 1996 1995 1994
- ------------------------- ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
INCOME (LOSS)
Net Sales.......................... $1,135,569 $1,138,854 $ 852,112 $ 293,649 $1,342,304 $1,282,788
Income from Operations(a)(b)....... 27,678 6,912 1,419 15,650 133,137 154,187
(Loss) Income from Continuing
Operations....................... (140,304) (146,957) (130,362) (2,050) 45,538 10,249
Income from Discontinued
Operations(a).................... -- -- 35,546 -- -- --
Net (Loss) Income(a)(c)(d)......... (140,304) (152,473) (105,136) (2,050) 45,538 2,377
FINANCIAL POSITION
(as of period end)
Total Assets....................... $2,417,601 $2,606,185 $2,671,487 $2,206,206 $2,201,328 $2,102,292
Long-Term Debt, less current
portion.......................... 1,680,415 1,712,944 1,567,259 1,063,798 1,053,794 994,770
Redeemable Common Stock............ 6,074 6,045 9,390 -- -- --
Shareholders' Equity............... 336,900 479,434 654,209 557,487 562,310 516,251
ADDITIONAL DATA
Additions to Property, Plant and
Equipment(f)..................... $ 48,551 $ 142,314 $ 132,286 $ 44,074 $ 170,085 $ 240,222
Research, Development and
Engineering Expense.............. 5,570 5,171 7,339 2,031 9,909 9,356
EBITDA(a)(g)....................... 203,458 165,927 148,560 56,133 263,707 210,164
</TABLE>

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

Notes:

(a) On October 18, 1996, the Company sold substantially all of the assets of the
U.S. Timberlands/Wood Products business segment for approximately $550
million in cash. The operating results for the U.S. Timberlands/Wood
Products business segment have been classified as discontinued operations
for the nine months ended December 31, 1996. Discontinued operations of the
U.S. Timberlands/Wood Products business segment have not been reclassified
in the Predecessor's Statement of Operations. See Note 25 in Notes to
Consolidated Financial Statements for results of operations of the U.S.
Timberlands/Wood Products business segment for periods prior to the date of
the sale.

(b) On December 29, 1994, the Predecessor sold approximately 50 percent of its
investment in Igaras, an integrated containerboard producer located in
Brazil, which produces linerboard, corrugating medium and corrugated boxes,
after first spinning off a wholly-owned subsidiary to operate the
Predecessor's packaging machinery operations in Brazil. Prior to that date,
the Predecessor included the results of operations of Igaras in the
Consolidated Financial Statements through the date of the sale. Subsequent
to December 29, 1994, neither the Company nor the Predecessor consolidates
Igaras, but instead reports its investment in Igaras using the equity
method.

(c) Net (Loss) Income for the year ended December 31, 1997, the nine months
ended December 31, 1996 and the year ended December 31, 1994, included an
Extraordinary Loss on Early Extinguishment of Debt of $2.5 million, $10.3
million and $7.9 million, respectively, net of applicable tax, as described
in Note 22 of the Notes to Consolidated Financial Statements.

10
<PAGE> 14

(d) Net (Loss) Income for the year ended December 31, 1997, included a charge of
$3.1 million, net of tax, for the cumulative effect of a change in
accounting for computer systems development project costs (see Note 23 in
Notes to Consolidated Financial Statements).

(e) Net (Loss) for the year ended December 31, 1998, included a charge of $25.6
million for the global restructuring program which is focused in the
Company's European operations (see Note 27 in Notes to Consolidated
Financial Statements).

(f) Includes amounts invested in packaging machinery and capitalized interest.
Additions in 1995 and 1994 included $13.2 million and $7.8 million,
respectively, related to the acquisition of businesses.

(g) EBITDA is defined as consolidated net income (exclusive of non-cash charges
resulting from purchase accounting during the periods subsequent to the
Merger) before consolidated interest expense, consolidated income taxes,
consolidated depreciation and amortization, cost of timber harvested and
other non-cash charges deducted in determining consolidated net income and
extraordinary items and the cumulative effect of accounting changes and
earnings of, but including dividends from, non-controlled affiliates. EBITDA
excludes (i) equity earnings of Igaras from the Company's investment in
Igaras but includes dividends actually received from Igaras, (ii) Other
Costs of the Predecessor (see Note 18 in Notes to Consolidated Financial
Statements) and (iii) Purchased Asset Costs resulting from purchase
accounting for periods subsequent to the Merger. The Company believes that
EBITDA provides useful information regarding the Company's debt service
ability, but should not be considered in isolation or as a substitute for
the Consolidated Statements of Operations or cash flow data.

11
<PAGE> 15

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

OVERVIEW

THE MERGER AND PURCHASED ASSET COSTS

On March 27, 1996, Holding, through its wholly-owned subsidiaries, acquired
all of the outstanding shares of common stock of RIC. On such date, Holding's
subsidiary, Acquisition Corp., was merged into RIC in the Merger. RIC, as the
surviving corporation of the Merger, became a wholly-owned subsidiary of RIC
Holding. On March 28, 1996, RIC transferred substantially all of its properties
and assets to Riverwood, other than the capital stock of Riverwood, and RIC was
merged in the Subsequent Merger into RIC Holding. Upon consummation of the
Subsequent Merger, RIC Holding, as the surviving corporation in the Subsequent
Merger, became the direct parent company of Riverwood.

The Merger was accounted for as a purchase in accordance with APB Opinion
No. 16, "Business Combinations" ("APB 16"). Purchase accounting results in
increased cost of sales, amortization and depreciation. Additionally, the
post-Merger capital structure has resulted, and will continue to result, in
higher reported interest expense. The consolidated financial statements for
periods prior to March 28, 1996 have been prepared on the historical cost basis
using accounting principles that had been adopted by the Predecessor. As a
result of the Merger, purchase accounting, the effect of the disposition of
substantially all of the assets of the U.S. Timberlands/Wood Products business
segment and certain Other Costs of the Predecessor, the results of operations of
the Company for periods subsequent to the Merger are not comparable in all
material respects to the results of operations of the Predecessor for periods
prior to the Merger.

In connection with the Merger, the Company entered into a credit agreement
(as amended, the "Senior Secured Credit Agreement") that currently provides for
senior secured credit facilities (the "Senior Secured Credit Facilities")
consisting of $641 million in outstanding term loans under a term loan facility
(the "Term Loan Facility") and a $400 million revolving credit facility (the
"Revolving Facility"). In addition, Riverwood International Machinery, Inc.
("RIMI"), a wholly-owned subsidiary of Riverwood, entered into a credit
agreement (as amended, the "Machinery Credit Agreement", and together with the
Senior Secured Credit Agreement, the "Credit Agreements") providing for a $140
million secured revolving credit facility (the "Machinery Facility," and
together with the Senior Secured Credit Facilities, the "Facilities") for the
purpose of financing or refinancing packaging machinery. In connection with the
Merger, the Company also completed an offering of $250 million aggregate
principal amount of 10 1/4% Senior Notes due 2006 (the "Senior Notes") and $400
million aggregate principal amount of 10 7/8% Senior Subordinated Notes due 2008
(the "Senior Subordinated Notes" and together with the Senior Notes, the "1996
Notes"). On July 28, 1997, the Company completed an offering of $250 million
principal amount of 10 5/8% Senior Notes due 2007 (the "Initial Notes"). The net
proceeds of this offering were applied to prepay certain revolving credit
borrowings under the Revolving Facility (without any commitment reduction) and
to refinance certain Tranche A term loans and other borrowings under the Senior
Secured Credit Agreement. A registration statement under the Securities Act of
1933, as amended, registering senior notes of the Company identical in all
material respects to the Initial Notes (the "Exchange Notes") offered in
exchange for the Initial Notes became effective October 1, 1997. On November 3,
1997, the Company completed its exchange offer of the Initial Notes for the
Exchange Notes. The Initial Notes and the Exchange Notes are referred to herein
as the 1997 Notes.

Certain expenses and costs are excluded from the Company's Net (Loss) in
determining EBITDA (as defined below), including amortization, depreciation or
expenses associated with the write-up of inventory, fixed assets and intangible
assets in accordance with APB 16 and APB Opinion No. 17, "Intangible Assets,"
collectively referred to as the "Purchased Asset Costs".

12
<PAGE> 16

During the year ended December 31, 1998, the Company's Income from
Operations included Purchased Asset Costs as follows:

<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS) COATED BOARD CONTAINERBOARD TOTAL
- ------------------------- ------------ -------------- -------
<S> <C> <C> <C>
Cost of Sales (excl. depreciation exp.)............ $ 672 $ -- $ 672
Depreciation expense............................... 18,232 3,644 21,876
Amortization of intangible assets.................. 4,511 -- 4,511
------- ------ -------
Net impact on income from operations............... $23,415 $3,644 $27,059
======= ====== =======
</TABLE>

During the year ended December 31, 1997, the Company's Income from
Operations included Purchased Asset Costs as follows:

<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS) COATED BOARD CONTAINERBOARD TOTAL
- ------------------------- ------------ -------------- -------
<S> <C> <C> <C>
Cost of Sales (excl. depreciation exp.)............ $ 3,934 $ -- $ 3,934
Depreciation expense............................... 19,311 3,644 22,955
Amortization of intangible assets.................. 5,588 -- 5,588
------- ------ -------
Net impact on income from operations............... $28,833 $3,644 $32,477
======= ====== =======
</TABLE>

During the nine-month period ended December 31, 1996, the Company's Income
from Operations included Purchased Asset Costs as follows:

<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS) COATED BOARD CONTAINERBOARD TOTAL
- ------------------------- ------------ -------------- -------
<S> <C> <C> <C>
Cost of Sales (excl. depreciation exp.)............ $ 581 $ -- $ 581
Depreciation expense............................... 10,472 2,687 13,159
Amortization of intangible assets.................. 2,576 -- 2,576
------- ------ -------
Net impact on income from operations............... $13,629 $2,687 $16,316
======= ====== =======
</TABLE>

SALE OF U.S. TIMBERLANDS/WOOD PRODUCTS

On October 18, 1996, the Company sold substantially all of the assets of
its U.S. Timberlands/Wood Products business segment for approximately $550
million in cash. In addition, the buyer, assumed certain specified preclosing
liabilities. Under the terms of the agreement for such sale, the Company and the
buyer, Plum Creek Timber Company, L.P., entered into a 20-year supply agreement
with a 10-year renewal option for the purchase by the Company, at market-based
prices, of a majority of the West Monroe Mill's requirements for pine pulpwood
and residual chips, as well as a portion of the Company's needs for hardwood
pulpwood at the West Monroe Mill. The Company did not realize any gain or loss
on the sale. The operating results for the U.S. Timberlands/Wood Products
business segment were classified as discontinued operations for periods
beginning March 28, 1996 and ending October 18, 1996 (the date of the sale) in
the Consolidated Statements of Operations. Discontinued operations have not been
segregated in the Statements of Cash Flows nor have they been reclassified as
discontinued operations in the Predecessor's Consolidated Statements of
Operations and Consolidated Balance Sheets.

OTHER COSTS OF PREDECESSOR

Prior to March 28, 1996, the Predecessor incurred expenses associated with
stock-based compensation plans, expenses related to RIC's review of strategic
alternatives and provision for environmental reserves. These expenses were
classified as Other Costs on the Predecessor's Consolidated Statements of
Operations. Stock-based compensation expense was allocated to each of the
business segments based upon the responsibility of the individuals holding or
exercising the stock incentive benefits. During the three months ended March 27,
1996, $1.2 million, $0.1 million, $0.2 million and $0.8 million of stock-based
compensation expenses were allocated to the Coated Board, Containerboard and
U.S. Timberlands/Wood Products business

13
<PAGE> 17

segments and Corporate and Eliminations, respectively. Expenses related to RIC's
review of strategic alternatives and environmental reserves were included in
Corporate for business segment reporting purposes.

GENERAL

The Company reports its results in two business segments: Coated Board and
Containerboard. The operating results of the U.S. Timberlands/Wood Products
business segment have been classified as discontinued operations for the period
beginning March 28, 1996 through the date of the sale. The results of the
operations of the U.S. Timberlands/Wood Products business segment have not been
classified as discontinued operations in the Predecessor's Consolidated
Statements of Operations for periods prior to the Merger. The Coated Board
business segment includes (i) the production and sale of CUK Board for packaging
cartons from the Macon Mill and the West Monroe Mill, and WLC board from its
Swedish Mill; (ii) converting operations facilities in the United States,
Australia (up to the date of sale) and Europe; and (iii) the design, manufacture
and installation of packaging machinery related to the assembly of beverage
cartons. The Containerboard business segment includes the production and sale of
linerboard, corrugating medium and kraft paper from paperboard mills in the
United States. The discontinued U.S. Timberlands/Wood Products business segment
included timberlands and operations engaged in the supply of pulpwood to the
West Monroe Mill from the Company's former U.S. timberlands, as well as the
manufacture and sale of lumber and plywood.

The table below sets forth Net Sales, Income from Operations and EBITDA.
EBITDA is defined as consolidated net income (exclusive of non-cash charges
resulting from purchase accounting during the periods subsequent to the Merger)
before consolidated interest expense, consolidated income taxes, consolidated
depreciation and amortization, cost of timber harvested and other non-cash
charges deducted in determining consolidated net income and extraordinary items
and the cumulative effect of accounting changes and earnings of, but including
dividends from, non-controlled affiliates. EBITDA excludes (i) equity earnings
of Igaras from the Company's investment in Igaras but includes dividends
actually received from Igaras, (ii) Other Costs of the Predecessor (see Note 18
in Notes to Consolidated Financial Statements), and (iii) Purchased Asset Costs
resulting from purchase accounting for periods subsequent to the Merger. The
Company believes that EBITDA provides useful information regarding the Company's
debt service ability, but should not be considered in isolation or as a
substitute for the Consolidated Statements of Operations or cash flow data.

<TABLE>
<CAPTION>
COMPANY PREDECESSOR
---------------------------------------- -------------
NINE MONTHS THREE MONTHS
YEAR ENDED YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, MARCH 27,
(IN THOUSANDS OF DOLLARS) 1998 1997 1996 1996
- --------------------------------------------------------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Net Sales (Segment Data):
Coated Board........................................... $1,055,270 $1,029,493 $ 749,688 $ 234,608
Containerboard......................................... 80,299 109,361 102,424 25,496
U.S. Timberlands/Wood Products......................... -- -- -- 37,336
Intersegment Eliminations.............................. -- -- -- (3,791)
---------- ---------- ---------- -----------
Net Sales................................................ $1,135,569 $1,138,854 $ 852,112 $ 293,649
========== ========== ========== ===========
Income (Loss) from Operations (Segment Data):
Coated Board........................................... $ 78,752 $ 64,819 $ 54,976 $ 24,638
Containerboard......................................... (23,682) (41,244) (30,969) (5,955)
U.S. Timberlands/Wood Products......................... -- -- -- 13,868
Corporate and Eliminations............................. (27,392) (16,663) (22,588) (16,901)
---------- ---------- ---------- -----------

Income from Operations................................... $ 27,678 $ 6,912 $ 1,419 $ 15,650
========== ========== ========== ===========
</TABLE>

14
<PAGE> 18

<TABLE>
<CAPTION>
COMPANY PREDECESSOR
------------------------------------------ ------------
NINE MONTHS THREE MONTHS
YEAR ENDED YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, MARCH 27,
(IN THOUSANDS OF DOLLARS) 1998 1997 1996 1996
- ------------------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
EBITDA (Segment Data):
Coated Board................................ $ 225,191 $ 187,589 $135,449 $ 47,174
Containerboard.............................. (8,965) (15,544) (15,624) (1,242)
U.S. Timberlands/Wood Products.............. -- -- 44,805 16,766
Corporate and Eliminations.................. (12,768) (6,118) (16,070) (6,565)
---------- ---------- -------- --------
EBITDA........................................ $ 203,458 $ 165,927 $148,560 $ 56,133
========== ========== ======== ========
</TABLE>

BUSINESS TRENDS AND INITIATIVES

The Company's cash flow from operations and EBITDA are influenced by sales
volume and selling prices for its products and raw material costs, and are
affected by a number of significant business, economic and competitive factors.
Many of these factors are not within the Company's control. Historically, in the
Coated Board business segment, the Company has experienced stable pricing for
its integrated beverage carton products, and moderate cyclical pricing for its
folding cartonboard, which is principally sold in the open market. The Company's
folding cartonboard sales are affected by competition from competitors' CUK
Board and other substrates - SBS, CCN and, internationally, WLC -- as well as by
general market conditions. In the Containerboard business segment, conditions in
the cyclical worldwide commodity paperboard markets have a substantial impact on
the Company's Containerboard sales.

The Company is pursuing a number of long-term initiatives designed to
improve productivity and profitability while continuing to implement its Coated
Board business strategy. In June 1997, the Company completed the upgrade of the
second Macon Mill paperboard machine to begin CUK Board production. During 1998,
the Company produced approximately 161,400 tons of CUK Board on the second Macon
Mill paperboard machine. In addition, approximately 19,800 tons of linerboard
was produced on this paper machine during 1998. The Company took 72 days of
market and maintenance downtime during 1998, of which 41 days occurred in the
fourth quarter, principally at the second Macon Mill paperboard machine. The
Company expects that the second Macon Mill paperboard machine will be able to
produce a full capacity tonnage of reduced caliper CUK Board of approximately
250,000 tons annually by June 1999. The Company's previous full capacity tonnage
estimate of 275,000 tons annually was based on higher caliper (and thus
relatively heavier) CUK Board that the Company had planned to produce on the
second Macon Mill paperboard machine. The Company has recently shifted to
producing reduced caliper CUK Board principally to improve product quality to
customers. In addition, the Company has taken actions to increase open market
folding cartonboard sales volume, undertaken a profit center reorganization of
its operations, implemented a number of cost saving measures and effected
several management changes and, as part of its ongoing reevaluation of current
operations and assets, has lowered planned capital expenditures. However, the
Company does expect capital expenditures to increase approximately 45% in 1999
as the Company invests to improve its process capabilities. The Company
continues to evaluate its current operations and assets with a view to
rationalizing its operations and improving profitability, in particular with
respect to its international converting assets and strategy. As part of this
effort, the Company initiated a $25.6 million global restructuring program in
the fourth quarter of 1998 aimed at achieving annualized savings of
approximately $20 million when fully implemented. The global restructuring
program is focused in the Company's European operations, and is expected to be
completed by the end of 1999. See "-- Liquidity and Capital
Resources -- Financing Sources and Cash Flows."

The Company continues to shift its mix of packaging machinery placements
from the U.S. to international locations. Packaging machinery placements during
1998 decreased approximately 20% compared to 1997. The Company has been and will
continue to be more selective in future packaging machinery placements to ensure
appropriate returns. Currently, the Company is introducing some new machines in
its Marksman, Quikflex and Autoflex families. The Company expects an increase in
new packaging machinery

15
<PAGE> 19

placements during 1999. The Company expects an increase in beverage cartonboard
tonnage in 1999 as the number of packaging machines in service and the
cartonboard throughput per machine increases.

OUTLOOK

The Company expects that its 1999 full year EBITDA will significantly
exceed its 1998 EBITDA, although no assurance can be given in this regard. The
achievement of this expectation is dependent upon (among other things) a number
of profit improvement initiatives, including increasing coated board sales
volumes above 1998 levels, improvements in international converting operations,
improving U.S. mill throughput as the successful start-up of the second Macon
Mill paper machine continues, continued cost savings from actions taken to date
and selling price improvements for containerboard products. The Company expects
that it will achieve continued sales volume increases in its folding cartonboard
markets and in its international beverage and U.S. soft drink carton markets in
1999 while its U.S. beer carton volume is expected to be flat, consistent with
the overall beer market, though no assurance can be given that this volume
growth will be achieved. However, the Company anticipates that growth in coated
board volumes could slow and margins could be reduced due to excess global
industry capacity and recent price declines in competing substrates,
particularly SBS.

In early 1999, Coated Board orders and shipments are in equilibrium.
Consistent with other years, the Company built-up approximately 20,000 tons of
beverage carrierboard in the fourth quarter of 1998, in preparation for the 1999
beverage season.

1998 COMPARED WITH 1997

RESULTS OF OPERATIONS

The following discussion of the Company's results of operations is based
upon the years ended December 31, 1998 and 1997, including the net effects of
Purchased Asset Costs made in these periods. In all previous reports filed
subsequent to the Merger and prior to the first quarter of 1998, results of
operations were provided on a pro forma basis exclusive of the net effects of
Purchased Asset Costs in order to present the Company's results of operations on
a basis comparable to those of the Predecessor. Accordingly, the year ended
December 31, 1997 includes the net effects of Purchased Asset Costs.

<TABLE>
<CAPTION>
YEAR ENDED (DECREASE) YEAR ENDED
DECEMBER 31, FROM PRIOR DECEMBER 31,
(IN THOUSANDS OF DOLLARS) 1998 YEAR 1997
------------------------- ------------ ---------- ------------
<S> <C> <C> <C>
Net Sales (Segment Data):
Coated Board............................................ $1,055,270 2.5% $1,029,493
Containerboard.......................................... 80,299 (26.6) 109,361
---------- ----------
Net Sales................................................. 1,135,569 (0.3) 1,138,854
Cost of Sales............................................. 936,957 (6.3) 1,000,391
---------- ----------
Gross Profit.............................................. 198,612 43.4 138,463
Selling, General and Administrative....................... 112,117 (3.8) 116,581
Research, Development and Engineering..................... 5,570 7.7 5,171
Impairment Loss........................................... 15,694 N/A --
Restructuring Charge...................................... 25,580 N/A --
Other Expense, net........................................ 11,973 22.2 9,799
---------- ----------
Income from Operations.................................... $ 27,678 300.4 $ 6,912
========== ==========
Income (Loss) from Operations (Segment Data):
Coated Board............................................ $ 78,752 21.5% $ 64,819
Containerboard.......................................... (23,682) 42.6 (41,244)
Corporate............................................... (27,392) (64.4) (16,663)
---------- ----------
Income from Operations.................................... $ 27,678 300.4 $ 6,912
========== ==========
</TABLE>

16
<PAGE> 20

PAPERBOARD SHIPMENTS

The following represents shipments of Coated Board and Containerboard to
outside customers. Shipments of Coated Board represent sales to customers of
beverage carrierboard, folding cartonboard and WLC (other than from the Swedish
Mill). Shipments from the Swedish Mill represent sales to customers of WLC
produced at this mill. Shipments of Containerboard represent sales to customers
of linerboard, corrugating medium kraft paper and various other items,
principally off-specification coated board. Total shipments for the years ended
December 31, 1998 and 1997 were as follows:

<TABLE>
<CAPTION>
(IN THOUSANDS OF TONS) 1998 1997
---------------------- ------- -------
<S> <C> <C>
Coated Board................................................ 1,020.7 933.1
Swedish Mill................................................ 138.2 143.0
Containerboard.............................................. 278.5 421.6
------- -------
1,437.4 1,497.7
======= =======
</TABLE>

NET SALES

As a result of the factors described below, the Company's Net Sales in 1998
decreased by $3.3 million, or 0.3 percent, compared with 1997. Net Sales in the
Coated Board business segment increased by $25.8 million in 1998, or 2.5
percent, to $1,055.3 million from $1,029.5 million in 1997, due primarily to
increased sales volume in international and U.S. beverage markets and U.S.
folding cartonboard markets combined with improved selling prices in U.S.
beverage markets. These improvements were offset somewhat by an unfavorable
shift in product mix and lower sales volume in international folding cartonboard
markets and the negative impact of foreign currency translation associated with
the strengthening of the U.S. dollar. Net Sales in the Containerboard business
segment decreased $29.1 million, or 26.6 percent, to $80.3 million in 1998 from
$109.4 million in 1997, due principally to a continued reduction in linerboard
production in favor of coated board production offset by slightly improved
selling prices in the corrugating medium markets.

GROSS PROFIT

As a result of the factors discussed below, the Company's Gross Profit for
1998 increased $60.1 million, or 43.4 percent, to $198.6 million from $138.5
million in 1997. The Company's gross profit margin increased to 17.5 percent for
1998 from 12.2 percent in 1997. Gross Profit in the Coated Board business
segment increased by $40.8 million, or 23.3 percent, to $215.8 million in 1998
as compared to $175.0 million in 1997, while its gross profit margin increased
to 20.5 percent in 1998 from 17.0 percent in 1997. This increase in gross profit
resulted principally from overall cost reductions and increased sales volume in
international and U.S. beverage markets and U.S. folding cartonboard markets
combined with improved selling prices in U.S. beverage markets, offset somewhat
by the negative impact of foreign currency translation associated with the
strengthening of the U.S. dollar as well as an unfavorable shift in product mix
and lower sales volume in international folding cartonboard markets. In the
Containerboard business segment, Gross Profit increased $18.4 million to a loss
of $17.4 million in 1998 as compared to a loss in 1997 of $35.8 million due
principally to a continued reduction in linerboard production in favor of coated
board production, downtime taken during the year, and overall cost reductions,
offset by slightly improved selling prices in the corrugating medium markets.

SELLING, GENERAL AND ADMINISTRATIVE

Selling, General and Administrative expenses decreased $4.5 million, or 3.8
percent, to $112.1 million in 1998 as compared to $116.6 million in 1997, and as
a percentage of Net Sales, decreased from 10.2 percent in 1997 to 9.9 percent in
1998. This decrease was due primarily to Company cost reduction initiatives
which continued through 1998, offset somewhat by incremental costs relating to
the implementation of a new computerized information system (see"-- Liquidity
and Capital Resources -- Upgrade of Information Systems and Year 2000
Compliance").

17
<PAGE> 21

RESEARCH, DEVELOPMENT AND ENGINEERING

Research, Development and Engineering expenses increased by $0.4 million,
or 7.7 percent, to $5.6 million in 1998 from $5.2 million in 1997.

IMPAIRMENT LOSS

The Company recorded an impairment loss of $15.7 million in 1998 due to a
write-down of packaging machines in accordance with 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 121"). The fair value of
the machines was determined based on expected future lease revenues and
potential disposition.

RESTRUCTURING CHARGE

The Company recorded a charge of $25.6 million in the fourth quarter of
1998 to accrue for the closing costs relating primarily to the restructuring of
its European operations, primarily the ongoing rationalization of its
international folding carton converting operations (see "-- Liquidity and
Capital Resources -- Financing Sources and Cash Flows").

OTHER EXPENSE, NET

Other Expense, net, increased by approximately $2.2 million, or 22.2
percent, to $12.0 million in 1998, due mainly from a write-off of packaging
machine deferred design costs.

INCOME FROM OPERATIONS

Primarily as a result of the factors discussed above, the Company's Income
from Operations in 1998 increased by $20.8 million, or 300.4 percent, to $27.7
million from $6.9 million in 1997, while the Company's operating margin
increased to 2.4 percent in 1998 from 0.6 percent in 1997. Income from
Operations in the Coated Board business segment increased $13.9 million, or 21.5
percent, to $78.8 million in 1998 from $64.8 million in 1997, while the
operating margin increased to 7.5 percent in 1998 from 6.3 percent in 1997,
primarily as a result of the factors described above. (Loss) from Operations in
the Containerboard business segment increased $17.6 million to a loss of $23.4
million in 1998 from a (Loss) from Operations of $41.2 million in 1997,
primarily as a result of the factors described above.

FLUCTUATIONS IN U.S. CURRENCY EXCHANGE RATES

Fluctuations in U.S. dollar currency exchange rates impacted Net Sales,
Gross Profit, and Income from Operations as described above. However, these
fluctuations did not have a significant impact on operating expenses during 1998
or 1997.

INTEREST INCOME, INTEREST EXPENSE, INCOME TAXES, EQUITY IN NET EARNINGS OF
AFFILIATES, DISCONTINUED OPERATIONS, EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT
OF DEBT AND CHANGE IN ACCOUNTING PRINCIPLE.

INTEREST INCOME

Interest Income increased slightly to $1.3 million in 1998 from $1.1
million in 1997.

INTEREST EXPENSE

Interest Expense increased $5.8 million to $178.0 in 1998 from $172.2
million in 1997 resulting principally from a shift in existing debt toward
higher coupon debt. During 1998 and 1997, the Company capitalized interest of
$1.4 million and $3.5 million, respectively. Amortization of deferred debt
issuance costs, exclusive of the amount recognized as an extraordinary loss on
early extinguishment of debt (see "-- Extraordinary Loss on Early Extinguishment
of Debt"), was $10.3 million and $11.8 million for 1998 and 1997, respectively.

18
<PAGE> 22

INCOME TAX (BENEFIT) EXPENSE

During 1998, the Company recognized an income tax (benefit) of $0.6 million
on a Loss from Continuing Operations before Income Taxes and Equity in Net
Earnings of Affiliates of $149.1 million. During 1997, the Company recognized an
income tax expense of $5.6 million on a Loss from Continuing Operations before
Income Taxes and Equity in Net Earnings of Affiliates of $164.2 million. These
expenses differed from the statutory federal income tax rate primarily because
of valuation allowances established on net operating loss carryforward tax
assets in the U.S. and certain international locations where the realization of
such benefits is less likely than not.

EQUITY IN NET EARNINGS OF AFFILIATES

Equity in Net Earnings of Affiliates is comprised primarily of the
Company's equity in net earnings of Igaras, which is accounted for under the
equity method of accounting. Equity in Net Earnings of Affiliates decreased
$14.7 million, or 64.4 percent, to $8.2 million in 1998 from $22.9 million in
1997 resulting from an overall downturn in the Brazilian markets, as well as
additional expenses incurred by Igaras relating to the purchase of three
additional facilities during the first quarter of 1998.

During 1998 and 1997, the Company received net dividends from Igaras of
approximately $5.4 million and $4.0 million, respectively, net of taxes of $0.9
million and $0.7 million, respectively. Under the Igaras joint venture
agreement, Igaras is required to pay dividends equal to at least 25 percent of
its net profits. Additionally during 1998 and 1997, the Company received net
dividends from its equity investments other than Igaras of $0.7 million and $1.2
million, respectively.

On January 14, 1999, the Central Bank of Brazil changed the foreign
exchange policy by eliminating the exchange rate band, which had been used as a
means to control the fluctuation of the Real against the U.S. dollar. The
exchange rate is now determined by market forces. As a consequence of such
change, the Real suffered a significant devaluation related to the U.S. dollar
during the beginning of 1999. At this time, it is not practicable to determine
whether or at what level the exchange rate will stabilize as well as the effect
of such exchange rate fluctuations on Igaras' operations. See Note 13 to the
Consolidated Financial Statements of Igaras.

1997 COMPARED WITH 1996

RESULTS OF OPERATIONS

The following is a discussion of the Company's results of operations on a
pro forma basis. The discussion is based upon the year ended December 31, 1997,
including the net effects of Purchased Asset Costs made in this period, in
comparison to the nine-month period ended December 31, 1996, including the net
effects of Purchased Asset Costs made in this period, plus the three-month
period ended March 27, 1996, (i) exclusive of Other Costs of the Predecessor and
the U.S. Timberlands/Wood Products business segment results of operations and
(ii) adjusted to include the net effects of Purchased Asset Costs as if the
Merger occurred on January 1, 1996 (the "Year ended December 31, 1996"). In all
previous reports filed subsequent to the Merger and prior to the first quarter
of 1998, results of operations were provided on a pro forma basis exclusive of
the net effects of Purchased Asset Costs in order to present the Company's
results of operations on a basis

19
<PAGE> 23

comparable to those of the Predecessor. Accordingly, the year ended December 31,
1997 and the nine months ended December 31, 1996 have been restated to include
the net effects of Purchased Asset Costs.

<TABLE>
<CAPTION>
% INCREASE PRO FORMA
YEAR ENDED (DECREASE) YEAR ENDED
DECEMBER 31, FROM PRIOR DECEMBER 31,
(IN THOUSANDS OF DOLLARS) 1997 YEAR 1996
------------------------- ------------ ---------- ------------
<S> <C> <C> <C>
Net Sales (Segment Data):
Coated Board............................................ $1,029,493 4.6% $ 984,296
Containerboard.......................................... 109,361 (14.5) 127,920
---------- ----------
Net Sales................................................. 1,138,854 2.4 1,112,216
Cost of Sales............................................. 1,000,391 5.0 953,098
---------- ----------
Gross Profit.............................................. 138,463 (13.0) 159,118
Selling, General and Administrative....................... 116,581 (10.9) 130,821
Research, Development and Engineering..................... 5,171 (44.7) 9,349
Other Expense, net........................................ 9,799 (15.2) 11,551
---------- ----------
Income from Operations.................................... $ 6,912 (6.6) $ 7,397
========== ==========
Income (Loss) from Operations (Segment Data):
Coated Board............................................ $ 64,819 (13.7)% $ 75,068
Containerboard.......................................... (41,244) (9.4) (37,715)
Other................................................... (16,663) 44.4 (29,956)
---------- ----------
Income from Operations.................................... $ 6,912 (6.6) $ 7,397
========== ==========
</TABLE>

PAPERBOARD SHIPMENTS

The following represents shipments of Coated Board and Containerboard to
outside customers. Shipments of Coated Board represent sales to customers of
beverage carrierboard, folding cartonboard, and WLC (other than from the Swedish
Mill). Shipments from the Swedish Mill represent sales to customers of WLC
produced at this mill. Shipments of Containerboard represent sales to customers
of linerboard, corrugating medium and kraft paper. Total shipments for the years
ended December 31, 1997 and 1996 were as follows:

<TABLE>
<CAPTION>
(IN THOUSANDS OF TONS) 1997 1996
---------------------- ------- -------
<S> <C> <C>
Coated Board................................................ 933.1 837.5
Swedish Mill................................................ 143.0 122.4
Containerboard.............................................. 421.6 476.8
------- -------
1,497.7 1,436.7
======= =======
</TABLE>

NET SALES

As a result of the factors described below, the Company's Net Sales in 1997
increased by $26.6 million, or 2.4 percent, compared with 1996. Net Sales in the
Coated Board business segment increased by $45.2 million in 1997, or 4.6
percent, to $1,029.5 million from $984.3 million in 1996, due primarily to
increased sales volume in international and U.S. beverage markets and U.S.
folding cartonboard markets combined with slightly improved selling prices and
better product mix in U.S. beverage markets. These improvements were offset
somewhat by lower selling prices in U.S. folding cartonboard markets, lower
selling prices and sales volume in international folding cartonboard markets and
negative impacts of foreign currency translation associated with the
strengthening of the U.S. dollar. Net Sales in the Containerboard business
segment decreased $18.6 million, or 14.5 percent, to $109.4 million in 1997 from
$127.9 million in 1996, due principally to lower average selling prices and a 12
percent decrease in sales volumes as a result of the significant decline in
containerboard markets worldwide that began in the latter part of 1995 and
continued into the second quarter of 1997. Containerboard selling prices began
to improve in the third quarter of 1997, and although the Company's average
containerboard selling prices for 1997 were below the average for 1996, the
Company's

20
<PAGE> 24

containerboard selling prices for the fourth quarter of 1997 exceeded those of
the same period of 1996. Linerboard sales volume declined significantly due to
an overall shift from linerboard to CUK Board production.

GROSS PROFIT

As a result of the factors discussed below, the Company's Gross Profit for
1997 decreased $20.7 million, or 13.0 percent, to $138.5 million from $159.1
million in 1996. The Company's gross profit margin decreased to 12.2 percent for
1997 from 14.3 percent in 1996. In the Containerboard business segment, Gross
Profit decreased $5.1 million to a loss of $35.8 million in 1997 as compared to
a loss in 1996 of $30.6 million. This decrease was due principally to lower
average selling prices of containerboard. Gross Profit in the Coated Board
business segment decreased by $14.8 million, or 7.8 percent, to $175.0 million
in 1997 as compared to $189.8 million in 1996, while its gross profit margin
decreased to 17.0 percent in 1997 from 19.3 percent in 1996. This decrease in
gross profit resulted principally from lower selling prices in worldwide folding
cartonboard markets, offset somewhat by slightly higher selling prices and lower
production costs in the Company's U.S. integrated beverage business.

SELLING, GENERAL AND ADMINISTRATIVE

Selling, General and Administrative expenses decreased $14.2 million, or
10.9 percent, to $116.6 million in 1997 as compared to $130.8 million in 1996,
and as a percentage of Net Sales, decreased from 11.8 percent in 1996 to 10.2
percent in 1997. This decrease was due primarily to Company cost reduction
initiatives which began in early 1997, offset somewhat by incremental costs
relating to the implementation of a new computerized information system (see
"-- Liquidity and Capital Resources -- Upgrade of Information Systems and Year
2000 Compliance").

RESEARCH, DEVELOPMENT AND ENGINEERING

Research, Development and Engineering expenses decreased by $4.2 million,
or 44.7 percent, to $5.2 million in 1997 from $9.4 million in 1996 due
principally to reduced research and development activities on packaging
machinery resulting from the closure of the packaging machinery facilities in
Marietta, Georgia and Koln, Germany in April and June 1997, respectively.

OTHER EXPENSE, NET

Other Expense, net, decreased by approximately $1.8 million, or 15.2
percent, to $9.8 million in 1997 as compared to $11.6 due to increased goodwill
amortization in 1997.

INCOME FROM OPERATIONS

Primarily as a result of the factors discussed above, the Company's Income
from Operations in 1997 decreased by $0.5 million, or 6.6 percent, to $6.9
million from $7.4 million in 1996, while the Company's operating margin remained
flat at 0.6 percent. (Loss) from Operations in the Containerboard business
segment decreased $3.5 million to a loss of $41.2 million in 1997 from a (Loss)
from Operations of $37.7 million in 1996, primarily as a result of the factors
described above. Income from Operations in the Coated Board business segment
decreased $10.2 million, or 13.7 percent, to $64.8 million in 1997 from $75.1
million in 1996, while the operating margin decreased to 6.3 percent in 1997
from 7.6 percent for 1996, primarily as a result of the factors described above.

FLUCTUATIONS IN U.S. CURRENCY EXCHANGE RATES

Fluctuations in U.S. dollar currency exchange rates did not have a
significant impact on Gross Profit, operating expenses or Income from Operations
of the Company or any of its business segments during 1997 or 1996.

21
<PAGE> 25

INTEREST INCOME, INTEREST EXPENSE, INCOME TAXES, EQUITY IN NET EARNINGS OF
AFFILIATES, DISCONTINUED OPERATIONS, EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT
OF DEBT AND CHANGE IN ACCOUNTING PRINCIPLE.

INTEREST INCOME

Interest Income increased slightly to $1.1 million in 1997 from $1.0
million in the Year ended December 31, 1996.

INTEREST EXPENSE

Interest Expense remained relatively unchanged at $172.2 million in 1997
resulting from the reduction in debt related to the October 1996 repayment of
term loans from a portion of the proceeds of the sale of substantially all of
the assets of the U.S. Timberlands/Wood Products business segment (see Note 25),
offset by the increased indebtedness incurred in connection with the Merger in
March 1996. During 1997 and the Year ended December 31, 1996, the Company
capitalized interest of $3.5 million and $2.5 million, respectively.
Amortization of deferred debt issuance costs, exclusive of the amount recognized
as an extraordinary loss on early extinguishment of debt (see " -- Extraordinary
Loss on Early Extinguishment of Debt"), was $11.8 million and $12.4 million for
1997 and the Year ended December 31, 1996, respectively.

INCOME TAX EXPENSE

During 1997, the Company recognized an income tax expense of $5.6 million
on a Loss from Continuing Operations before Income Taxes and Equity in Net
Earnings of Affiliates of $164.2 million. During the Year ended December 31,
1996, the Company recognized an income tax expense of $0.7 million on a Loss
from Continuing Operations before Income Taxes and Equity in Net Earnings of
Affiliates of $154.1 million. These expenses differed from the statutory U.S.
federal income tax rate primarily because of valuation allowances established on
net operating loss carryforward tax assets in the U.S. and certain international
locations where the realization of such benefits is less likely than not.

EQUITY IN NET EARNINGS OF AFFILIATES

During 1997 and the Year ended December 31, 1996, the Company received net
dividends from Igaras of approximately $4.0 million and $5.0 million,
respectively. Under the Igaras joint venture agreement, Igaras is required to
pay dividends equal to at least 25 percent of its net profits. Additionally
during 1997 and the Year ended December 31, 1996, the Company received net
dividends from its equity investments other than Igaras of $1.2 million and $0.4
million, respectively.

DISCONTINUED OPERATIONS

On October 18, 1996, the Company sold substantially all of the assets of
the U.S. Timberlands/Wood Products business segment for approximately $550
million in cash. The Company did not recognize any gain or loss on the sale. The
operating results of the U.S. Timberlands/Wood Products business segment were
classified as discontinued operations for the period beginning March 28, 1996
and ending October 18, 1996 (the date of sale).

EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF DEBT

On July 28, 1997, the Company completed an offering of the 1997 Notes. The
net proceeds of this offering were applied to prepay certain revolving credit
borrowings under the Revolving Facility (without any commitment reduction), and
to refinance certain Tranche A term loans and other borrowings under the Senior
Secured Credit Agreement. During the third quarter of 1997, the Company recorded
a non-cash, extraordi-

22
<PAGE> 26

nary charge to earnings of approximately $2.5 million, net of tax of $0, related
to the write-off of the applicable portion of deferred debt issuance costs on
the Tranche A term loans.

In October 1996, the Company applied the proceeds from the sales of the
U.S. Timberlands/Wood Products business segment to loans outstanding under the
Term Loan Facility and to outstanding borrowings under the Revolving Credit
Facility. This early retirement of debt resulted in a non-cash extraordinary
charge in 1996 of $10.3 million, net of tax of $0, relating to the write-off of
deferred debt issuance costs.

CHANGE IN ACCOUNTING PRINCIPLE

In accordance with the EITF (Emerging Issues Task Force) consensus reached
on November 20, 1997, the Company is required to change its accounting for
business process reengineering costs. EITF 97-13 "Accounting for Costs Incurred
in Connection with a Consulting Contract or an Internal Project that Combines
Business Process Reengineering and Information Technology Transformation,"
requires that the cost of business process reengineering activities that are
part of a project to acquire, develop or implement internal use software,
whether done internally or by third parties, be expensed as incurred.
Previously, the Company capitalized these costs as systems development costs.

The accounting change, effective in the fourth quarter of 1997, resulted in
a cumulative charge of $3.1 million, net of tax of $0.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

The Company broadly defines liquidity as its ability to generate sufficient
cash flow from operating activities to meet its obligations and commitments. In
addition, liquidity includes the ability to obtain appropriate debt and equity
financing and to convert into cash those assets that are no longer required to
meet existing strategic and financial objectives. Therefore, liquidity cannot be
considered separately from capital resources that consist of current or
potentially available funds for use in achieving long-range business objectives
and meeting debt service commitments.

CASH FLOWS

Cash and equivalents decreased by approximately $1.9 million in 1998
primarily as a result of $60.2 million of net cash used in financing activities
offset by $48.0 million and $8.9 million of net cash provided by operating and
investing activities, respectively. Cash used in financing activities resulted
primarily from net debt reductions (see "-- Liquidity and Capital Resources").
Depreciation and amortization during 1998 totaled approximately $146.5 million,
and is expected to be approximately $145 million to $155 million for 1999.

The Company's cash flows from its operations and EBITDA are subject to
moderate seasonality with demand usually increasing in the spring and summer.
The Company's Coated Board business segment experiences seasonality principally
due to the seasonality of the worldwide multiple packaging beverage segment.
Historically, the Company's Coated Board business segment reports its strongest
sales in the second and third quarters of the fiscal year driven by the
seasonality of the Company's integrated beverage business.

LIQUIDITY AND CAPITAL RESOURCES

GENERALLY

The Company's liquidity needs arise primarily from debt service on the
substantial indebtedness incurred in connection with the Merger and from the
funding of its capital expenditures. As of December 31, 1998, the Company had
outstanding approximately $1,692 million of long-term debt, consisting primarily
of $650 million aggregate principal amount of the 1996 Notes, $250 million of
the 1997 Notes, $641 million outstanding under the Term Loan Facility and
additional amounts under the Revolving Facility, the Machinery Facility and
other debt issues and facilities (see Note 10 to the Consolidated Financial
Statements). During 1998, the Company had a net decrease in revolving credit
facilities borrowings of approximately $47.4 million and repaid approximately
$11.9 million of term debt.

23
<PAGE> 27

DEBT SERVICE

Principal and interest payments under the Term Loan Facility, the Revolving
Facility and the Machinery Facility, together with interest payments on the 1997
Notes and 1996 Notes, represent significant liquidity requirements for the
Company. The Company applied $105.0 million of the proceeds from the 1997 Notes
in July 1997 to refinance a portion of the Tranche A term loans under the Term
Loan Facility, $50 million of the proceeds of the 1997 Notes to refinance the
Tranche D term loan under the Senior Secured Credit Agreement, and the remaining
proceeds from the 1997 Notes to prepay outstanding revolving credit borrowings
under the Revolving Facility. Scheduled term loan principal payments under the
Term Loan Facility have been reduced to reflect this application of proceeds.
Annual term loan amortization requirements under the Term Loan Facility, after
giving effect to the refinancing of the Term Loan Facility from a portion of the
proceeds of the 1997 Notes, will be approximately $4 million, $4 million, $120
million, $173 million, $184 million and $156 million for each of the years 1999
through 2004, respectively. This application of proceeds did not involve any
reduction in the current aggregate Revolving Facility commitment of $400
million. In the third quarter of 1997, the Company recorded a non-cash
extraordinary charge to earnings of approximately $2.5 million, net of tax,
related to the write-off of the applicable portion of deferred debt issuance
costs on the Tranche A Term Loans under the Term Loan Facility.

The Revolving Facility will mature in March 2003 and the Machinery Facility
will mature in March 2001, with all amounts then outstanding becoming due. The
Company expects that its working capital and business needs will require it to
continue to have access to these or similar revolving credit facilities after
their respective maturity dates, and that the Company accordingly will have to
extend, renew, replace or otherwise refinance such facilities at or prior to
such dates. No assurance can be given that it will be able to do so. The loans
under the Facilities bear interest at floating rates based upon the interest
rate option elected by the Company. The Tranche A term loans, Tranche B term
loans and Tranche C term loans under the term loan Facility bore interest as of
December 31, 1998 at an average rate per annum of 8.1 percent. The Senior Notes,
the 1997 Notes and the Senior Subordinated Notes bear interest at rates of
10 1/4 percent, 10 5/8 percent and 10 7/8 percent, respectively. Interest
expense in 1999 is expected to be approximately $175 million, including
approximately $10 million of non-cash amortization of deferred debt issuance
costs. During 1998, cash paid for interest was approximately $166.9 million.

The Company uses interest rate swap and cap agreements to fix or cap a
portion of its variable rate Term Loan Facility to a fixed rate in order to
reduce the impact of interest rate changes on future income. The difference to
be paid or received under these agreements is recognized as an adjustment to
interest expense related to that debt. At December 31, 1998, the Company had
interest rate swap agreements with a notional amount of $300 million, under
which the Company will pay fixed rates of 5.05 percent to 5.945 percent and
receive three-month LIBOR. See "Quantitative and Qualitative Disclosure About
Market Risk."

COVENANT RESTRICTIONS

The Credit Agreements impose restrictions on the Company's ability to make
capital expenditures and both the Credit Agreements and the indentures governing
the 1996 Notes and the 1997 Notes limit the Company's ability to incur
additional indebtedness. Such restrictions, together with the highly leveraged
nature of the Company, could limit the Company's ability to respond to market
conditions, meet its capital spending program, provide for unanticipated capital
investments or take advantage of business opportunities. The covenants contained
in the Credit Agreements also, among other things, restrict the ability of the
Company and its subsidiaries to dispose of assets, incur guarantee obligations,
repay the relevant 1996 Notes or the 1997 Notes, pay dividends, create liens on
assets, enter into sale and leaseback transactions, make investments, loans or
advances, make acquisitions, engage in mergers or consolidations, make capital
expenditures or engage in certain transactions with affiliates, and otherwise
restrict corporate activities. The covenants contained in such indentures also
impose restrictions on the operation of the Company's business. At December 31,
1998, the Company was in compliance with the financial covenants in the Credit
Agreements.

24
<PAGE> 28

In connection with the offering of the 1997 Notes, certain financial and
other covenants in the Credit Agreements were amended to reflect the Company's
recent financial results and market and operating conditions, as well as the
consummation of the 1997 Notes offering and the prepayment of the Term Loan
Facility and other borrowings. Covenant modifications included reductions in
permitted capital expenditures (subject to certain carryover allowances and
other adjustments) of no more than, $140 million and $135 million for 1999 and
2000, respectively, and $130 million per year thereafter. The amended covenants
specify, among other changes, the elimination of the minimum consolidated net
worth requirements, and the following amended minimum EBITDA and interest
coverage ratio requirements for each four quarter period ending during the
following test periods:

<TABLE>
<CAPTION>
PERIOD EBITDA INTEREST COVERAGE RATIO
- ------ ------------ -----------------------
<S> <C> <C>
December 31, 1998 -- December 30, 1999............... $200 million 1.00 to 1.00
December 31, 1999 -- December 30, 2000............... $265 million 1.25 to 1.00
December 31, 2000 -- December 30, 2001............... $325 million 1.50 to 1.00
December 31, 2001 -- December 30, 2002............... $350 million 1.75 to 1.00
December 31, 2002 -- December 30, 2003............... $375 million 2.00 to 1.00
Thereafter........................................... $400 million 2.25 to 1.00
</TABLE>

CAPITAL EXPENDITURES

Capital spending during 1998 was approximately $48.6 million. Capital
spending during 1998 related primarily to increasing paper production
efficiencies, increasing converting capacity, manufacturing packaging machinery
and upgrading the Company's information systems. Total capital spending for 1999
is expected to be between $70 million and $85 million, and is expected to relate
principally to improving its process capabilities, the production of packaging
machinery and the planned upgrading of the Company's information systems (which
is expected to cost up to approximately $30 million through 1999). See
"-- Upgrade of Information Systems and Year 2000 Compliance".

FINANCING SOURCES AND CASH FLOWS

In connection with the global restructuring program initiated in the fourth
quarter of 1998, the Company plans to reduce its European workforce by
approximately 300 employees in 1999 and to implement other initiatives designed
to improve productivity and profitability across the global organization. The
cost of this program was approximately $25.6 million and is expected to be
completed in 1999. At December 31, 1998, $24.7 million of this total was accrued
in Other accrued liabilities on the Consolidated Balance Sheets. During 1998,
$0.9 million was paid out and charged against the accrual and related primarily
to severance costs.

On March 12, 1998, the Company entered into an agreement with Carter Holt
Harvey ("Carter Holt") for the sale of the Company's folding carton business in
Australia. Proceeds from the sale totaling $46.7 million were received on March
30, 1998. Under the terms of the agreement for such sale, the Company sold to
Carter Holt substantially all of the Company's Australian folding carton assets,
and Carter Holt assumed certain specified liabilities. The Company retained
substantially all of its beverage multiple packaging business in Australia.
Under the agreement, Carter Holt agreed to purchase from the Company a portion
of its coated board requirements in Australia and to supply beverage cartons to
meet the Company's needs for its Australian beverage business.

In connection with and following the Merger, the Company decided in 1996 to
exit certain businesses and operating activities, including the sale or closure
of the Company's last dedicated folding cartonboard converting plant in the
United States, located in Kankakee, Illinois, packaging machinery manufacturing
plants in Marietta, Georgia and Koln, Germany, a beverage multiple packaging
converting plant in Bakersfield, California and the trucking transportation
operations in West Monroe, Louisiana, as well as the consolidation and
realignment of certain operations in the United States, Australia and Europe.
The cost of exiting these businesses and operating activities was approximately
$38.6 million which was accrued during 1996 as a purchase accounting adjustment.
The costs relate principally to the severance of approximately 750 employees,
relocation and other plant closure costs. At December 31, 1998, $4.8 million of
this total was

25
<PAGE> 29

accrued in Other accrued liabilities on the Consolidated Balance Sheets. During
1998, $7.2 million was paid out and charged against the accrual and related
primarily to severance costs.

At December 31, 1998, the Company and its U.S. and international
subsidiaries had the following amounts of commitments, amounts outstanding and
amounts available under revolving credit facilities:

<TABLE>
<CAPTION>
TOTAL AMOUNT
TOTAL AMOUNT OUTSTANDING AT TOTAL AMOUNT
OF DECEMBER 31, AVAILABLE AT
(IN THOUSANDS OF DOLLARS) COMMITMENTS 1998 DECEMBER 31, 1998
- ------------------------- ------------ -------------- -----------------
<S> <C> <C> <C>
Revolving Facility........................... $400,000 $116,400 $283,600
Machinery Facility........................... 140,000 20,000 25,000
International Facilities..................... 20,357 6,635 13,722
-------- -------- --------
$560,357 $143,035 $322,322
======== ======== ========
</TABLE>

The Company applied $21.8 million of the proceeds from the sale of the
Australian folding carton business to repay all outstanding borrowings under its
Australian facility during the second quarter of 1998.

The Machinery Facility is limited by a borrowing base. Undrawn Revolving
Facility availability is expected to be used to meet future working capital and
other business needs of the Company. The Company anticipates pursuing additional
working capital financing for its foreign operations as necessary.

As described above, the Company has substantial liquidity, and anticipates
no significant net additional borrowings under the Revolving Facility in 1999.
The Company believes that cash generated from operations, together with amounts
available under its Revolving Facility, the Machinery Facility and other
available financing sources, will be adequate to permit the Company to meet its
debt service obligations, capital expenditure program requirements, ongoing
operating costs and working capital needs until the maturity of the Revolving
Facility (assuming extension or refinancing of the Machinery Facility at its
earlier maturity), although no assurance can be given in this regard. The
Company's future financial and operating performance, ability to service or
refinance its debt and ability to comply with the covenants and restrictions
contained in its debt agreements (see " -- Covenant Restrictions"), will be
subject to future economic conditions and to financial, business and other
factors, many of which are beyond the Company's control and will be
substantially dependent on the selling prices for the Company's products and the
Company's ability to successfully implement its overall business and
profitability strategies.

While the Company believes that Igaras has adequate liquidity, the Company
shares control of Igaras with its joint venture partner and future dividend
payments from Igaras, if any, would be subject to restrictions in the joint
venture agreement and would reflect only the Company's remaining interest of 50
percent. Under the Igaras joint venture agreement, Igaras is required to pay
dividends equal to at least 25 percent of its net profits. Due to currency
fluctuations, inflation and changes in political and economic conditions,
earnings from Brazilian operations have been subject to significant volatility
(see Note 6 in Notes to Consolidated Financial Statements). There can be no
assurance that such volatility will not recur in the future.

ENVIRONMENTAL AND LEGAL MATTERS

In late 1993, the U.S. Environmental Protection Agency proposed regulations
(generally referred to as the "cluster rules") that would mandate more stringent
controls on air and water discharges from the United States pulp and paper
mills. The cluster rules were promulgated in April 1998 and the Company
estimates the capital spending that may be required to comply with the cluster
rules could reach $55 million to be spent at its two U.S. paper mills over a
seven-year period beginning in 1999.

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<PAGE> 30

In late 1995, the Louisiana Department of Environmental Quality notified
the Predecessor of potential liability for the remediation of hazardous
substances at a wood treatment site in Shreveport, Louisiana that the
Predecessor or its predecessors previously operated, and at a former oil
refinery site in Caddo Parish, Louisiana which is on land that the Company
currently owns. In response to these notices, the Company has provided
additional information concerning these sites and has commenced its own
evaluation of any claims and remediation liabilities for which it may be
responsible. Subsequent to receipt in May 1996 of a Special Demand Letter from
DEQ to remediate the site in Shreveport, the Company entered into an agreement
with DEQ to perform a soil and groundwater investigation at the site. The
Company expects this investigation to be completed during 1999. In September
1996, the Company received a Special Demand Letter from DEQ to remediate the
site in Caddo Parish. The Company performed a waste inventory and treatability
study at the site and is discussing with DEQ its responsibility and the
participation of other potentially responsible parties at the site, as well as
remediation options at the site.

The Company is involved in environmental remediation projects for certain
properties currently owned or operated by the Company, certain properties
divested by the Company for which responsibility was retained, and waste sites
where waste was shipped by predecessors of the Company or for which the Company
might have corporate successor liability. Certain of these projects are being
addressed under federal and state statutes, such as the Comprehensive
Environmental Response, Compensation and Liability Act and the state law
counterparts. The Company's costs in some instances cannot be reliably estimated
until the remediation process is substantially underway or liability at
multiparty sites has been addressed. To address these contingent environmental
costs, the Company has accrued reserves when such costs are probable and can be
reasonably estimated. The Company believes that, based on current information
and regulatory requirements, the accruals established by the Company for
environmental expenditures are adequate. Based on current knowledge, to the
extent that additional costs may be incurred that exceed the accrued reserves,
such amounts are not expected to have a material impact on the results of
operations, cash flows or financial condition of the Company, although no
assurance can be given that material costs will not be incurred in connection
with clean-up activities at these properties, including the Shreveport and Caddo
Parish sites referred to above.

On December 6, 1995, Forrest Kelly Clay, a former shareholder of the
Predecessor, commenced a purported class action lawsuit in the United States
District Court for the Northern District of Georgia, against the Company and
certain of its officers (the "Individual Defendants," and together with the
Company, the "Defendants"). In his complaint, Clay generally alleged that the
Defendants violated the federal securities laws by disseminating misleading
statements and by omissions concerning the strategic alternatives that the
Predecessor was considering, including its potential sale to a third-party
investor. The complaint also alleged that the Individual Defendants, through
their exercise of stock appreciation rights ("SARs"), violated the federal
securities laws by trading in the Predecessor's securities while in possession
of material, non-public information. The complaint generally sought damages in
an unspecified amount, as well as other relief. On June 2, 1997, the court
granted Defendants' Motion for Summary Judgment and dismissed the action in its
entirety. The court based its ruling on the facts that (i) none of the
statements attributable to the Company concerning its review of strategic
alternatives was false and (ii) there is no causal relationship between
plaintiff's purchase of Riverwood common stock and the Individual Defendants'
exercise of SARs. On October 14, 1998, the U.S. Court of Appeals for the
Eleventh Circuit affirmed the dismissal. The Court of Appeals ruled that (i)
none of the statements attributable to the Company concerning its review of
strategic alternatives was false and (ii) the SARs were not securities. On
November 5, 1998, Clay filed a motion seeking rehearing en banc. The court has
not yet ruled on that motion.

("PSARs") as a result of a suspension requested on August 23, 1995, (2) breached
an implied covenant of good faith and fair dealing in connection with both the
suspension and the lifting of that suspension and (3) engaged in fraud and
negligent misrepresentation in connection with the lifting of the suspension by
(a) failing to tell Plaintiffs that certain officers of the Predecessor were
planning to exercise PSARs on September 21, 1995 and (b) failing to inform
Plaintiffs of the status of the Predecessor's review of strategic alternatives
as of September 21, 1995. Plaintiffs sought (i) an order granting class
certification, (ii) an award of compensatory damages, (iii) pre-judgment
interest, (iv) punitive damages in an amount to be determined by the jury and
(v) litigation expenses, including attorneys' fees. The defendants have answered
the complaint. In addition, on October 16, 1998, the defendants moved to strike
the class allegations in the complaint, and, on October 30, 1998, moved to
dismiss the complaint. On January 6, 1999, the court granted the motion to
strike the class allegations and denied the motion to dismiss the complaint. One
additional plaintiff has been added. The parties are now engaged in discovery.

The Company is a plaintiff in several actions against Mead claiming
infringement of the Company's patents for its packaging machines, as to which
Mead has filed counterclaims asserting that the Company's patents are invalid.
In the furthest advanced of these actions, on November 18, 1998, a federal court
entered an order refusing to adopt a special master's recommended finding that
the Company's patent in issue was invalid, and ruled that Mead had been
unlawfully infringing the Company's patent. On February 16, 1999, Mead filed an
appeal from that decision.

INTERNATIONAL OPERATIONS

At December 31, 1998, approximately 15 percent of the Company's total net
assets were denominated in currencies other than the U.S. dollar. The Company
has significant operations in countries that use the Swedish krona, the British
pound sterling, the Spanish peseta, the French franc or the Australian dollar as
their functional currencies. The effect of generally stronger U.S. dollar
currency exchange rates in Sweden, Britain, Spain, France and Australia produced
a net currency translation adjustment loss of approximately $1.3 million, which
was recorded as an adjustment to shareholders' equity for the year ended
December 31, 1998. The magnitude and direction of this adjustment in the future
depends on the relationship of the U.S. dollar to other currencies. The Company
cannot predict major currency fluctuations. The Company's revenues from export
sales fluctuate with changes in foreign currency exchange rates. The Company
pursues a currency hedging program in order to limit the impact of foreign
currency exchange fluctuations on financial results. See "-- Financial
Instruments."

Within Europe, eleven of the fifteen member countries of the European Union
participated in the European Economic and Monetary Union (the "EMU"), pursuant
to which a new currency, the Euro, was introduced on January 1, 1999. The new
currency is in response to the EMU's policy of economic convergence to harmonize
trade policy, eliminate business costs associated with currency exchange and to
promote the free flow of capital, goods and services.

On January 1, 1999, the participating countries adopted the Euro as their
local currency, initially available for currency trading on currency exchanges
for use in noncash (banking) transactions. The existing local currencies, or
legacy currencies, will remain legal tender through June 30, 2002. Beginning on
January 1, 2002, Euro-denominated bills and coins will be issued for cash
transactions. For a period of six months from this date, both legacy currencies
and the Euro will be legal tender. On or before July 1, 2002, the participating
countries will withdraw all legacy currency and use exclusively the Euro.

Currently, the Company operates in four of the participating countries in
the EMU. The Company expects nonparticipating European Union countries, such as
Great Britain, where the Company also has operations, to eventually join the
EMU.

Although the Company is reviewing its pricing strategy throughout Europe
due to the increased price transparency created by the Euro, it does not believe
that pricing considerations will have a material affect on its operations. The
Company does not believe that EMU will have a material effect with respect to
its derivative and other financial transactions.

28
<PAGE> 32

FINANCIAL INSTRUMENTS

The functional currency for most of the Company's international
subsidiaries is the local currency for the country in which the subsidiaries own
their primary assets. The translation of the applicable currencies into U.S.
dollars is performed for balance sheet accounts using current exchange rates in
effect at the balance sheet date and for revenue and expense accounts using a
weighted average exchange rate during the period. Any related translation
adjustments are recorded directly to shareholders' equity. Gains and losses on
foreign currency transactions are included in Other Expense, net, in the
Consolidated Statements of Operations for the period in which the exchange rate
changes.

The Company pursues a currency hedging program which utilizes derivatives
to limit the impact of foreign currency exchange fluctuations on its
consolidated financial results. Under this program, the Company has entered into
forward exchange and option contracts in the normal course of business to hedge
certain foreign currency denominated transactions. Realized and unrealized gains
and losses on these forward contracts are included in the measurement of the
basis of the related foreign currency transaction when recorded. The premium on
an option contract is accounted for separately and amortized to Other Expense,
net, over the term of the contract. These instruments involve, to varying
degrees, elements of market and credit risk in excess of the amounts recognized
in the Consolidated Balance Sheets. The Company does not hold or issue financial
instruments for trading purposes. See "Quantitative and Qualitative Disclosure
About Market Risk."

IMPACT OF INFLATION

In the U.S., the inflation rate was approximately 2 percent for 1998. In
Europe, where the Company has manufacturing facilities, the inflation rate for
1998 was approximately 2 percent. Net sales from international operations during
the period amounted to approximately $336.4 million, or 30 percent of the
Company's combined Net Sales in 1998.

UPGRADE OF INFORMATION SYSTEMS AND YEAR 2000 COMPLIANCE

The Company is currently upgrading its information systems through an
initiative expected to cost up to approximately $30 million to be spent through
1999. This amount includes expenses for the new enterprise-wide information
system, replacement of computer hardware and related machinery and equipment,
training, and third party consultants. When the upgrade is complete, the Company
expects a major improvement in its information systems and business processes.
This initiative will utilize both internal and external resources. Total
spending on this project during 1998 totaled approximately $11.3 million of
which $7.6 million was capitalized. Total project spending to date was $20.2
million, of which $13.3 million was capitalized. Future expenditures will be
funded by cash from operations and current credit facilities.

As part of the information systems upgrade, the Company is in the process
of replacing its computer software applications and all information technology
("IT") and non-IT systems to accommodate the "Year 2000" dating changes
necessary to permit correct recording of yearly dates for 2000 and later years.
To date, the Company has replaced all domestic desktops, laptops, and network
hardware. The Year 2000 compliance program includes an analysis of all
manufacturing systems in the Company's plants and mills to determine Year 2000
compliance. This process consists of three phases, namely review of all
manufacturing systems, determination of which systems (if any) need to be
replaced or remediated, and replacement or remediation, as necessary, of
non-compliant systems. The Company has completed the first phase of the process
and is currently conducting the second phase. To the extent that material
manufacturing systems need to be replaced or remediated in any material respect,
additional material costs could be incurred. The Company does not currently
expect that other costs of its Year 2000 compliance program will be material to
its financial condition or results of operations (other than the investment in
information systems of up to approximately $30 million, of which $20.2 million
has been spent to date, and any material costs needed to replace or remediate
material manufacturing systems, as to which no determination has yet been made).

In the first quarter of 1999, the Company was finalizing the testing of the
new information system, as performed by both internal resources and independent
firms, and was commencing the end-user training
29
<PAGE> 33

process. The total cost for the upgrading of the Company's information systems
and the project's progress is in line with the initial budget and timetable.

The Company expects that it will achieve Year 2000 compliance by June 1999,
but would anticipate a material disruption in its operations as the result of
any failure in a critical manufacturing, operations or information system.
However, the effect on the Company's business, financial condition or results of
operations cannot be determined at this time. The Company believes that it will
implement Year 2000 compliant systems far enough in advance of January 1, 2000
to correct all anticipated issues. Accordingly, the Company does not currently
have a contingency plan relating to the Year 2000 issue (although the Company
will evaluate appropriate courses of action if circumstances change). In the
event that any of the Company's significant suppliers or customers do not
successfully and timely achieve their Year 2000 compliance, the Company's
business or operations could be adversely affected. The Company is communicating
with its significant suppliers and customers about compliance of their own
systems and, based on information received to date from such suppliers and
customers, expects that they will achieve year 2000 compliance, although no
assurance can be given in this regard. If the Company or any of its significant
suppliers or customers fails to achieve Year 2000 compliance on a timely basis,
the possible material consequences could include, among other things, temporary
plant closings, delays in delivery of products, delays in receipt of supplies,
and invoice and collection errors.

TAX MATTERS RELATING TO THE MERGER

In connection with the Merger, the former majority owner of the Company
agreed to bear the cost of a Section 338(h)(10) election for U.S. federal tax
purposes and for purposes of state taxes for which the former majority owner and
the Company filed returns on a combined basis. The Company agreed to bear the
cost of this election for the purposes of other state taxes ("stand-alone
taxes"), including Louisiana income tax. During 1997, the Company paid $27.5
million in estimated Louisiana stand-alone taxes relating to the election. The
Company's calculation of its Louisiana tax was based on state law in effect at
the time of the Merger, including a 1993 amendment. In May 1997, the Louisiana
Supreme Court declared the 1993 amendment to be void under the Louisiana
Constitution, retroactive to 1993. It is possible that the voiding of the 1993
amendment could result in the Company being required to pay significant
additional Louisiana income tax relating to the election (plus potential
penalties and statutory interest on the additional taxes). After consultation
with Louisiana tax counsel, the Company filed its Louisiana income tax return
for the period ended March 27, 1996 in reliance on the Louisiana tax law in
effect at the time of the Merger, without the payment of any additional tax due
to the voiding of the 1993 amendment. There can be no assurance, however, that
the Company would ultimately prevail on this issue if Louisiana were to
challenge such filing position. If the Company were not to prevail in such a
challenge, significant additional Louisiana income tax relating to the election
could be payable. Management estimates that the maximum amount of such
additional tax is approximately $47 million (plus potential penalties and
statutory interest on any additional tax). The tax period ended March 27, 1996,
is currently under audit by the State of Louisiana. If the Company receives an
assessment from the State, the Company will consider paying the assessed amount
to avoid further interest accruals as it contests the assessment. Management
believes that the additional tax ultimately paid (if any) will be substantially
less than the estimated maximum amount, although no assurance can be given in
this regard. The Company and its advisors are continuing to study this
situation. Since the law is unclear and the amounts involved could be
significant, it may be several years before this matter is resolved.

During the third quarter of 1997, the Company resolved certain tax issues
related to the Merger, pursuant to the Tax Matters Agreement entered into in
connection with the Merger, resulting in the receipt of approximately $16.8
million (including $0.5 million of interest) in cash from the former majority
owner of the Company.

INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS

Certain of the statements contained in this report (other than the
financial statements and other statements of historical fact) are
forward-looking statements, including, without limitation, (i) the statements in
"-- Business Trends and Initiatives" concerning (a) the improvements which the
Company's long-term
30
<PAGE> 34

initiatives, including, without limitation, its profit center reorganization and
recently announced global restructuring, are designed to achieve, (b) the
Company's expectation that the second Macon Mill paper machine will be able to
produce approximately 250,000 tons annually of reduced caliper CUK Board by June
1999 and (c) the Company's expectation that new packaging machinery placements
will be increased in 1999 and that beverage carton board tonnage will increase
in 1999; (ii) the statements in "-- Outlook" concerning (a) the Company's
expectation that its 1999 EBITDA will significantly exceed its 1998 EBITDA as
well as each of the factors which the Company believes support such expectation
and (b) the Company's expectation that it will achieve continued sales volume
increases in its folding cartonboard markets and in its international beverage
and U.S. soft drink carton markets in 1999, while its U.S. beer carton volume is
expected to be flat; (iii) the statements in "-- Financial Condition, Liquidity
and Capital Resources" concerning (a) the Company's expectation that
depreciation and amortization for 1999 will be approximately $145 million to
$155 million, (b) the Company's expectation that 1999 interest expense will be
approximately $175 million, including approximately $10 million of non-cash
amortization of deferred debt issuance costs, (c) the Company's expectations
that total capital spending for 1999 will be between $70 and $85 million and
that the planned upgrading of the Company's information systems will cost up to
approximately $30 million through 1999 (and its belief that the Company will
achieve Year 2000 compliance by June 1999), (d) the Company's belief that cash
generated from operations, together with amounts available under available
financing sources, will be adequate to permit the Company to meet its debt
service obligations, capital expenditure program requirements, ongoing operating
costs and working capital needs until the maturity of the Revolving Facility
(assuming extension or refinancing of the Machinery Facility at its earlier
maturity), (e) the Company's expectations with respect to capital spending that
may be required to comply with the cluster rules and that, based on current
knowledge, environmental costs are not expected to have a material impact on the
results of operations, cash flows or financial condition of the Company and (f)
the Company's beliefs and estimates in respect of certain Louisiana income tax
matters relating to the Section 338(h)(10) election, including, without
limitation, management's belief that additional tax ultimately paid (if any)
would be substantially less than $47 million; and (iv) other statements as to
management's or the Company's expectations and beliefs presented in this
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

Forward-looking statements are made based upon management's current
expectations and beliefs concerning future developments and their potential
effects upon the Company. There can be no assurance that future developments
will be in accordance with management's expectations or that the effect of
future developments on the Company will be those anticipated by management. The
following important factors, and those important factors described elsewhere in
this report (including, without limitation, those discussed in "-- Financial
Condition, Liquidity and Capital Resources -- Liquidity and Capital
Resources -- Environmental and Legal Matters" and "-- Tax Matters Relating to
the Merger"), or in other Securities and Exchange Commission filings, could
affect (and in some cases have affected) the Company's actual results and could
cause such results to differ materially from estimates or expectations reflected
in such forward-looking statements:

- The Company's high degree of leverage could have important consequences
to the Company, including but not limited to the following: (i) the
Company's ability to obtain additional financing for working capital,
capital expenditures, acquisitions, general corporate purposes or other
purposes may be impaired in the future; (ii) a substantial portion of the
Company's cash flow from operations must be dedicated to the payment of
principal and interest on its indebtedness, thereby reducing the funds
available to the Company for other purposes; (iii) certain of the
Company's borrowings will be at variable rates of interest, which will
expose the Company to the risk of increased interest rates; and (iv) the
Company's flexibility to adjust to changing market conditions and ability
to withstand competitive pressures could be limited, and the Company may
be more vulnerable to a downturn in general economic conditions or its
business or be unable to carry out capital spending that is important to
its strategy and productivity improvement programs.

- The Company's ability to make scheduled payments or to refinance its
obligations with respect to its indebtedness, and to comply with the
covenants and restrictions contained in the instruments governing such
indebtedness, will depend on its financial and operating performance,
which, in turn, is subject to

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<PAGE> 35

prevailing economic and competitive conditions and to certain financial,
business and other factors beyond its control, including operating
difficulties, increased operating costs, market cyclicality, product
prices, the response of competitors, regulatory developments, and delays
in implementing strategic projects.

- The Company's ability to meet its debt service and other obligations will
depend in significant part on the selling prices that the Company
realizes for its folding cartonboard and containerboard products.
Notwithstanding the steps taken by the Company to improve its operating
results, at the depressed selling prices for folding cartonboard and
containerboard that have prevailed since 1996, the Company's cash flow
from operations has been less than its debt service and maintenance
capital expenditure requirements. Accordingly, the Company's long-term
prospects will depend on its realizing improved pricing for these
products.

- The Company's ability to meet its debt service and other obligations will
depend in significant part on the extent to which the Company can
implement successfully its business strategy. The components of the
Company's strategy are subject to significant business, economic and
competitive uncertainties and contingencies, many of which are beyond the
control of the Company.

- The Company currently estimates that it will take several years for
coated board markets to absorb the significant increase in the Company's
CUK Board capacity resulting from the upgrade of the second Macon Mill
paper machine. The Company expects to sell a significant portion of its
additional CUK Board production in open markets, principally
internationally. There can be no assurance that additional CUK Board
output can be sold in these markets or that such additional CUK Board can
be sold without experiencing price reductions. Efficient start-up and
production of CUK Board from the upgraded second Macon Mill machine is
dependent upon many manufacturing process and engineering factors, and
there can be no assurance that the Company will not experience equipment
failures, lengthy shut-downs or other disruptions in production during
the start-up process.

- All of the Company's CUK Board is produced at its West Monroe and Macon
Mills. Any prolonged disruption in either facility's production due to
labor difficulties, equipment failures, destruction of or material damage
to such facility, or other reasons, could have a material adverse effect
on the Company's results of operations. Labor disputes, strikes, work
stoppages or other disturbances could materially adversely affect the
business, results of operations and financial condition of the Company.

- The Company faces significant competition in its CUK Board business
segment from Mead, as well as other manufacturers of packaging machinery.
The highly leveraged nature of the Company could limit the Company's
ability to respond to market conditions or to make necessary or desirable
capital expenditures as effectively as its competitors, which may not be
as leveraged as the Company. In addition, there can be no assurance that
there will not be new entrants in the CUK Board market segment. The
Company's folding cartonboard sales are affected by competition from
Mead's CUK Board and from other substrates: SBS and CCN and,
internationally, WLC and folding boxboard. There are a large number of
suppliers of paperboard for folding carton applications. CUK Board
competes in niche applications in folding cartonboard open markets,
serving only a small portion thereof. There can be no assurance that the
Company will be able to continue to compete successfully in folding
cartonboard open markets.

- Amounts paid by the Company for pine pulpwood, hardwood and recycled
fibers, used in the manufacture of paperboard, and various chemicals used
in the coating of CUK Board, represent the largest components of the
Company's variable costs of CUK Board and containerboard production. The
cost of these materials is subject to market fluctuations caused by
factors beyond the Company's control. OCC recycled fiber pricing tends to
be very volatile. With the October 1996 sale of the Company's
timberlands, the Company now relies on private land owners and the open
market for all of its virgin and recycled fiber requirements (except for
CUK Board clippings from its converting operations). Under the terms of
the sale of those timberlands, the Company and the buyer entered into a
20-year supply agreement, with a 10-year renewal option, for the purchase
by the Company, at market-based prices, of a majority of the West Monroe
Mill's requirements for pine pulpwood and
32
<PAGE> 36

residual chips, as well as a portion of the Company's needs for hardwood
pulpwood at the West Monroe Mill. While the Company has not experienced
any significant difficulty in obtaining adequate supplies of virgin or
recycled fiber for its West Monroe Mill or Macon Mill, there can be no
assurance that this will continue to be the case for either such mill.
Moreover, significant increases in the cost of these materials, to the
extent not reflected in prices for the Company's products, could have a
material adverse effect on the Company's results of operations.

- The Company is subject to risks associated with operating in foreign
countries, including devaluations and fluctuations in currency exchange
rates, imposition of limitations on conversion of foreign currencies into
U.S. dollars or remittance of dividends and other payments by foreign
subsidiaries, imposition or increase of withholding and other taxes on
remittances and other payments by foreign subsidiaries, hyperinflation in
certain foreign countries and imposition or increase of investment and
other restrictions by foreign governments. No assurance can be given that
such risks will not have a material adverse effect on the Company in the
future.

While the Company periodically reassesses material trends and uncertainties
affecting the Company's results of operations and financial condition in
connection with its preparation of management's discussion and analysis of
results of operations and financial condition contained in its quarterly and
annual reports, the Company does not intend to review or revise any particular
forward-looking statement referenced in this report in light of future events.

ACCOUNTING CHANGES

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 establishes standards for
the way companies account for and report on derivative instruments and hedging
activities. SFAS No. 133 is effective for fiscal years beginning after June 15,
1999. The Company has not determined the impact that SFAS No. 133 will have on
its financial statements.

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<PAGE> 37

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

The Company is exposed to market risk from changes in interest rates. To
minimize the risk from interest rate fluctuations, the Company enters intro
various hedging transactions.

INTEREST RATES

The Company is exposed to changes in interest rates, primarily as a result
of its short-term and long-term debt with both fixed and floating interest
rates. The Company uses interest rate swap agreements effectively to fix the
LIBOR rate on $300,000,000 of variable rate borrowings.

INTEREST RATE SENSITIVITY -- PRINCIPAL (NOTIONAL) AMOUNT BY EXPECTED
MATURITY -- AVERAGE INTEREST (SWAP) RATE

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------------------------
FAIR
(IN THOUSANDS OF DOLLARS) 1999 2000 2001 2002 2003 THEREAFTER TOTAL VALUE
------------------------- ------- ------- ------- ------- ------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LIABILITIES:
Long-term debt, including current
portion:
Fixed Rate..................... 8,114 1,116 669 1,563 717 902,873 915,052 862,749
Average Interest Rate.......... 10.6 10.6 10.6 10.6 10.6 10.6
Variable Rate.................. 3,962 3,962 140,035 173,035 300,443 156,002 777,439 766,263
Average Interest Rate, spread
range is 2.5% to 3.50%....... LIBOR + LIBOR + LIBOR + LIBOR + LIBOR + LIBOR +
spread spread spread spread spread spread
INTEREST RATE DERIVATIVE
FINANCIAL INSTRUMENTS RELATED
TO DEBT:
Interest rate swap:
Pay fixed/receive variable..... 300,000 100,000 (1,807)
Average pay rate............... 5.6 5.1
Average receive rate........... 90-day 90-day
LIBOR LIBOR
</TABLE>

FOREIGN EXCHANGE RATES

34
<PAGE> 38

FOREIGN EXCHANGE RATES SENSITIVITY -- CONTRACTUAL AMOUNT BY EXPECTED
MATURITY -- AVERAGE CONTRACTUAL EXCHANGE RATE

<TABLE>
<CAPTION>
DECEMBER 31, FAIR
(IN THOUSANDS OF DOLLARS) 1999 VALUE
- ------------------------- ------------ ------
<S> <C> <C>
FORWARD EXCHANGE AGREEMENTS:
Functional Currency:
Japan
Receive $US/Pay Yen.................................... 21,615 (2,443)
Weighted average contractual exchange rate............. 128.447
Pay $US/Receive Yen.................................... 12,179 335
Weighted average contractual exchange rate............. 119.315
Other
Net Receive $US/Pay various............................ 35,439 (381)
Weighted average contractual exchange rate............. various
</TABLE>

The remaining forward exchange agreements (other than Japan) listed above
represent contracts in several other countries' currencies, including the
British Pound, Spanish Pesata and German Mark. In each instance, the fair value
of the net position of the Company's forward exchange agreements in the
respective currencies is not material at December 31, 1998.

35
<PAGE> 39

ITEM 8. FINANCIAL STATEMENTS

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
RIVERWOOD HOLDING, INC.
Consolidated Balance Sheets as of December 31, 1998 and
1997...................................................... 37
Consolidated Statements of Operations and Comprehensive Loss
for the years ended December 31, 1998 and December 31,
1997, the nine months ended December 31, 1996 and the
three months ended March 27, 1996 (Predecessor)........... 38
Consolidated Statements of Cash Flows for the years ended
December 31, 1998 and December 31, 1997, the nine months
ended December 31, 1996 and the three months ended March
27, 1996 (Predecessor).................................... 39
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1998 and December 31, 1997, the
nine months ended December 31, 1996 and the three months
ended March 28, 1996 (Predecessor)........................ 40
Notes to Consolidated Financial Statements.................. 41
Selected Quarterly Financial Data (Unaudited)............... 71
Management's Report......................................... 72
Reports of Independent Auditors'............................ 73

IGARAS PAPEIS E EMBALAGENS S.A.
Consolidated Balance Sheets as of December 31, 1998 and
1997...................................................... 75
Consolidated Statements of Income for each of the three
years in the period ended December 31, 1998............... 76
Consolidated Statements of Cash Flows for each of the three
years in the period ended December 31, 1998............... 77
Consolidated Statements of Shareholders' Equity for each of
the three years in the period ended December 31, 1998..... 78
Notes to the Consolidated Financial Statements.............. 79
Reports of Independent Accountants.......................... 88
</TABLE>

36
<PAGE> 40

RIVERWOOD HOLDING, INC.

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
- ------------------------------------------------------------
Current Assets:
Cash and equivalents...................................... $ 13,840 $ 15,751
Receivables, net of allowances............................ 142,221 151,554
Inventories............................................... 167,388 174,498
Prepaid expenses.......................................... 8,579 10,451
Deferred tax assets....................................... 298 75
---------- ----------
Total Current Assets........................................ 332,326 352,329
Property, Plant and Equipment, at cost:
Land and improvements..................................... 40,681 43,315
Buildings................................................. 110,462 115,147
Machinery and equipment................................... 1,654,355 1,691,900
---------- ----------
1,805,498 1,850,362
Less, Accumulated Depreciation.............................. 310,008 205,527
---------- ----------
Property, Plant and Equipment, net.......................... 1,495,490 1,644,835
Deferred Tax Assets......................................... 42 1,106
Investments in Net Assets of Equity Affiliates.............. 143,611 141,690
Goodwill, net of accumulated amortization of $21,857 in 1998
and $13,475 in 1997....................................... 296,065 304,448
Other Assets................................................ 150,067 161,777
---------- ----------
Total Assets................................................ $2,417,601 $2,606,185
========== ==========
LIABILITIES
- ------------------------------------------------------------
Current Liabilities:
Short-term debt........................................... $ 17,613 $ 44,330
Accounts payable.......................................... 115,035 116,308
Compensation and employee benefits........................ 40,251 37,510
Income taxes.............................................. 1,272 22,475
Interest payable.......................................... 32,502 30,249
Other accrued liabilities................................. 72,104 63,445
---------- ----------
Total Current Liabilities................................... 278,777 314,317
Long-Term Debt, less current portion........................ 1,680,415 1,712,944
Deferred Income Taxes....................................... 12,118 14,383
Other Noncurrent Liabilities................................ 103,317 79,062
---------- ----------
Total Liabilities........................................... 2,074,627 2,120,706
---------- ----------
CONTINGENCIES AND COMMITMENTS (Note 15)
REDEEMABLE COMMON STOCK,
at current redemption value............................... 6,205 6,045
---------- ----------
SHAREHOLDERS' EQUITY
- ------------------------------------------------------------
Nonredeemable Common Stock.................................. 75 75
Capital in Excess of Par Value.............................. 750,100 751,153
(Accumulated Deficit)....................................... (397,913) (257,609)
Cumulative Currency Translation Adjustment.................. (15,493) (14,185)
---------- ----------
Total Shareholders' Equity.................................. 336,769 479,434
---------- ----------
Total Liabilities and Shareholders' Equity.................. $2,417,601 $2,606,185
========== ==========
</TABLE>

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

37
<PAGE> 41

RIVERWOOD HOLDING, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(IN THOUSANDS OF DOLLARS)

On March 27, 1996, Holding, through its wholly-owned subsidiary RIC
Holding, acquired all of the outstanding shares of common stock of RIC. The
purchase method of accounting was used to record assets acquired and liabilities
assumed by Holding. As a result of the Merger, purchase accounting, the effect
of the disposition of substantially all of the U.S. Timberlands/Wood Products
business segment (see Note 25) and certain Other Costs of the Predecessor, the
accompanying financial statements of the Predecessor and the Company are not
comparable in all material respects since the financial statements report
results of operations and cash flows of these two separate entities.

<TABLE>
<CAPTION>
COMPANY PREDECESSOR
-------------------------------------------- ------------
NINE MONTHS THREE MONTHS
YEAR ENDED YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, MARCH 27,
1998 1997 1996 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Sales........................................ $1,135,569 $1,138,854 $852,112 $293,649
Cost of Sales.................................... 936,957 1,000,391 734,314 232,701
Selling, General and Administrative.............. 112,117 116,581 99,819 30,936
Research, Development and Engineering............ 5,570 5,171 7,339 2,031
Other Costs...................................... -- -- -- 11,114
Impairment Loss.................................. 15,694 -- -- --
Restructuring Charge............................. 25,580 -- -- --
Other Expense, net............................... 11,973 9,799 9,221 1,217
---------- ---------- -------- --------
Income from Operations........................... 27,678 6,912 1,419 15,650
Interest Income.................................. 1,274 1,116 702 329
Interest Expense................................. 178,030 172,230 145,845 26,392
---------- ---------- -------- --------
(Loss) before Income Taxes and Equity in Net
Earnings of Affiliates......................... (149,078) (164,202) (143,724) (10,413)
Income Tax (Benefit) Expense..................... (617) 5,645 4,180 (3,436)
---------- ---------- -------- --------
(Loss) before Equity in Net Earnings of
Affiliates..................................... (148,461) (169,847) (147,904) (6,977)
Equity in Net Earnings of Affiliates............. 8,157 22,890 17,542 4,927
---------- ---------- -------- --------
(Loss) from Continuing Operations................ (140,304) (146,957) (130,362) (2,050)
Income from Discontinued Operations, net of tax
of $0.......................................... -- -- 35,546 --
---------- ---------- -------- --------
(Loss) before Extraordinary Item and Cumulative
Effect of a Change in Accounting............... (140,304) (146,957) (94,816) (2,050)
Extraordinary Loss on Early Extinguishment of
Debt, net of tax of $0......................... -- (2,463) (10,320) --
---------- ---------- -------- --------
(Loss) before Cumulative effect of a Change in
Accounting..................................... (140,304) (149,420) (105,136) (2,050)
Cumulative Effect of a Change in Accounting, net
of tax of $0................................... -- (3,053) -- --
---------- ---------- -------- --------
Net (Loss)....................................... (140,304) (152,473) (105,136) (2,050)
---------- ---------- -------- --------
Other comprehensive income, net of tax:
Foreign currency translation adjustments....... (1,308) (22,302) 8,117 (989)
---------- ---------- -------- --------
Comprehensive (Loss)............................. $ (141,612) $ (174,775) $(97,019) $ (3,039)
========== ========== ======== ========
</TABLE>

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

38
<PAGE> 42

RIVERWOOD HOLDING, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
COMPANY PREDECESSOR
------------------------------------------ ------------
NINE MONTHS THREE MONTHS
YEAR ENDED YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, MARCH 27,
1998 1997 1996 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (Loss).................................................. $(140,304) $(152,473) $ (105,136) $ (2,050)
Noncash Items Included in Net (Loss):
Depreciation, amortization and cost of timber harvested... 146,515 137,384 100,846 24,438
Extraordinary loss on early extinguishment of debt, net... -- 2,463 10,320 --
Deferred income taxes..................................... (1,398) 5,391 (403) (3,574)
Pension, postemployment and postretirement benefits
expense (credit), net of contributions.................. 2,181 4,925 (553) 1,861
Impairment loss........................................... 15,694 -- -- --
Restructuring charge...................................... 25,580 -- -- --
Net gain on sale of assets................................ (1,828) -- -- --
Equity in net earnings of affiliates, net of dividends.... (1,194) (17,662) (12,136) (4,927)
Amortization of deferred debt issuance costs.............. 10,298 11,800 11,226 619
Other, net................................................ 1,565 720 979 (2,350)
Changes, Net of Effects of Acquisitions/Dispositions:
Decrease (Increase) in Current Assets:
Receivables............................................... (2,394) (948) 7,934 14,737
Inventories............................................... (2,662) 32,223 21,261 (14,659)
Prepaid expenses.......................................... 1,887 (3,655) (1,670) 8,298
(Decrease) Increase in Current Liabilities:
Accounts payable.......................................... (1,273) (4,095) (13,633) 18,182
Compensation and employee benefits........................ 560 706 (9,977) (10,248)
Income taxes.............................................. (4,403) 13,701 344 (3,343)
Interest payable.......................................... 2,253 8,651 21,598 10,727
Other accrued liabilities................................. (11,614) (27,038) (50,865) 1,633
Increase (Decrease) in Other Noncurrent Liabilities......... 8,576 (16,289) (4,199) (2,569)
--------- --------- ----------- --------
Net Cash Provided by (Used in) Operating Activities......... 48,039 (4,196) (24,064) 36,775
--------- --------- ----------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of RIC, net of Cash Acquired.................... -- -- (1,459,372) --
Purchases of Property, Plant and Equipment.................. (48,551) (142,314) (132,286) (44,074)
Proceeds from Sales of Assets, net of selling costs......... 55,214 8,989 550,727 623
Proceeds from Tax Matters Settlement........................ -- 16,800 -- --
Payment of Merger Related Costs............................. -- (34,794) -- --
Decrease (Increase) in Other Assets......................... 2,276 (9,035) (7,407) (8,004)
Proceeds from the Maturities of Marketable Securities....... -- -- 78 439
Acquisition of Equipment Previously Leased under Operating
Leases.................................................... -- -- (46,742) --
--------- --------- ----------- --------
Net Cash Provided by (Used in) Investing Activities......... 8,939 (160,354) (1,095,002) (51,016)
--------- --------- ----------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (Decrease) Increase in Notes Payable.................... (47,439) 35,156 111,073 (3,000)
Payments on Debt............................................ (11,868) (157,184) (403,801) (2,833)
Repurchases of Redeemable Common Stock...................... (893) (3,345) -- --
Proceeds from Issuance of Common Stock, net................. -- -- 760,617 838
Issuance of Debt............................................ -- 300,000 1,803,146 12,669
Increase in Deferred Debt Issuance Costs.................... -- (8,612) (89,792) --
Predecessor Debt Paid at Merger............................. -- -- (1,046,690) --
Dividends................................................... -- -- -- (2,630)
--------- --------- ----------- --------
Net Cash (Used in) Provided by Financing Activities......... (60,200) 166,015 1,134,553 5,044
--------- --------- ----------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH..................... 1,311 (3,071) 1,869 (638)
--------- --------- ----------- --------
Net (Decrease) Increase in Cash and Equivalents............. (1,911) (1,606) 17,356 (9,835)
Cash and Equivalents at Beginning of Period................. 15,751 17,357 1 35,870
--------- --------- ----------- --------
CASH AND EQUIVALENTS AT END OF PERIOD....................... $ 13,840 $ 15,751 $ 17,357 $ 26,035
========= ========= =========== ========
</TABLE>

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

39
<PAGE> 43

RIVERWOOD HOLDING, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(IN THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
RETAINED CUMULATIVE
NONREDEEMABLE CAPITAL IN EARNINGS CURRENCY TOTAL
COMMON EXCESS OF (ACCUMULATED TRANSLATION SHAREHOLDERS'
STOCK PAR VALUE DEFICIT) ADJUSTMENT EQUITY
------------- ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C>
PREDECESSOR:
- ------------------------------------------------
BALANCES AT DECEMBER 31, 1995................... $657 $526,814 $ 45,309 $(10,470) $562,310
Net (Loss).................................... -- -- (2,050) -- (2,050)
Currency translation adjustment............... -- -- -- (989) (989)
Issuance of 43,148 shares of Common Stock..... -- 846 -- -- 846
Dividends of $0.04 per share on Common
Stock....................................... -- -- (2,630) -- (2,630)
---- -------- --------- -------- --------
BALANCES AT MARCH 27, 1996...................... $657 $527,660 $ 40,629 $(11,459) $557,487
==== ======== ========= ======== ========
- -------------------------------------------------------------------------------------------------------------------------
COMPANY:
- ------------------------------------------------
BALANCES AT MARCH 28, 1996...................... $ -- $ 1 $ -- $ -- $ 1
Net (Loss).................................... -- -- (105,136) -- (105,136)
Currency translation adjustment............... -- -- -- 8,117 8,117
Issuance of 7,000,000 shares of Class A Common
Stock....................................... 70 699,930 -- -- 700,000
Issuance of 500,000 shares of Class B Common
Stock....................................... 5 49,995 -- -- 50,000
Stock issuance costs.......................... -- (451) -- -- (451)
Adjustment to redemption value of Redeemable
Common Stock................................ -- 1,678 -- -- 1,678
---- -------- --------- -------- --------
BALANCES AT DECEMBER 31, 1996................... 75 751,153 (105,136) 8,117 654,209
Net (Loss).................................... -- -- (152,473) -- (152,473)
Currency translation adjustment............... -- -- -- (22,302) (22,302)
---- -------- --------- -------- --------
BALANCES AT DECEMBER 31, 1997................... 75 751,153 (257,609) (14,185) 479,434
Net (Loss).................................... -- -- (140,304) -- (140,304)
Currency translation adjustment............... -- -- -- (1,308) (1,308)
Adjustment to redemption value of Redeemable
Common Stock................................ -- (1,053) -- -- (1,053)
---- -------- --------- -------- --------
BALANCES AT DECEMBER 31, 1998................... $ 75 $750,100 $(397,913) $(15,493) $336,769
==== ======== ========= ======== ========
</TABLE>

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

40
<PAGE> 44

RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION

Holding and its wholly-owned subsidiaries RIC Holding and Acquisition Corp.
were incorporated in 1995 to acquire the stock of RIC.

On March 27, 1996, Holding, through its wholly-owned subsidiaries, acquired
all of the outstanding shares of common stock of RIC. On such date, Acquisition
Corp. was merged into RIC. RIC, as the surviving corporation in the Merger,
became a wholly-owned subsidiary of RIC Holding. On March 28, 1996, RIC
transferred substantially all of its properties and assets to Riverwood, other
than the capital stock of Riverwood, and RIC was merged into RIC Holding.
Thereupon, Riverwood was renamed "Riverwood International Corporation." Upon
consummation of the Subsequent Merger, RIC Holding, as the surviving corporation
in the Subsequent Merger, became the parent company of Riverwood.

Holding and its subsidiaries RIC Holding and Acquisition Corp. conducted no
significant business other than in connection with the Merger and related
transactions through March 27, 1996.

In connection with the Merger, the purchase method of accounting was used
to establish and record a new cost basis for the assets acquired and liabilities
assumed. The difference between the purchase price and the fair market values of
the assets acquired and liabilities assumed was recorded as goodwill.

The consolidated financial statements presented herein for the period prior
to March 28, 1996, represent the Predecessor's financial position, results of
operations and cash flows prior to the Merger and, consequently, are stated on
the Predecessor's historical cost basis. The consolidated financial statements
as of December 31, 1998, and 1997 and for the years ended December 31, 1998 and
1997, and the nine months ended December 31, 1996, respectively, reflect the
adjustments which were made to record the Merger. On October 18, 1996, the
Company sold substantially all of the assets of the U.S. Timberlands/Wood
Products business segment. The operating results for the U.S. Timberlands/Wood
Products business segment have been classified as discontinued operations for
the period beginning March 28, 1996 and ending October 18, 1996 (date of sale)
in the Consolidated Statements of Operations. Discontinued operations have not
been segregated in the Consolidated Statements of Cash Flows nor have they been
reclassified as discontinued operations in the Predecessor's Consolidated
Statements of Operations and Consolidated Balance Sheets. Accordingly, the
financial statements of the Predecessor for the period prior to March 28, 1996
are not comparable in all material respects with the financial statements
subsequent to the date of the Merger. The most significant differences relate to
discontinued operations and to adjustments recorded in connection with the
Merger for inventory, property, plant and equipment, intangibles and debt which
resulted in increased cost of sales, amortization, depreciation and interest
expense in the years ended December 31, 1998 and 1997, and the nine months ended
December 31, 1996 and will continue to do so in future periods.

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(A) PRINCIPLES OF CONSOLIDATION

The following is a summary of significant accounting policies of the
Company. For a summary of the Predecessor's significant accounting policies,
please refer to the Predecessor's financial statements incorporated by reference
in the annual report filed with the Securities and Exchange Commission on Form
10-K for the year ended December 31, 1995.

The accompanying consolidated financial statements include all of the
accounts of Riverwood Holding, Inc. and its subsidiaries. The accompanying
consolidated financial statements include the worldwide operations of the
paperboard, packaging and packaging machinery businesses and (through the date
of sale, see Note 25), the wood products businesses. All significant
transactions and balances between the consolidated operations have been
eliminated.

41
<PAGE> 45
RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
The Company's international subsidiaries are principally consolidated and
reported on the basis of fiscal years ending November 30 and interim quarterly
periods ending on a date approximately one month prior to the U.S. quarterly
periods. The U.S. quarterly periods are generally on a 13-week basis ending on a
Saturday; however, the length of the first and fourth quarters will vary
depending upon the calendar.

The Company accounts for investments in which it has a 20 percent to 50
percent ownership interest and for corporate joint ventures using the equity
method.

(B) CASH AND EQUIVALENTS

Cash and equivalents include time deposits, certificates of deposit and
other marketable securities with original maturities of three months or less.

Inventories are stated at the lower of cost or market. Cost of inventories
is determined principally on the last-in, first-out ("LIFO") basis. Average cost
bases are used to determine the cost of supplies inventories.

(D) PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are recorded at cost. Betterments, renewals
and extraordinary repairs that extend the life of the asset are capitalized;
other repairs and maintenance charges are expensed as incurred. The Company's
cost and related accumulated depreciation applicable to assets retired or sold
are removed from the accounts and the gain or loss on disposition is recognized
in income.

Costs directly associated with the development and testing of computer
information systems are deferred and included in property, plant and equipment.
Such costs are amortized on a straight-line basis over the expected useful life
of 5 years. Costs indirectly associated with such projects and ongoing
maintenance costs are expensed as incurred. A total of $7.6 million and $5.7
million in costs relating to software development were capitalized in 1998 and
1997, respectively, and included in property, plant and equipment at December
31, 1998 and December 31, 1997.

Interest is capitalized on major projects. The capitalized interest is
recorded as part of the asset to which it relates and is amortized over the
asset's estimated useful life. Capitalized interest was approximately $1.4
million, $3.5 million, $2.0 million and $0.5 million in the years ended December
31, 1998 and 1997, the nine-month period ended December 31, 1996, and the
three-month period ended March 27, 1996, respectively.

(E) DEPRECIATION, AMORTIZATION AND COST OF TIMBER HARVESTED

Depreciation and amortization are principally computed using the
straight-line method based on the following estimated useful lives of the
related assets:

<TABLE>
<S> <C>
Buildings................................................... 10 to 40 years
Land improvements........................................... 3 to 20 years
Machinery and equipment..................................... 2 to 40 years
Furniture and fixtures...................................... 1 to 12 years
Automobiles and light trucks................................ 2 to 5 years
</TABLE>

For certain major capital additions, the Company computes depreciation on
the units-of-production method until the asset's designed level of production is
achieved and sustained.

Cost of timber harvested was based on unit cost rates calculated using the
total estimated yield of timber to be harvested and the unamortized timber
costs.
42
<PAGE> 46
RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
The Company assesses its long-lived assets other than goodwill for
impairment whenever facts and circumstances indicate that the carrying amount
may not be fully recoverable. To analyze recoverability, the Company projects
future cash flows, undiscounted and before interest, over the remaining life of
such assets. If these projected cash flows are less than the carrying amount, an
impairment would be recognized, resulting in a write-down of assets with a
corresponding charge to earnings. The impairment loss is measured based upon the
difference between the carrying amount and the fair value of the assets.

Goodwill is amortized on a straight-line basis over 40 years. The cost of
patents, licenses and trademarks is amortized on a straight-line basis over 15
to 20 years. The related amortization expense is included in Other Expense, net,
in the Consolidated Statements of Operations. The Company assesses goodwill for
impairment whenever facts and circumstances indicate that the carrying amount
may not be fully recoverable. To analyze recoverability, the Company projects
future cash flows, undiscounted and before interest, over the remaining life of
the goodwill. If these projected cash flows are less than the carrying amount of
the goodwill, an impairment would be recognized, resulting in a write down of
goodwill with a corresponding charge to earnings. The impairment loss is
measured based upon the difference between the carrying amount of the goodwill
and the undiscounted future cash flows before interest.

(F) INTERNATIONAL CURRENCY

The functional currency for most of the international subsidiaries is the
local currency for the country in which the subsidiaries own their primary
assets. The translation of the applicable currencies into U.S. dollars is
performed for balance sheet accounts using current exchange rates in effect at
the balance sheet date and for revenue and expense accounts using a weighted
average exchange rate during the period. Any related translation adjustments are
recorded directly to Shareholders' Equity. Gains and losses on foreign currency
transactions are included in Other Expense, net, in the Consolidated Statements
of Operations for the period in which the exchange rate changes.

The Company enters into forward exchange contracts to hedge certain foreign
currency denominated exposures and option contracts to hedge anticipated
transactions denominated in foreign currency. Realized and unrealized gains and
losses on these contracts are included in Other Expense, net, in the
Consolidated Statements of Operations. The discount or premium on a forward
exchange contract is included in the measurement of the basis of the related
foreign currency transaction when recorded. The premium on an option contract is
accounted for separately and amortized to Other Expense, net, over the term of
the contract.

(G) INCOME TAXES

The Company accounts for income taxes under the liability method whereby
the effect of changes in corporate tax rates on deferred income taxes is
recognized currently as an adjustment to income tax expense. The liability
method also requires that deferred tax assets or liabilities be recorded based
on the difference between the tax bases of assets and liabilities and their
carrying amounts for financial reporting purposes. A valuation allowance is
established for deferred tax assets when it is more likely than not that the
benefits of such assets will not be realized.

(H) REVENUE RECOGNITION

The Company recognizes revenue primarily when goods are shipped to
customers. Revenues from packaging machinery use agreements received in advance
are recognized on a straight-line basis over the term of the agreements.

43
<PAGE> 47
RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
(I) INSURANCE RESERVES

It is the Company's policy to self-insure or fund a portion of certain
expected losses related to group health benefits. Provisions for losses expected
are recorded based on the Company's estimates, on an undiscounted basis, of the
aggregate liabilities for known claims and estimated claims incurred but not
reported.

(J) ENVIRONMENTAL REMEDIATION RESERVES

The Company accrues for losses associated with environmental remediation
obligations when such losses are probable and reasonably estimable. Accruals for
such losses are adjusted as further information develops or circumstances
change. Costs of future expenditures for environmental remediation obligations
are not discounted to their present value.

(K) USE OF ESTIMATES

The preparation of the consolidated 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 consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual amounts could differ from those estimates.

NOTE 3 -- RECEIVABLES

The components of receivables at December 31 were as follows:

<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS) 1998 1997
------------------------- -------- --------
<S> <C> <C>
Trade....................................................... $123,816 $144,479
Less, allowance............................................. 2,132 560
-------- --------
121,684 143,919
Other....................................................... 20,537 7,635
-------- --------
$142,221 $151,554
======== ========
</TABLE>

NOTE 4 -- FINANCIAL INSTRUMENTS

The Company is a party to financial instruments with off-balance sheet risk
in the normal course of business. These financial instruments include foreign
currency forward exchange contracts and interest rate swap and cap agreements.
These instruments involve, to varying degrees, elements of market and credit
risk in excess of the amounts recognized in the Consolidated Balance Sheets. The
Company does not hold or issue such financial instruments for trading purposes.

The Company enters into forward exchange contracts to effectively hedge
substantially all accounts receivable and certain accounts payable resulting
from transactions denominated in nonfunctional currencies. The purpose of the
forward exchange contracts is to protect the Company from the risk that the
eventual functional currency cash flows resulting from the collection of the
hedged accounts receivable or payment of the hedged accounts payable will be
adversely affected by changes in exchange rates. At December 31, 1998 and 1997,
the Company had various forward exchange contracts, with maturities ranging up
to one year, to exchange nonfunctional currencies for functional currencies (to
hedge accounts receivable and payable denominated in nonfunctional currencies).
When aggregated and measured in U.S. dollars at year-end exchange rates, the
notional amount of these forward exchange contracts totaled approximately $44.9
million

44
<PAGE> 48
RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 4 -- FINANCIAL INSTRUMENTS -- (CONTINUED)
and $62.1 million at December 31, 1998 and 1997, respectively. Generally,
unrealized gains and losses resulting from these contracts are recognized
currently in operations and approximately offset corresponding unrealized gains
and losses recognized on the hedged accounts receivable or accounts payable.

During 1998 and 1997, the Company entered into option contracts to hedge
certain anticipated foreign currency transactions. The purpose of the option
contracts is to protect the Company from the risk that the eventual functional
currency cash flows resulting from anticipated foreign currency transactions
will be adversely affected by changes in exchange rates. At December 31, 1998,
one option contract existed, with a maturity of one year. When measured in U.S.
dollars at year-end exchange rates, the notional amount of the purchased option
contract totaled approximately $15.8 million. At December 31, 1997, no option
contracts were outstanding. Option contract premiums are amortized over the term
of the contract. Gains, if any, related to these contracts are recognized in
income when the anticipated transaction occurs.

The Company uses interest rate swap and cap agreements to fix or cap a
portion of its variable rate Term Loan Facility to a fixed rate in order to
reduce the impact of interest rate changes on future income. The differential to
be paid or received under these agreements is recognized as an adjustment to
interest expense related to the debt. At December 31, 1998, the Company had
interest rate swap agreements with a notional amount of $300 million which
expire on various dates through the year 2000, under which the Company will pay
fixed rates of 5.05 percent to 5.945 percent and receive three-month LIBOR.

The Company's customers are not concentrated in any specific geographic
region, but are concentrated in certain industries. Customers of the Coated
Board business segment include the beverage and packaged foods industries.
Customers of the Containerboard business segment include integrated and
non-integrated containerboard converters. During the year ended December 31,
1998, one customer accounted for approximately 11 percent of the Company's net
sales. During the year ended December 31, 1997 and the three months ended March
28, 1996, no single customer accounted for more than 10 percent of the Company's
net sales. During the nine months ended December 31, 1996, one customer
accounted for approximately 11 percent of the Company's net sales. There were no
significant accounts receivable from a single customer at December 31, 1998 and
1997. The Company reviews a customer's credit history before extending credit.
The Company establishes an allowance for doubtful accounts based upon factors
surrounding the credit risk of specific customers, historical trends, and other
information.

The following methods and assumptions were used to estimate the fair value
of each category of financial instrument for which it is practicable to estimate
that value:

NONTRADE RECEIVABLES AND SHORT TERM BORROWINGS

The carrying amount of these instruments approximates fair value due to
their short-term nature.

LONG-TERM DEBT

The fair value of long-term debt is based on quoted market prices.

FORWARD EXCHANGE AND OPTION CONTRACTS

The fair value of forward and option contracts is based on quoted market
prices.

INTEREST RATE SWAP AND CAP AGREEMENTS

The fair value of interest rate swap and cap agreements is based on quoted
market prices by counter parties taken into account the current creditworthiness
of the swap counterparties.

45
<PAGE> 49
RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 4 -- FINANCIAL INSTRUMENTS -- (CONTINUED)
The carrying amounts and estimated fair value of the Company's financial
instruments as of December 31 were as follows:

<TABLE>
<CAPTION>
1998 1997
----------------------- -----------------------
CARRYING FAIR CARRYING FAIR
(IN THOUSANDS OF DOLLARS) AMOUNTS VALUE AMOUNTS VALUE
------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Nontrade receivables.................... $ 20,537 $ 20,537 $ 7,635 $ 7,635
Short-term borrowings................... $ 5,537 $ 5,537 $ 6,284 $ 6,284
Long-term debt.......................... $1,692,491 $1,629,012 $1,750,990 $1,735,086
Current forward exchange contracts...... $ -- $ (2,489) $ -- $ (116)
Currency option contracts............... $ -- $ 266 $ -- $ --
Interest rate swap contracts............ $ -- $ (1,807) $ -- $ (773)
Interest rate cap contracts............. $ -- $ -- $ 159 $ --
</TABLE>

NOTE 5 -- INVENTORIES

The major classes of inventories at December 31 were as follows:

<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS) 1998 1997
------------------------- -------- --------
<S> <C> <C>
Finished goods.............................................. $ 72,120 $ 66,559
Work-in progress............................................ 7,157 11,173
Raw materials............................................... 52,669 65,030
Supplies.................................................... 35,442 31,736
-------- --------
$167,388 $174,498
======== ========
</TABLE>

Inventories in the amount of $33.1 million and $27.9 million at December
31, 1998 and 1997, respectively, were valued using the first-in, first-out
("FIFO") or average cost method. The balance of the inventories was valued using
the LIFO method. The excess of FIFO values over amounts for financial reporting
purposes was $0.9 million and $6.9 million at December 31, 1998 and 1997,
respectively. During the years ended December 31, 1998 and 1997, and the nine
months ended December 31, 1996, the company recognized a (credit)/charge
relating to LIFO valuation of $(5.6) million, $6.9 million, and $1.5 million
respectively.

In connection with the Merger, the Company adjusted its inventory balances
to its estimated fair value which resulted in a write-up to inventory of
approximately $13.6 million and is being charged to cost of sales when the March
27, 1996 LIFO base inventory layers are liquidated. Approximately $0.7 million,
$3.9 million, and $0.6 million of this fair value write-up of inventories was
charged to cost of sales during the years ended December 31, 1998 and 1997, and
the nine-month period ended December 31, 1996, respectively.

NOTE 6 -- INVESTMENTS IN NET ASSETS OF EQUITY AFFILIATES

The major components of Investments in Net Assets of Equity Affiliates at
December 31 were as follows:

<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS) 1998 1997
------------------------- -------- --------
<S> <C> <C>
Equity investment in Igaras................................. $138,496 $137,964
Other equity investments.................................... 5,115 3,726
-------- --------
$143,611 $141,690
======== ========
</TABLE>

46
<PAGE> 50
RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 6 -- INVESTMENTS IN NET ASSETS OF EQUITY AFFILIATES -- (CONTINUED)
Investments are accounted for using the equity method of accounting. The
most significant of these investments is Igaras, an integrated containerboard
producer located in Brazil. The following represents the summarized balance
sheet information for Igaras as of December 31:

<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS) 1998 1997
- ------------------------- -------- --------
<S> <C> <C>
Current Assets.............................................. $ 82,503 $103,628
Noncurrent Assets........................................... $451,922 $364,604
Current Liabilities......................................... $ 97,956 $ 74,527
Noncurrent Liabilities...................................... $132,866 $ 90,141
Shareholders' Equity........................................ $303,603 $303,564
</TABLE>

The following represents the summarized income statement information for
Igaras for the years ended December 31, 1998 and 1997, the nine months ended
December 31, 1996, and the three months ended March 27, 1996:

<TABLE>
<CAPTION>
COMPANY PREDECESSOR
------------------------------------------ ------------
NINE MONTHS THREE MONTHS
YEAR ENDED YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, MARCH 27,
(IN THOUSANDS OF DOLLARS) 1998 1997 1996 1996
- ------------------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Sales............................. $257,026 $239,454 $175,116 $59,582
Cost of Sales......................... 205,047 165,983 117,615 38,962
-------- -------- -------- -------
Gross Profit.......................... $ 51,979 $ 73,471 $ 57,501 $20,620
======== ======== ======== =======
Income from Operations................ $ 23,441 $ 49,194 $ 42,350 $14,521
======== ======== ======== =======
Net Income............................ $ 11,747 $ 42,673 $ 34,552 $10,113
======== ======== ======== =======
</TABLE>

During the years ended December 31, 1998 and 1997, the nine-month period
ended December 31, 1996, and the three month period ended March 27, 1996,
paperboard was sold to Igaras totaling approximately $23.0 million, $12.6
million, $4.8 million and $0.3 million, respectively. The amount of the carrying
value of the investment in Igaras at December 31, 1998 and 1997 differs from the
underlying equity in net assets by $13.3 million and $13.8 million,
respectively, and relates to the write-down of this investment to estimated fair
value in purchase accounting and declared but unpaid dividends. Included in
Receivables at December 31, 1998 and 1997 were amounts due from Igaras of $3.5
million and $1.7 million, respectively, for paperboard sales. Included in Other
Assets as of December 31, 1998 and 1997 are long-term receivables from Igaras
for packaging machinery sales of $3.9 million and $3.7 million, net of
unamortized discount of $0.7 million and $1.0 million, respectively.

The amount of the Company's portion of Igaras' undistributed earnings at
December 31, 1998 and 1997 was approximately $45.4 million and $38.6 million,
respectively. The amount of dividends received from Igaras during the years
ended December 31, 1998 and 1997, the nine months ended December 31, 1996, and
the three months ended March 27, 1996 were $5.4 million, $4.0 million, $5.0
million and nil, respectively, net of taxes of $0.9 million, $0.7 million, nil,
and nil, respectively.

On January 14, 1999, the Central Bank of Brazil changed the foreign
exchange policy by eliminating the exchange rate band, which had been used as a
means to control the fluctuation of the Real against the U.S. dollar. The
exchange rate is now determined by market forces. As a consequence of such
change, the Real suffered a significant devaluation related to the U.S. dollar
during the beginning of 1999. At this time it is not practicable to determine
whether or at what level the exchange rate will stabilize as well as the effect
of such exchange rate fluctuation on Igaras' operations or the Company's
investment in the net assets of Igaras.

47
<PAGE> 51
RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 6 -- INVESTMENTS IN NET ASSETS OF EQUITY AFFILIATES -- (CONTINUED)
The exchange rate at December 31, 1998 was R$1.20 to one U.S. dollar, and
at January 22, 1999 was approximately R$1.70. The net foreign currency
liabilities at January 22, 1999 had not changed significantly compared to
December 31, 1998.

NOTE 7 -- OTHER ASSETS

Other Assets included intangible assets at December 31, and consisted of
the following:

<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS) 1998 1997
- ------------------------- -------- --------
<S> <C> <C>
Patents, licenses and trademarks............................ $ 64,826 $ 63,785
Deferred start-up costs..................................... -- 1,351
-------- --------
Total amortizable assets.................................... 64,826 65,136
Less, accumulated amortization.............................. 9,366 5,921
-------- --------
55,460 59,215
Deferred debt issuance costs, net........................... 52,372 62,575
Pension assets.............................................. 13,312 12,698
Capitalized spare parts..................................... 16,606 17,074
Deferred design costs....................................... 4,625 2,559
Other....................................................... 7,692 7,656
-------- --------
$150,067 $161,777
======== ========
</TABLE>

NOTE 8 -- SHORT-TERM DEBT

Short-term debt at December 31 consisted of the following:

<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS) 1998 1997
- ------------------------- ------- -------
<S> <C> <C>
Short-term borrowings....................................... $ 5,537 $ 6,284
Current portion of long-term debt........................... 12,076 38,046
------- -------
$17,613 $44,330
======= =======
</TABLE>

In connection with the Merger, the Company called $125 million of
Convertible Subordinated Notes, of which $6.0 million was not redeemed at
December 31, 1998 and is included in current portion of long-term debt.

Short-term borrowings were principally at the Company's international
subsidiaries. The weighted average interest rate on short-term borrowings as of
December 31, 1998 and 1997 was 3.1 percent and 3.5 percent, respectively.

NOTE 9 -- COMPENSATION AND EMPLOYEE BENEFITS

Accruals for future compensated employee absences, principally vacation,
were $13.9 million and $16.3 million at December 31, 1998 and 1997,
respectively, and were included in Compensation and employee benefits on the
Consolidated Balance Sheets.

NOTE 10 -- LONG-TERM DEBT

In connection with the Merger, the Company entered into the Senior Secured
Credit Agreement with certain lenders providing the Senior Secured Credit
Facilities with aggregate commitments not to exceed $1,550 million, including
the $1,150 million Term Loan Facility and the $400 million Revolving Facility.
In

48
<PAGE> 52
RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 10 -- LONG-TERM DEBT -- (CONTINUED)
addition, RIMI, entered into the Machinery Credit Agreement providing for the
$140 million Machinery Facility with certain lenders for the purpose of
financing or refinancing packaging machinery. In connection with the Merger, the
Company also completed the Notes Offering of $250 million aggregate principal
amount of 10 1/4% Senior Notes due 2006 and $400 million aggregate principal
amount of 10 7/8% Senior Subordinated Notes due 2008. Furthermore, substantially
all outstanding indebtedness (with certain limited exceptions) and packaging
machinery leasing obligations of RIC and its subsidiaries were repaid or
terminated in connection with the Merger.

The Term Loan Facility will mature through 2004, the Revolving Facility
will mature in 2003 and the Machinery Facility will mature in 2001, with all
amounts then outstanding becoming due. The loans under the Facilities bear
interest at floating rates based upon the interest rate option elected by the
Company.

On October 18, 1996, the Company sold substantially all of the assets of
the U.S. Timberlands/Wood Products business segment for approximately $550
million in cash (see Note 25). The Company applied $400.0 million of the sale
proceeds to repay term loans under the Term Loan Facility, including
approximately $375.0 million of Tranche A term loans, approximately $18.4
million of Tranche B term loans and approximately $6.6 million of Tranche C term
loans. The Company applied the remaining sale proceeds to outstanding revolving
credit borrowings under the Revolving Facility. This application of proceeds did
not involve any revolving credit commitment reduction. Such commitment remains
at $400 million.

On July 28, 1997, the Company completed an offering of $250 million
principal amount of 10 5/8% Senior Notes due 2007. The net proceeds of this
offering were applied to prepay certain revolving credit borrowings under the
Company's Revolving Facility (without any commitment reduction) and to refinance
certain Tranche A term loans and other borrowings under the Senior Secured
Credit Agreement. A registration statement under the Securities Act of 1933, as
amended, registering the New Notes offered in exchange for the 1997 Notes became
effective October 1, 1997. On November 3, 1997, the Company completed its
exchange offer of the 1997 Notes for the New Notes.

In connection with the 1997 Notes, the Company's senior secured lenders
modified certain financial and other covenants to reflect, among other things,
the Company's recent financial results and market and operating conditions, as
well as the consummation of the 1997 Notes offering and prepayment of the Term
Loan Facility and other borrowings. The amended covenants also specify permitted
capital expenditures (subject to certain carryover allowances and other
adjustments) of no more than $140 million and $135 million for 1999 and 2000,
respectively, and $130 million per year thereafter and places restriction on the
payments of dividends. The amended covenants also specify, among other changes,
the elimination of the minimum consolidated net worth requirements, and the
following amended minimum EBITDA and interest coverage ratio requirements for
each four quarter period ending during the following test periods:

<TABLE>
<CAPTION>
PERIOD EBITDA INTEREST COVERAGE RATIO
------ ------------ -----------------------
<S> <C> <C>
December 31, 1998 -- December 30, 1999............... $200 million 1.00 to 1.00
December 31, 1999 -- December 30, 2000............... $265 million 1.25 to 1.00
December 31, 2000 -- December 30, 2001............... $325 million 1.50 to 1.00
December 31, 2001 -- December 30, 2002............... $350 million 1.75 to 1.00
December 31, 2002 -- December 30, 2003............... $375 million 2.00 to 1.00
Thereafter........................................... $400 million 2.25 to 1.00
</TABLE>

The Credit Agreements impose restrictions on the Company's ability to make
capital expenditures and both the Credit Agreements and the Indentures governing
the Notes limit the Company's ability to incur additional indebtedness. Such
restrictions, together with the highly leveraged nature of the Company, could
limit the Company's ability to respond to market conditions, to meet its capital
spending program, to provide for unanticipated capital investments or to take
advantage of business opportunities. The covenants contained in the Credit
Agreements also, among other things, restrict the ability of the Company and its
subsidiaries to

49
<PAGE> 53
RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 10 -- LONG-TERM DEBT -- (CONTINUED)
dispose of assets, incur guarantee obligations, repay the Notes, pay dividends,
create liens on assets, enter into sale and leaseback transactions, make
investments, loans or advances, make acquisitions, engage in mergers or
consolidations, make capital expenditures or engage in certain transactions with
affiliates, and otherwise restrict corporate activities. The covenants contained
in the Indentures governing the Notes also impose restrictions on the operation
of the Company's businesses. The Company was in compliance with the financial
covenants in its Credit Agreements at December 31, 1998.

At December 31, 1998, the Company and its U.S. and international
subsidiaries had the following amounts available under revolving credit
facilities:

<TABLE>
<CAPTION>
TOTAL AMOUNT TOTAL AMOUNT TOTAL AMOUNT
OF OUTSTANDING AT AVAILABLE AT
(IN THOUSANDS OF DOLLARS) COMMITMENTS DECEMBER 31, 1998 DECEMBER 31, 1998
- ------------------------- ------------ ----------------- -----------------
<S> <C> <C> <C>
Revolving Facility........................ $400,000 $116,400 $283,600
Machinery Facility........................ 140,000 20,000 25,000
International Facilities.................. 20,357 6,635 13,722
-------- -------- --------
$560,357 $143,035 $322,322
======== ======== ========
</TABLE>

The Company applied $21.8 million of the proceeds from the sale of the
Australian folding carton business to repay all outstanding borrowings under its
Australian facility during the second quarter.

Availability under the Machinery Facility is limited by a borrowing base.
Undrawn Revolving Facility availability is expected to be used to meet future
working capital and other business needs of the Company. The Company anticipates
pursuing additional working capital financing for its foreign operations as
necessary.

Long-term debt at December 31 consisted of the following:

<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS) 1998 1997
- ------------------------- ---------- ----------
<S> <C> <C>
Senior Notes with interest payable semi-annually at 10.625
percent, payable in 2007.................................. $ 250,000 $ 250,000
Senior Notes with interest payable semi-annually at 10.25
percent, payable in 2006.................................. 250,000 250,000
Senior Subordinated Notes with interest payable
semi-annually at 10.875 percent, payable in 2008.......... 400,000 400,000
Senior Secured Term Loan Facility with interest payable at
various dates less than one year at floating rates (7.63
percent to 8.63 percent at December 31, 1998), payable
through 2004.............................................. 641,042 644,012
Senior Secured Revolving Facility with interest payable at
various dates less than one year at floating rates (8.04
percent to 9.25 percent at December 31, 1998), payable in
2003...................................................... 116,400 144,400
Machinery Facility with interest payable at various dates
less than one year at floating rates (8.06 percent at
December 31, 1998), payable in 2001....................... 20,000 19,000
Senior Notes with interest payable semi-annually at 10.75
percent, payable in 2000.................................. 529 529
Senior Subordinated Notes with interest payable
semi-annually at 11.25 percent, payable in 2002........... 804 804
Convertible Subordinated Notes with interest payable
semi-annually at 6.75 percent, payable in 2003,
convertible beginning March 27, 1996...................... 6,044 6,064
</TABLE>

50
<PAGE> 54
RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 10 -- LONG-TERM DEBT -- (CONTINUED)

<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS) 1998 1997
- ------------------------- ---------- ----------
<S> <C> <C>
Senior Subordinated Notes with interest payable
semi-annually at 10.375 percent, payable in 2004.......... 15 15
Pollution control revenue bonds with interest payable
semi-annually at 6.25 percent, payable through 2007....... 1,000 1,000
Notes payable to individuals with interest payable at 6.0
percent................................................... -- 5,278
International Notes payable to banks with interest payable
at various dates less than one year at interest rates
ranging from 1.4 to 4.0 percent at December 31, 1997,
payable through 1998...................................... 2,288 24,758
Capitalized leases with interest payable from 6.52 percent
to 10.25 percent, payable through 2005.................... 4,334 5,099
Other....................................................... 35 31
---------- ----------
1,692,491 1,750,990
Less, current portion....................................... 12,076 38,046
---------- ----------
$1,680,415 $1,712,944
========== ==========
</TABLE>

The Term Loan Facility, the Revolving Facility and the Machinery Facility
were collateralized by substantially all of the net assets (including the
capital stock of certain international subsidiaries) of the Company.

Long-term debt maturities and expirations of funded long-term working
capital commitments at December 31, 1998, were as follows:

<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS)
- -------------------------
<S> <C>
1999........................................................ $ 12,076
2000........................................................ 5,078
2001........................................................ 120,704
2002........................................................ 194,598
2003........................................................ 184,759
After 2003.................................................. 1,175,276
----------
$1,692,491
==========
</TABLE>

NOTE 11 -- REDEEMABLE COMMON STOCK

During the nine months ended December 31, 1996, Holding completed an
offering of Holding Common Stock to certain members of management and key
employees of the Company. As of December 31, 1996, the Company had issued
111,900 shares of Holding Class A Common Stock to Management Investors at fair
value for gross cash proceeds of $11.2 million. The common stock held by
Management Investors is mandatorily redeemable at fair market value as
determined by the Executive Committee of the Board of Directors and in certain
circumstances the Management Investors can require the Company to repurchase the
Holding Class A Common Stock. These shares are classified as Redeemable Common
Stock on the Consolidated Balance Sheets and are carried at their redemption
value at December 31, 1998. Accordingly, the difference between the redemption
value at December 31, 1997 of $85 per share and the redemption value at December
31, 1998 of $100 per share as determined by the Executive Committee of the Board
of Directors is accounted for as a charge to Capital in Excess of Par Value.
During 1998 and 1997, the Company repurchased 10,500 and 39,350 shares,
respectively, of Redeemable Common Stock for $85 per share.

51
<PAGE> 55
RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 11 -- REDEEMABLE COMMON STOCK -- (CONTINUED)
In connection with the issuance of Redeemable Common Stock to Management
Investors, the Company has guaranteed loans, with full recourse, from a bank to
certain Management Investors totaling approximately $1.5 million at December 31,
1998.

NOTE 12 -- NONREDEEMABLE COMMON STOCK

On March 27, 1996, Holding completed an offering of 7,000,000 shares of
Class A Common Stock with a par value of $0.01 per share to certain
institutional investors for $700 million. Total Class A Common Stock authorized
for issuance at December 31, 1998 was 9,000,000 shares, of which amount
7,062,050 shares were outstanding, including 62,050 shares issued to Management
Investors as Redeemable Common Stock (see Note 11). Also on March 27, 1996,
Holding completed an offering of 500,000 shares of Class B Common Stock with a
par value of $0.01 per share to an institutional investor for $50 million. Total
Class B Common Stock, which is non-voting, authorized for issuance at December
31, 1998 was 3,000,000 shares, of which 500,000 shares were outstanding.

NOTE 13 -- STOCK INCENTIVE PLANS

On August 19, 1998, a certain key executive received a total of 30,000
non-qualified options to purchase shares of redeemable Class A Common Stock at
an exercise price of $100 per share. Of these stock options granted in 1998,
15,000 vest over a four-year period, 7,500 vest based on achievement of certain
financial goals or on February 19, 2008, whichever occurs first, and the
remaining 7,500 vested immediately and are exercisable during the 60-day period
following the earlier of (a) the date in which the Company delivers a notice of
exercise to the executive and (b) August 19, 2003. On March 31, 1997, a certain
key executive received a total of 225,000 non-qualified stock options at a
weighted average exercise price of $75 per share. Of these stock options granted
in 1997, 112,500 vest over a five-year period and 112,500 have accelerated
vesting based on achievement of certain financial goals or on September 30,
2006, whichever occurs first. On June 4, 1996, the Management Investors received
a total of 296,550 non-qualified stock options (collectively "Stock Options") at
a weighted average exercise price of $100 per share. Of these stock options
granted in 1996, 223,800 vest over a five-year period and 72,750 have
accelerated vesting based on achievement of certain financial goals or on
December 4, 2005, whichever occurs first. As of December 31, 1998, no Stock
Options were exercised, 203,204 Stock Options at a weighted average exercise
price of $100 were cancelled leaving 348,346 Stock Options with a remaining
weighted average contractual life of 4 years, and 74,925 Stock Options had
vested at a weighted average exercise price of $94.27 per share. As of December
31, 1997, no Stock Options were exercised, and 40,333 Stock Options had vested
at a weighted average exercise price of $100 per share. As of December 31, 1996,
no stock options were exercised or vested.

The Company applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and related Interpretations in accounting for the Stock Options.
Accordingly, the Company recognizes compensation expense for Stock Options when
the exercise price is less than the related fair value at the date of grant or
when the performance criteria is met. During the years ended December 31, 1998
and 1997, and the nine months ended December 31, 1996, the Company recognized
compensation expense of $1.0 million, $0.4 million, and nil, respectively,
related to Stock Options. Had compensation expense for the Company's grants of
Stock Options been determined in accordance with Statement of Financial
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"),
the Company's Net Loss for the year ended December 31, 1998, the year ended
December 31, 1997, and the nine months ended December 31, 1996, would
approximate $141.9 million, $154.4 million, and $106.0 million, respectively.
The weighted average fair value of the stock options was estimated to be $5.54
per option on the date of grant for stock options granted in 1998, and $27.46
per option on the date of grant for stock options granted in 1997 and 1996. The
Company used the Black-Scholes option-pricing model to value the Stock Options
with the following assumptions: dividend yield

52
<PAGE> 56
RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 13 -- STOCK INCENTIVE PLANS -- (CONTINUED)
of zero, no volatility, risk-free interest rates ranging from 5.304 to 6.75
percent, a zero forfeiture rate and an expected life of 3 to 5 years. The
effects of applying SFAS No. 123 in this pro forma disclosure are not indicative
of future amounts.

NOTE 14 -- CURRENCY TRANSLATION ADJUSTMENT

An analysis of changes in the Cumulative Currency Translation Adjustment
included in Shareholders' Equity at December 31 was as follows:

<TABLE>
<CAPTION>
COMPANY PREDECESSOR
------------------------------------------ ------------
NINE MONTHS THREE MONTHS
YEAR ENDED YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, MARCH 27,
(IN THOUSANDS OF DOLLARS) 1998 1997 1996 1996
- ------------------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cumulative currency translation
adjustment at beginning of period... $(14,185) $ 8,117 $ -- $(10,470)
Currency translation adjustments...... (1,308) (22,262) 8,121 (989)
Income taxes related to currency
translation adjustments............. -- (40) (4) --
-------- -------- ------ --------
$(15,493) $(14,185) $8,117 $(11,459)
======== ======== ====== ========
</TABLE>

NOTE 15 -- CONTINGENCIES AND COMMITMENTS

Total rental expense was approximately $14.1 million, $15.2 million, $14.3
million, and $3.8 million for the years ended December 31, 1998 and 1997, the
nine months ended December 31, 1996 and the three months ended March 27, 1996.

At December 31, 1998, total commitments of the Company under long-term,
non-cancelable contracts were as follows:

<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS)
- -------------------------
<S> <C>
1999........................................................ $17,247
2000........................................................ 15,910
2001........................................................ 14,213
2002........................................................ 10,976
2003........................................................ 12,482
After 2003.................................................. 1,124
-------
$71,952
=======
</TABLE>

In 1998, the Company entered into an agreement to sell its Farmerville and
West Monroe Woodyard facilities (the "Woodyard Facilities"), whereby the
purchaser agreed to construct a new woodyard facility at the West Monroe
location for an estimated cost of $16 million. The completion of the sales
transaction is contingent upon the purchaser successfully obtaining financing
once the new facility construction is completed. Should the purchaser obtain the
required financing and the sales transaction be completed, the Company will
enter into a supply contract for a portion of the West Monroe Mill's wood chip
needs through 2018. However, should the purchaser not be able to obtain
financing, the Company would be required to maintain ownership of the Woodyard
Facilities and reimburse the purchaser for the construction cost of the new
woodyard facility.

53
<PAGE> 57
RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 15 -- CONTINGENCIES AND COMMITMENTS -- (CONTINUED)
The Company is committed to compliance with all applicable environmental
laws and regulations throughout the world. Environmental law is, however,
dynamic rather than static. As a result, costs, which are unforeseeable at this
time, may be incurred when new laws are enacted, and when environmental agencies
promulgate or revise rules and regulations.

In late 1993, the U.S. Environmental Protection Agency proposed regulations
(generally referred to as the "cluster rules") that would mandate more stringent
controls on air and water discharges from the United States pulp and paper
mills. The cluster rules were promulgated in April 1998, and the Company
estimates the capital spending that may be required to comply with the cluster
rules could reach $55 million to be spent at its two U.S. paper mills over a
seven-year period beginning in 1999.

The Company is involved in environmental remediation projects for certain
properties currently owned or operated by the Company, certain properties
divested by the Company for which responsibility was retained, and waste sites
where waste was shipped by predecessors of the Company or for which the Company
might have corporate successor liability. Certain of these projects are being
addressed under federal and state statutes, such as the Comprehensive
Environmental Response, Compensation and Liability Act and the state law
counterparts. The Company's costs in some instances cannot be reliably estimated
until the remediation process is substantially underway or liability at
multiparty sites has been addressed. To address these contingent environmental
costs, the Company has accrued reserves when such costs are probable and can be
reasonably estimated. The Company believes that, based on current information
and regulatory requirements, the accruals established by the Company for
environmental expenditures are adequate. Based on current knowledge, to the
extent that additional costs may be incurred that exceed the accrued reserves,
such amounts are not expected to have a material impact on the results of
operations, cash flows or financial condition of the Company, although no
assurance can be given that material costs will not be incurred in connection
with clean-up activities at these properties, including the Shreveport and Caddo
Parish sites referred to above.

54
<PAGE> 58
RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 15 -- CONTINGENCIES AND COMMITMENTS -- (CONTINUED)
federal securities laws by trading in the Predecessor's securities while in
possession of material, non-public information. The complaint generally sought
damages in an unspecified amount, as well as other relief. On June 2, 1997, the
court granted Defendants' Motion for Summary Judgment and dismissed the action
in its entirety. The court based its ruling on the facts that (i) none of the
statements attributable to the Company concerning its review of strategic
alternatives was false and (ii) there is no causal relationship between
plaintiff's purchase of Riverwood common stock and the Individual Defendants'
exercise of SARs. On October 14, 1998, the U.S. Court of Appeals for the
Eleventh Circuit affirmed the dismissal. The Court of Appeals ruled that (i)
none of the statements attributable to the Company concerning its review of
strategic alternatives was false and (ii) the SARs were not securities. On
November 5, 1998, Clay filed a motion seeking rehearing en banc. The court has
not yet ruled on that motion.

On August 21, 1998 William D. Tatum, C. Steven Clark, Thomas W. Brabston,
Sr., and Joe O. Harper, Jr. ("Plaintiffs"), all former employees of the Company,
commenced a purported class action lawsuit in the Superior Court of Fulton
County, Georgia, against the Company and certain current and former officers of
the Company. In the complaint, Plaintiffs alleged generally that the Company and
such officers (1) breached the terms of the contracts between Plaintiffs and the
Predecessor governing Premium Stock Appreciation Rights ("PSARs") as a result of
a suspension requested on August 23, 1995, (2) breached an implied covenant of
good faith and fair dealing in connection with both the suspension and the
lifting of that suspension and (3) engaged in fraud and negligent
misrepresentation in connection with the lifting of the suspension by (a)
failing to tell Plaintiffs that certain officers of the Predecessor were
planning to exercise PSARs on September 21, 1995 and (b) failing to inform
Plaintiffs of the status of the Predecessor's review of strategic alternatives
as of September 21, 1995. Plaintiffs sought (i) an order granting class
certification, (ii) an award of compensatory damages, (iii) pre-judgment
interest, (iv) punitive damages in an amount to be determined by the jury and
(v) litigation expenses, including attorneys' fees. The defendants have answered
the complaint. In addition, on October 16, 1998, the defendants moved to strike
the class allegations in the complaint, and, on October 30, 1998, moved to
dismiss the complaint. On January 6, 1999, the court granted the motion to
strike the class allegations and denied the motion to dismiss the complaint. One
additional plaintiff has been added. The parties are now engaged in discovery.

55
<PAGE> 59
RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 15 -- CONTINGENCIES AND COMMITMENTS -- (CONTINUED)
however, that the Company would ultimately prevail on this issue if Louisiana
were to challenge such filing position. If the Company were not to prevail in
such a challenge, significant additional Louisiana income tax relating to the
election could be payable. Management estimates that the maximum amount of such
additional tax is approximately $47 million (plus potential penalties and
statutory interest on any additional tax). The tax period ended March 27, 1996,
is currently under audit by the State of Louisiana. If the Company receives an
assessment from the State, the Company will consider paying the assessed amount
to avoid further interest accruals as it contests the assessment. Management
believes that the additional tax ultimately paid (if any) will be substantially
less than the estimated maximum amount, although no assurance can be given in
this regard. The Company and its advisors are continuing to study this
situation. Since the law is unclear and the amounts involved could be
significant, it may be several years before this matter is resolved.

NOTE 16 -- PENSIONS

In the fourth quarter of 1998, the Company adopted Statement of Financial
Accounting Standards No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits" ("SFAS No. 132"). SFAS No. 132 revises employers'
disclosures about pension and other postretirement benefit plans. The adoption
of SFAS No. 132 did not have a material impact on the Company's pension and
other postretirement disclosures.

U.S. HOURLY AND SALARIED PENSION PLANS

All of the Company's U.S. hourly union employees are participants in the
Company's noncontributory defined benefit hourly plan (the " Hourly plan"). The
pension expense of the Hourly plan is based primarily on years of service and
the pension rate near retirement. The Company's U.S. salaried and nonunion
hourly employees are participants in the Company's noncontributory defined
benefit plan that was established during 1992 (the "Salaried plan").

The Company's funding policies with respect to its U.S. pension plans are
to contribute funds to trusts as necessary to at least meet the minimum funding
requirements of the U.S. Internal Revenue Code. Plan assets are invested
primarily in equities and fixed income securities.

(A) PENSION EXPENSE

The pension expense related to the Hourly plan and Salaried plan consisted
of the following:

<TABLE>
<CAPTION>
COMPANY PREDECESSOR
------------------------------------------ ------------
NINE MONTHS THREE MONTHS
YEAR ENDED YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, MARCH 27,
(IN THOUSANDS OF DOLLARS) 1998 1997 1996 1996
- ------------------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Components of net periodic pension
cost:
Service cost........................ $ 4,958 $ 4,745 $ 3,925 $ 1,482
Interest cost....................... 13,955 14,552 10,141 3,197
Expected return on plan assets...... (18,289) (18,668) (13,606) (4,150)
Amortizations:
Prior service cost.................. 989 816 -- (98)
Actuarial loss/(gain)............... (65) -- -- --
-------- -------- -------- -------
Net periodic pension cost........... $ 1,548 $ 1,445 $ 460 $ 431
======== ======== ======== =======
</TABLE>

56
<PAGE> 60
RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 16 -- PENSIONS -- (CONTINUED)
Certain assumptions used in determining the pension expense related to the
Hourly plan and Salaried plan were as follows:

(B) FUNDED STATUS

The funded status of the Company's U.S. Hourly plan and Salaried plan as of
December 31 were as follows:

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
(IN THOUSANDS OF DOLLARS) 1998 1997
- ------------------------- ------------ ------------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year................... $218,593 $186,887
Service cost.............................................. 4,958 4,745
Interest cost............................................. 13,955 14,552
Actuarial (gain)/loss..................................... (1,519) 20,716
Amendments................................................ 745 4,495
Benefits paid............................................. (12,425) (12,802)
-------- --------
Benefit obligation at end of year......................... $224,307 $218,593
======== ========
Change in plan assets:
Fair value of plan assets at beginning of year............ $221,175 $202,542
Actual return on plan assets.............................. 38,156 31,128
Employer contributions.................................... 28 307
Benefits paid............................................. (12,425) (12,802)
-------- --------
Fair value of plan assets at end of year.................. $246,934 $221,175
======== ========
Plan assets in excess of projected benefit obligation..... $ 22,627 $ 2,582
Unrecognized net actuarial (gain)/loss.................... (16,733) 4,589
Unrecognized prior service cost........................... 3,436 3,679
-------- --------
Net amount recognized..................................... $ 9,330 $ 10,850
======== ========
Amounts recognized in the Consolidated Balance Sheets
consist of:
Prepaid pension cost...................................... $ 9,330 $ 10,850
Accrued pension liability................................. -- --
Net amount recognized..................................... $ 9,330 $ 10,850
Assumptions:
Discount rate............................................. 6.50% 7.00%
Rates of increase in future compensation levels........... 4.50% 4.50%
</TABLE>

57
<PAGE> 61
RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 16 -- PENSIONS -- (CONTINUED)
On October 18, 1996, the Company sold substantially all of the assets of
the U.S. Timberlands/Wood Products business segment (see Note 25). Accordingly,
the pension expense related to the U.S. Timberlands/Wood Products employees was
included through the date of sale and the funded status of the U.S.
Timberlands/Wood Products portion of the pension plan was excluded from the
funded status as of December 31, 1996. In connection with this sale, pension
benefits were curtailed. Accordingly, the pension benefit obligation was reduced
by approximately $2.7 million and was recorded as an adjustment to the market
value of assets acquired in the Merger.

INTERNATIONAL PENSION PLANS

(A) PENSION EXPENSE

The international defined benefit pension plans are both noncontributory
and contributory and are funded in accordance with applicable local laws. Assets
of the funded plans are invested primarily in equities and fixed income
securities. The pension or termination benefits are based primarily on years of
service and the employees' compensation.

The pension expense related to the international plans consisted of the
following:

<TABLE>
<CAPTION>
COMPANY PREDECESSOR
------------------------------------------ ------------
NINE MONTHS THREE MONTHS
YEAR ENDED YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, MARCH 27,
(IN THOUSANDS OF DOLLARS) 1998 1997 1996 1996
- ------------------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Components of net periodic pension
cost:
Service cost....................... $2,078 $ 2,396 $ 1,683 $ 552
Interest cost...................... 5,407 5,321 3,682 1,208
Expected return on plan assets..... (6,040) (6,056) (4,370) (1,434)
Amortizations:
Prior service cost.............. -- -- -- (1)
Actuarial loss.................. 2,236 -- -- --
------ ---------- ---------- ----------
Net periodic pension cost.......... $3,681 $ 1,661 $ 995 $ 325
====== ========== ========== ==========
Assumptions:
Discount rate...................... 5.50% 6.5 - 8.0% 6.5 - 8.0% 6.5 - 8.0%
Rates of increase in future
compensation levels............. 4.00% 2.5 - 5.8% 2.5 - 6.5% 2.5 - 6.5%
Expected long-term rate of return
on plan assets.................. 6.50% 6.5 - 8.8% 6.5 - 9.5% 6.5 - 9.5%
</TABLE>

Approximately 325 employees participate in a multi-employer pension plan
that provides defined benefits to employees under certain union-employer
organization agreements. Pension expense for this plan was $4.5 million, $4.7
million, $2.5 million, and $0.9 million for the years ended December 31, 1998
and 1997, the nine months ended December 31, 1996, and the three months ended
March 27, 1996, respectively.

58
<PAGE> 62
RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 16 -- PENSIONS -- (CONTINUED)
(B) FUNDED STATUS

The following table sets forth the funded status of the international
pension plans as of December 31:

<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS) 1998 1997
- ------------------------- ------- ----------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year................... $73,291 $ 73,457
Service cost.............................................. 2,078 2,396
Interest cost............................................. 5,407 5,321
Plan participants contributions........................... 893 925
Amendments................................................ 2,236 --
Actuarial loss/(gain)..................................... 8,517 (4,331)
Benefits paid............................................. (3,487) (4,477)
------- ----------
Benefit obligation at end of year......................... $88,935 $ 73,291
======= ==========
Change in plan assets:
Fair value of plan assets at beginning of year............ $75,412 $ 70,322
Actual return on plan assets.............................. 10,515 7,120
Employer contributions.................................... 1,590 1,522
Plan participants contributions........................... 893 925
Benefits paid............................................. (3,487) (4,477)
------- ----------
Fair value of plan assets at end of year.................. $84,923 $ 75,412
======= ==========
Plan assets in excess of (less than) projected benefit
obligation............................................. $(4,012) $ 2,121
Unrecognized net actuarial loss........................... 2,795 1,235
------- ----------
Net amount recognized..................................... $(1,217) $ 3,356
======= ==========
Amounts recognized in the Consolidated Balance Sheets
consist of:
Prepaid pension cost...................................... $ -- $ 3,356
Accrued pension liability................................. $(1,217) $ --
Net amount recognized..................................... $(1,217) $ 3,356
Assumptions:
Discount rate............................................. 5.50% 6.5 - 8.0%
Rates of increase in future compensation levels........... 4.00% 2.5 - 5.8%
</TABLE>

The projected benefit obligation, accumulated benefit obligation and fair
value of plan assets for the pension plan with accumulated benefit obligations
in excess of plan assets were $88.9 million, $86.7 million and $84.9 million,
respectively, as of December 31, 1998.

As of December 31, 1998 and 1997, accrued retirement contributions for the
international pension plans included in Compensation and employee benefits on
the Consolidated Balance Sheets were $3.5 and $3.7 million, respectively.

VOLUNTARY SAVINGS AND DEFINED CONTRIBUTION PLANS

The Company provides voluntary savings plans for eligible U.S. employees.
Employees may make contributions of up to 16 percent of their compensation (6
percent pretax and 10 percent after tax). The Company matches 3 percent and may
match up to a total of 6 percent of the eligible compensation, depending on the
Company's performance.

59
<PAGE> 63
RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 16 -- PENSIONS -- (CONTINUED)
The Company's wholly owned Australian subsidiary has defined contribution
plans for eligible salaried and hourly employees. Both groups of employees may
contribute up to 100 percent of their compensation. During 1998 and 1997, the
Company was required by law to contribute 6 percent of all eligible employees'
compensation through June 30, 1998 after which legislation raised the amount to
7 percent. The Company did not make any further matching contributions beyond
the required amounts in both 1998 and 1997. In March 1998, the Company sold the
folding carton business of the Australia subsidiary which reduced the employee
base (see Note 27).

Contributions to these plans for the years ended December 31, 1998 and
1997, the nine months ended December 31, 1996, and for the three months ended
March 27, 1996 were $2.7 million, $3.9 million, $2.9 million and $1.0 million,
respectively.

Accrued savings plan contributions included in Compensation and employee
benefits on the Consolidated Balance Sheets were $1.5 million and nil at
December 31, 1998 and 1997, respectively.

NOTE 17 -- OTHER POSTRETIREMENT BENEFITS

The Company sponsors defined benefit post-retirement health care plans that
provide medical and life insurance coverage to eligible salaried and hourly
retired U.S. employees and their dependents. The base level of medical coverage
is provided to the retiree at no cost. No postretirement medical benefits are
offered to salaried employees who began employment after December 31, 1993.

The other postretirement benefits expense consisted of the following:

<TABLE>
<CAPTION>
COMPANY PREDECESSOR
------------------------------------------ ------------
NINE MONTHS THREE MONTHS
YEAR ENDED YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, MARCH 27,
(IN THOUSANDS OF DOLLARS) 1998 1997 1996 1996
- ------------------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Service cost.......................... $ 291 $ 350 $ 398 $141
Interest cost....................... 1,638 1,815 1,511 491
Amortizations:
Prior service cost............... (147) (113) -- (158)
Actuarial loss / (gain).......... 119 (23) -- --
------ ------ ------ ----
Net periodic pension cost........... $1,901 $2,029 $1,909 $474
====== ====== ====== ====
Assumptions:
Discount rate....................... 7.0% 7.5% 7.5% 7.0%
Initial health care cost trend
rate............................. 5.9% 6.5% 7.0% 7.0%
Ultimate health care cost trend
rate*............................ 5.5% 5.5% 5.5% 5.5%
Ultimate year*...................... 2000 2000 2002 2002
</TABLE>

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

* The salaried plan's cost is capped beginning in 1999.

60
<PAGE> 64
RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 17 -- OTHER POSTRETIREMENT BENEFITS -- (CONTINUED)
The accrued postretirement benefit obligation at December 31 was as
follows:

Accumulated postretirement benefit obligation in excess of
plan assets............................................ $(24,745) $ (25,839)
Unrecognized net actuarial loss........................... 1,434 1,626
Unrecognized prior service credit......................... (2,162) (1,752)
-------- ------------
Total accrued postretirement benefit obligation........... $(25,473) $ (25,965)
======== ============
Assumptions:
Discount rate............................................. 6.50% 7.00%
Initial health care cost trend rate....................... 5.50% 5.50%
Ultimate health care cost trend rate*..................... 4.50% 5.00%
Ultimate year*............................................ 2001 2000
</TABLE>

<TABLE>
<CAPTION>
1 PERCENTAGE 1 PERCENTAGE
POINT INCREASE POINT DECREASE
-------------- --------------
<S> <C> <C>
Health care trend rate sensitivity:
Effect on total of interest and service cost
components............................................ $ 36 $ (41)
Effect on year-end postretirement benefit obligation..... $402 $(390)
</TABLE>

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

* The salaried plan's cost is capped beginning in 1999.

On October 18, 1996, the Company sold substantially all of the assets of
the U.S. Timberlands/Wood Products business segment (see Note 25). Accordingly,
the postretirement benefit expense related to the U.S. Timberlands/Wood Products
employees was included through the date of sale and the unfunded accrued
postretirement benefit obligation at December 31, 1996 excluded amounts relating
to the U.S. Timberlands/Wood Products business segment. In connection with this
sale, postretirement benefits were curtailed. Accordingly, the unfunded accrued
postretirement benefit was reduced by approximately $1.6 million and was
recorded as an adjustment to the market value of assets acquired in the Merger.

NOTE 18 -- OTHER COSTS

Other Costs include expenses associated with stock-based compensation plans
and other expenses related to Predecessor's review of strategic alternatives
beginning in April 1995 throughout the date of the Merger (see Note 1). For the
three-month period ended March 27, 1996, Predecessor recognized charges of $2.3
million, related to the stock-based compensation plans. For business segment
reporting purposes, these expenses were allocated either to the respective
business segments or Corporate segment based upon the responsibility of the
individuals holding or exercising the stock incentive benefits. Predecessor
incurred

61
<PAGE> 65
RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 18 -- OTHER COSTS -- (CONTINUED)
$8.0 million of other expenses in the three-month period ended March 27, 1996,
related to its review of strategic alternatives and included such expenses in
Corporate and Eliminations for business segment reporting purposes.
Additionally, in the three-month period ended March 27, 1996, the Predecessor
accrued approximately $0.8 million of environmental expenses and included such
expenses in Corporate and Eliminations for business segment reporting purposes.

NOTE 19 -- IMPAIRMENT LOSS

The Company recorded an impairment loss of $15.7 million in 1998 due to a
write-down of packaging machines in accordance with SFAS 121. The fair value of
the machines was determined based on discounted expected future lease revenues
and estimated disposition proceeds.

NOTE 20 -- FOREIGN CURRENCY MOVEMENT EFFECT

Net international currency transaction gains (losses) included in
determining Income from Operations for the years ended December 31, 1998 and
1997, the nine-month period ended December 31, 1996, and the three-month period
ended March 27, 1996 were $0.9 million, $(1.1) million, $1.4 million, and $(0.5)
million, respectively.

NOTE 21 -- INCOME TAXES

The U.S and international components of (Loss) from Continuing Operations
before Income Taxes and Equity in Net Earnings of Affiliates consisted of the
following:

<TABLE>
<CAPTION>
COMPANY PREDECESSOR
---------------------------------------- ------------
YEAR ENDED NINE MONTHS THREE MONTHS
YEAR ENDED DECEMBER ENDED ENDED
DECEMBER 31, 31, DECEMBER 31, MARCH 27,
(IN THOUSANDS OF DOLLARS) 1998 1997 1996 1996
- ------------------------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
U.S.................................. $(131,888) $(173,606) $(142,884) $ (6,223)
International........................ (17,190) 9,404 (840) (4,190)
--------- --------- --------- --------
(Loss) before Income Taxes and Earnings
of Affiliates........................ $(149,078) $(164,202) $(143,724) $(10,413)
========= ========= ========= ========
</TABLE>

62
<PAGE> 66
RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 21 -- INCOME TAXES -- (CONTINUED)
The provisions for Income Tax (Benefit) Expense on (Loss) from Continuing
Operations before Income Taxes and Equity in Net Earnings of Affiliates
consisted of the following:

<TABLE>
<CAPTION>
COMPANY PREDECESSOR
------------------------------------------ ------------
NINE MONTHS THREE MONTHS
YEAR ENDED YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, MARCH 27,
(IN THOUSANDS OF DOLLARS) 1998 1997 1996 1996
- ------------------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Current
U.S. federal....................... $ -- $ -- $ -- $ --
U.S. state and local............... (960) 2,500 2,700 1,084
International...................... 2,526 2,866 430 (1,241)
--------- --------- --------- --------
Total Current........................ 1,566 5,366 3,130 (157)
--------- --------- --------- --------
Deferred
U.S................................ -- -- -- (3,519)
International...................... (2,183) 279 1,050 240
--------- --------- --------- --------
Total Deferred............. (2,183) 279 1,050 (3,279)
--------- --------- --------- --------
Income Tax (Benefit) Expense......... $ (617) $ 5,645 $ 4,180 $ (3,436)
========= ========= ========= ========
</TABLE>

A reconciliation of Income Tax (Benefit) Expense on (Loss) from Continuing
Operations including Equity in Net Earnings of Affiliates using the statutory
U.S. income tax rate compared with the Company's actual Income Tax (Benefit)
Expense is as follows:

<TABLE>
<CAPTION>
COMPANY PREDECESSOR
------------------------------------------ ------------
NINE MONTHS THREE MONTHS
YEAR ENDED YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, MARCH 27,
(IN THOUSANDS OF DOLLARS) 1998 1997 1996 1996
- ------------------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
U.S. federal statutory (benefit).......... $(49,322) $(49,459) $(44,164) $(3,649)
Increase resulting from:
Igaras dividend......................... -- -- -- 560
International income taxes at higher
(lower) rates, net of a valuation
allowance............................... 5,674 (146) 1,774 860
Goodwill amortization not included for tax
purposes................................ -- -- -- 130
U.S. state and local taxes................ (960) 2,500 2,700 (340)
Limitation on use of U.S. net operating
losses.................................. 44,102 53,244 44,011 (997)
Other, net................................ (111) (494) (141) --
-------- -------- -------- -------
Income Tax (Benefit) Expense.............. $ (617) $ 5,645 $ 4,180 $(3,436)
======== ======== ======== =======
</TABLE>

63
<PAGE> 67
RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 21 -- INCOME TAXES -- (CONTINUED)
Deferred tax (liabilities) assets at December 31, were comprised of the
following:

<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS) 1998 1997
------------------------- ----------- ---------
<S> <C> <C>
Property, plant and equipment............................... $ (239,228) $(193,204)
Undistributed earnings of foreign subsidiaries.............. (18,574) (7,518)
Other compensation and benefits............................. -- (1,451)
----------- ---------
Gross deferred tax liabilities............................ $ (257,802) $(202,173)
----------- ---------
U.S. net operating loss carryforward........................ 281,050 165,441
State operating loss carryforwards, net..................... 33,609 --
International net operating loss carryforwards.............. 26,112 24,639
Revaluation of assets....................................... 21,483 23,272
Inventories................................................. 15,043 18,766
Goodwill.................................................... 14,719 16,427
Reserves.................................................... 9,414 12,135
Deferred revenues........................................... 5,310 6,546
Other postretirement benefits............................... 7,758 8,488
State and local benefit..................................... 3,476 5,101
Other compensation and benefits............................. 391 --
Other....................................................... 3,271 4,388
----------- ---------
Gross deferred tax assets................................. 421,636 285,203
----------- ---------
Valuation allowance......................................... (175,612) (96,232)
----------- ---------
Net deferred tax liability................................ $ (11,778) $ (13,202)
=========== =========
</TABLE>

The Company has assessed its earnings history and trends, sales backlog,
budgeted pretax earnings, deferred tax liabilities against which deferred tax
assets could be offset, and expiration dates of carryforwards, and has
determined that, as of both December 31, 1998 and 1997, it is more likely than
not that no net deferred tax assets will be realized. The valuation allowance of
$175.6 million at December 31, 1998, is maintained on net deferred tax assets
for which the Company has not determined that realization is more likely than
not. The Company will continue to assess the valuation allowance and make
adjustments as appropriate.

The U.S. federal net operating loss carryforward amount totals $803
million, and expires in 2012, 2013, and 2014, in the amounts of $95.6 million,
$421.5 million and $285.9 million, respectively. International net operating
loss carryforward amounts total $64.7 million of which $13.6 million expire
through 2005 and $51.1 million have no expiration date.

Undistributed earnings intended to be reinvested indefinitely by the
international subsidiaries totaled approximately $17.5 million at December 31,
1998. No U.S. deferred income tax has been recorded on these undistributed
earnings.

NOTE 22 -- EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF DEBT

On July 28, 1997, the Company completed an offering of the 1997 Notes (see
Note 10). The net proceeds of this offering were applied to prepay certain
revolving credit borrowings under the Revolving Facility (without any commitment
reduction), and to refinance certain Tranche A term loans and other borrowings
under the Senior Secured Credit Agreement. During the third quarter of 1997, the
Company recorded a non-cash, extraordinary charge to earnings of approximately
$2.5 million, net of tax of $0, related to the write-off of the applicable
portion of deferred debt issuance costs on the Tranche A term loans.

64
<PAGE> 68
RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 22 -- EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF DEBT -- (CONTINUED)
In October 1996, the Company applied the proceeds from the sale of the U.S.
Timberlands/Wood Products business segment (see Note 25) to loans outstanding
under the Term Loan Facility and to outstanding borrowings under the Revolving
Facility (see Note 10). This early retirement of debt resulted in a non-cash
extraordinary charge of $10.3 million, net of income taxes of $0, relating to
the write-off of deferred debt issuance costs.

NOTE 23 -- CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING FOR SOFTWARE
DEVELOPMENT PROJECT COSTS

In accordance with EITF (Emerging Issues Task Force) consensus reached on
November 20, 1997, the Company was required to change its accounting for
business process reengineering costs. EITF 97-13 "Accounting for Costs Incurred
in Connection with a Consulting Contract or an Internal Project that Combines
Business Process Reengineering and Information Technology Transformation,"
requires that the cost of business process reengineering activities that are
part of a project to acquire, develop or implement internal use software,
whether done internally or by third parties, be expensed as incurred.
Previously, the Company capitalized these costs as systems development costs.

The accounting change, effective in the fourth quarter of 1997, resulted in
a cumulative charge of $3.1 million, net of tax of $0.

NOTE 24 -- SUPPLEMENTAL CASH FLOW INFORMATION

Cash paid for interest and cash (received) paid, net of refunds, for income
taxes was as follows:

<TABLE>
<CAPTION>
COMPANY PREDECESSOR
------------------------------------------ ------------
NINE MONTHS THREE MONTHS
YEAR ENDED YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, MARCH 27,
(IN THOUSANDS OF DOLLARS) 1998 1997 1996 1996
- ------------------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Interest............................. $166,886 $155,370 $151,371 $15,118
======== ======== ======== =======
Income Taxes......................... $ (8,310) $ 28,163 $ 23,335 $ (810)
======== ======== ======== =======
</TABLE>

The following is a summary of net cash paid in connection with the Merger
(see Note 1):

<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS)
- -------------------------
<S> <C>
Fair value of assets acquired............................... $3,091,507
Liabilities assumed......................................... (1,606,100)
----------
Cash paid................................................... 1,485,407
Less, cash acquired......................................... (26,035)
----------
Net cash paid for acquisition............................... $1,459,372
==========
</TABLE>

At the date of the Merger, the Company purchased packaging machinery and a
converting press, totaling approximately $47 million that were previously
financed under operating lease arrangements.

NOTE 25 -- DISCONTINUED OPERATIONS

On October 18, 1996, the Company sold substantially all of the assets of
the U.S. Timberlands/Wood Products business segment for approximately $550
million in cash. In addition, the buyer assumed certain specified preclosing
liabilities. Under the terms of the agreement for such sale, the Company and the
buyer entered into a twenty-year supply agreement with a ten-year renewal option
for the purchase by the Company, at market-based prices, of a majority of the
Company's requirements for pine pulpwood and residual chips at
65
<PAGE> 69
RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 25 -- DISCONTINUED OPERATIONS -- (CONTINUED)
the West Monroe Mill, as well as a portion of the Company's needs for hardwood
pulpwood at the West Monroe Mill. The Company did not recognize any gain or loss
on the sale.

The operating results for the U.S. Timberlands/Wood Products business
segment have been classified as discontinued operations for the period beginning
March 28, 1996 through October 18, 1996 (the date of sale) in the Consolidated
Statements of Operations. Discontinued operations have not been segregated in
the Consolidated Statements of Cash Flows nor have they been reclassified as
discontinued operations in the Predecessor's Consolidated Statements of
Operations and Consolidated Balance Sheets.

Net sales of the discontinued U.S. Timberlands/Wood Products business
segment for the period beginning March 28, 1996 through October 18, 1996 (the
date of sale) and income from operations for the same period was $81.1 million,
and $35.5 million, respectively.

NOTE 26 -- PRO FORMA DATA

The following unaudited pro forma financial data has been prepared assuming
that the Merger and related financings were consummated on January 1, 1996 and
excludes from the period presented the results of operations of the U.S.
Timberlands/Wood Products business segment which was sold on October 18, 1996
(see Note 25) and the interest and extraordinary charge on debt retired from the
proceeds of such sale (see Note 22). This pro forma financial data is presented
for informational purposes and is not necessarily indicative of the operating
results that would have occurred had the Merger been consummated on January 1,
1996, nor is it necessarily indicative of future operations.

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
(IN THOUSANDS OF DOLLARS) 1996
- ------------------------- ------------
<S> <C>
Net Sales................................................... $1,110,818
==========
Net Loss.................................................... $ (135,514)
==========
</TABLE>

NOTE 27 -- BUSINESS COMBINATIONS AND DISPOSALS

In connection with the global restructuring program initiated in the fourth
quarter of 1998, the Company plans to reduce its European workforce by
approximately 300 employees in 1999 and to implement other initiatives designed
to improve productivity and profitability across the global organization. The
cost of this program was approximately $25.6 million and is expected to be
completed in 1999. At December 31, 1998, $24.7 million of this total was accrued
in Other accrued liabilities on the Consolidated Balance Sheets. During 1998,
$0.9 million was utilized and charged against the accrual and related primarily
to severance costs.

In connection with the Merger, the Company decided to exit certain
businesses and operating activities, including the sale or closure of the
Company's last dedicated folding carton converting plant in the U.S., located in
Kankakee, Illinois, a packaging machinery manufacturing plant in Marietta,
Georgia, a beverage multiple packaging converting plant in Bakersfield,
California and the trucking transportation operations in

66
<PAGE> 70
RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 27 -- BUSINESS COMBINATIONS AND DISPOSALS -- (CONTINUED)
West Monroe, Louisiana, as well as the consolidation and realignment of certain
operations in the U.S., Australia and Europe. The cost of exiting these
businesses and operating activities were recorded as an adjustment to the market
value of assets acquired in the Merger and totaled approximately $38.6 million
and related to the severance of approximately 750 employees, relocation and
other plant closure costs. During 1998 and 1997, $7.2 million and $17.1 million
was utilized and charged against the accrual primarily related to severance
costs. At December 31, 1998 and 1997, $4.8 million and $12.0 million of this
total was included in Other accrued liabilities in the Consolidated Balance
Sheets, respectively, and is expected to be paid out through 1999.

NOTE 28 -- BUSINESS SEGMENT AND GEOGRAPHIC AREA INFORMATION

In the fourth quarter of 1998, the Company adopted Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information" ("SFAS No. 131"). SFAS No. 131 establishes standards for
the way public companies report information about operating segments in annual
financial statements and requires that those companies report selected
information about operating segments in interim financial reports. The adoption
of SFAS No. 131 did not have a material impact on the Company's segment
disclosures.

The Company reports its results in two business segments: Coated Board and
Containerboard. These segments are evaluated by the chief operating decision
maker based primarily on income from operations and EBITDA. On October 18, 1996,
the Company sold substantially all of the assets of the U.S. Timberlands/Wood
Products business segment (see Note 25). The operating results of the U.S.
Timberlands/Wood Products business segment have been classified as discontinued
operations for the period beginning March 28, 1996 through the date of the sale.
The results of operations of the U.S. Timberlands/Wood Products business segment
have not been reclassified as discontinued operations in the Predecessor's
Consolidated Statement of Operations. The Coated Board business segment includes
the production and sale of coated board for beverage carrierboard and folding
cartons from its West Monroe, Louisiana and Macon, Georgia mills and from its
mill in Sweden; carton converting facilities in the United States, Europe and
Australia (through the date of sale); and the design, manufacture and
installation of packaging machinery related to the assembly of beverage cartons.
The Containerboard business segment includes the production and sale of
linerboard, corrugating medium and kraft paper from paperboard mills in the
United States. The discontinued U.S. Timberlands/ Wood Products business segment
included timberlands and operations engaged in the supply of pulpwood to the
West Monroe mill from the Company's U.S. timberlands, as well as the manufacture
and sale of lumber and plywood.

The Company's four separate geographic areas are the United States,
Central/South America, Europe and Asia-Pacific. The United States area includes
paper mills, beverage and folding carton facilities, packaging machinery
facilities and prior to the sale of the U.S. Timberlands/Wood Products (see Note
25), 538,000 acres of owned and leased timberlands, lumber mills and a plywood
plant. The Europe area includes a coated recycled paperboard mill, beverage and
folding carton plants and a packaging machinery facility. The Asia-Pacific area
includes beverage and folding carton plants.

67
<PAGE> 71
RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 28 -- BUSINESS SEGMENT AND GEOGRAPHIC AREA INFORMATION -- (CONTINUED)
Business segment information is as follows:

<TABLE>
<CAPTION>
COMPANY PREDECESSOR
-------------------------------------------- ------------
NINE MONTHS THREE MONTHS
YEAR ENDED YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, MARCH 27,
(IN THOUSANDS OF DOLLARS) 1998 1997 1996 1996
- ------------------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET SALES
Coated Board............................ $1,055,270 $1,029,493 $ 749,688 $234,608
Containerboard.......................... 80,299 109,361 102,424 25,496
U.S. Timberlands/Wood Products(G)....... -- -- -- 37,336
Intersegment Eliminations (A)........... -- -- -- (3,791)
---------- ---------- --------- --------
$1,135,569 $1,138,854 $ 852,112 $293,649
========== ========== ========= ========
INCOME FROM OPERATIONS
Coated Board (B)........................ $ 78,752 $ 64,819 $ 54,976 $ 24,638
Containerboard (B)...................... (23,682) (41,244) (30,969) (5,955)
U.S. Timberlands/Wood Products (B)
(G)................................... -- -- -- 13,868
Corporate (B) (C)....................... (27,392) (16,663) (22,588) (16,901)
---------- ---------- --------- --------
$ 27,678 $ 6,912 $ 1,419 $ 15,650
========== ========== ========= ========
EBITDA:
Coated Board.......................... $ 225,191 $ 187,589 $ 135,449 $ 47,174
Containerboard........................ (8,965) (15,544) (15,624) (1,242)
U.S. Timberlands/Wood Products........ -- -- 44,805 16,766
Corporate and Eliminations............ (12,768) (6,118) (16,070) (6,565)
---------- ---------- --------- --------
EBITDA.................................. $ 203,458 $ 165,927 $ 148,560 $ 56,133
========== ========== ========= ========
CAPITAL EXPENDITURES
Coated Board............................ $ 36,151 $ 131,119 $ 121,997 $ 39,779
Containerboard.......................... 2,680 5,203 6,784 1,919
U.S. Timberlands/Wood Products (G)...... -- -- 2,223 2,004
Corporate............................... 9,720 5,992 1,282 372
---------- ---------- --------- --------
$ 48,551 $ 142,314 $ 132,286 $ 44,074
========== ========== ========= ========
DEPRECIATION, AMORTIZATION
AND COST OF TIMBER HARVESTED
Coated Board............................ $ 128,621 $ 115,779 $ 75,748 $ 17,800
Containerboard.......................... 17,165 20,388 17,005 4,332
U.S. Timberlands/Wood Products (G)...... -- -- 7,086 1,735
Corporate............................... 729 1,217 1,007 571
---------- ---------- --------- --------
$ 146,515 $ 137,384 $ 100,846 $ 24,438
========== ========== ========= ========
</TABLE>

68
<PAGE> 72
RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 28 -- BUSINESS SEGMENT AND GEOGRAPHIC AREA INFORMATION -- (CONTINUED)

<TABLE>
<CAPTION>
COMPANY
------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
IDENTIFIABLE ASSETS AT DECEMBER 31,
Coated Board............................................... $1,957,062 $2,033,072 $1,943,411
Containerboard............................................. 256,485 332,850 482,902
Corporate (E).............................................. 204,054 240,263 245,174
---------- ---------- ----------
$2,417,601 $2,606,185 $2,671,487
========== ========== ==========
</TABLE>

Business geographic area information is as follows:

<TABLE>
<CAPTION>
COMPANY PREDECESSOR
-------------------------------------------- ------------
NINE MONTHS THREE MONTHS
YEAR ENDED YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, MARCH 27,
(IN THOUSANDS OF DOLLARS) 1998 1997 1996 1996
- ------------------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET SALES
United States........................... $ 877,323 $ 844,990 $604,990 $223,257
Central/South America................... 5,966 1,898 880 30
Europe.................................. 245,679 249,607 195,335 58,821
Asia-Pacific............................ 84,786 132,565 107,270 30,693
Eliminations(F)......................... (78,185) (90,206) (56,363) (19,152)
---------- ---------- -------- --------
$1,135,569 $1,138,854 $852,112 $293,649
========== ========== ======== ========
INCOME FROM OPERATIONS
Unites States(B)........................ $ 58,726 $ (2,609) $ (3,606) $ 19,204
Central/South America (B)............... (2,989) (4,031) (1,795) (451)
Europe(B)............................... (19,712) 10,017 4,950 (1,930)
Asia-Pacific(B)......................... (6,978) 322 824 (112)
Eliminations(F)......................... (1,369) 3,213 1,046 (1,061)
---------- ---------- -------- --------
$ 27,678 $ 6,912 $ 1,419 $ 15,650
========== ========== ======== ========
</TABLE>

<TABLE>
<CAPTION>
COMPANY
--------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
IDENTIFIABLE ASSETS AT DECEMBER 31,
Unites States.......................................... $1,855,621 $1,930,542 $2,019,649
Central/South America.................................. 10,826 14,198 12,910
Europe................................................. 239,223 233,534 247,360
Asia-Pacific........................................... 105,433 188,983 155,119
Corporate(E)........................................... 204,054 240,263 245,174
Eliminations(F)........................................ 2,444 (1,335) (8,725)
---------- ---------- ----------
$2,417,601 $2,606,185 $2,671,487
========== ========== ==========
</TABLE>

- ---------------
Notes:

(A) Represents the elimination of intersegment sales from the U.S.
Timberlands/Wood Products business segment of pulpwood and chips used in the
Coated Board and the Containerboard business segments.

(B) Stock-based compensation expense has been allocated to each of the business
segments based upon the responsibility of the individuals holding or
exercising the stock incentive benefits. During the three

69
<PAGE> 73
RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 28 -- BUSINESS SEGMENT AND GEOGRAPHIC AREA INFORMATION -- (CONTINUED)
months ended March 27, 1996, $1.2 million, $0.1 million, $0.2 million and
$0.8 million of stock-based compensation expense were allocated to the
Coated Board, Containerboard and U.S. Timberlands/Wood Products business
segments and Corporate, respectively.

(D) Certain mill assets are allocated based on production.

(E) Corporate assets are principally the equity investment in Igaras, U.S. cash
and equivalents, prepaid pension costs and other prepayments, deferred loan
costs, deferred tax assets and a portion of property, plant and equipment.

(F) Represents primarily the elimination of intergeographic sales and profits
from transactions between the Company's U.S., Europe, Asia-Pacific and
Central/South America operations.

(G) On October 18, 1996, the Company sold substantially all of the assets of the
U.S. Timberlands/Wood Products business segment for cash of approximately
$550 million. The Company did not recognize any gain or loss on the sale.
The operating results for the U.S. Timberlands/Wood Products business
segment have been classified as discontinued operations for the period
beginning March 28, 1996 through October 18, 1996 (see Note 25).

NOTE 29 -- RELATED PARTY TRANSACTIONS

The Company receives certain management services provided by Clayton,
Dubilier and Rice, Inc. ("CD&R"), an affiliate of an equity investor in the
Company. Charges for such services, including reimbursement of expenses, totaled
approximately $0.7 million, $0.6 million and $0.6 million for the years ended
December 31, 1998 and 1997 and the nine months ended December 31, 1996,
respectively, and were included in operating expenses in the Consolidated
Statements of Operations. Additionally, the Company paid fees totaling
approximately $15.1 million to CD&R and an affiliate of another equity investor
in connection with the Merger and related financing.

70
<PAGE> 74

RIVERWOOD HOLDING, INC.

SELECTED QUARTERLY FINANCIAL DATA
(UNAUDITED)

Results of operations for the four quarters of 1998 and 1997 are shown
below:

<TABLE>
<CAPTION>
(LOSS)
BEFORE
EXTRAORDINARY
ITEM AND
CUMULATIVE
INCOME EFFECT OF AN
GROSS (LOSS) FROM ACCOUNTING
(IN THOUSANDS OF DOLLARS) NET SALES PROFIT OPERATIONS CHANGE NET LOSS(A)
------------------------- ---------- -------- ----------- ------------- -----------
(QUARTER)
- ---------
<S> <C> <C> <C> <C> <C>
COMPANY:
1998
First......................... $ 265,435 $ 37,473 $ 7,246 $ (34,545) $ (34,545)
Second........................ 305,975 56,253 10,307 (33,208) (33,208)
Third (A)..................... 292,766 56,376 26,575 (11,125) (11,125)
Fourth (A)(B)(C).............. 271,393 48,510 (16,450) (61,426) (61,426)
---------- -------- ------- --------- ---------
Total............... $1,135,569 $198,612 $27,678 $(140,304) $(140,304)
========== ======== ======= ========= =========
1997
First......................... $ 267,188 $ 31,979 $(1,739) $ (37,844) $ (37,844)
Second........................ 294,034 35,309 245 (38,626) (38,626)
Third(D)...................... 284,875 39,264 7,515 (32,081) (34,544)
Fourth(E)..................... 292,757 31,911 891 (38,406) (41,459)
---------- -------- ------- --------- ---------
Total............... $1,138,854 $138,463 $ 6,912 $(146,957) $(152,473)
========== ======== ======= ========= =========
</TABLE>

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

NOTES:

(A) The Company recorded an impairment loss in accordance with SFAS 121 totaling
$15.7 million relating to the revaluation of packaging machinery. The fair
value of the machines was determined based on expected future lease revenues
and potential disposition.
(B) The Company recorded a charge of $25.6 million in the fourth quarter of
1998 to accrue for the closing costs primarily relating to the
restructuring of its European operations, primarily the ongoing
rationalization of its international folding carton converting operations.
(C) During the fourth quarter of 1998, the Company recorded a credit of $9.4
million related to a LIFO inventory valuation offset by $3.7 million in
charges taken in the first three quarters of 1998. The net credit relating
to LIFO inventory valuation for the year ended December 31, 1998, was $5.9
million.
(D) On July 28, 1997, the Company completed an offering of the 1997 Notes. The
net proceeds of this offering were applied to prepay certain revolving
credit borrowings under the Revolving Facility (without any commitment
reduction), and to refinance certain Tranche A term loans and other
borrowings under the Senior Secured Credit Agreement. During the third
quarter of 1997, the Company recorded a non-cash, extraordinary charge to
earnings of approximately $2.5 million, net of tax of $0, related to the
write-off of the applicable portion of deferred debt issuance costs on the
Tranche A term loans.
(E) In accordance with EITF (Emerging Issues Task Force) consensus reached on
November 20, 1997, the Company was required to change its accounting for
business process reengineering costs. EITF 97-13 requires that the cost of
business process reengineering activities that are part of a project to
acquire, develop or implement internal use software, whether done
internally or by third parties, be expensed as incurred. Previously, the
Company capitalized these costs as systems development costs. The
accounting change, effective in the fourth quarter of 1997, resulted in a
cumulative charge of $3.1 million, net of tax of $0.

71
<PAGE> 75

MANAGEMENT'S REPORT

The accompanying consolidated financial statements have been prepared by
Management in conformity with generally accepted accounting principles
appropriate under the circumstances. The representations in the financial
statements and the fairness and integrity of such statements are the
responsibility of Management. All of the other financial information in the
Annual Report and Form 10-K is consistent with the financial statements.

The financial statements necessarily include some amounts that are based on
Management's best estimates and judgments. Management believes that the
financial statements reflect, in all material respects, the substance of
transactions that should be included and appropriately account for or disclose
all material uncertainties.

The consolidated financial statements prepared by Management have been
audited in accordance with generally accepted auditing standards by Deloitte &
Touche LLP (for the years ended December 31, 1998, and 1997, the nine months
ended December 31, 1996 and three months ended March 27, 1996), Independent
Accountants, whose report is also presented.

Riverwood International Corporation maintains internal accounting control
systems to provide reliable financial information for preparation of financial
statements, to safeguard assets against loss or unauthorized use and to ensure
proper authorization and accounting for all transactions. Management is
responsible for maintenance of these systems, which is accomplished through
communication of established written codes of conduct, systems, policies and
procedures; employee training; and appropriate delegation of authority and
segregation of responsibilities.

In establishing and maintaining its internal accounting control systems,
Management considers the inherent limitations of the various control procedures
and weighs their costs against the benefits derived. Management believes that
existing internal accounting control systems are achieving their objectives and
that they provide reasonable assurance concerning the accuracy of the financial
statements.

Oversight of Management's financial reporting and internal accounting
control responsibilities is exercised by the Board of Directors through the
Audit Committee, which consists solely of outside directors. The Audit Committee
meets periodically with financial management and the Independent Accountants to
review how each is carrying out its responsibilities and to discuss matters
concerning auditing, internal accounting control and financial reporting. The
Independent Accountants have free access to meet with the Audit Committee
without Management's presence.

<TABLE>
<S> <C>
Stephen Humphrey Daniel J. Blount
Chief Executive Officer Vice President
and President and Chief Financial Officer
</TABLE>

72
<PAGE> 76

REPORT OF INDEPENDENT AUDITORS'

To the Stockholders and Directors of Riverwood Holding, Inc.:

We have audited the accompanying consolidated balance sheets of Riverwood
Holding, Inc. and subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of operations and comprehensive loss, shareholders'
equity, and cash flows for the years ended December 31, 1998 and 1997, the nine
months ended December 31, 1996 and the three months ended March 27, 1996
(Predecessor). Our audits also included the financial statement Schedule II for
the years ended December 31, 1998 and 1997, the nine months ended December 31,
1996 and the three months ended March 27, 1996 (Predecessor). These financial
statements and financial statement Schedule II are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement Schedule II based on our audits. We
did not audit the financial statements of Igaras Papeis e Embalagens S.A.
(Igaras), the Company's investment in which is accounted for by use of the
equity method. The Company's equity in Igaras' net assets of $138,496,000 and
$137,964,000 at December 31, 1998 and 1997, respectively, and in Igaras' net
income of $5,873,000 and $21,480,000, $17,542,000 and $4,927,000 for the years
ended December 31, 1998 and 1997, the nine months ended December 31, 1996 and
the three months ended March 27, 1996 (Predecessor), respectively, are included
in the accompanying financial statements. The financial statements of Igaras
were audited by other auditors whose reports have been furnished to us, and our
opinion, insofar as it relates to the amounts included for Igaras, is based on
the reports of such other auditors.

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 and the reports of the other auditors provide a
reasonable basis for our opinion.

In our opinion, based on our audits and the reports of the other auditors,
such consolidated financial statements present fairly, in all material respects,
the financial position of Riverwood Holding, Inc. and subsidiaries at December
31, 1998 and 1997, and the results of their operations and comprehensive loss
and their cash flows for the years ended December 31, 1998 and 1997, the nine
months ended December 31, 1996 and the three months ended March 27, 1996
(Predecessor) in conformity with generally accepted accounting principles. Also,
in our opinion, such financial statement Schedule II, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.

DELOITTE & TOUCHE LLP

Atlanta, Georgia
February 17, 1999

73
<PAGE> 77

IGARAS PAPEIS E EMBALAGENS S.A.

REPORT ON THE CONSOLIDATED
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998 AND 1997 AND FOR EACH
OF THE THREE YEARS IN THE PERIOD ENDED
DECEMBER 31, 1998

74
<PAGE> 78

IGARAS PAPEIS E EMBALAGENS S.A.

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1998 1997
----------- -----------
(IN THOUSANDS OF U.S. DOLLARS)
<S> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents................................. $ 10,493 $ 40,094
Accounts Receivable (Less Allowance for Doubtful Accounts
of $424 and $300)...................................... 32,068 27,363
Inventories............................................... 31,925 30,655
Prepaid Income Taxes...................................... 1,977 10
Other Assets.............................................. 6,040 5,506
-------- --------
Total Current Assets.............................. 82,503 103,628
Property, Plant and Equipment, Net.......................... 439,624 353,200
Deferred Tax on Income...................................... 3,412 4,149
Other Noncurrent Assets..................................... 8,886 7,255
-------- --------
Total Assets...................................... $534,425 $468,232
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-Term Debt........................................... $ 31,213 $ 16,188
Current Portion of Long-Term Debt......................... 33,167 32,711
Accounts Payable.......................................... 17,081 12,205
Other Accrued Liabilities................................. 16,495 13,423
-------- --------
Total Current Liabilities......................... 97,956 74,527
Long-Term Debt, less Current Portion........................ 106,129 68,960
Accrued Pension............................................. 2,645 2,267
Deferred Income Taxes....................................... 15,310 12,970
Other Noncurrent Liabilities................................ 8,782 5,944
-------- --------
Total Liabilities................................. 230,822 164,668
-------- --------
Contingencies and Commitments(Note 9)
SHAREHOLDERS' EQUITY
Preferred Stock:
Class A (No Par Value; 32 Shares Authorized, Issued and
Outstanding in 1998 and 1997, respectively)............ -- --
Class B (No Par Value; No Shares Authorized, Issued and
Outstanding in 1998 and 1997, respectively)............ -- --
Common Stock (No Par Value; 167,309,968 Shares Authorized,
Issued and Outstanding in 1998 and 1997, respectively).... 170,984 170,984
Retained Earnings........................................... 132,619 132,580
-------- --------
Total Shareholders' Equity........................ 303,603 303,564
-------- --------
Total Liabilities and Shareholders' Equity........ $534,425 $468,232
======== ========
</TABLE>

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

75
<PAGE> 79

IGARAS PAPEIS E EMBALAGENS S.A.

CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
FOR THE YEARS ENDED
------------------------------
DECEMBER 31,
------------------------------
1998 1997 1996
-------- -------- --------
(IN THOUSANDS OF U.S. DOLLARS)
<S> <C> <C> <C>
Net Sales................................................... $257,026 $239,454 $234,698
Cost of Sales............................................... 205,047 165,983 156,577
Selling, General and Administrative Expenses................ 25,412 20,174 19,989
Translation Gain or (Loss), Net............................. 631 (2,466) (2,115)
Other (Expense) Income, Net................................. (3,757) (1,637) 854
-------- -------- --------
Income from Operations...................................... 23,441 49,194 56,871
Interest Income............................................. 2,838 4,864 8,872
Interest Expense............................................ 10,769 3,968 4,914
-------- -------- --------
Income before Income Taxes.................................. 15,510 50,090 60,829
Current Income Tax Expense.................................. 686 7,739 12,400
Deferred Income Tax Expense (Credit)........................ 3,077 (322) 3,764
-------- -------- --------
Net Income.................................................. $ 11,747 $ 42,673 $ 44,665
======== ======== ========
</TABLE>

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

76
<PAGE> 80

IGARAS PAPEIS E EMBALAGENS S.A.

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-------------------------------
1998 1997 1996
--------- -------- --------
(IN THOUSANDS OF U.S. DOLLARS)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income................................................ $ 11,747 $ 42,673 $ 44,665
Noncash Items Included in Net Income:
Depreciation, Amortization and Cost of Timber
Harvested............................................ 27,462 19,561 16,632
Deferred Income Tax Expense (Income)................... 3,077 (322) 3,764
Other.................................................. 378 99 31
(Increase) Decrease in Current Assets:
Accounts Receivable.................................... (4,705) 1,270 (5,399)
Inventories............................................ (1,270) 946 1,577
Prepaid Income Taxes................................... (1,967) (4,512) (30,062)
Other Assets........................................... (534) (109) (788)
Increase (Decrease) in Current Liabilities:
Accounts Payable....................................... 4,876 (2,345) 1,444
Other Accrued Liabilities.............................. 3,072 (1,705) 1,289
Increase (Decrease) in Other Noncurrent Liabilities....... 2,838 5,073 (60)
--------- -------- --------
Net Cash Provided by Operating Activities................... 44,974 60,629 33,093
--------- -------- --------
Cash Flows from Investing Activities:
Purchases of Property, Plant and Equipment................ (116,288) (98,661) (60,010)
Proceeds from Sales of Property, Plant and Equipment...... 2,402 297 615
Increase in Other Noncurrent Assets....................... (1,631) (608) (1,619)
--------- -------- --------
Net Cash Used in Investing Activities....................... (115,517) (98,972) (61,014)
--------- -------- --------
Cash Flows from Financing Activities:
Proceeds from Long-Term Debt.............................. 71,292 90,927 9,350
Proceeds from Short-Term Debt............................. 54,963 55,166 70,476
Payments on Short-Term Debt............................... (73,605) (80,441) (68,964)
Dividends................................................. (11,708) (10,392) (9,993)
--------- -------- --------
Net Cash Provided by Financing Activities................... 40,942 55,260 869
--------- -------- --------
Net Increase (Decrease) in Cash and Cash Equivalents........ (29,601) 16,917 (27,052)
Cash and Cash Equivalents at Beginning of Period............ 40,094 23,177 50,229
--------- -------- --------
Cash and Cash Equivalents at End of Period.................. $ 10,493 $ 40,094 $ 23,177
========= ======== ========
Supplemental Disclosure of Cash Flow Information:
Cash Paid during the Year for:
Income Taxes.............................................. $ 1,967 $ 12,083 $ 40,161
========= ======== ========
Interest.................................................. $ 17,849 $ 6,699 $ 6,776
========= ======== ========
</TABLE>

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

77
<PAGE> 81

IGARAS PAPEIS E EMBALAGENS S.A.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
PREFERRED STOCK TOTAL
----------------- COMMON RETAINED SHAREHOLDERS'
CLASS A CLASS B STOCK EARNINGS EQUITY
------- ------- -------- -------- -------------
(IN THOUSANDS OF U.S. DOLLARS)
<S> <C> <C> <C> <C> <C>
BALANCES AT DECEMBER 31, 1995.................. -- -- $170,984 $ 65,627 $236,611
Net Income..................................... -- -- -- 44,665 44,665
Dividends of $0.060 per Share on Common
Stock........................................ -- -- -- (9,993) (9,993)
--- --- -------- -------- --------
BALANCES AT DECEMBER 31, 1996.................. -- -- 170,984 100,299 271,283
Net Income..................................... -- -- -- 42,673 42,673
Dividends of $0.061 per Share on Common
Stock........................................ -- -- -- (10,392) (10,392)
--- --- -------- -------- --------
BALANCES AT DECEMBER 31, 1997.................. -- -- 170,984 132,580 303,564
Net Income..................................... -- -- -- 11,747 11,747
Dividends of $0.070 per Share on Common
Stock........................................ -- -- -- (11,708) (11,708)
--- --- -------- -------- --------
BALANCES AT DECEMBER 31, 1998.................. -- -- $170,984 $132,619 $303,603
=== === ======== ======== ========
</TABLE>

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

78
<PAGE> 82

IGARAS PAPEIS E EMBALAGENS S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(A) PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include the accounts of
Igaras Papeis e Embalagens S.A. and its wholly-owned subsidiary, Igaras Servico
Florestal Ltda. (herein referred to as "the Company"). All significant
intercompany transactions and balances have been eliminated.

(B) PRINCIPLES OF TRANSLATION

The accounting records of the Company are maintained in local currency. The
Company's financial statements, including the adjustments made outside the local
books of account, have been translated into U.S. dollars in accordance with
Statement of Financial Accounting Standards No. 52, "Foreign Currency
Translation" ("SFAS No. 52"), as follows:

BALANCE SHEETS

Inventories, prepaid expenses, property, plant and equipment, advances for
energy supply and shareholders' equity were translated at historical exchange
rates. All other assets and liabilities were translated at the year end
Brazilian Real/U.S. dollar exchange rates of R$1.2087 and R$1.1164, for 1998 and
1997, respectively.

STATEMENTS OF OPERATIONS

Cost of sales, depreciation, cost of timber harvested and amortization of
other assets were translated at historical exchange rates. All other income and
expense items were translated at average exchange rates for the period.

All translation gains and losses are included in income from operations.
Effective January 1, 1998, and concurrent with the determination that Brazil is
no longer a highly inflationary economy, the Company determined that its
functional currency is the U.S. dollar. Accordingly, the Company continues to
present its consolidated financial statements prepared in accordance with
accounting principles generally accepted in the United States translated under
the historical rate method.

Cash and cash equivalents include time deposits, certificates and receipts
of deposits and other marketable securities with original maturities of three
months or less, and denominated in Brazilian reais.

(D) INVENTORIES

Inventories are stated at average cost which is lower than market.

(E) PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are stated at cost. Cost includes capitalized
interest incurred during the construction phase. In 1998, 1997 and 1996,
$9,060,000, $4,592,000 and $2,504,000 of interest expense was capitalized,
respectively.

Expenditures for significant improvements, or for replacement parts, which
extend the useful life of an asset for more than one year, are capitalized,
while maintenance and repair costs are charged against operations as incurred.
The Company reviews for impairment whenever events or changes in circumstances
indicate that the carrying amount of these assets may not be recoverable.

79
<PAGE> 83
IGARAS PAPEIS E EMBALAGENS S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
(F) DEPRECIATION AND COST OF TIMBER HARVESTED

Depreciation of cost is provided over the estimated useful lives of the
related assets using the straight-line method.

The estimated useful lives used in computing depreciation were as follows
for all years presented:

<TABLE>
<S> <C>
Land Improvements........................................... 35 years
Buildings and Building Equipment............................ 35 years
Machinery, Equipment and Vehicles........................... 5 to 20 years
Furniture and Fixtures...................................... 16 years
Computer Hardware........................................... 5 years
</TABLE>

Timber and timberlands are stated at cost. Cost of timber harvested is
based on unit cost rates calculated using the total estimated yield of timber to
be harvested and the unamortized timber costs. The costs related to timber
preservation (fertilizers and other costs) are capitalized by the Company and
represent in December 1998 and 1997 the amounts of $3,900,000 and $4,367,000,
respectively.

(G) INCOME TAXES

Deferred income taxes are recognized in accordance with SFAS No. 109,
"Accounting for Income Taxes". The standard requires, among other things, the
use of the liability method of computing deferred income taxes. Under the
liability method, the effect of changes in corporate tax rates on deferred
income taxes is recognized currently as an adjustment to income tax expense. The
liability method also requires that deferred tax assets or liabilities be
recorded based on the difference between the tax bases of assets and liabilities
and their carrying amounts for financial reporting purposes.

(H) REVENUE RECOGNITION

The Company recognizes revenue primarily when goods are shipped to
customers.

(I) USE OF ESTIMATES

The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles in the United States of America
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 dates of the financial statements and the reported amounts of
revenues and expenses during the reporting periods. Actual results could differ
from those estimates.

NOTE 2 -- ACCOUNTS RECEIVABLE

Export sales by geographic area were as follows:

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
-------- -------- --------
(IN THOUSANDS OF U.S. DOLLARS)
<S> <C> <C> <C>
Europe................................................ $12,123 $ 8,245 $10,511
Asia -- Africa........................................ 6,379 17,506 21,242
Latin America, Other than Brazil...................... 24,959 27,453 22,979
------- ------- -------
Total Export Sales.......................... $43,461 $53,204 $54,732
======= ======= =======
</TABLE>

80
<PAGE> 84
IGARAS PAPEIS E EMBALAGENS S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 2 -- ACCOUNTS RECEIVABLE -- (CONTINUED)
The remaining net sales for each of the periods presented were to customers
which were not concentrated in any specific region, but were concentrated
primarily in the consumer products industry. No single customer accounted for
more than 10% of the Company's net sales, and there were no significant accounts
receivable from a single customer. The Company reviews a customer's credit
history before extending credit. The Company establishes an allowance for
doubtful accounts based upon factors surrounding the credit risk of specific
customers, historical trends and other information. Bad debt expense was
$124,000, $104,000 and $191,000 for the years ended December 31, 1998, 1997 and
1996, respectively.

NOTE 3 -- INVENTORIES

The major classes of inventories were as follows at December 31:

<TABLE>
<CAPTION>
1998 1997
-------- --------
(IN THOUSANDS OF U.S.
DOLLARS)
<S> <C> <C>
Finished Goods.............................................. $ 2,852 $ 1,766
Work-in-Process............................................. 1,152 785
Raw Materials............................................... 14,422 13,341
Maintenance Materials and Other Supplies.................... 15,607 16,506
Less: Reserve for Obsolete and Slow-Moving Inventory........ (2,108) (1,743)
------- -------
$31,925 $30,655
======= =======
</TABLE>

NOTE 4 -- PROPERTY, PLANT AND EQUIPMENT

The components of property, plant and equipment were as follows at December
31:

<TABLE>
<CAPTION>
1998 1997
--------- ---------
(IN THOUSANDS OF U.S.
DOLLARS)
<S> <C> <C>
Land and Land Improvements.................................. $ 13,074 $ 8,429
Buildings and Building Equipment............................ 55,084 40,819
Machinery, Equipment and Vehicles........................... 431,883 288,056
Furniture and Fixtures...................................... 4,723 4,745
Computer Hardware........................................... 2,537 1,907
Construction in Progress.................................... 37,243 94,314
-------- --------
544,544 438,270
Less: Accumulated Depreciation.............................. 167,678 147,120
-------- --------
376,866 291,150
Timber and Timberlands, less Cost of Timber Harvested....... 62,758 62,050
-------- --------
$439,624 $353,200
======== ========
</TABLE>

81
<PAGE> 85
IGARAS PAPEIS E EMBALAGENS S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 5 -- LONG-TERM DEBT

Long-term debt, denominated substantially in dollars, consisted of the
following at December 31:

<TABLE>
<CAPTION>
PRINCIPAL PERIOD
DUE OUTSTANDING ANNUAL INTEREST RATE 1998 1997
------------- ----------- ---------------------------- --------- ---------
(IN THOUSANDS OF U.S.
DOLLARS)
<S> <C> <C> <C> <C> <C>
Frances e Brasileiro........ Monthly 1994-1999 Libor + 2.50% (8.96% at $ 81 $ 243
December 31, 1998)
Frances e Brasileiro........ Monthly 1994-1999 Libor + 2.50% (9.37% at 100 301
December 31, 1998)
ING Bank.................... Annually 1997-1999 Libor + 0.125% (9.67 at 3,374 3,374
December 31, 1998)
ING Bank.................... Annually 1997-1999 Libor + 0.125% (9.67 at 658 658
December 31, 1998)
Finame...................... Monthly 1993-1998 12.0% -- 2,863
BNDES....................... Monthly 1994-1999 UNBNDES + 1.5% (13.46 at 404 860
December 31, 1998)
BNDES....................... Monthly 1997-1999 URTJLP + 3% + 1.5% (16.17 at 270 516
December 31, 1998)
BNDES....................... Monthly 1995-2000 URTJLP + 4% + 2% (17.67 at 353 581
December 31, 1998)
BNDES....................... Monthly 1995-2000 URTJLP + 2.5% + 2% (16.17 at 394 591
December 31, 1998)
BNDES....................... Monthly 1996-2001 UNBNDES + 3.5% (14.46 at 1,889 2,625
December 31, 1998)
Chase....................... Tri-annually 1997-2000 Libor DM + 2.125% (6.625% at 1,885 1,779
December 31, 1998)
Santander................... Semi-annually 1997-2001 Libor + 0.25% (6.11% at 619 824
December 31, 1998)
Unibanco.................... Semi-annually 1997-2002 Libor + 5.40% + 1.4% (11.86 3,000 3,750
at December 31, 1998)
ING Bank.................... Annually 1997-2001 Libor + 1.75% (6.84 at 15,000 10,000
December 31, 1998)
BNDES....................... Monthly 1997-2007 UNBNDES + 1.5% (13.46 at 14,284 6,206
December 31, 1998)
BNDES....................... Monthly 1997-2007 UNBNDES + 1.5% (13.46 at 30,983 27,647
December 31. 1998)
Frances..................... Monthly 1997-2002 URTJLP + 2.5% + 1.5% (15.67 2,956 2,129
at December 31, 1998)
Frances..................... Monthly 1997-2002 URTJLP + 3% + 1.5% (16.17 at 724 662
December 31,1998)
Unibanco.................... Monthly 1997-2002 URTJLP + 3% + 1.5% (16.17 at 618 390
December 31,1998)
Unibanco.................... Monthly 1997-2002 URTJLP + 3.5% + 1.5% (16.67 603 691
at December 31,1998)
FNB -- New England.......... Semi-annually 1997-1998 Libor + 1.50% (6.56 at -- 546
December 31, 1998)
ING Bank.................... Annually 1997-1998 7.86% to 8.25% -- 4,847
ING Bank.................... Annually 1997-1998 Libor + 2.00% (7.09 at -- 2,094
December 31, 1998)
Credibanco.................. Annually 1997-1998 7.00% to 8.65% -- 1,893
ING Bank.................... Annually 1997-1999 Libor + 2.125% (8.01 at 1,690 2,137
December 31, 1998)
</TABLE>

82
<PAGE> 86
IGARAS PAPEIS E EMBALAGENS S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 5 -- LONG-TERM DEBT -- (CONTINUED)

<TABLE>
<CAPTION>
PRINCIPAL PERIOD
DUE OUTSTANDING ANNUAL INTEREST RATE 1998 1997
------------- ----------- ---------------------------- --------- ---------
(IN THOUSANDS OF U.S.
DOLLARS)
<S> <C> <C> <C> <C> <C>
ING Bank.................... Annually 1997-1999 Libor + 2.125% (8.01 at 2,181 2,181
December 31, 1998)
EPP -- Credit Lyonnais...... Annually 1997-1999 Libor + 2.25% (7.84 at 5,042 15,000
December 31, 1998)
Frances..................... Semi-annually 1997-2002 Libor + 1.375% (6.44 at 1,563 2,003
December 31, 1998)
Frances..................... Annually 1997-1999 Libor + 1.75% + 1% (8.87 at 1,721 1,730
December 31, 1998)
Frances..................... Annually 1997-1998 7.90% -- 325
Credibanco.................. Annually 1997-1998 Libor + 0.75% (5.84 at -- 1,851
December 31, 1998)
ING Bank.................... Annually 1998-1999 Libor + 0.125% (9.2 at 1,256 --
December 31, 1998)
Credibanco.................. Annually 1998-1999 Libor + 0.125% (10.31 at 1,690 --
December 31, 1998)
Real........................ Annually 1998-1999 Libor + 1.75% (6.84 at 1,819 --
December 31, 1998)
Real........................ Annually 1998-1999 Libor + 2.75% (7.84 at 2,243 --
December 31, 1998)
Real........................ Annually 1998-1999 Libor + 3.35% (8.44 at 441 --
December 31, 1998)
Real........................ Annually 1998-1999 Libor + 3.50% (8.59 at 3,071 --
December 31, 1998)
Real........................ Annually 1998-1999 Libor + 1.75% (6.84 at 1,458 --
December 31, 1998)
Real........................ Annually 1998-1999 Libor + 2.5% (7.14 at 1,181 --
December 31, 1998)
Real........................ Annually 1998-1999 Libor + 2.5% (7.59 at 308 --
December 31, 1998)
Unibanco.................... Annually 1998-2003 Libor + 2.0% (7.90 at 2,081 --
December 31, 1998)
Unibanco.................... Annually 1998-2003 Libor + 3.58% (9.45 at 3,429 --
December 31, 1998)
Unibanco.................... Annually 1998-2003 Libor + 1.625% (7.71 at 2,268 --
December 31, 1998)
Unibanco.................... Annually 1998-2003 Libor + 2.50% (8.66 at 1,955 --
December 31, 1998)
Unibanco.................... Annually 1998-2003 Libor + 1.375% (7.42 at 1,699 --
December 31, 1998)
BFB/BNDES................... Monthly 1998-2000 URTJLP + 5.17% (16.84 at 2,055 --
December 31, 1998)
BNDES....................... Monthly 1998-2000 URTJPL + 6% (18.34 at 18,592 --
December 31, 1998)
Credibanco.................. Annually 1998-2003 URTJPL + 3.0% + 1.5% (16.17 314 --
at December 31, 1998)
Unibanco.................... Annually 1998-2003 URTJPL + 2.5% + 1.25% (15.42 628 --
at December 31, 1998)
</TABLE>

83
<PAGE> 87
IGARAS PAPEIS E EMBALAGENS S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 5 -- LONG-TERM DEBT -- (CONTINUED)

Long-term debt maturities and expirations of funded long-term working
capital commitments at December 31, 1998 were as follows:

<TABLE>
<CAPTION>
(IN THOUSANDS
OF U.S.
DOLLARS)
-------------
<S> <C>
1999........................................................ $ 33,167
2000........................................................ 24,892
2001........................................................ 17,508
2002........................................................ 9,464
2003 -- 2008................................................ 54,265
--------
$139,296
========
</TABLE>

The weighted average interest rate on short-term debt approximated 11% and
8% at December 31, 1998 and 1997, respectively.

Loans and financings obtained from BNDES and Credibanco are guaranteed by
first mortgages on farms located in the State of Santa Catarina with a book
value of $13,714,000 at December 31, 1998, chattel mortgages and pledged
machinery and equipment with a book value of $33,570,000 at December 31, 1998.
There are no other restrictions, guarantees, collateral or covenants associated
with long-term debt.

NOTE 6 -- OTHER ACCRUED LIABILITIES

The components of other accrued liabilities were as follows at December 31:

<TABLE>
<CAPTION>
1998 1997
-------- --------
(IN THOUSANDS OF U.S.
DOLLARS)
<S> <C> <C>
Wages and Compensation...................................... $ 6,350 $ 5,711
Value-Added and Other Taxes Payable......................... 2,029 1,464
Amount Due to Affiliate..................................... 1,789 1,533
Other....................................................... 6,327 4,715
------- -------
$16,495 $13,423
======= =======
</TABLE>

NOTE 7 -- EMPLOYEE BENEFIT PLANS

The Company maintains a noncontributory defined benefit plan to supplement
the pension benefit provided by the government pension system.

84
<PAGE> 88
IGARAS PAPEIS E EMBALAGENS S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 7 -- EMPLOYEE BENEFIT PLANS -- (CONTINUED)
The plan covers all employees meeting minimum eligibility requirements.
Pension benefits are based primarily on years of service and the employee's
compensation near retirement. The Company's funding policy is to contribute
funds to trusts as necessary. Plan assets are primarily invested in listed
stocks and Brazilian government bonds.

The components of the periodic pension expense were as follows for the
following years:

<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
------------------------
1998 1997 1996
------ ------ ------
(IN THOUSANDS OF U.S.
DOLLARS)
<S> <C> <C> <C>
Service Cost -- Benefits Earned during the Year............. $ 923 $ 844 $ 820
Interest Cost on Projected Benefit Obligation............... 677 620 562
Actual Return on Plan Assets................................ (545) (446) (357)
Amortization................................................ 130 112 112
------ ------ ------
Total Pension Expense............................. $1,185 $1,130 $1,137
====== ====== ======
</TABLE>

Certain assumptions used in determining the pension expense and net pension
liability for 1998, 1997 and 1996 were as follows:

<TABLE>
<S> <C>
Discount Rates.............................................. 5% per annum
Rates of Increase in Future Compensation Levels............. 3% per annum
Expected Long-Term Rates of Return on Assets................ 5% per annum
</TABLE>

The following table sets forth the funded status of the plan as of December
31:

<TABLE>
<CAPTION>
1998 1997
------- -------
(IN THOUSANDS OF
U.S. DOLLARS)
<S> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Projected Benefit Obligation at Beginning of Year........... $13,663 $12,527
Service Cost................................................ 923 844
Interest Cost............................................... 677 621
Actuarial Gain.............................................. (1,256) (53)
Benefit Paid................................................ (382) (276)
------- -------
Projected Benefit Obligation at End of Year................. $13,625 $13,663
======= =======
CHANGE IN PLAN ASSETS
Fair Value of Plan Assets at Beginning of Year.............. $10,650 $ 8,661
Actual Return on Assets..................................... (84) 1,397
Actual Contributions........................................ 807 868
Actual Distributions........................................ (382) (276)
------- -------
Fair Value of Plan Assets at End of Year.................... $10,991 $10,650
======= =======
Funded Status............................................... $(2,634) $(3,013)
Unrecognized Net (Gain) Loss................................ (1,582) (979)
Unrecognized Prior Service Cost............................. 1,417 1,571
------- -------
Net Pension Liability............................. $(2,799) $(2,421)
======= =======
</TABLE>

The unrecognized prior service cost is amortized on a straight-line basis
over the average remaining service of employees, which approximates 23 years.
85
<PAGE> 89
IGARAS PAPEIS E EMBALAGENS S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 8 -- INCOME TAXES

During 1998, 1997 and 1996, the statutory income tax rates including the
social contribution tax on ordinary profits were approximately 33%, 33% and 32%,
respectively.

On December 27, 1996, the government enacted Law No. 9.430/96 changing the
statutory income tax rate from 32% to 33% (including social contribution),
effective January 1, 1997. This rate change resulted in an increase of $89,000
in deferred income taxes which was recognized during 1996.

Approximate tax effects of temporary differences giving rise to the net
deferred tax assets and liabilities were as follows at December 31:

<TABLE>
<CAPTION>
1998 1997
-------- --------
(IN THOUSANDS OF U.S.
DOLLARS)
<S> <C> <C>
Deferred Tax Assets:
Provision for Loss on Eletrobras Bonds.................... $ 856 $ 927
Inflationary Losses....................................... -- 858
Pensions.................................................. 926 802
Other..................................................... 1,630 1,562
------- -------
Total Deferred Tax Assets......................... $ 3,412 $ 4,149
======= =======
Deferred Tax Liabilities:
Inflationary Profit....................................... $ 3,333 $ 3,834
Property, Plant and Equipment............................. 11,788 9,136
Other..................................................... 189 --
------- -------
Total Deferred Tax Liabilities.................... $15,310 $12,970
======= =======
</TABLE>

The reported amount of income tax expense on income before income taxes
differs from the amount of income tax expense that would result from applying
the Brazilian statutory income tax rate to income before income taxes for the
following reasons:

<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
------------------------------
1998 1997 1996
-------- -------- --------
(IN THOUSANDS OF U.S. DOLLARS)
<S> <C> <C> <C>
Brazilian Statutory Expense............................... $ 5,118 $16,529 $20,074
Interest on Own Capital Deductible Dividends.............. (3,400) (2,335) (4,089)
Inflationary Profit....................................... -- (5,915) (1,188)
Royalties................................................. 1,361 -- --
Other, Net................................................ 684 (862) 1,367
------- ------- -------
Income Tax Expense...................................... 3,763 $ 7,417 $16,164
======= ======= =======
</TABLE>

NOTE 9 -- CONTINGENCIES AND COMMITMENTS

The Company is a party to a number of lawsuits arising out of the conduct
of its business. While there can be no assurance as to their ultimate outcome,
the Company does not believe that these lawsuits will have a material impact on
the results of operations, cash flows or financial condition of the Company.

As of December 31, 1998, outstanding purchase commitments relating to
capital projects totaled approximately $5,000,000.

The Company is guarantor of advances on export contracts in amounts of
$16,373,000 and $12,128,000, in 1998 and 1997 respectively.

86
<PAGE> 90
IGARAS PAPEIS E EMBALAGENS S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 10 -- SHAREHOLDERS' EQUITY

The capital shares consist of 167,309,968 common shares, of which
83,654,984 common shares are owned by Riverwood and 83,654,984 common shares are
owned by Saragy S.A. In addition, the Company has authorized and issued 32
shares of Class A preferred stock. These preferred shares have preference in the
event of a liquidation of the Company.

These Class A preferred shares also have rights to dividends equal to those
of the common shares.

The Class A preferred shares are not entitled to vote and are not
convertible into common shares. As of April 30, 1996, one Class B preferred
share was converted into one common share with no par value for Saragy S.A. and,
additionally, 50,309,984 common shares with no par value were issued, of which
25,154,992 were distributed to Riverwood and 25,154,992 to Saragy S.A. This
change was included retroactively in average shares outstanding.

Earnings may be distributed only out of reais retained earnings reflected
in the books of Igaras Papeis e Embalagens S.A. As of December 31, 1998, the
U.S. dollar equivalent of this amount available for distribution was
approximately $12,525,000.

NOTE 11 -- RELATED-PARTY TRANSACTIONS

During the years ended December 31, 1998, 1997 and 1996, the Company
purchased approximately $14,900,000, $21,000,000 and $5,100,000 of paper and
machinery, respectively, from Riverwood. Intercompany profits in ending
inventory are not material at December 31, 1998 and 1997.

NOTE 12 -- ACQUISITION

On January 6, 1998, the Company acquired Ponte Nova Papeis e Embalagens
Ltda. ("Ponte Nova"), created as a result of a spin-off from Trombini Papel e
Embalagens S.A. ("Trombini"). Ponte Nova was formed with the property, plant and
equipment and certain liabilities of two corrugated container plants and a
recycling pulp and paper plant. The total purchase price was approximately
$35,000,000, not subject to financing.

The acquisition was accounted for by the purchase method. Accordingly, the
purchase price has been allocated to the assets acquired and liabilities assumed
based on their estimated fair market values. Operating results of the acquired
business have been included in the Statement of Consolidated Income since the
date of acquisition. Pro forma results, assuming the acquisition had been made
at the beginning of the year, would not be materially different from the results
reported.

NOTE 13 -- CHANGE IN THE FOREIGN EXCHANGE POLICY BY THE CENTRAL BANK OF BRAZIL

On January 14, 1999, the Central Bank of Brazil changed the foreign
exchange policy by eliminating the exchange rate band, which had been used as a
means to control the fluctuation of the real against the U.S. dollar. The
exchange rate is now determined by free market forces. As a consequence of such
change, the local currency (real) suffered a significant devaluation related to
the U.S. dollar during the beginning of 1999. At this time it is not practicable
to determine whether or at what level the exchange rate will stabilize as well
as the effect of such exchange rate fluctuation on the Company operations.

At December 31, 1998, the Company had outstanding net monetary liabilities
denominated in U.S. dollars amounting to approximately US$64,680,000 and
US$171,816,000, classified as current and long-term, respectively.

The exchange rate at December 31, 1998 was R$1.20 to one U.S. dollar, and
at January 22, 1999 was approximately R$1.70. The net foreign currency
liabilities at January 22, 1999 had not changed significantly compared to
December 31, 1998.

87
<PAGE> 91

ARTHUR ANDERSEN S/C

REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholders and Board of Directors of
IGARAS PAPEIS E EMBALAGENS S.A.:

We have audited the accompanying consolidated balance sheets of IGARAS
PAPEIS E EMBALAGENS S.A. AND SUBSIDIARIES as of December 31, 1998 and 1997, and
the related consolidated statements of income, changes in shareholders' equity,
and cash flows for each of the three years in the period ended December 31,
1998. 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 in the United States of America. 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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of IGARAS PAPEIS E
EMBALAGENS S.A. AND SUBSIDIARIES as of December 31, 1998 and 1997, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1998 in conformity with generally accepted accounting
principles in the United States of America.

Sao Paulo, Brazil
January 22, 1999

88
<PAGE> 92

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

There were no such changes in or disagreements with accountants on accounting or
financial disclosure.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

DIRECTORS AND EXECUTIVE OFFICERS

The names, ages and positions of the current directors of the Company and
executive officers of Riverwood are set forth below.

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Stephen M. Humphrey........ 54 President, Chief Executive Officer and Director
Thomas M. Gannon........... 49 Executive Vice President, Commercial Operations
Daniel J. Blount........... 43 Vice President and Chief Financial Officer
Robert H. Burg............. 53 Senior Vice President, Human Resources
Steven D. Saucier.......... 45 Senior Vice President, Paperboard Operations
B. Charles Ames............ 73 Chairman and Director
Kevin J. Conway............ 40 Director
Leon J. Hendrix, Jr........ 57 Director
Hubbard C. Howe............ 70 Director
Alberto Cribiore........... 53 Director
Brian J. Richmand.......... 45 Director
Lawrence C. Tucker......... 56 Director
Samuel M. Mencoff.......... 42 Director
G. Andrea Botta............ 45 Director
Joseph E. Parzick.......... 43 Director
</TABLE>

Stephen M. Humphrey is the President and Chief Executive Officer and a
director of Holding, RIC Holding and Riverwood. Mr. Humphrey joined Riverwood in
March 1997. From 1994 through 1996, Mr. Humphrey was Chairman, President and
Chief Executive Officer of National Gypsum Company, a manufacturer and supplier
of building products and services. From 1981 until 1994 Mr. Humphrey was
employed by Rockwell International Corporation, a manufacturer of electronic
industrial automation products, telecommunications systems and defense
electronics products and systems ("Rockwell"), where he held a number of key
executive positions.

Thomas M. Gannon is Executive Vice President, Commercial Operations, a
position he assumed in September 1998. From July 1997 until September 1998 Mr.
Gannon was Senior Vice President and Chief Financial Officer of Riverwood. From
August 1995 until July 1997, Mr. Gannon was employed by Libby-Owens-Ford Co., a
manufacturer of home, commercial and automobile flat glass products, most
recently as Corporate Vice President of Finance and Administration and Chief
Financial Officer. From April 1976 through August 1995, Mr. Gannon served in
various positions with Rockwell.

Daniel J. Blount is Vice President and Chief Financial Officer, positions
he assumed in September 1998. Prior to joining Riverwood, Mr. Blount spent 13
years at Montgomery Kone, Inc., an elevator, escalator and moving ramp product
manufacturer, installer and service provider, most recently as Senior Vice
President, Finance. From 1983 until 1985, Mr. Blount was an international
auditor at United Technologies Corporation, where he conducted and led
operational and financial audits of subsidiary companies, mainly outside the
United States. From 1979 until 1983, Mr. Blount served in various positions at
Ernst and Whinney, most recently as Audit Manager.

89
<PAGE> 93

Robert H. Burg is Senior Vice President, Human Resources of Riverwood. Mr.
Burg joined Riverwood in January 1993. From 1981 until he joined Riverwood, Mr.
Burg was employed by Colgate-Palmolive Company, a manufacturer and distributor
of household and personal care products, most recently as Vice President of
Global Compensation and Development.

Steven D. Saucier is Senior Vice President, Paperboard Operations of
Riverwood. Mr. Saucier joined Riverwood in November 1998. From July 1998 until
October 1998, Mr. Saucier was Senior Vice President, Manufacturing, of JPS
Packaging, a manufacturer of flexible packaging. From April 1996 until July
1998, Mr. Saucier was Senior Vice President, Supply Chain, of Sealright Co.,
Inc., a manufacturer of rigid and flexible packaging, and from September 1975
until April 1996 Mr. Saucier was employed by Mobil Corporation, where his last
position was General Manager, Manufacturing with Mobil Films division.

B. Charles Ames is Chairman of the Boards of Holding, RIC Holding and
Riverwood. Since 1989, Mr. Ames has been a principal of Clayton, Dubilier &
Rice, Inc., a New York-based private investment firm ("CD&R"). Mr. Ames is a
director of CD&R Investment Associates II, Inc. ("Associates II Inc."), a Cayman
Islands exempted company that is the managing general partner of CD&R Associates
V Limited Partnership, a Cayman Islands exempted limited partnership
("Associates V"), the general partner of Clayton, Dubilier & Rice Fund V Limited
Partnership, a Cayman Islands exempted limited partnership ("CD&R Fund V"). Mr.
Ames is also a limited partner of Associates V and serves as a director of
Remington Arms Company, Inc., a manufacturer of sporting goods products for the
hunting, shooting sports and fishing markets ("Remington"), and its parent RACI
Holding, Inc. ("RACI"). RACI is a company in which an investment fund managed by
CD&R has an investment. He is also a director of The Progressive Corporation, a
holding company, and M.A. Hanna Company, a manufacturer of rubber and plastic
compounds.

Kevin J. Conway is a principal of CD&R, a director of Associates II Inc.
and a limited partner of Associates V. Prior to joining CD&R in 1994, Mr. Conway
worked at Goldman, Sachs & Co., an investment banking firm.

Leon J. Hendrix, Jr. has been a principal of CD&R since 1993. From 1973
until 1993, Mr. Hendrix was employed by Reliance Electric Company, a
manufacturer of industrial drives, transmissions and telecommunications
equipment, most recently as its Chief Operating Officer and a director. Mr.
Hendrix serves as a director of Keithley Instruments, Inc., a manufacturer of
electronic test and measurement instruments and systems, NACCO Industries Inc.,
a manufacturer of forklift trucks and small electric appliances, a supplier of
kitchenware, and the mining and marketing of fuel for power generation by
electric utilities, and Cambrex Corporation, an international manufacturer of a
broad line of specialty and fine chemicals. Mr. Hendrix is also the Chairman,
Chief Executive Officer and a director of Remington and RACI, and a limited
partner of Associates V.

Hubbard C. Howe was a principal of CD&R from 1990 until his retirement in
1998. Mr. Howe is a limited partner of Associates V. Mr. Howe has served as
Chairman and a director of A.P.S., Inc., a distributor of automotive replacement
parts ("A.P.S."), and its parent corporation, APS Holding Corporation, a
corporation in which an investment fund managed by CD&R had an investment ("APS
Holding"), since prior to 1993. Mr. Howe served as interim Chief Executive
Officer of A.P.S. and APS Holding from March 1997 until January 1998. On
February 2, 1998, A.P.S. and several of its direct and indirect subsidiaries
filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy
Code with the United States Bankruptcy Court for the District of Delaware. Mr.
Howe has been a director of Remington and RACI since 1993, and was Chairman and
Chief Executive Officer of Remington and RACI until December 1997. Mr. Howe
served as Vice Chairman from February 1994 until November 1997, and as Chairman
from prior to 1993 until February 1994, of Nu-kote International, Inc., a
printing supplies manufacturer, and its parent Nu-kote Holding, Inc., a
corporation in which an investment fund managed by CD&R had an investment.

Alberto Cribiore was a principal of CD&R from 1985 to March 1997 and a
co-President of CD&R from 1995 to March 1997. Mr. Cribiore currently serves as
Managing Principal of Brera Capital Partners, LLC, a private equity investment
firm in New York. Mr. Cribiore also serves as a director of Hansberger Global
Investors, Inc., an international money management firm, and Cambridge Energy
Research Associates, Inc., a leading strategic knowledge firm focusing on the
energy industry ("CERA"). Mr. Cribiore has served as the
90
<PAGE> 94

Chairman and a director of McCarthy, Crisanti & Maffei, Inc., a provider of
financial information ("MCM"), and its parent MCM Group, Inc. ("MGI"), since
August 1996, and also currently serves as the Chairman and a director of Global
Decisions Group, LLC, the parent company of CERA, MCM and MGI.

Brian J. Richmand has been employed principally as a General Partner of
Chase Capital Partners, formerly known as Chemical Venture Partners, the general
partner of Chase Equity Associates, L.P. ("Chase"), since 1993. Prior to joining
Chase Capital Partners, Mr. Richmand was a partner at the law firm of Kirkland &
Ellis. Mr. Richmand is also currently a director of La Petite Academy, Inc.,
Reiman Publishing, Transtar Metals LLC, and Qualitech Steel Corporation, a
manufacturer of steel and iron carbide.

Lawrence C. Tucker has been a General Partner of Brown Brothers Harriman &
Co., a private banking firm, since 1979. He also serves as a director of MCI
WorldCom, Inc., an international provider of long distance voice, data and video
services, MCI WorldCom Venture Fund, National Healthcare Corp., an owner,
operator and manager of long-term care facilities, retirement apartments and
assisted living units, and VAALCO Energy Inc. Brown Brothers Harriman & Co. is
the general partner of The 1818 Fund, L.P., The 1818 Fund II, L.P. ("1818
Fund"), The 1818 Fund III, L.P. and The 1818 Mezzanine Fund, L.P.

Samuel M. Mencoff has been employed principally as a Managing Director of
Madison Dearborn Partners, Inc., the general partner of Madison Dearborn
Partners, L.P., the general partner of Madison Dearborn Capital Partners, L.P.
since 1993. From 1987 until 1993, Mr. Mencoff served as Vice President of First
Chicago Venture Capital, a private equity investment firm. Mr. Mencoff is a
member of the operating committees of the general partners of Huntway Partners,
L.P., a refiner and marketer of liquid asphalt, gas oil, kerosene, and jet and
diesel fuel, and Golden Oak Mining Company, L.P., a coal mining company, and is
a director of Buckeye Technologies Inc., a manufacturer of specialty cellulose
pulps and non-woven fiber products, and Bay State Paper Holding Company, a
producer of recycled containerboard and related products.

G. Andrea Botta has been President of EXOR America Inc. (formerly IFINT-USA
Inc.) ("EXOR America") since 1993 and for more than five years prior thereto,
Vice President of Acquisitions of IFINT-USA Inc. EXOR Group S.A., the parent
company of EXOR America, is the international investment holding company of the
Agnelli Group. Mr. Botta is a director of Lear Corporation, a manufacturer of
automobile interior systems, Western Industries, Inc., a producer of metal and
plastic stampings and fabrications, and Rockefeller Center Properties Inc., a
real estate partnership.

Joseph E. Parzick is a private investor. He had been a professional
employee of EXOR America from 1996 until late 1998. Prior to joining EXOR
America, Mr. Parzick was a Managing Director of Lehman Brothers Inc., an
investment banking firm.

ELECTION AND COMPENSATION OF DIRECTORS

All directors are elected annually and hold office until their successors
are elected and qualified, or until their earlier removal or resignation. The
Stockholders Agreement entered into among Holding and each of CD&R Fund V, EXOR
Group S.A. ("EXOR"), 1818 Fund, HWH Investment Pte Ltd, Chase, First Plaza Group
Trust, Madison Dearborn Capital Partners, L.P. and Wolfensohn-River LLC
(collectively, the "Equity Investors"), provides that CD&R Fund V is entitled to
nominate five persons, EXOR is entitled to nominate two persons, the 1818 Fund
is entitled to nominate one person and Madison Dearborn Capital Partners, L.P.
is entitled to nominate one person to serve on the Boards of Directors (the
"Boards") of each of Holding, RIC Holding and Riverwood. There is also an
understanding between Chase and CD&R Fund V with respect to the nomination of
CD&R Fund V's fifth nominee to such Boards. CD&R Fund V exercised its intention
to nominate a designee of Chase (the "Chase Designee") as its nominee to such
Boards; however, Chase does not have a legally enforceable right to such
directorship. The Chairman of each of the Boards is to be selected from one of
the CD&R Fund V nominees (other than the Chase Designee). Each of the Boards of
Holding, RIC Holding and Riverwood has an Executive Committee, a Compensation
and Benefits Committee and an Audit Committee. The Executive Committee consists
of the Chief Executive Officer, two of the CD&R Fund V-nominated directors
(other than the Chase Designee), one of the EXOR-nominated directors and the
director nominated by 1818 Fund. The Compensation and Benefits Committee
consists of two of the CD&R Fund V-nominated directors (other than the Chase
Designee), one of the EXOR-nominated directors and
91
<PAGE> 95

two directors nominated by the Equity Investors other than CD&R Fund V and EXOR
(but including the Chase Designee) (the "Other Investors"). The Audit Committee
consists of one of the CD&R Fund V-nominated directors (other than the Chase
Designee), one of the EXOR-nominated directors, two of the Other
Investor-nominated directors and one independent director. The Executive
Committee's current members are Messrs. Ames, Botta, Conway, Humphrey and
Tucker. The members of the Compensation and Benefits Committee are currently
Messrs. Hendrix, Ames, Botta, Cribiore and Richmand; and the Audit Committee
consists of Messrs. Tucker, Conway, Mencoff and Parzick.

Non-employee directors who are not employed by or affiliated with CD&R will
receive compensation for their services on the Boards of $30,000 per year plus
$2,500 per board meeting attended. Currently, three of the Company's directors
are employees of CD&R, to which the Company pays fees for management and
financial consulting services. See "Item 13. Certain Relationships and Related
Transactions."

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<PAGE> 96

ITEM 11. EXECUTIVE COMPENSATION

MANAGEMENT COMPENSATION SUMMARY

The following table summarizes the compensation paid for services rendered
during the fiscal years indicated below by the Company or, in the case of
services rendered prior to the Merger, the Predecessor Company, to the Chief
Executive Officer and the four most highly compensated other current and former
executive officers (the "Named Executive Officers").

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
----------------------------
(6)
ANNUAL COMPENSATION SECURITIES
-------------------------- (5) UNDERLYING (7)
SALARY BONUS OTHER ANNUAL STOCK ALL OTHER
NAME YEAR $ $ COMPENSATION OPTIONS COMPENSATION
---- ---- -------- -------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Stephen M. Humphrey................ 1998 $510,000 $544,430 $ -- -- --
Chief Executive Officer and 1997 376,894 250,000(2) 118,433 225,000 --
President 1996 -- -- -- -- --
Thomas M. Gannon................... 1998 $280,000 $423,903 $ 342 30,000 $ 9,600
Executive Vice President, 1997 123,466 200,000(3) 187,986 -- 3,313
Commercial Operations 1996 -- -- -- -- --
Robert H. Burg..................... 1998 $228,333 $243,748 -- -- $ 9,600
Sr. Vice President, Human 1997 220,000 55,000 -- -- 4,750
Resources 1996 215,000 -- -- 9,000 4,500
Robert C. Hart(1).................. 1998 $280,833 $ -- -- -- $1,075,622
Sr. Vice President and 1997 270,000 65,000 -- -- 4,750
Advisor to Chief Executive
Officer 1996 259,583 -- -- 15,000 4,500
Daniel J. Blount................... 1998 $144,583 $230,509(4) $ 52,024 -- --
Vice President and 1997 -- -- -- -- --
Chief Financial Officer 1996 -- -- -- -- --
</TABLE>

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

(1) Mr. Hart retired as Senior Vice President and Advisor to the Chief Executive
Officer of the Company effective December 31, 1998.
(2) Upon the commencement of his employment with the Company on March 31, 1997,
the Company guaranteed a minimum annual bonus to Mr. Humphrey for 1997 of at
least $250,000.
(3) Upon the commencement of his employment with the Company on July 14, 1997,
the Company paid Mr. Gannon a commencement incentive bonus of $100,000 and
guaranteed a minimum annual bonus to Mr. Gannon for 1997 of at least
$100,000.
(4) Upon commencement of his employment with the Company on March 16, 1998, the
Company paid Mr. Blount a commencement bonus of $75,000.
(5) Amounts consist of tax reimbursement payments to the Named Executive
Officers in respect of certain taxable perquisites provided to them.
(6) In June 1996 Messrs. Hart and Burg received options to purchase shares of
Holding Common Stock, as indicated in the Summary Compensation Table. Mr.
Humphrey received options to purchase shares of Holding Common Stock in
March 1997. Mr. Gannon received options to purchase shares of Holding Common
Stock in August 1998.
(7) Amounts consist of Company contributions on behalf of the Named Executive
Officers to the Company's savings plan and, in the case of Mr. Hart, a lump
sum payment of $1,066,022 for accrued vacation and other benefits under Mr.
Hart's employment agreement with the Company upon his retirement (see
"Employment Agreements" below).

93
<PAGE> 97

OPTIONS GRANTED IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
NUMBER OF
SECURITIES PERCENT OF TOTAL
UNDERLYING OPTIONS OPTIONS GRANTED TO EXERCISE PRICE GRANT DATE
GRANTED EMPLOYEES IN PER SHARE PRESENT VALUE
NAME (#) FISCAL YEAR ($/SHARE) EXPIRATION DATE ($)(4)
---- ------------------ ------------------- -------------- ------------------ -------------
<S> <C> <C> <C> <C> <C>
T. Gannon.............. 7,500(1) 25% $100 September 18, 2003 $ 0
15,000(2) 50% 100 November 17, 2008 61,941
7,500(3) 25% 100 November 17, 2008 62,814
</TABLE>

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

(1) Options covering 7,500 shares of Holding Common Stock (the "Special
Options") vested upon grant and are exercisable during the 60-day period
following the earlier of (a) delivery of a notice of exercise from the
Company and (b) August 19, 2003.
(2) Options covering 15,000 shares of Holding Common Stock (the "Service
Options") will become vested in four annual installments, on each of the
first four anniversaries of August 19, 1998 (the "Date of Grant"), of 40%,
20%, 20% and 20%, respectively, subject in each case to the Named Executive
Officer's continuous employment. If the Named Executive Officer fails to
exercise all of his Special Options following delivery of a notice of
exercise, the vesting of all or a portion of his Service Options will be
deferred until nine years and six months following the Date of Grant,
subject to the Named Executive Officer's continuous employment.
(3) Options covering 7,500 shares of Holding Common Stock (the "Performance
Options") become vested (subject in all cases to the Named Executive
Officer's continuous employment) on the date, and only if, the Company
achieves its cumulative five year EBITDA target for the five fiscal years
ended December 31, 2002. Any Performance Options that do not become vested
as described above will become vested nine years and six months following
the Date of Grant, subject to the Named Executive Officer's continuous
employment. If the Named Executive Officer fails to exercise all of his
Special Options following delivery of a notice of exercise, the vesting of
all or a portion of his Performance Options will be deferred until nine
years and six months following the Date of Grant, subject to the Named
Executive Officer's continuous employment.
(4) The dollar amounts set forth under this heading are based on an economic
option pricing model commonly used to value option grants on the basis of
certain assumptions, including an assumption that the Company will deliver a
notice of exercise of the Special Options within three years of the Date of
Grant. An economic option pricing model will produce different results
depending on the assumptions made, and the values shown above are merely
good faith estimates of the present value of the option grants. Because one
of the assumptions in the model is the future volatility in the value of the
Common Stock, the actual present value of such option grants cannot be
determined.

94
<PAGE> 98

AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUE TABLE

The following table sets forth information for each Named Executive Officer
with regard to stock option exercises during 1998 and the aggregate value of
options held at December 31, 1998. No Named Executive Officer exercised options
during 1998.

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES OPTIONS AT FY-END FY-END(1)
ACQUIRED ON VALUE ------------------------- -------------------------
NAME EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- ----------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
S. Humphrey...................... -- -- 29,025/195,975 $725,625/$4,899,375
T. Gannon........................ -- -- 7,500/22,500 --
R. Burg.......................... -- -- 2,400/6,600 --
R. Hart.......................... -- -- 4,000/0 --
D. Blount........................ -- -- -- --
</TABLE>

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

(1) The dollar amounts set forth under this heading are calculated based on a
price per share of Holding Common Stock of $100.00, the estimated fair
market value of Holding Common Stock as of December 31, 1998, minus the
exercise price for such options.

PENSION PLAN

All U.S. salaried employees who satisfy the service eligibility criteria
are participants in the Riverwood International Employees Retirement Plan (the
"Retirement Plan"). Pension benefits under the Retirement Plan are limited in
accordance with the provisions of the Internal Revenue Code of 1986, as amended
(the "Code"), governing tax qualified pension plans. The Company has adopted a
Supplemental Pension Plan (the "Supplemental Plan" and, together with the
Retirement Plan, the "Pension Plans") that provides for payment to participants
of retirement benefits equal to the excess of the benefits that would have been
earned by each such participant had the limitations of the Code not applied to
the Retirement Plan and the amount actually earned by such participant under the
Retirement Plan. Each of the Named Executive Officers (other than Mr. Blount,
who has not yet satisfied the plan's service criteria) is eligible to
participate in the Pension Plans. Benefits under the Supplemental Plan are not
pre-funded; such benefits are paid by the Company when due. The Pension Plan
Table below sets forth the estimated annual benefits payable upon retirement,
including amounts attributable to the Supplemental Plan, for specified
remuneration levels and years of service.

PENSION PLAN TABLE

<TABLE>
<CAPTION>
YEARS OF SERVICE
----------------------------------------------------
REMUNERATION 15 20 25 30 35
------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$125,000.................................... $ 24,580 $ 32,773 $ 40,966 $ 49,159 $ 57,352
150,000.................................... 29,830 39,773 49,716 59,659 69,602
175,000.................................... 35,080 46,773 58,466 70,159 81,852
200,000.................................... 40,330 53,773 67,216 80,659 94,102
225,000.................................... 45,580 60,773 75,966 91,159 106,352
250,000.................................... 50,830 67,773 84,716 101,659 118,602
300,000.................................... 61,330 81,773 102,216 122,659 143,102
400,000.................................... 82,330 109,773 137,216 164,659 192,102
450,000.................................... 92,830 123,773 154,716 185,659 216,602
500,000.................................... 103,330 137,773 172,216 206,659 241,102
600,000.................................... 124,330 165,773 207,216 248,659 290,102
700,000.................................... 145,330 193,773 242,216 290,659 339,102
</TABLE>

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

(A) Had the Named Executive Officers who participate in the Pension Plans
retired as of December 31, 1998, their respective five-year average
salaries, plus bonus, for purposes of the table set forth above,

95
<PAGE> 99

would have been as follows: Mr. Humphrey, $630,000; Mr. Gannon, $322,500;
Mr. Burg, $245,579; and Mr. Hart, $322,235. Mr. Hart retired on December 31,
1998.

(B) On December 31, 1998, the following Named Executive Officers participating
in the Pension Plans had the following years of credited service under such
plans: Mr. Humphrey, 2; Mr. Gannon, 1; Mr. Burg, 6; and Mr. Hart, 32.

(C) Salary as defined in the Pension Plans includes payments under the annual
incentive compensation plan but excludes payments under any equity incentive
plan of the Company or the Predecessor Company.

EMPLOYMENT AGREEMENTS

Each of Messrs. Hart and Burg is currently a party to an employment
agreement with the Company providing for an employment term commencing in 1996
and extending for three years that extends automatically for additional one-year
periods following the expiration of the initial term. The agreements provide for
payment of the base salaries and bonuses and other benefits set forth in the
Summary Compensation Table. The agreements further provide that, in the event of
a termination of any such Named Executive Officer's employment by the Company
without "cause" (as defined in the employment agreements) or by such Named
Executive Officer for "good reason" (as so defined), such Named Executive
Officer is entitled to continued salary and welfare benefits generally for a
period equal to the longest of one year, the balance of the employment term or
one month for each year of service, and a pro rata incentive bonus for the year
of termination. Mr. Hart retired effective December 31, 1998 and received the
termination benefits set forth in the Summary Compensation Table. The agreements
also contain certain noncompetition and nonsolicitation provisions and provide
for the termination of previously existing employment agreements.

On March 31, 1997, Riverwood entered into an employment agreement (the
"Humphrey Agreement") with Mr. Humphrey having an initial term of five years
that extends automatically for additional one-year periods following the
expiration of the initial term. The provisions of the Humphrey Agreement are
substantially similar to those contained in the employment agreements for the
Named Executive Officers described above, except as follows. The Humphrey
Agreement provides that Mr. Humphrey will receive an annual base salary of
$500,000 and bonuses and other benefits set forth in the Summary Compensation
Table. In the event of a termination of Mr. Humphrey's employment by the Company
without cause or by Mr. Humphrey for good reason, Mr. Humphrey will receive
continued payments of his base salary and continued benefits for the remainder
of the employment term or, if shorter, for three years.

Effective as of July 14, 1997, Riverwood and Holding entered into an
Employment Agreement (the "Gannon Agreement") with Mr. Gannon. The provisions of
the Gannon Agreement are substantially similar to those contained in the
employment agreements for Messrs. Hart and Burg, except as follows. The Gannon
Agreement provides that Mr. Gannon will receive an annual base salary of
$265,000 and bonuses and other benefits set forth in the Summary Compensation
Table.

The Company expects to enter into an employment agreement with Mr. Blount
effective as of September 1, 1998, providing for an annual base salary of
$200,000 and containing provisions substantially similar to those contained in
the employment agreement for Mr. Burg.

COMPENSATION COMMITTEE INTERLOCKS

During fiscal year 1998, Messrs. Hendrix, Ames, Botta, Cribiore and
Richmand served on the Compensation and Benefits Committee of the Holding Board.
Mr. Hendrix, one of the two CD&R Fund V-nominated directors, is an employee of
CD&R. CD&R received a fee from RIC Holding of $12 million in connection with the
Merger and arranging the financing thereof. CD&R receives an annual fee of
$500,000 for advisory, management, consulting and monitoring services from
Riverwood. Holding, RIC Holding and Riverwood have also agreed to indemnify the
members of the Boards employed by CD&R and CD&R against liabilities incurred
under securities laws with respect to their services for Holding, RIC Holding
and Riverwood.

96
<PAGE> 100

Messrs. Hendrix and Cribiore are the CD&R Fund V-nominated directors on the
Compensation and Benefits Committees of Holding, RIC Holding and Riverwood.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT

Holding owns all of the outstanding common stock of RIC Holding. RIC
Holding owns all of the outstanding common stock of Riverwood. As of March 3,
1999, the Holding Common Stock was beneficially owned as follows:

<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
NAME OF BENEFICIAL OWNER SHARES CLASS
------------------------ --------- ----------
<S> <C> <C>
Clayton, Dubilier & Rice Fund V Limited Partnership(1)...... 2,250,000 29.8%
403 Foulk Road
Suite 106
Wilmington, DE 19803
EXOR Group S.A. (2)......................................... 2,250,000 29.8
22-24, Boulevard Royal
L-2449 Luxembourg
The 1818 Fund II, L.P.(3)................................... 750,000 9.9
c/o Brown Brothers Harriman & Co.
59 Wall Street
New York, NY 10005
HWH Investment Pte Ltd...................................... 700,000 9.2
250 North Bridge Road
Singapore 179101
Republic of Singapore
Chase Equity Associates, L.P.(4)............................ 500,000 6.6
380 Madison Avenue
New York, NY 10017
First Plaza Group Trust..................................... 500,000 6.6
Mellon Bank, N.A., as Trustee
c/o General Motors Investment Management Corporation
767 Fifth Avenue
New York, NY 10153
Madison Dearborn Capital Partners, L.P.(5).................. 500,000 6.6
Three First National Plaza
Chicago, IL 60602
Wolfensohn-River LLC........................................ 50,000 0.7
130 Liberty Avenue
New York, NY 10006
--------- ----
Total Equity Investors............................ 7,500,000 99.2%
=========
B. Charles Ames(6).......................................... 0 --
Kevin J. Conway(6).......................................... 0 --
Leon J. Hendrix, Jr.(6)..................................... 0 --
Hubbard C. Howe(6).......................................... 0 --
Alberto Cribiore(6)......................................... 0 --
Brian J. Richmand........................................... 0 --
Samuel M. Mencoff(5)........................................ 0 --
Lawrence C. Tucker.......................................... 0 --
G. Andrea Botta............................................. 0 --
Joseph E. Parzick........................................... 0 --
Stephen M. Humphrey(7)...................................... 74,025 (8)
Thomas M. Gannon(7)......................................... 7,500 (8)
Robert H. Burg(7)........................................... 5,400 (8)
Robert C. Hart(7)........................................... 9,000 (8)
</TABLE>

97
<PAGE> 101

<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
NAME OF BENEFICIAL OWNER SHARES CLASS
------------------------ --------- ----------
<S> <C> <C>
Daniel J. Blount............................................ 0 --
All directors and executive officers as a group (15
persons)(3)(5)(6)(7)...................................... 95,925 1.1%
Total Management Investors (9).................... 53,450 0.8
Total Equity Investors and Management Investors... 7,561,450 100%
========= ====
</TABLE>

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

(1) B. Charles Ames, Michael G. Babiarz, William A. Barbe, Kevin J. Conway,
Brian D. Finn, Donald J. Gogel, Thomas E. Ireland, Christopher Mackenzie,
Charles P. Pieper and Joseph L. Rice, III may be deemed to share beneficial
ownership of the shares owned of record by CD&R Fund V by virtue of their
status as voting shareholders of Associates II Inc., the managing general
partner of the general partner of CD&R Fund V, but each expressly disclaims
such beneficial ownership of the shares owned by CD&R Fund V. The
shareholders of Associates II Inc. share investment and voting power with
respect to securities owned by CD&R Fund V. The business address for each of
them is 1403 Foulk Road, Suite 106, Wilmington, Delaware 19803. Mr.
Cribiore, a director of Holding, RIC Holding and Riverwood, withdrew as a
limited partner of Associates V as of March 31, 1997, but retains an
economic interest in the shares of Holding Common Stock owned of record by
CD&R Fund V by virtue of his status as a withdrawn limited partner of
Associates V and as a non-voting shareholder of CD&R Investment Associates,
Inc., a Delaware corporation that is a general partner of Associates V
("Associates Inc."). Mr. Hendrix, a director of Holding, RIC Holding and
Riverwood, sold his voting shares of Associates II Inc. to Associates II
Inc. on May 20, 1998, but retains an economic interest in the shares of
Holding Common Stock owned of record by CD&R Fund V by virtue of his status
as a limited partner of Associates V and as a shareholder of Associates Inc.
The voting shares of Associates II Inc. owned by Mr. Howe, a director of
Holding, RIC Holding and Riverwood, converted into non-voting shares in
connection with his retirement from CD&R in 1998. However, Mr. Howe retains
an economic interest in the shares of Holding Common Stock owned of record
by CD&R Fund V by virtue of his status as a non-voting shareholder of both
Associates II Inc. and Associates Inc. Each of Messrs. Cribiore, Hendrix and
Howe disclaim any beneficial ownership of such shares of Holding Common
Stock. None of Mr. Cribiore, Mr. Hendrix or Mr. Howe have any investment or
voting power with respect to the shares of Holding Common Stock owned by
CD&R Fund V.
(2) Reflects transfer on March 2, 1999 of shares formerly held by FIMA Finance
Management Inc. to EXOR Group S.A.
(3) Mr. Tucker may be deemed to share beneficial ownership of the shares owned
of record by The 1818 Fund II, L.P. by virtue of his affiliation with such
organization. Mr. Tucker expressly disclaims any such beneficial ownership.
(4) Chase Equity Associates, L.P., formerly known as Chemical Equity Associates,
purchased shares of the Class B Common Stock which do not have voting
rights.
(5) Mr. Mencoff may be deemed to share beneficial ownership of the shares owned
of record by Madison Dearborn Capital L.P. by virtue of his affiliation with
such organization. Mr. Mencoff expressly disclaims any such beneficial
ownership.
(6) Excludes shares of Holding Common Stock owned by CD&R Fund V, as to which
Messrs. Ames, Conway, Cribiore, Hendrix and Howe may be deemed to share
beneficial ownership or have an economic interest. See footnote (1).
(7) Includes options to purchase 74,025, 7,500, 2,400, 4,000 and 87,925 shares
of Holding Common Stock which may be exercised within 60 days by Messrs.
Humphrey, Gannon, Burg, Hart and by all directors and executive officers as
a group, respectively.
(8) Less than 1%.
(9) Excludes options to purchase shares of Holding Common Stock. As of March 3,
1999, a total of 50,450 shares of management investor stock have been
repurchased as a result of death, resignation and other termination of
employment. No directors own shares of Holding Common Stock. As of March 3,
1999, the Named Executive Officers owned an aggregate of 8,000 shares of
Holding Common Stock.

98
<PAGE> 102

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

CD&R Fund V, which is one of Holding's largest stockholders, is a private
investment fund managed by CD&R. Amounts contributed to CD&R Fund V by its
limited partners are invested at the discretion of the general partner in equity
or equity-related securities of entities formed to effect leveraged acquisition
transactions and in the equity of corporations where the infusion of capital,
coupled with the provision of managerial assistance by CD&R, can be expected to
generate returns on investments comparable to returns historically achieved in
leveraged buyout transactions. The general partner of CD&R Fund V is Associates
V, and the general partners of Associates V are Associates II Inc., Associates
Inc. and CD&R Cayman Investment Associates, Inc., a Cayman Islands exempted
company. Mr. Ames, who is a principal of CD&R, a director of Associates II Inc.
and a limited partner of Associates V, is Chairman of Holding, RIC Holding and
Riverwood. Mr. Conway, who is a principal of CD&R, a director of Associates II
Inc. and a limited partner of Associates V, is a director of Holding, RIC
Holding and Riverwood. Mr. Hendrix, who is a principal of CD&R and a limited
partner of Associates V, is a director of Holding, RIC Holding and Riverwood.
Mr. Howe, who was until recently a principal of CD&R and continues to be a
limited partner of Associates V, is a director of Holding, RIC Holding and
Riverwood. See "Item 10. Directors & Executive Officers of the Registrant --
Directors & Executive Officers." CD&R Fund V purchased $225 million of equity of
Holding in connection with the Merger.

CD&R is a private investment firm which is organized as a Delaware
corporation. CD&R is the manager of a series of investment funds, including CD&R
Fund V. CD&R generally assists in structuring, arranging financing for and
negotiating the transactions in which the funds it manages invest. After the
consummation of such transactions, CD&R generally provides management and
financial advisory and consulting services to the companies in which its
investment funds have invested during the period of such fund's investment. Such
services include helping the company to establish effective banking, legal and
other business relationships and assisting management in developing and
implementing strategies for improving the operational, marketing and financial
performance of the company.

In April 1996, CD&R began to receive monthly payments of an aggregate
annual fee of $375,000 for providing management and financial consulting
services to the Company and reimbursement of out-of-pocket expenses it incurred
during the nine months ended December 31, 1996. Pursuant to a consulting
agreement dated as of March 27, 1996, so long as CD&R Fund V has an investment
in the Company, CD&R will continue to receive an annual fee (and reimbursement
of out-of-pocket expenses) for providing such management and financial
consulting services to the Company. The indentures relating to the Notes allow
the payment to CD&R of annual fees for management and financial consulting
services of up to $1 million, although there is no current intention to increase
the amount of the annual fee to be received by CD&R above $500,000. During the
year ended December 31, 1998, the Company paid CD&R annual fees in the amount of
$470,000 for providing such management and financial consulting services.

CD&R, CD&R Fund V, Holding, Riverwood and RIC Holding entered into an
indemnification agreement dated as of March 27, 1996, pursuant to which Holding,
RIC Holding and Riverwood, have agreed to indemnify CD&R, CD&R Fund V,
Associates V, Associates Inc. (together with any other general partner of
Associates V) and their respective directors, officers, partners, employees,
agents, advisors, representatives and controlling persons against certain
liabilities arising under the federal securities laws, liabilities arising out
of the performance of the consulting agreement and certain other claims and
liabilities.

MANAGEMENT

Following the consummation of the Merger, Holding adopted the Equity
Incentive Plan providing for the issuance of up to 695,000 shares of Holding
Common Stock pursuant to the sale of shares of Holding Common Stock and the
grant of options with respect to Holding Common Stock under the plan.

On June 4, 1996, certain members of management and key employees of the
Company purchased shares of Holding Common Stock, at a purchase price of $100.00
per share, pursuant to the Equity Incentive Plan. Under certain circumstances,
such stockholders can require the Company to purchase their shares of Holding
Common Stock. Such management stock purchases included purchases of 5,000 and
3,000 shares of Holding
99
<PAGE> 103

Common Stock by Messrs. Hart and Burg, respectively. The Company guaranteed
certain loans for $150,000 extended to Mr. Burg.

During 1998, the Company repurchased 10,500 shares of Holding Common Stock
from management investors for $85 per share. During 1999, the Company expects to
repurchase up to an additional approximately 12,200 shares of management
investor stock, including 5,000 shares held by Mr. Hart, at a purchase price of
$100 per share as a result of death, resignation or other termination of
employment during 1998.

100
<PAGE> 104

PART IV

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

a. Financial statements, financial statement schedule and exhibits filed as
part of this report:

1a. Consolidated financial statements of Riverwood Holding, Inc. and
subsidiaries as of December 31, 1998 and 1997 and for each of the two years
ended December 31, 1998 and 1997, the nine months ended December 31, 1996
and the three months ended March 27, 1996 (Predecessor) and reports of
Independent Accountants.

1b. Consolidated financial statements of IGARAS PAPEIS E EMBALAGENS S.A.
and subsidiary as of December 31, 1998 and 1997 and for each of the three
years in the period ended December 31, 1997, and report of Independent
Accountants.

2. Schedule II -- Valuation and Qualifying Accounts.

All other schedules are omitted as the information required is either
included elsewhere in the consolidated financial statements herein or is
not applicable.

b. Reports on Form 8-K: None.

c. Exhibit Index to Annual Report on Form 10-K for Year Ended December 31,
1998.

<TABLE>
<CAPTION>
DESCRIPTION CROSS REFERENCE OR PAGE NUMBER
----------- ------------------------------
<C> <S> <C>
2.1 Agreement and Plan of Merger, dated as of Filed as Exhibit 2.1 to the Registration
October 25, 1995, among RIC, RIC Holding, Statement on Form S-1 (Registration No.
Inc. and CDRO Acquisition Corporation 33-80475) of New River Holding, Inc.
(renamed Riverwood Holding, Inc.) under
the Securities Act of 1933, as amended,
and incorporated herein by reference.
2.2 Voting and Indemnification Agreement, Filed as Exhibit 2.2 to the Registration
dated as of October 25, 1995, among RIC, Statement on Form S-1 (Registration No.
Manville, RIC Holding, Inc. and CDRO 33-80475) of New River Holding, Inc.
Acquisition Corporation (renamed Riverwood Holding, Inc.) under
the Securities Act of 1933, as amended,
and incorporated herein by reference.
2.3 Tax Matters Agreement, dated as of October Filed as Exhibit 10.3 to the Registration
25, 1995, among Manville, RIC, RIC Statement on Form S-1 (Registration No.
Holding, Inc. and CDRO Acquisition 33-80475) of New River Holding, Inc.
Corporation. (renamed Riverwood Holding, Inc.) under
the Securities Act of 1933, as amended,
and incorporated herein by reference.
2.4 Asset Purchase Agreement, dated as of Filed as Exhibit 2 to the Registrant's
August 6, 1996, among Plum Creek Timber Current Report on Form 8-K filed August
Company, L.P., Riverwood International 22, 1996 and Exhibit 2a to the
Corporation and New River Timber, LLC. Registrant's Current Report on Form 8-K
filed October 21, 1996 (Commission File
No. 1-11113), and incorporated herein by
reference.
2.5 Amendment to Asset Purchase Agreement, Filed as Exhibit 2b to the Registrant's
dated as of October 16, 1996, among Plum Current Report on Form 8-K filed October
Creek Timber Company, L.P., Riverwood 21, 1996 (Commission File No. 1-11113),
International Corporation and New River and incorporated herein by reference.
Timber, LLC.
</TABLE>

101
<PAGE> 105

<TABLE>
<CAPTION>
DESCRIPTION CROSS REFERENCE OR PAGE NUMBER
----------- ------------------------------
<C> <S> <C>
2.6 Wood Products Supply Agreement, dated as Filed as Exhibit 2c to the Registrant's
of October 18, 1996, between Plum Creek Current Report on Form 8-K filed October
Timber Company, L.P. and Riverwood 21, 1996 (Commission File No. 1-11113),
International Corporation. and incorporated herein by reference.
3.1 Certificate of Incorporation of Riverwood Filed as Exhibit 3.3 to the Registration
Holding, Inc. (formerly known as New River Statement on Form S-1 (Registration No.
Holding, Inc.), dated December 7, 1995. 33-80475) of New River Holding, Inc.
(renamed Riverwood Holding, Inc.) under
the Securities Act of 1933, as amended,
and incorporated herein by reference.
3.2 Certificate of Amendment of Certificate of Filed as Exhibit 3.2 to the Registrant's
Incorporation of Riverwood Holding, Inc., Annual Report on Form 10-K filed March 27,
dated March 27, 1996. 1997 (Commission File No. 1-11113), and
incorporated herein by reference.
3.3 Restated By-Laws of Riverwood Holding, Filed as Exhibit 3.1 to the Registrant's
Inc., as amended effective October 8, Quarterly Report on Form 10-Q filed
1996. November 8, 1996 (Commission File No.
1-11113), and incorporated herein by
reference.
4.1 Senior Secured Credit Agreement, dated Filed as Exhibit 10.1 to RIC Holding,
March 27, 1996, among RIC Holding, Inc., Inc.'s Annual Report on Form 10-K filed
the other borrowers thereto, Chemical April 16, 1996 (Commission File No.
Bank, as administrative agent, and the 1-11113), and incorporated herein by
lenders party thereto. reference.
4.2 Machinery Credit Agreement, dated March Filed as Exhibit 10.1 to RIC Holding,
27, 1996, among Riverwood International Inc.'s Annual Report on Form 10-K filed
Machinery, Inc., the other borrowers April 16, 1996 (Commission File No.
thereto, Chemical Bank, as administrative 1-11113), and incorporated herein by
agent, and the lenders party thereto. reference.
4.3 Amendment No. 1, dated as of September 13, Filed as Exhibit 4a to the Registrant's
1996, to the Credit Agreement, dated as of Current Report on Form 8-K filed October
March 27, 1996, among Riverwood 21, 1996 (Commission File No. 1-11113),
International Corporation, the lenders and incorporated herein by reference.
party thereto, and The Chase Manhattan
Bank (formerly known as Chemical Bank), as
administrative agent.
4.4 Amendment No. 2, dated as of September 17, Filed as Exhibit 4b to the Registrant's
1996, to the Credit Agreement, dated as of Current Report on Form 8-K filed October
March 27, 1996, among Riverwood 21, 1996 (Commission File No. 1-11113),
International Corporation, the lenders and incorporated herein by reference.
party thereto, and The Chase Manhattan
Bank (formerly known as Chemical Bank), as
administrative agent.
</TABLE>

102
<PAGE> 106

<TABLE>
<CAPTION>
DESCRIPTION CROSS REFERENCE OR PAGE NUMBER
----------- ------------------------------
<C> <S> <C>
4.5 Amendment No. 3, dated as of November 4, Filed as Exhibit 4.5 to the Registrant's
1996, to the Credit Agreement, dated as of Annual Report on Form 10-K filed March 27,
March 27, 1996, among Riverwood 1997 (Commission File No. 1-11113), and
International Corporation, the lenders incorporated herein by reference.
party thereto, and The Chase Manhattan
Bank (formerly known as Chemical Bank), as
administrative agent.
4.6 Amendment No. 4, dated as of July 15, Filed as Exhibit 4.8 to the Registration
1997, to the Credit Agreement, dated as of Statement on Form S-4 (Registration No.
March 27, 1996, among Riverwood 333-33499) of Riverwood International
International Corporation, the lenders Corporation, Riverwood Holding, Inc. and
party thereto, and The Chase Manhattan RIC Holding, Inc. under the Securities Act
Bank (formerly known as Chemical Bank), as of 1933, as amended, and incorporated
administrative agent. herein by reference.
4.7 Indenture, dated March 27, 1996, among RIC Filed as Exhibit 4.6 to RIC Holding,
Holding, Inc., Riverwood Holding, Inc., Inc.'s Annual Report on Form 10-K filed
CDRO Acquisition Corporation and Fleet April 16, 1996 (Commission File No.
National Bank of Connecticut, as trustee, 1-11113), and incorporated herein by
relating to the 10 1/4% Senior Notes due reference.
2006 of Riverwood International
Corporation, together with the First
Supplemental Indenture and the Second
Supplemental Indenture thereto.
4.8 Indenture, dated March 27, 1996, among RIC Filed as Exhibit 4.7 to RIC Holding,
Holding, Inc., Riverwood Holding, Inc., Inc.'s Annual Report on Form 10-K filed
CDRO Acquisition Corporation and Fleet April 16, 1996 (Commission File No.
National Bank of Massachusetts, as 1-11113), and incorporated herein by
trustee, relating to the 10 7/8% Senior reference.
Subordinated Notes due 2008 of Riverwood
International Corporation, together with
the First Supplemental Indenture and the
Second Supplemental Indenture thereto.
4.9 Indenture, dated as of July 28, 1997, Filed as Exhibit 4.1 to the Registration
among Riverwood International Corporation, Statement on Form S-4 (Registration No.
RIC Holding, Inc., Riverwood Holding, Inc. 333-33499) of Riverwood International
and State Street Bank & Trust Company, as Corporation, Riverwood Holding, Inc. and
trustee, relating to the 10 5/8% Senior RIC Holding, Inc. under the Securities Act
Notes due 2007 of Riverwood International of 1933, as amended, and incorporated
Corporation. herein by reference.
10.1 Form of Investor Stock Subscription Filed as Exhibit 10.6 to Registration
Agreement between Riverwood Holding, Inc. Statement on Form S-1 (Registration No.
(formerly named New River Holding, Inc.) 33-80475) of New River Holding, Inc.
and each of the investors named on the (renamed Riverwood Holding, Inc.) under
schedule thereto. the Securities Act of 1933, as amended,
and incorporated herein by reference.
10.2 Form of Management Stock Subscription Filed as Exhibit 10.4 to Registration
Agreement between New River Holding, Inc. Statement on Form S-1 (Registration No.
(renamed Riverwood Holding, Inc.) and the 33-80475) of New River Holding, Inc.
purchasers named therein. (renamed Riverwood Holding, Inc.) under
the Securities Act of 1933, as amended,
and incorporated herein by reference.
</TABLE>

103
<PAGE> 107

<TABLE>
<CAPTION>
DESCRIPTION CROSS REFERENCE OR PAGE NUMBER
----------- ------------------------------
<C> <S> <C>
10.3 Form of Management Stock Option Agreement Filed as Exhibit 10.5 to Registration
between New River Holding, Inc. (renamed Statement on Form S-1 (Registration No.
Riverwood Holding, Inc.) and the grantees 33-80475) of New River Holding, Inc.
named therein. (renamed Riverwood Holding, Inc.) under
the Securities Act of 1933, as amended,
and incorporated herein by reference.
10.4 Form of Registration and Participation Filed as Exhibit 10.7 to Registration
Agreement among New River Holding, Inc. Statement on Form S-1 (Registration No.
(renamed Riverwood Holding, Inc.) and 33-80475) of New River Holding, Inc.
certain stockholders of New River Holding, (renamed Riverwood Holding, Inc.) under
Inc. the Securities Act of 1933, as amended,
and incorporated herein by reference.
10.5 Form of New River Holding, Inc. Stock Filed as Exhibit 10.10 to Registration
Incentive Plan. Statement on Form S-1 (Registration No.
33-80475) of New River Holding, Inc.
(renamed Riverwood Holding, Inc.) under
the Securities Act of 1933, as amended,
and incorporated herein by reference.
10.6 Form of Stockholders Agreement among New Filed as Exhibit 10.11 to Registration
River Holding, Inc. (renamed Riverwood Statement on Form S-1 (Registration No.
Holding, Inc.) and the stockholders of New 33-80475) of New River Holding, Inc.
River Holding, Inc. named therein. (renamed Riverwood Holding, Inc.) under
the Securities Act of 1933, as amended,
and incorporated herein by reference.
10.7 Form of Indemnification Agreement among Filed as Exhibit 10.8 to the Registration
Riverwood Holding, Inc., RIC Holding, Statement on Form S-1 (Registration No.
Inc., RIC Holding, Inc., Riverwood 33-80475) of New River Holding, Inc.
International Corporation, Clayton, (renamed Riverwood Holding, Inc.) under
Dubilier & Rice, Inc. and Clayton, the Securities Act of 1933, as amended,
Dubilier & Rice Fund V Limited and incorporated herein by reference.
Partnership.
10.8 Form of Amended and Restated Employment Filed as Exhibit 10.9 to the Registration
Agreements among Riverwood International Statement on Form S-1 (Registration No.
Corporation, Riverwood Holding, Inc. and 33-80475) of New River Holding, Inc.
each of Robert C. Hart and Robert H. Burg. (renamed Riverwood Holding, Inc.) under
the Securities Act of 1933, as amended,
and incorporated herein by reference.
10.9 Form of Consulting Agreement among Filed as Exhibit 10.12 to the Registration
Riverwood Holding, Inc., RIC Holding, Statement on Form S-1 (Registration No.
Inc., the corporation formerly known as 33-80475) of New River Holding, Inc.
Riverwood International Corporation, (renamed Riverwood Holding, Inc.) under
Riverwood International Corporation and the Securities Act of 1933, as amended,
Clayton, Dubilier & Rice, Inc. and incorporated herein by reference.
10.10 Loanout Agreement, dated as of October 8, Filed as Exhibit 10.11 to the Registrant's
1996, among Riverwood Holding Inc., RIC Annual Report on Form 10-K filed March 27,
Holding, Inc., Riverwood International 1997 (Commission File No. 1-11113), and
Corporation and Clayton, Dubilier & Rice, incorporated herein by reference.
Inc.
</TABLE>

104
<PAGE> 108

<TABLE>
<CAPTION>
DESCRIPTION CROSS REFERENCE OR PAGE NUMBER
----------- ------------------------------
<C> <S> <C>
10.11 Employment Agreement, dated as of March Filed as Exhibit 10.1 to the Registrant's
31, 1997, among Riverwood International Quarterly Report on Form 10-Q filed May 9,
Corporation, Riverwood Holding, Inc. and 1997 (Commission File No. 1-11113), and
Stephen Humphrey. incorporated herein by reference.
10.12 Management Stock Option Agreement, dated Filed as Exhibit 10.2 to the Registrant's
as of March 31, 1997, between Riverwood Quarterly Report on Form 10-Q filed May 9,
Holding, Inc. and Stephen Humphrey. 1997 (Commission File No. 1-1113), and
incorporated herein by reference.
10.13 Employment Agreement, dated as of July 14, Filed as an exhibit hereto.
1997, among Riverwood International
Corporation, Riverwood Holding, Inc. and
Thomas M. Gannon.
10.14 Management Stock Option Agreement, dated Filed as an exhibit hereto.
as of August 19, 1998, between Riverwood
Holding, Inc. and Thomas M. Gannon.
21 List of subsidiaries Filed as an exhibit hereto.
27 Financial Data Schedule. Filed as an exhibit hereto.
99 Reconciliation of Income (Loss) from Filed as an exhibit hereto.
Operations to EBITDA.
</TABLE>

Pursuant to Item 601(b)(4)(iii) of Regulation S-K, Holding hereby agrees to
furnish a copy of each document set forth below upon request of the Securities
and Exchange Commission:

Indenture, dated as of June 24, 1992, between RIC and Continental
Bank, National Association, as trustee, relating to 10 3/4% Senior Notes
Due 2000 (the "10 3/4% Indenture").

First Supplemental Indenture to the 10 3/4% Indenture, dated as of
February 13, 1996, between RIC and First Trust of Illinois, National
Association (as successor trustee to Continental Bank, National
Association).

Indenture, dated as of June 24, 1992, between RIC and NationsBank of
Georgia, National Association, as trustee, relating to 11 1/4% Senior
Subordinated Notes Due 2002 (the "11 1/4% Indenture").

First Supplemental Indenture to the 11 1/4% Indenture, dated as of
February 13, 1996, between RIC and The Bank of New York (as successor
trustee to NationsBank of Georgia, National Association).

Indenture, dated as of June 30, 1994, between RIC and The Bank of New
York, as trustee, relating to 10 3/8% Senior Subordinated Notes Due 2004
(the "10 3/8% Indenture").

First Supplemental Indenture to the 10 3/8% Indenture, dated as of
February 13, 1996, between RIC and The Bank of New York, as trustee.

Indenture, dated as of September 15, 1993, between RIC and Morgan
Guaranty Trust Company of New York, relating to 6 3/4% Convertible
Subordinated Notes due 2003 (the "6 3/4% Indenture").

First Supplemental Indenture to the 6 3/4% Indenture, dated as of
March 27, 1996, between RIC and First Trust of New York, National
Association (as successor trustee to Morgan Guaranty Trust Company of New
York).

Second Supplemental Indenture to the 6 3/4% Indenture, dated as of
March 28, 1996, between RIC Holding, Inc. (as successor to RIC) and First
Trust of New York, National Association (as successor trustee to Morgan
Guaranty Trust Company of New York).

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<PAGE> 109

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 as of the 5th day of
March, 1999.

RIVERWOOD HOLDING, INC.

By: /s/ STEPHEN M. HUMPHREY
------------------------------------
Stephen M. Humphrey
President and Chief Executive
Officer

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

<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- --------------
<C> <S> <C>

/s/ B. CHARLES AMES Chairman of the Board March 5, 1999
- ---------------------------------------------------
B. Charles Ames

/s/ STEPHEN M. HUMPHREY President and Chief Executive March 5, 1999
- --------------------------------------------------- Officer
Stephen M. Humphrey (Principal Executive Officer)

/s/ THOMAS M. GANNON Executive Vice President, March 5, 1999
- --------------------------------------------------- Commercial Operations
Thomas M. Gannon

/s/ DANIEL J. BLOUNT Vice President and Chief March 5, 1999
- --------------------------------------------------- Financial Officer (Principal
Daniel J. Blount Financial and Accounting
Officer)

/s/ ROBERT H. BURG Senior Vice President, Human March 5, 1999
- --------------------------------------------------- Resources
Robert H. Burg

/s/ STEVEN D. SAUCIER Senior Vice President, Paperboard March 5, 1999
- --------------------------------------------------- Operations
Steven D. Saucier

/s/ KEVIN J. CONWAY Director March 5, 1999
- ---------------------------------------------------
Kevin J. Conway

/s/ LEON J. HENDRIX, JR. Director March 5, 1999
- ---------------------------------------------------
Leon J. Hendrix, Jr.

/s/ HUBBARD C. HOWE Director March 5, 1999
- ---------------------------------------------------
Hubbard C. Howe
</TABLE>

106
<PAGE> 110

<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- --------------
<C> <S> <C>
/s/ ALBERTO CRIBIORE Director March 5, 1999
- ---------------------------------------------------
Alberto Cribiore

/s/ BRIAN J. RICHMAND Director March 5, 1999
- ---------------------------------------------------
Brian J. Richmand

/s/ G. ANDREA BOTTA Director March 5, 1999
- ---------------------------------------------------
G. Andrea Botta

/s/ JOSEPH E. PARZICK Director March 5, 1999
- ---------------------------------------------------
Joseph E. Parzick

/s/ LAWRENCE C. TUCKER Director March 5, 1999
- ---------------------------------------------------
Lawrence C. Tucker

/s/ SAMUEL M. MENCOFF Director March 5, 1999
- ---------------------------------------------------
Samuel M. Mencoff
</TABLE>

107
<PAGE> 111

RIVERWOOD HOLDING, INC.

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

(IN THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
ADDITIONS
---------------------
BALANCE CHARGED TO CHARGED BALANCE
BEGINNING COSTS AND TO OTHER DEDUCTIONS AT END
(CLASSIFICATION) OF PERIOD EXPENSES ACCOUNTS (A) OF PERIOD
---------------- --------- ---------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
COMPANY:
Year ended December 31, 1998:
- ----------------------------------------------
Allowances Reducing the Assets in the Balance
Sheet:
Doubtful accounts receivable................ $ 560 $ 1,665 $ 120 $ (213) $ 2,132
Deferred tax assets......................... 96,232 79,380 -- -- 175,612
------- ------- ------- ------- --------
Total............................... $96,792 $81,045 $ 120 $ (213) $177,744
======= ======= ======= ======= ========
Year ended December 31, 1997:
- ----------------------------------------------
Allowances Reducing the Assets in the Balance
Sheet:
Doubtful accounts receivable................ $ 829 $ 449 $ -- $ (718) $ 560
Deferred tax assets......................... 92,019 4,213 -- -- 96,232
------- ------- ------- ------- --------
Total............................... $92,848 $ 4,662 $ -- $ (718) $ 96,792
======= ======= ======= ======= ========
Nine Months ended December 31, 1996:
- ----------------------------------------------
Allowances Reducing the Assets in the Balance
Sheet:
Doubtful accounts receivable................ $ -- $ 952 $ -- $ (123) $ 829
Deferred tax assets......................... 33,263 58,756 -- -- 92,019
------- ------- ------- ------- --------
Total............................... $33,263 $59,708 $ -- $ (123) $ 92,848
======= ======= ======= ======= ========
- ----------------------------------------------------------------------------------------------------------
PREDECESSOR:
Three Months ended March 27, 1996:
- ----------------------------------------------
Allowances Reducing the Assets in the Balance
Sheet:
Doubtful accounts receivable................ $ 1,476 $ 197 $ -- $ (82) $ 1,591
Deferred tax assets......................... 1,875 -- -- (1,000) 875
------- ------- ------- ------- --------
Total............................... $ 3,351 $ 197 $ -- $(1,082) $ 2,466
======= ======= ======= ======= ========
</TABLE>

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

NOTE:

(a) The reductions in the allowance for doubtful accounts receivable relate
principally to charges for which reserves were provided, net of recoveries.
The reduction in the valuation allowance in the three-month period ended
March 27, 1996, for deferred tax assets represents the reversal of a
valuation allowance on certain international deferred tax net operating loss
carryforward assets for which realization became more likely than not during
1995.

108
<PAGE> 112

SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 BY REGISTRANTS WHICH HAVE NOT
REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE ACT OF
1934.

The Company did not send an annual report or proxy materials to security
holders during the year ended December 31, 1998.

109
<PAGE> 113

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT EXHIBIT CROSS REFERENCE OR
NUMBER DESCRIPTION PAGE NUMBER
- ------- ----------- ------------------
<C> <S> <C>
2.1 Agreement and Plan of Merger, dated as Filed as Exhibit 2.1 to the Registration
of October 25, 1995, among RIC, RIC Statement on Form S-1 (Registration No.
Holding, Inc. and CDRO Acquisition 33-80475) of New River Holding, Inc.
Corporation. (renamed Riverwood Holding, Inc.) under
the Securities Act of 1933, as amended,
and incorporated herein by reference.
2.2 Voting and Indemnification Agreement, Filed as Exhibit 2.2 to the Registration
dated as of October 25, 1995, among RIC, Statement on Form S-1 (Registration No.
Manville, RIC Holding, Inc. and CDRO 33-80475) of New River Holding, Inc.
Acquisition Corporation. (renamed Riverwood Holding, Inc.) under
the Securities Act of 1933, as amended,
and incorporated herein by reference.
2.3 Tax Matters Agreement, dated as of Filed as Exhibit 10.3 to the
October 25, 1995, among Manville, RIC, Registration Statement on Form S-1
RIC Holding, Inc. and CDRO Acquisition (Registration No. 33-80475) of New River
Corporation. Holding, Inc. (renamed Riverwood
Holding, Inc.) under the Securities Act
of 1933, as amended, and incorporated
herein by reference.
2.4 Asset Purchase Agreement, dated as of Filed as Exhibit 2 to the Registrant's
August 6, 1996, among Plum Creek Timber Current Report on Form 8-K filed August
Company, L.P., Riverwood International 22, 1996 and Exhibit 2a to the
Corporation and New River Timber, LLC. Registrant's Current Report on Form 8-K
filed October 21, 1996 (Commission File
No. 1-11113), and incorporated herein by
reference.
2.5 Amendment to Asset Purchase Agreement, Filed as Exhibit 2b to the Registrant's
dated as of October 16, 1996, among Plum Current Report on Form 8-K filed October
Creek Timber Company, L.P., Riverwood 21, 1996 (Commission File No. 1-11113),
International Corporation and New River and incorporated herein by reference.
Timber, LLC.
2.6 Wood Products Supply Agreement, dated as Filed as Exhibit 2c to the Registrant's
of October 18, 1996, between Plum Creek Current Report on Form 8-K filed October
Timber Company, L.P. and Riverwood 21, 1996 (Commission File No. 1-11113),
International Corporation, including a and incorporated herein by reference.
list of omitted annexes and an
undertaking of the registrant to furnish
supplementally a copy of any such
omitted annex to the Securities and
Exchange Commission upon request.
3.1 Certificate of Incorporation of Filed as Exhibit 3.3 to the Registration
Riverwood Holding, Inc. (formerly known Statement on Form S-1 (Registration No.
as New River Holding, Inc.), dated 33-80475) of New River Holding, Inc.
December 7, 1995. (renamed Riverwood Holding, Inc.) under
the Securities Act of 1933, as amended,
and incorporated herein by reference.
3.2 Certificate of Amendment of Certificate Filed as Exhibit 3.2 to the Registrant's
of Incorporation of Holding, dated March Annual Report on Form 10-K filed March
27, 1996. 27, 1997 (Commission File No. 1-11113),
and incorporated herein by reference.
</TABLE>

110
<PAGE> 114

<TABLE>
<CAPTION>
EXHIBIT EXHIBIT CROSS REFERENCE OR
NUMBER DESCRIPTION PAGE NUMBER
- ------- ----------- ------------------
<C> <S> <C>
3.3 Restated By-Laws of Riverwood Holding, Filed as Exhibit 3.1 to the Registrant's
Inc., as amended effective October 8, Quarterly Report on Form 10-Q filed
1996. November 8, 1996 (Commission File No.
1-11113), and incorporated herein by
reference.
4.1 Senior Secured Credit Agreement, dated Filed as Exhibit 10.1 to RIC Holding,
March 27, 1996, among RIC Holding, Inc., Inc.'s Annual Report on Form 10-K filed
the other borrowers thereto, Chemical April 16, 1996 (Commission File No.
Bank, as administrative agent, and the 1-11113), and incorporated herein by
lenders party thereto. reference.
4.2 Machinery Credit Agreement, dated March Filed as Exhibit 10.1 to RIC Holding,
27, 1996, among Riverwood International Inc.'s Annual Report on Form 10-K filed
Machinery, Inc., the other borrowers April 16, 1996 (Commission File No.
thereto, Chemical Bank, as 1-11113), and incorporated herein by
administrative agent, and the lenders reference.
party thereto.
4.3 Amendment No. 1, dated as of September Filed as Exhibit 4a to the Registrant's
13, 1996, to the Credit Agreement, dated Current Report on Form 8-K filed October
as of March 27, 1996, among Riverwood 21, 1996 (Commission File No. 1-11113),
International Corporation, the lenders and incorporated herein by reference.
party thereto, and The Chase Manhattan
Bank (formerly known as Chemical Bank),
as administrative agent.
4.4 Amendment No. 2, dated as of September Filed as Exhibit 4b to the Registrant's
17, 1996, to the Credit Agreement, dated Current Report on Form 8-K filed October
as of March 27, 1996, among Riverwood 21, 1996 (Commission File No. 1-11113),
International Corporation, the lenders and incorporated herein by reference.
party thereto, and The Chase Manhattan
Bank (formerly known as Chemical Bank),
as administrative agent.
4.5 Amendment No. 3, dated as of November 4, Filed as Exhibit 4.5 to the Registrant's
1996, to the Credit Agreement, dated as Annual Report on Form 10-K filed March
of March 27, 1996, among Riverwood 27, 1997 (Commission File No. 1-11113),
International Corporation, the lenders and incorporated herein by reference.
party thereto, and The Chase Manhattan
Bank (formerly known as Chemical Bank),
as administrative agent.
4.6 Amendment No. 4, dated as of July 15, Filed as Exhibit 4.8 to the Registration
1997, to the Credit Agreement, dated as Statement on Form S-4 (Registration No.
of March 27, 1996, among Riverwood 333-33499) of Riverwood International
International Corporation, the lenders Corporation, Riverwood Holding, Inc. and
party thereto, and The Chase Manhattan RIC Holding, Inc. under the Securities
Bank (formerly known as Chemical Bank), Act of 1933, as amended, and
as administrative agent. incorporated herein by reference.
</TABLE>

111
<PAGE> 115

<TABLE>
<CAPTION>
EXHIBIT EXHIBIT CROSS REFERENCE OR
NUMBER DESCRIPTION PAGE NUMBER
- ------- ----------- ------------------
<C> <S> <C>
4.7 Indenture, dated March 27, 1996, among Filed as Exhibit 4.6 to RIC Holding,
RIC Holding, Inc., Riverwood Holding, Inc.'s Annual Report on Form 10-K filed
Inc., CDRO Acquisition Corporation and April 16, 1996 (Commission File No.
Fleet National Bank of Connecticut, as 1-11113), and incorporated herein by
trustee, relating to the 10 1/4% Senior reference.
Notes due 2006 of Riverwood
International Corporation, together with
the First Supplemental Indenture and the
Second Supplemental Indenture thereto.
4.8 Indenture, dated March 27, 1996, among Filed as Exhibit 4.7 to RIC Holding,
RIC Holding, Inc., Riverwood Holding, Inc.'s Annual Report on Form 10-K filed
Inc., CDRO Acquisition Corporation and April 16, 1996 (Commission File No.
Fleet National Bank of Massachusetts, as 1-11113), and incorporated herein by
trustee, relating to the 10 7/8% Senior reference.
Subordinated Notes due 2008 of Riverwood
International Corporation, together with
the First Supplemental Indenture and the
Second Supplemental Indenture thereto.
4.9 Indenture, dated as of July 28, 1997, Filed as Exhibit 4.1 to the Registration
among Riverwood International Statement on Form S-4 (Registration No.
Corporation, RIC Holding, Inc., 333-33499) of Riverwood International
Riverwood Holding, Inc. and State Street Corporation, Riverwood Holding, Inc. and
Bank & Trust Company, as trustee, RIC Holding, Inc. under the Securities
relating to the 10 5/8% Senior Notes due Act of 1933, as amended, and
2007 of Riverwood International incorporated herein by reference.
Corporation.
10.1 Form of Investor Stock Subscription Filed as Exhibit 10.6 to Registration
Agreement between New River Holding, Statement on Form S-1 (Registration No.
Inc. (renamed Riverwood Holding, Inc.) 33-80475) of New River Holding, Inc.
and each of the investors named on the (renamed Riverwood Holding, Inc.) under
schedule thereto. the Securities Act of 1933, as amended,
and incorporated herein by reference.
10.2 Form of Management Stock Subscription Filed as Exhibit 10.4 to Registration
Agreement between New River Holding, Statement on Form S-1 (Registration No.
Inc. (renamed Riverwood Holding, Inc.) 33-80475) of New River Holding, Inc.
and the purchasers named therein. (renamed Riverwood Holding, Inc.) under
the Securities Act of 1933, as amended,
and incorporated herein by reference.
10.3 Form of Management Stock Option Filed as Exhibit 10.5 to Registration
Agreement between New River Holding, Statement on Form S-1 (Registration No.
Inc. (renamed Riverwood Holding, Inc.) 33-80475) of New River Holding, Inc.
and the grantees named therein. (renamed Riverwood Holding, Inc.) under
the Securities Act of 1933, as amended,
and incorporated herein by reference.
10.4 Form of Registration and Participation Filed as Exhibit 10.7 to Registration
Agreement among New River Holding, Inc. Statement on Form S-1 (Registration No.
(renamed Riverwood Holding, Inc.) and 33-80475) of New River Holding, Inc.
certain stockholders of New River (renamed Riverwood Holding, Inc.) under
Holding, Inc. the Securities Act of 1933, as amended,
and incorporated herein by reference.
</TABLE>

112
<PAGE> 116

<TABLE>
<CAPTION>
EXHIBIT EXHIBIT CROSS REFERENCE OR
NUMBER DESCRIPTION PAGE NUMBER
- ------- ----------- ------------------
<C> <S> <C>
10.5 Form of New River Holding, Inc. Stock Filed as Exhibit 10.10 to Registration
Incentive Plan. Statement on Form S-1 (Registration No.
33-80475) of New River Holding, Inc.
(renamed Riverwood Holding, Inc.) under
the Securities Act of 1933, as amended,
and incorporated herein by reference.
10.6 Form of Stockholders Agreement among New Filed as Exhibit 10.11 to Registration
River Holding, Inc. (renamed Riverwood Statement on Form S-1 (Registration No.
Holding, Inc.) and the stockholders of 33-80475) of New River Holding, Inc.
New River Holding, Inc. named therein. (renamed Riverwood Holding, Inc.) under
the Securities Act of 1933, as amended,
and incorporated herein by reference.
10.7 Form of Indemnification Agreement among Filed as Exhibit 10.8 to the
Riverwood Holding, Inc., RIC Holding, Registration Statement on Form S-1
Inc., Riverwood International (Registration No. 33-80475) of New River
Corporation, Clayton, Dubilier & Rice, Holding, Inc. (renamed Riverwood
Inc. and Clayton, Dubilier & Rice Fund V Holding, Inc.) under the Securities Act
Limited Partnership. of 1933, as amended, and incorporated
herein by reference.
10.8 Form of Amended and Restated Employment Filed as Exhibit 10.9 to the
Agreements among Riverwood International Registration Statement on Form S-1
Corporation, Riverwood Holding, Inc. and (Registration No. 33-80475) of New River
each of Robert C. Hart and Robert H. Holding, Inc. (renamed Riverwood
Burg. Holding, Inc.) under the Securities Act
of 1933, as amended, and incorporated
herein by reference.
10.9 Form of Consulting Agreement among Filed as Exhibit 10.12 to the
Riverwood Holding, Inc., RIC Holding, Registration Statement on Form S-1
Inc., the corporation formerly known as (Registration No. 33-80475) of New River
Riverwood International Corporation, Holding, Inc. (renamed Riverwood
Riverwood International Corporation and Holding, Inc.) under the Securities Act
Clayton, Dubilier & Rice, Inc. of 1933, as amended, and incorporated
herein by reference.
10.10 Loanout Agreement, dated as of October Filed as Exhibit 10.11 to the
8, 1996, among Riverwood Holding Inc., Registrant's Annual Report on Form 10-K
RIC Holding, Inc., Riverwood filed March 27, 1997 (Commission File
International Corporation and Clayton, No. 1-11113), and incorporated herein by
Dubilier & Rice, Inc. reference.
10.11 Employment Agreement, dated as of March Filed as Exhibit 10.1 to the
31, 1997, among Riverwood International Registrant's Quarterly Report on Form
Corporation, Riverwood Holding, Inc. and 10-Q filed May 9, 1997 (Commission File
Stephen Humphrey. No. 1-11113), and incorporated herein by
reference.
10.12 Management Stock Option Agreement, dated Filed as Exhibit 10.2 to the
as of March 31, 1997, between Riverwood Registrant's Quarterly Report on Form
Holding, Inc. and Stephen Humphrey. 10-Q filed May 9, 1997 (Commission File
No. 1-11113), and incorporated herein by
reference.
10.13 Employment Agreement, dated as of July Filed as an exhibit hereto.
14, 1997, among Riverwood International
Corporation, Riverwood Holding, Inc. and
Thomas M. Gannon.
</TABLE>

113
<PAGE> 117

<TABLE>
<CAPTION>
EXHIBIT EXHIBIT CROSS REFERENCE OR
NUMBER DESCRIPTION PAGE NUMBER
- ------- ----------- ------------------
<C> <S> <C>
10.14 Management Stock Option Agreement, dated Filed as an exhibit hereto.
as of August 19, 1998, between Riverwood
Holding, Inc. and Thomas M. Gannon.
21 List of subsidiaries. Filed as an exhibit hereto.
27 Financial Data Schedule. Filed as an exhibit hereto.
99 Reconciliation of Income(Loss) from Filed as an exhibit hereto.
Operations to EBITDA.
</TABLE>

114

<PAGE> 1
EXHIBIT 10.13

EMPLOYMENT AGREEMENT

AGREEMENT, dated as of July 14, 1997 by and among Riverwood
International Corporation, a Delaware corporation ("Employer"), Riverwood
Holding, Inc., a Delaware corporation ("Holding") and Thomas M. Gannon
("Executive").

W I T N E S S E T H :

WHEREAS, Employer desires to employ Executive and Executive desires to
become an Executive of Employer;

WHEREAS, Employer and Executive desire to set forth the terms and
provisions of the such employment (the "Agreement").

NOW, THEREFORE, in consideration of the promises and mutual covenants
contained herein and for other good and valuable consideration, Employer and
Executive hereby agree as follows:

1. Agreement to Employ. Upon the terms and subject to the
conditions of this Agreement, Employer hereby employs Executive and Executive
hereby accepts employment by Employer.

2. Term; Position and Responsibilities.

(a) Term of Employment. Unless Executive's employment
shall sooner terminate pursuant to Section 7, Employer shall employ Executive
for a term commencing July 14, 1997 (the "Effective Time") and ending on July
13, 2000 (the "Initial Term"). Effective upon the expiration of the Initial
Term, Executive's employment hereunder shall be deemed to be automatically
extended, upon the same terms and conditions, for additional periods of one
year (each, an "Additional Term"), in each such case, commencing upon the
expiration of the Initial Term or the then current Additional Term, as the case
may be, unless Employer, at least 180 days prior to the expiration of the
Initial Term or any Additional Term, shall give written notice (a "Nonrenewal
Notice") to Executive of its intention not to renew such employment. The period
during which Executive is employed pursuant to this Agreement, including any
extension thereof in accordance with the preceding sentence, shall be referred
to as the "Employment Period."

(b) Position and Responsibilities. During the Employment
Period, Executive will serve as Senior Vice President and Chief Financial
Officer of Employer with such duties and responsibilities as are customarily
assigned to individuals serving in such position, and such other duties
consistent with Executive's position as the Board of Directors of Employer
("Employer's Board") specifies from time to time. Executive will devote all of
his skills, knowledge and working time (except for (i) vacation time as set
forth in Section 6(c) hereof and absence for sickness or similar disability and
(ii) to the extent that it does not interfere with the performance of
Executive's duties hereunder, (A) such reasonable time as may be devoted to
service on boards of directors and

1
<PAGE> 2

the fulfillment of civic responsibilities and (B) reasonable time as may be
necessary from time to time for personal financial matters to the conscientious
performance of the duties of such position or positions.

3. Base Salary. As compensation for the services to be performed
by Executive during the Employment Period, Employer will pay Executive an
annual base salary of $265,000.00 and, in the event that employment hereunder
is terminated by death, for the remainder of the pay period in which death
occurs and for one month thereafter. Employer's Board will review Executive's
Base Salary annually during the period of his employment hereunder and, in the
discretion of Employer's Board, may increase (but may not decrease) such base
salary from time to time based upon the performance of Executive, the financial
condition of Employer, prevailing industry salary levels and such other factors
as Employer's Board shall consider relevant. (The annual base salary payable to
Executive under this Section 3, as the same may be increased from time to time
and without regard to any reduction therefrom in accordance with the next
sentence, shall hereinafter be referred to as the "Base Salary".) The Base
Salary payable under this Section 3 shall be reduced to the extent that
Executive elects to defer such Base Salary under the terms of any deferred
compensation, savings plan or other voluntary deferral arrangement maintained
or established by Employer. Employer shall pay Executive the Base Salary in
semi-monthly installments, or in such other installments as may be mutually
agreed upon by Employer and Executive.

4. Incentive Compensation Arrangements.

(a) Incentive Compensation. During the Employment
Period, Executive shall participate in Employer's incentive compensation
programs for its executive officers existing from time to time, at a level
commensurate with his position and duties with Employer, which programs shall
provide an annual target bonus of 100% of Base Salary, based on such
performance targets as may be established from time to time by Employer's Board
or a committee thereof. For calendar year 1997 the incentive compensation shall
not be less than $100,000 and shall be paid during the first quarter of 1998.
If Employer's actual financial performance for 1997 results in a calculation of
a higher award than the minimum guaranteed for 1997, Executive will be paid the
greater reward.

For the 1998 incentive year and thereafter, Executive's annual
incentive compensation opportunity will be contingent upon whether Executive
elects to make a meaningful investment in Holding Common Stock as defined in
Section 4(c), generally defined as 50% or more of the maximum equity
participation offered in Section 4(c). If Executive participates at a
meaningful investment level, Executive's annual incentive compensation
opportunity will remain at 100% of Executive's Base Salary. If Executive elects
not to invest or if the investment is less than meaningful, Executive's annual
incentive compensation opportunity shall change to 60% prospectively from the
date the opportunity to purchase shares is offered pursuant to Section 4(c).
Notwithstanding the aforesaid until Executive is offered the opportunity to
purchase shares under Section 4(c), Executive's annual target award will remain
at 100% of Executive's Base Salary.

2
<PAGE> 3

(b) Special Incentive Plan. Executive will participate
in a special EBITDA improvement plan. The award opportunity will range from $0
to $250,000 with payment depending upon Executive's achieving certain financial
and non-financial improvement objectives mutually agreed between Executive and
Employer and approved by the Compensation and Benefits Committee of the
Employer's Board of Directors during the first 90 days after Executive's
initial Employment Date. Specific Corporate performance improvement criteria
may include, but not be limited to: EBITDA achievement, cost reduction, cash
generation, business process simplification, SAP implementation, and people and
organizational development. The Performance period will be the 1998 and 1999
business years. One half of the Special Incentive Plan will be based upon
EBITDA achievement and will be paid during the first quarters of the years 1999
and 2000. The second half of the Special Incentive Plan for non-financial
objectives shall be determined, calculated and awarded upon completion and
review with the Compensation and Benefits Committee. If there is a change of
control prior to the dates on which the Special Incentive Plan award could be
earned, and if executive is on the payroll immediately preceding the change of
control, then the Special Incentive Plan award shall be paid by employer and
such payment shall be guaranteed by Holding. The amount to be paid shall assume
all targets were achieved.

(c) Opportunity to Purchase Shares. (i) Executive shall
be granted non-qualified stock options to purchase up to an aggregate of 30,000
shares of Class A Common Stock of Holding, par value $.01 per share (the
"Common Stock"). There shall be granted 7,500 Special Options, up to 15,000
Service Options and up to 7,500 Performance Options. The terms and conditions
of Executive's purchase of any Shares, including the right of first refusal of
Holding with respect to such Shares and the right of Holding and certain of its
affiliates to re-purchase such Shares from Executive under certain
circumstances, shall be set forth in the Riverwood Holding, Inc. Stock
Incentive Plan (the "Stock Incentive Plan"), a separate Management Stock
Subscription Agreement, substantially in the form attached hereto as Exhibit A,
to be entered into between Holding and Executive (the "Subscription Agreement")
and the Registration and Participation Agreement referred to herein.
Notwithstanding any other provision herein, no provision hereof shall be deemed
to constitute an offer to sell any Common Stock or any interest therein within
the meaning of the Securities Act of 1933, as amended, or any state securities
laws. The per share exercise price for the Common Stock covered by the Special
Options, Services Options and Performance Options shall be:

<TABLE>
<CAPTION>
Maximum Maximum Maximum Per Share
Number of Shares Number of Shares Number of Shares Exercise Price
Covered by Covered by Covered by
Special options Service options Performance options

3
<PAGE> 4

(c) Service and Performance Options. (ii) Upon the purchase of
the Shares pursuant to Section 4(c)(i), Executive shall be granted
non-qualified stock options to purchase additional shares of the Common Stock
at an exercise price per share equal to $100, each such option to be granted
pursuant to the terms of the Stock Incentive Plan and to have a ten year term,
as follows: (i) Executive shall be granted options (the "Service Options") to
purchase up to 15,000 shares of Common Stock (or, if less, a number of shares
of Common Stock equal to the product of (x) the number of Shares purchased by
Executive pursuant to Section 4(c)(i), multiplied by (y) two) and (ii)
Executive shall be granted options (the "Performance Options"), and together
with the Service Options, the ("Options") to purchase up to 7,500 additional
shares of Common Stock (or, if less, one-half of the number of shares of Common
Stock covered by the Service Options granted to Executive pursuant to this
Section 4(c)(ii). The Service Options granted hereby shall vest and become
exercisable (A) as to 40% of the Shares subject thereto on the first
anniversary of the Grant Date and (B) as to 20% of the Shares subject thereto
on each of the second, third and fourth anniversaries of the Grant Date,
respectively and the Performance Options shall generally become vested, in
full, on the earlier of (A) the date the Company achieves the Cumulative EBITDA
target provided for under the terms of the Option Agreement (as defined below)
and (B) nine years and six months following the date of grant, subject, in each
such case, to Executive's continuous employment through the applicable vesting
date. The terms and conditions of the Options (including those described
herein) shall be set forth in the Stock Incentive Plan and a separate
Management Stock Options Agreement, substantially in the form attached hereto
as Exhibit B, to be entered into by Executive and Holding (the "Option
Agreement"). The Board of Directors of the Company as of the date hereof has
not made a final determination defining the Cumulative EBITDA Target but once
established for all other equity participants, it shall be used to determined
the vesting of Performance Options.

5. Executive Benefits. During the Employment Period, employee
benefits, including life, medical, dental, accidental death and dismemberment,
business travel accident, prescription drug and disability insurance, will be
provided to Executive in accordance with the programs of Employer then
available to senior executive employees, as the same may be amended and in
effect from time to time. Executive shall also be entitled to participate in
all of Employer's profit sharing, pension, retirement, deferred compensation
and savings plans, as the same may be amended and in effect from time to time,
applicable to senior executives of Employer. The benefits referred to in this
Section 5 shall be provided to Executive on a basis that is commensurate with
Executive's position and duties with the Company hereunder and that is no less
favorable than that of similarly situated senior executives of Employer.

6. Perquisites and Expenses.

(a) General. During the Employment Period, Executive
shall be entitled to participate in all special benefit or perquisite programs
generally available from time to time to senior executive officers of Employer,
on the terms and conditions then prevailing under each such program. Without
duplicating the foregoing, during the twelve-month period immediately following

4
<PAGE> 5

the commencement of the Initial Term, Executive shall be entitled to the
perquisites set forth on Schedule I hereto.

(b) Business Travel, Lodging, etc. Employer shall
reimburse Executive for reasonable travel, lodging, meal and other reasonable
expenses incurred by him in connection with his performance of services
hereunder upon submission of evidence, satisfactory to Employer, of the
incurrence and purpose of each such expense and otherwise in accordance with
Employer's business travel reimbursement policy applicable to senior executives
as in effect from time to time.

7. Termination of Employment.

(a) Termination Due to Death or Disability. In the event
that Executive's employment hereunder terminates due to death or is terminated
by Employer due to Executive's Disability (as defined below), no termination
benefits shall be payable to or in respect of Executive except as provided in
Section 7(f)(ii). For purposes of this Agreement, "Disability" shall mean a
physical or mental disability that prevents the performance by Executive of his
duties hereunder lasting for a continuous period of six months or longer. The
determination of Executive's Disability shall be made by an independent
physician who is reasonably acceptable to Employer and Executive and shall be
final and binding and shall be based on such competent medical evidence as
shall be presented to it by Executive or by any physician or group of
physicians or other competent medical experts employed by Executive and/or
Employer to advise such independent physician.

(b) Termination by Employer for Cause. Executive may be
terminated for "Cause" by Employer; provided, however, that Executive and/or
his representative shall be permitted to attend a meeting of Employer's Board
within thirty days after delivery to him of a Notice of Termination pursuant to
this Section 7(b) to explain why he should not be terminated for Cause and, if
following any such explanation by Executive, Employer's Board determines that
Employer does not have Cause to terminate Executive's employment, any such
prior Notice of Termination delivered to Executive shall thereupon be withdrawn
and of no further force or effect. "Cause" shall mean (i) the willful failure
of Executive substantially to perform his duties hereunder (other than any such
failure due to physical or mental illness) or other willful and material breach
by Executive of any of his obligations hereunder or under any other material
agreements entered into by and between Employer and Executive, after a demand
for substantial performance is delivered (specifying in reasonable detail the
failure to perform or breach) is delivered to Executive, and upon the
recommendation of the CEO, a reasonable opportunity to cure is given to
Executive, (ii) Executive's engaging in willful and serious misconduct that has
caused or would reasonably be expected to result in material injury to Employer
or any of its affiliates, or (iii) Executive's conviction of, or entering a
plea of nolo contendere to, a crime that constitutes a felony.

5
<PAGE> 6

(c) Termination Without Cause. A termination "Without
Cause" shall mean a termination of employment by Employer other than due to
Disability as described in Section 7(a) or for Cause as defined in Section
7(b).

(d) Termination by Executive. Executive may terminate
his employment for any reason. A termination of employment by Executive for
"Good Reason" shall mean a termination of employment by Executive within 30
days following the occurrence of any of the following events without
Executive's consent: (i) the assignment to Executive of duties that are
significantly different from and that result in a substantial diminution of the
duties that he is to assume at the Effective Time. This Section 7(d)(i) shall
not apply where the Executive is assigned to another position under the same
compensation terms and conditions, (ii) the failure of Employer to obtain the
assumption of this Agreement by any successor as contemplated by Section 14,
(iii) a reduction of Executive's Base Salary, (iv) the assignment of Executive
to a principal office located beyond a 50-mile radius of Executive's current
work place, (v) a material breach by Employer of any of its obligations
hereunder or by the company under the Subscription Agreement or the Option
Agreement or (vi) delivery to executive of a Nonrenewal Notice, provided in the
case of any of clauses (i), (iii) or (v), Executive has delivered written
notice of his intention to terminate his employment for "Good Reason",
specifying the provisions hereof on which Executive will rely, and Employer or
Holding, as the case may be, shall have had a reasonable opportunity to cure.

(e) Notice of Termination. Any termination by Employer
pursuant to Section 7(a), 7(b) or 7(c) or by Executive pursuant to Section
7(d), shall be communicated by a written "Notice of Termination" addressed to
the other parties to this Agreement. A "Notice of Termination" shall mean a
notice stating that Executive's employment hereunder has been or will be
terminated.

(f) Payments Upon Certain Terminations.

(i) In the event of a termination of
Executive's employment by Employer Without Cause or a termination by Executive
of his employment for Good Reason during the Employment Period, Employer shall
pay to Executive (or, following his death, to Executive's beneficiary) the
total of: (A) his Base Salary for the period (the "Severance Period") beginning
on the Date of Termination and ending on the last to occur of (x) the last day
of the Initial Term or, if applicable, the then current Additional Term, or (y)
the first anniversary of the Date of Termination or (z) the expiration of a
number of months equal to the number of completed years of service with the
Company and its predecessors completed by Executive as of his Date of
Termination and (B) if, as of the Date of Termination, the Company has achieved
the performance objectives established under the Company's annual incentive
compensation plan for the calendar year that includes the Date of Termination,
pro rated on the basis of the fraction described in the immediately following
clause (B)(2) hereof, an amount, payable in one lump sum as soon as reasonably
practicable following receipt by Employer of Employer's or Holding's financial
statements for such calendar year (accompanied by an audit report of its
accountants) through the Date of Termination, equal to the product of (1) the
amount of incentive compensation that would have been payable to Executive for
such calendar year under the annual incentive compensation plan had he remained
employed for the

6
<PAGE> 7

entire calendar year, multiplied by (2) a fraction, the numerator of which is
equal to the number of days in such calendar year that precede the Date of
Termination and the denominator of which is equal to 365 (such product, the
"Pro Rata Bonus") less (C) any amount paid or payable to Executive under the
terms of any severance plan or program of Holding, Employer or any of their
respective subsidiaries as in effect on the Date of Termination; provided that
Employer may, at any time, pay to Executive in a single lump sum and in
satisfaction of Employer's obligations under clause (A) of this Section
7(f)(i), an amount equal to (x) the installments of the Base Salary then
remaining to be paid to Executive pursuant to clause (A) above, and the amount,
if any, then remaining to be paid to Executive pursuant to clause (B) above,
less (y) the amount, if any, remaining to be paid to Executive pursuant to any
plan or program identified under clause (C) above. If Executive's employment
shall terminate and he is entitled to receive salary continuation payments
under clause (A) of this Section 7(f)(i), Employer shall (x) continue to
provide to Executive during the Severance Period the life, medical, dental,
accidental death and dismemberment and prescription drug benefits referred to
in Section 5 (the "Continued Benefits") and (y) reimburse Executive for
expenses incurred by him for outplacement and career counseling services
provided to Executive for an aggregate amount not in excess of the lesser of
(i) $25,000 and (ii) 20% of Executive's Base Salary. Executive shall not have a
duty to mitigate the costs to Employer under this Section 7(f)(i), except that
Continued Benefits shall be reduced or canceled to the extent of any comparable
benefit coverage offered to Executive during the Severance Period by a
subsequent employer. Any benefits payable to Executive under any otherwise
applicable plans, policies and practices of Employer shall not be limited by
this provision.

(ii) If Executive's employment shall terminate
upon his death or Disability or if Employer shall terminate Executive's
employment for Cause or Executive shall terminate his employment without Good
Reason during the Employment Period, Employer shall pay Executive his full Base
Salary through the Date of Termination, plus, in the case of termination upon
Executive's death or Disability, the pro rata amount of incentive compensation
for the portion of the calendar year preceding Executive's Date of Termination
(exclusive of any time between the onset of a physical or mental disability
that prevents the performance by Executive of his duties hereunder and the
resulting Date of Termination) that would have been payable to Executive if he
had remained employed for the entire calendar year and assuming that all
applicable performance targets had been achieved, plus in the case of
termination upon Executive's death, his full Base Salary for the remainder of
the pay period in which death occurs and for one month thereafter, as provided
in Section 3 hereof. Any benefits payable to or in respect of Executive under
any otherwise applicable plans, policies and practices of Employer shall not be
limited by this provision.

(g) Date of Termination. As used in this Agreement, the
term "Date of Termination" shall mean (i) if Executive's employment is
terminated by his death, the date of his death, (ii) if Executive's employment
is terminated by Employer for Cause, the date on which Notice of Termination is
given or, if later, the date of termination specified in such Notice, as
contemplated by Section 7(e), and (iii) if Executive's employment is terminated
by Employer Without Cause, due to Executive's Disability or by Executive for
any reason, 30 days after the date on which Notice of Termination is given as
contemplated by Section 7(e) or, if no such Notice is given, 30 days after the
date of termination of employment.

7
<PAGE> 8

(h) Resignation from Board Memberships. Effective as of
any Date of Termination under this Section 7 or otherwise as of the date of
Executive's termination of employment with Employer, Executive shall resign, in
writing, from all Board memberships then held by him on the Boards of Holding,
Employer or any of their respective subsidiaries.

8. Unauthorized Disclosure. Without the prior written consent of
Employer's Board or its authorized representative, except to the extent
required by an order of a court having competent jurisdiction or under subpoena
from an appropriate government agency, in which event, Executive will use his
best efforts to consult with Employer's Board prior to responding to any such
order or subpoena, and except as required in the performance of his duties
hereunder, or as may be required to defend himself in any arbitration,
government hearing or court proceeding, Executive shall not disclose any
confidential or proprietary trade secrets, customer lists, drawings, designs,
information regarding product development, marketing plans, sales plans,
manufacturing plans, management organization information (including data and
other information relating to members of Employer's Board, the Board of
Directors of Holding and management of Employer or Holding), operating policies
or manuals, business plans, financial records, packaging design or other
financial, commercial, business or technical information relating to Holding,
Employer or any of their respective subsidiaries or affiliates that Holding,
Employer or any of their respective subsidiaries or affiliates may receive
belonging to suppliers, customers or others who do business with Holding,
Employer or any of their respective subsidiaries or affiliates (collectively,
"Confidential Information") to any third person, other than Executive's Legal
Counsel, unless such Confidential Information has been previously disclosed to
the public or is in the public domain (other than by reason of Executive's
breach of this Section 8).

9. Non-Competition. During the period of Executive's employment
and the one year period following any termination of Executive's employment
(such periods referred to collectively as the "Restriction Period"), Executive
shall not, directly or indirectly, engage in, become employed by, serve as an
agent or consultant to, or become a partner, principal or stockholder (other
than a holder of less than 1% of the outstanding voting shares of any publicly
held company) of The Mead Corporation, any of its subsidiaries or any other
current or future direct competitor (or any of such direct competitor's
subsidiaries or affiliates) of Holding, Employer or any of their respective
subsidiaries, as determined in good faith by Employer's Board.

10. Non-Solicitation of Executives. During the Restriction
Period, Executive shall not, directly or indirectly, for his own account or for
the account of any other person or entity with which he is or shall become
associated in any capacity, (a) solicit for employment, employ or otherwise
interfere with the relationship of Holding, Employer or any of their respective
subsidiaries with, any person who at any time during the six months preceding
such solicitation, employment or interference is or was employed by or
otherwise engaged to perform services for Holding, Employer or any of their
respective subsidiaries, other than any such solicitation or employment during
Executive's employment with Holding and Employer on behalf of Holding, and
Employer, or (b) induce any Executive of Holding, Employer or any of their
respective subsidiaries who is a member

8
<PAGE> 9

of management to engage in any activity which Executive is prohibited from
engaging in under any of Sections 8, 9, 10 or 11 hereof or to terminate his
employment with Employer.

11. Non-Solicitation of Customers. During the Restriction Period,
Executive shall not, directly or indirectly, solicit or otherwise attempt to
establish for himself or any other person, firm or entity any business
relationship of a nature that is competitive with the business or relationship
of Holding, Employer or any of their respective subsidiaries with any person,
firm or corporation which during the twelve-month period preceding the date his
employment with Holding, Employer and their respective subsidiaries terminates
was a customer, client or distributor of Holding, Employer or any of their
respective subsidiaries, other than any such solicitation during Executive's
employment with Holding or Employer on behalf of Holding or Employer.

12. Return of Documents. In the event of the termination of
Executive's employment for any reason, Executive will deliver to Employer all
of Holding's, Employer's or any of their respective subsidiaries' property and
Holding's, Employer's or any of their respective subsidiaries' non-personal
documents and data of any nature and in whatever medium pertaining to
Executive's employment with Holding, Employer or any of their respective
subsidiaries, and he will not take with him any such property, documents or
data of any description or any reproduction thereof, or any documents
containing or pertaining to any Confidential Information. Executive shall have
access to returned documents should Executive require their use for purposes of
litigation or arbitration.

13. Injunctive Relief with Respect to Covenants. Executive
acknowledges and agrees that the covenants and obligations of Executive with
respect to noncompetition, nonsolicitation, confidentiality and Employer
property relate to special, unique and extraordinary matters and that a
violation of any of the terms of such covenants and obligations will cause
Employer irreparable injury for which adequate remedies are not available at
law. Therefore, Executive agrees that Employer shall be entitled to an
injunction, restraining order or such other equitable relief (without the
requirement to post bond) as a court of competent jurisdiction may deem
necessary or appropriate to restrain Executive from committing any violation of
the covenants and obligations referred to in this Section 13. These injunctive
remedies are cumulative and in addition to any other rights and remedies
Employer may have at law or in equity. If Employer does not prevail in
obtaining any such injunctive relief, Employer shall reimburse the Executive
for any legal expenses incurred by him in defending the imposition of such
injunctive relief.

14. Assumption of Agreement. Employer will require any successor
(by purchase, merger, consolidation or otherwise) to all or substantially all
of the business and/or assets of Employer, by agreement in form and substance
reasonably satisfactory to Executive, to expressly assume and agree to perform
this Agreement in the same manner and to the same extent that Employer would be
required to perform it if no such succession had taken place. Failure of
Employer to obtain such agreement prior to the effectiveness of any such
succession shall be a breach of this Agreement and shall entitle Executive to
compensation from Employer in the same amount and on the same terms as
Executive would be entitled hereunder if Employer terminated his employment
Without Cause as contemplated by Section 7, except that for purposes of
implementing

9
<PAGE> 10

the foregoing, the date on which any such succession becomes effective shall be
deemed the Date of Termination.

15. Entire Agreement. Except as otherwise expressly provided
herein, this Agreement (including the Exhibits hereto) constitutes the entire
agreement among the parties hereto with respect to the subject matter hereof,
and all promises, representations, understandings, arrangements and prior
agreements relating to such subject matter (including, without limitation,
those made to or with Executive by any other person or entity and the Prior
Agreement) are merged herein and superseded hereby.

16. Indemnification. Employer agrees that it shall indemnify and
hold harmless Executive to the fullest extent permitted by Delaware law from
and against any and all liabilities, costs, claims and expenses including
without limitation all costs and expenses incurred in defense of litigation,
including attorneys' fees, arising out of being an Employee and/or Officer of
Employer hereunder, except to the extent arising out of or based upon the gross
negligence or willful misconduct of Executive. Costs and expenses incurred by
Executive in defense of litigation, including attorneys' fees, shall be paid by
Employer in advance of the final disposition of such litigation upon receipt of
an undertaking by or on behalf of Executive to repay such amount if it shall
ultimately be determined that Executive is not entitled to be indemnified by
Employer under this Agreement.

17. Miscellaneous.

(a) Binding Effect. This Agreement shall be binding on
and inure to the benefit of Employer and its successors and permitted assigns.
This Agreement shall also be binding on and inure to the benefit of Executive
and his heirs, executors, administrators and legal representatives.

(b) Arbitration. Any dispute or controversy arising
under or in connection with this Agreement (except in connection with any
request or application for injunctive relief in accordance with Section 13)
shall be resolved by binding arbitration. The arbitration shall be held in the
city of Atlanta, Georgia and except to the extent inconsistent with this
Agreement, shall be conducted in accordance with the Voluntary Labor
Arbitration Rules of the American Arbitration Association then in effect at the
time of the arbitration, and otherwise in accordance with principles which
would be applied by a court of law or equity. The arbitrator shall be
acceptable to both Employer and Executive. If the parties cannot agree on an
acceptable arbitrator, the dispute shall be heard by a panel of three
arbitrators, one appointed by each of the parties and the third appointed by
the other two arbitrators. All expenses or arbitration shall be borne by the
party who incurs the expense, or, in the case of joint expenses, by both
parties in equal portions, except that, in the event Executive prevails on the
principal issues of such dispute or controversy, all such expenses shall be
borne by the Employer.

(c) Governing Law. This Agreement shall be governed by
and constructed in accordance with the laws of the State of New York without
reference to principles of conflict of laws.

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<PAGE> 11

(d) Taxes. Employer may withhold from any payments made
under the Agreement all federal, state or other applicable taxes as shall be
required by law.

(e) Amendments. No provision of this Agreement may be
modified, waived or discharged unless such modification, waiver or discharge is
approved by Employer's Board or a person authorized thereby and is agreed to in
writing by Executive and, in the case of any such modification, waiver or
discharge effecting the rights or obligations of Holding, is approved by the
Board of Directors of Holding or such officer of Holding as may be specifically
designated for such purpose by such Board of Directors. No waiver by any party
hereto at any time of any breach by any other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such
other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No waiver of any
provision of this Agreement shall be implied from any course of dealing between
or among the parties hereto or from any failure by any party hereto to assert
its rights hereunder on any occasion or series of occasions.

(f) Severability. In the event that any one or more of
the provisions of this Agreement shall be or become invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not be affected thereby.

(g) Notices. Any notice or other communication required
or permitted to be delivered under this Agreement shall be (i) in writing, (ii)
delivered personally, by courier service or by certified or registered mail,
first-class postage prepaid and return receipt requested, (iii) deemed to have
been received on the date of delivery or on the third business day after the
mailing thereof, and (iv) addressed as follows (or to such other address as the
party entitled to notice shall hereafter designate in accordance with the terms
hereof):

(A) if to Employer or Holding, to it as:

Riverwood International Corporation
3350 Cumberland Circle
Suite 1400
Atlanta, Georgia 30339
Attention: Bill H. Chastain, Esq.

(B) if to Executive, to him at the address listed
on the signature page hereof.

Copies of any notices or other communications given under this Agreement shall
also be given to:

Clayton, Dubilier & Rice, Inc.
375 Park Avenue
New York, New York 10152
Attention: Mr. Kevin J. Conway

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<PAGE> 12

and

Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Attention: Franci J. Blassberg, Esq.

(h) Survival. Sections 8, 9, 10, 11, 12, 13, 14, 15, 16,
17, and, if Executive's employment terminates in a manner giving rise to a
payment under Section 7(f), Section 7(f) shall survive the termination of the
employment of Executive hereunder.

(i) No Conflicts. Executive, Employer and Holding each
represent that they are entering into this Agreement voluntarily and that
Executive's employment hereunder and each party's compliance with the terms and
conditions of this Agreement will not conflict with or result in the breach of
such party of any agreement to which it is a party or by which it may be bound.

(j) Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.

(k) Headings. The section and other headings contained
in this Agreement are for the convenience of the parties only and are not
intended to be a part hereof or to affect the meaning or interpretation hereof.

(l) Authorization. Employer warrants that Stephen M.
Humphrey, President and Chief Executive Officer, is authorized to enter into
this Employment Agreement.

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<PAGE> 13

IN WITNESS WHEREOF, Employer and Holding have duly executed this
Agreement by their authorized representatives and Executive has hereunto set
his hand, in each case effective as of the date first above written.

<TABLE>
<CAPTION>
RIVERWOOD HOLDING, INC. RIVERWOOD INTERNATIONAL
CORPORATION

<S> <C>
By: /s/ Stephen M. Humphrey By: /s/ Stephen M. Humphrey
------------------------------------- -------------------------------------
Stephen M. Humphrey Stephen M. Humphrey
President and Chief Executive Officer President and Chief Executive Officer

Executive:

/s/ Thomas M. Gannon
------------------------------------------
Thomas M. Gannon
Riverwood International Corporation
3350 Cumberland Circle, Suite 1400
Atlanta, Georgia 30339
</TABLE>

<PAGE> 1
EXHIBIT 10.14

MANAGEMENT STOCK OPTION AGREEMENT

MANAGEMENT STOCK OPTION AGREEMENT, dated as of August 19, 1998,
between Riverwood Holding, Inc. (formerly New River Holding, Inc.), a Delaware
corporation (the "Company"), and the Grantee whose name appears on the
signature page hereof (the "Grantee").

W I T N E S S E T H:

WHEREAS, to motivate key employees of the Company and the Subsidiaries
by providing them an ownership interest in the Company, the Board of Directors
of the Company (the "Board") established the Riverwood Holding, Inc. Stock
Incentive Plan, as the same may be amended from time to time (the "Plan");

WHEREAS, the Board has authorized the grant to the Grantee of the
Options (as defined herein) pursuant to the Plan and the terms set forth in
this Agreement;

WHEREAS, the Grantee and the Company desire to enter into an agreement
to evidence and confirm the grant of such options on the terms and conditions
set forth herein;

NOW, THEREFORE, to evidence the stock options so granted, and to set
forth the terms and conditions governing such stock options, the Company and
the Grantee hereby agree as follows:

1. Certain Definitions. As used in this Agreement, the following
terms shall have the following meanings:

(a) "Acquisition" shall mean the series of transactions
resulting in the indirect acquisition of all of the issued and outstanding
capital stock of Former Riverwood by the Company on March 27, 1996 pursuant to
the Merger Agreement.

(b) "Affiliate" shall mean, with respect to any person,
any other person controlled by, controlling or under common control with such
person.

(c) "Award Agreement" shall mean each agreement
evidencing the grant of any award under the Plan, including, without
limitation, this Agreement.

(d) "Board" shall mean the Board of Directors of the
Company.

(e) "CD&R Fund" shall mean the Clayton, Dubilier & Rice
Fund V Limited Partnership, a Cayman Islands exempted limited partnership, and
any successor investment vehicle managed by Clayton, Dubilier & Rice, Inc.

(f) "Cause" shall have the meaning assigned to such term
in the Employment Agreement.

(g) "Change in Control" shall mean the first to occur of
the following events after the date hereof:

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<PAGE> 2
(i) the acquisition by any person, entity or
"group" (as defined in Section 13(d) of the Exchange Act),
other than the Company, the Subsidiaries, any employee
benefit plan of the Company or the Subsidiaries, the CD&R
Fund, any Investor or any Affiliate of the CD&R Fund or of an
Investor, of 50% or more of the combined voting power of the
Company's or Riverwood's then outstanding voting securities;

(ii) the merger or consolidation of the Company
or Riverwood, as a result of which persons who were
stockholders of the Company or Riverwood, as the case may be,
immediately prior to such merger or consolidation, do not,
immediately thereafter, own, directly or indirectly, more
than 50% of the combined voting power entitled to vote
generally in the election of directors of the merged or
consolidated company;

(iii) the liquidation or dissolution of the
Company or Riverwood other than a liquidation of Riverwood
into the Company or into any Subsidiary; and

(iv) the sale, transfer or other disposition of
all or substantially all of the assets of the Company or
Riverwood to one or more persons or entities that are not,
immediately prior to such sale, transfer or other
disposition, Affiliates of the Company, Riverwood, the CD&R
Fund or any Investor.

(h) "Change in Control Price" shall mean the price per
share of Common Stock paid in conjunction with any transaction resulting in a
Change in Control (as determined in good faith by the Board if any part of such
price is payable other than in cash).

(i) "Closing Date" shall mean the date of the closing
date of the Acquisition.

(j) "Common Stock" shall mean the Class A Common Stock,
par value $.01 per share, of the Company.

(k) "Company" shall mean Riverwood Holding, Inc., a
Delaware corporation formerly known as New River Holding, Inc., and any
successor thereto.

(l) "Covered Options" shall have the meaning set forth
in Section 5(c)(i) hereof.

(m) "Credit Agreement" shall mean the Credit Agreement,
dated as of March 21, 1996, as amended, among RIC Holding (as successor to
Former Riverwood), the other borrowers party thereto, The Chase Manhattan Bank,
as administrative agent, and the lenders party thereto from time to time, as
such agreement may be further amended from time to time.

(n) "Cumulative EBITDA Target" shall mean the sum of the
EBITDA Targets for Fiscal Years 1998, 1999, 2000, 2001 and 2002.

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<PAGE> 3

(o) "Delay Period" shall have the meaning set forth in
Section 10(c) hereof.

(p) "Disability" shall have the meaning assigned to such
term in the Employment Agreement.

(q) "EBITDA" shall have the meaning assigned to such
term in the Credit Agreement.

(r) "EBITDA Target" shall mean, with respect to each of
the 1998 and 1999 Fiscal Years, EBITDA target for such fiscal year of the
Company set forth in the original investment case under the business plan
developed by the Company in connection with the financing of the Acquisition,
and, with respect to each subsequent Fiscal Year, the EBITDA targeted for such
Fiscal Year in the business plan of the Company and the Subsidiaries for such
Fiscal Year approved by the Board; provided, however, that in the event the
Company or any Subsidiary consummates a significant acquisition, disposition or
other corporate transaction or series of transactions that, in the judgement of
the Executive Committee of the Board, would reasonably be expected to impact
the consolidated earnings of the Company and the Subsidiaries, the EBITDA
Target for the relevant Fiscal Years may be appropriately adjusted by the Board
to reflect such transaction or series of transactions.

(s) "Employment Agreement" shall mean the employment
agreement, dated as of July 14, 1997, by and among the Company, Riverwood and
the Grantee, as the same may be amended from time to time.

(t) "Exchange Act" shall mean the U.S. Securities
Exchange Act of 1934, as amended.

(u) "Exercise Date" shall have the meaning set forth in
Section 6 hereof.

(v) "Exercise Price" shall have the meaning set forth in
Section 6 hereof.

(w) "Exercise Shares" shall have the meaning set forth in
Section 6 hereof.

(x) "Extraordinary Termination" shall mean a termination
of the Grantee's employment with the Company and the Subsidiaries by reason of
the Grantee's death, Disability or Retirement.

(y) "Fair Market Value" shall mean, as of any date, the
fair market value on such date per share of Common Stock as determined in good
faith by the Executive Committee of the Board. In making a determination of Fair
Market Value, the Executive Committee shall give due consideration to such
factors as it deems appropriate, including, without limitation, the earnings and
certain other financial and operating information of the Company and the
Subsidiaries in recent periods, the potential value of the Company and the
Subsidiaries as a

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<PAGE> 4
whole, the future prospects of the Company and the Subsidiaries and the
industries in which they compete, the history and management of the Company and
the Subsidiaries, the general condition of the securities markets, the fair
market value of securities of companies engaged in businesses similar to those
of the Company and the Subsidiaries and a valuation of the Common Stock, which
shall be performed by an independent valuation firm chosen by the Executive
Committee. Notwithstanding the foregoing, following a Public Offering, Fair
Market Value shall mean the average of the high and low trading prices for a
share of Common Stock on the primary national exchange (including NASDAQ) on
which the Common Stock is then traded on the trading day immediately preceding
the date as of which such Fair Market Value is determined. The determination of
Fair Market Value will not give effect to any restrictions on transfer of the
shares of Common Stock or the fact that such Common Stock would represent a
minority interest in the Company.

(z) "First Purchase Period" shall have the meaning set
forth in Section 5(c)(i) hereof.

(aa) "Financing Agreements" shall have the meaning set
forth in Section 10(a) hereof.

(bb) "Fiscal Year" shall mean a fiscal year of the Company
ending December 31.

(cc) "Former Riverwood" shall mean the Delaware
corporation known as "Riverwood International Corporation" prior to the
Acquisition, which was merged into RIC Holding in connection with the
Acquisition.

(dd) "Good Reason" shall have the meaning assigned to such
term in the Employment Agreement.

(ee) "Grant Date" shall mean the date hereof, which is the
date as of which the Options are granted to the Grantee.

(ff) "Grantee" shall mean the employee whose name appears
on the signature page hereof.

(gg) "Investors" shall mean each of the investors who
purchased shares of Common Stock or shares of Class B Common Stock of the
Company concurrently with the consummation of the merger contemplated by the
Merger Agreement, and their "specified affiliates", within the meaning of the
Stockholders Agreement of the Company, as amended from time to time.

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<PAGE> 5
(hh) "Involuntary Termination" shall mean a termination of
the Grantee's employment with a New Employer or any subsidiary thereof by the
New Employer for any reason.

(ii) "Management Stock Subscription Agreement" shall mean
the management stock subscription agreement entered into by the Company and the
Grantee in connection with the Grantee's exercise of any of the Options and
purchase of the Shares subject to any such Options pursuant to Section 6 hereof.

(jj) "Merger Agreement" shall mean the Agreement and Plan
of Merger, dated as of October 25, 1995, by and among RIC Holding, its wholly
owned subsidiary, CDRO Acquisition Corporation, a Delaware corporation, and
Former Riverwood.

(kk) "New Employer" shall mean the Grantee's employer, or
the parent or a subsidiary of such employer, immediately following a Change in
Control.

(ll) "Normal Termination Date" shall mean (i) in the case
of the Service Options and the Performance Options, the 90th day following the
tenth anniversary of the Grant Date and (ii) in the case of the Special Options,
the 30th day following the fifth anniversary of the Grant Date.

(mm) "Notice of Exercise" shall mean a written notice
delivered to the Grantee by the Company with respect to all of the Special
Options notifying the Grantee of his right to exercise the Special Options
during the 30 day period immediately following the date of delivery of such
notice.

(nn) "Option Price" shall mean the exercise price under
each Option and shall be equal to $100 per Share.

(oo) "Options" shall mean, collectively, the Special
Options, the Performance Options and the Service Options granted to the Grantee
hereby.

(pp) "Performance Options" shall mean those Options which
shall vest, if at all, in accordance with the provisions of Section 3(b) or, if
applicable, Section 3(d) or Section 9 hereof. Performance Options have been
granted to the Grantee pursuant to this Agreement with respect to the number of
Shares specified under Item B on the signature page hereof.

(qq) "Plan" shall mean the Riverwood Holding, Inc. Stock
Incentive Plan, as the same may be amended from time to time.

(rr) "Public Offering" shall mean the first day as of
which sales of Common Stock are made to the public in the United States pursuant
to an underwritten public offering of the Common Stock led by one or more
underwriters at least one of which is an underwriter of nationally recognized
standing.

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<PAGE> 6
(ss) "Registration and Participation Agreement" shall have
the meaning set forth in Section 7(f) hereof.

(tt) "Retirement" shall mean a Grantee's retirement from
employment with the Company and the Subsidiaries at or after age 65.

(uu) "RIC Holding" shall mean RIC Holding, Inc., a
Delaware corporation and wholly owned subsidiary of the Company.

(vv) "Riverwood" shall mean Riverwood International
Corporation, a Delaware corporation and a wholly owned subsidiary of the
Company.

(ww) "Rule 144" shall mean Rule 144 promulgated under the
Securities Act.

(xx) "Second Purchase Period" shall have the meaning set
forth in Section 5(c)(i) hereof.

(yy) "Securities Act" shall mean the U.S. Securities Act
of 1933, as amended.

(zz) "Service Options" shall mean those Options which
shall vest, if at all, in accordance with the provisions of Section 3(a) or, if
applicable, Section 3(d) or Section 9 hereof, based upon a Grantee's completion
of service. Service Options have been granted to the Grantee pursuant to this
Agreement with respect to the number of Shares specified under Item A on the
signature page hereof.

(aaa) "Shares" shall mean the shares of Common Stock
subject to the Options. The number of Shares subject to the Options is set forth
on the signature page hereof.

(bbb) "Special Options" shall mean those Options which
shall be vested as of the Grant Date and which shall be exercisable solely in
accordance with the provisions of Section 3(c) or, if applicable, Section 3(d)
or Section 9 hereof. Special Options have been granted to the Grantee pursuant
to this Agreement with respect to the number of Shares specified under Item C on
the signature page hereof.

(ccc) "Subsidiary" shall mean any corporation or other
person, a majority of whose outstanding voting securities or other equity
interests are owned, directly or indirectly, by the Company.

2. Confirmation of Grant; Option Price. The Company hereby
evidences and confirms its grant to the Grantee, effective as of the date
hereof, of (i) Service Options to purchase the aggregate number of Shares set
forth in Item A on the signature page hereof, (ii) Performance Options to
purchase the aggregate number of Shares set forth in Item B on the signature
page hereof and (iii)

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<PAGE> 7

Special Options to purchase the aggregate number of Shares set forth in Item C
on the signature page hereof. Each Option shall have an option price of $100.00
per share (the "Option Price"). The Options are not intended to be incentive
stock options under the U.S. Internal Revenue Code of 1986, as amended. This
Agreement is subordinate to, and the terms and conditions of the Options
granted hereunder are subject to, the terms and conditions of the Plan. If
there is any inconsistency between the terms hereof and the terms of the Plan,
the terms of the Plan shall govern.

3. Vesting and Exercisability.

(a) Service Options. (i) Except as otherwise provided in this
Agreement (including Section 3(a)(ii) hereof) and subject to the continuous
employment of the Grantee with the Company or one of the Subsidiaries until the
applicable vesting date, the Service Options granted hereby shall vest and
become exercisable (A) as to 40% of the Shares subject thereto on the first
anniversary of the Grant Date and (B) as to 20% of the Shares subject thereto
on each of the second, third and fourth anniversaries of the Grant Date,
respectively; provided that, if (x) the Grantee's employment is terminated by
reason of an Extraordinary Termination or (y)(i)the CD&R Fund and, if
applicable, its Affiliates effect a sale or other disposition of all of the
Common Stock then held by the CD&R Fund and its Affiliates to one or more
persons other than any person who is an Affiliate of the CD&R Fund and (ii)
thereafter, the Grantee's employment is terminated by the Company other than
for Cause or by the Grantee for Good Reason, all Service Options held by the
Grantee as of the effective date of such Extraordinary Termination or
termination under the foregoing clause (y)(ii), whichever is applicable, shall
become immediately 100% vested and exercisable.

(ii) If the Company delivers a Notice of Exercise to the Grantee
and, within the 60 day period after the delivery of such Notice of Exercise,
(a) the Grantee does not exercise any of the Special Options and purchase the
Shares covered thereby in accordance with Section 6 of this Agreement, then,
notwithstanding the provisions of Section 3(a)(i), all of the Service Options
shall become vested solely on the date that is nine years and six months
following the Grant Date and solely if Executive remains in the continuous
employment of the Company or one of its Subsidiaries until such date and (b)
the Grantee exercises Special Options with respect to less than 7,500 Shares
and purchases the Shares covered by such exercise in accordance with Section 6
of this Agreement then, notwithstanding the provisions of Section 3(a)(i),
Service Options with respect to Shares equal to the same percentage of 15,000
as the Special Options exercised by Grantee bears to 7,500 shall become vested
as contemplated by Section 3(a)(i) and the remaining Service Options shall
become vested solely on the date that is nine years and six months following
the Grant Date and solely if Executive remains in the continued employment of
the Company or one of its Subsidiaries until such date.

(b) Performance Options. (i) Except as otherwise provided in this
Agreement (including Section 3(b)(ii) hereof), no portion of any Performance
Options shall vest or become exercisable (i) unless and until the Company shall
have achieved the Cumulative EBITDA Target and (ii) unless the Grantee shall
have been continuously employed by the Company or one of the Subsidiaries from
the Grant Date until the date as of which the Cumulative EBITDA Target is
achieved; provided that, if

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<PAGE> 8

(x) the Grantee's employment is terminated by reason of an Extraordinary
Termination or (y)(i) the CD&R Fund and, if applicable, its Affiliates effect a
sale or other disposition of all of the Common Stock then held by the CD&R Fund
and its Affiliates to one or more persons other than any person who is an
Affiliate of the CD&R Fund and (ii) thereafter, the Grantee's employment is
terminated by the Company other than for Cause or by the Grantee for Good
Reason, then a proportionate share of any Performance Options that have not
vested and become exercisable on or prior to the date of such Extraordinary
Termination or other termination described in the foregoing clause (y)(ii),
whichever is applicable, shall vest and become exercisable as of such date.
Such proportionate share of Performance Options that shall become vested and
exercisable shall equal the product of (i) the percentage obtained by dividing
(x) the cumulative EBITDA achieved by the Company as of the last day of the
calendar quarter ending coincident with or immediately prior to the date of the
Extraordinary Termination or other termination, whichever is applicable, by (y)
the Cumulative EBITDA Target, multiplied by (ii) the total number of Shares
subject to the Performance Options. Any Performance Options held by the Grantee
as of the date of an Extraordinary Termination or other termination whichever
is applicable, that have not become vested and exercisable on or prior to such
date in accordance with this Section 3(b)(i) shall terminate and be canceled
immediately on such date. Notwithstanding the foregoing provisions of this
paragraph (b)(i), subject to the continuous employment of the Grantee with the
Company or one of the Subsidiaries, Performance Options shall vest and become
exercisable nine years and six months following the Grant Date, regardless of
whether the Cumulative EBITDA Target has been achieved.

(ii) If the Company delivers a Notice of Exercise to the Grantee
and, within the 60 day period after the delivery of such Notice of Exercise,
(a) the Grantee does not exercise any of the Special Options and purchase the
Shares covered thereby in accordance with Section 6 of this Agreement, then,
notwithstanding the provisions of Section 3(b)(i), all of the Performance
Options shall become vested solely on the date that is nine years and six
months following the Grant Date and solely if Executive remains in the
continuous employment of the Company or one of its Subsidiaries until such date
and (b) the Grantee exercises Special Options with respect to less than 7,500
Shares and purchases the Shares covered by such exercise in accordance with
Section 6 of this Agreement then, notwithstanding the provisions of Section
3(b)(i), Performance Options with respect to Shares equal to the same number of
Shares for which the Special Options were exercised by Grantee shall become
vested as contemplated by Section 3(b)(i) and the remaining Performance Options
shall become vested solely on the date that is nine years and six months
following the Grant Date and solely if Executive remains in the continued
employment of the Company or one of its Subsidiaries until such date.

(c) Special Options. The Special Options shall be fully vested at
all times. The Special Options shall be exercisable solely during the 60 day
period following the earlier of (x) the date, if any, that the Company delivers
a Notice of Exercise to the Grantee and (y) the fifth anniversary of the Grant
Date. The Company will deliver a Notice of Exercise to the Grantee (a) upon
receipt by the Company of a valuation of the Common Stock of the Company
provided by an independent valuation firm chosen by the Executive Committee
which indicates that the fair market value per share of Common Stock is equal
to or in excess of $100 per share and (b) concurrently with the offer

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<PAGE> 9

by the Company to sell shares of Common Stock to any of its executives or key
employees at a purchase price equal to or in excess of $100 per share.

(d) Conditions. The Board may accelerate the vesting or
exercisability of any Option, all Options or any class of Options, at any time
and from time to time. Shares eligible for purchase may, subject to the
provisions hereof, thereafter be purchased, at any time and from time to time
on or after such anniversary until the date one day prior to the date on which
the Options terminate, provided that any such purchase shall be effected
pursuant to and subject to the provisions contained in the Management Stock
Subscription Agreement related to such Shares.

4. Termination of Options.

(a) Normal Termination Date. Unless an earlier termination date
shall occur as specified in subsection (b), the Options shall terminate and be
canceled on the applicable Normal Termination Date.

(b) Early Termination. (i) Service and Performance Options. If
the Grantee's employment is voluntarily or involuntarily terminated for any
reason, any Service and Performance Options held by the Grantee that have not
vested and become exercisable on or before the effective date of such
termination shall terminate and be canceled on such effective date. Subject to
the provisions of Section 5(c), all Service and Performance Options held by the
Grantee on the date of such termination that shall have become vested and
exercisable on or before the effective date of such termination shall remain
exercisable for whichever of the following periods is applicable, and if not
exercised within such period, shall terminate and be canceled upon the
expiration of such period: (i) if the Grantee's employment is terminated by
reason of an Extraordinary Termination, then any such vested and exercisable
Service and Performance Options shall remain exercisable solely until the first
to occur of (A) the one year anniversary of the Grantee's termination of
employment or (B) the Normal Termination Date and (ii) if the Grantee's
employment is terminated for any reason other than (x) an Extraordinary
Termination or (y) for Cause, then any such vested and exercisable Service and
Performance Options shall remain exercisable for a period of 60 days after the
earliest of (x) the expiration of the Second Purchase Period (as defined in
Section 5(c)(i) hereof), (y) the receipt by the Grantee of written notice that
the CD&R Fund does not intend to exercise its right to purchase the Options
pursuant to Section 5(c)(i) and (z) the Normal Termination Date.

(ii) Special Options. To the extent not exercised, all of the
Special Options shall terminate and be canceled on the earliest of (x) the 61st
day following the date, if any, a Notice of Exercise is delivered to the
Grantee, (y) the applicable Normal Termination Date and (z) subject to the
rights of the Company and the CD&R Fund to purchase the Special Options under
Section 5(c) hereof, the date of any termination of the Grantee's employment
with the Company and any Subsidiary that employs the Grantee.

(iii) Forfeiture Upon Termination for Cause. Notwithstanding
anything else contained in this Agreement, if the Grantee's employment is
terminated for Cause, then all Options (whether or

9
<PAGE> 10

not then vested or exercisable) shall terminate and be canceled immediately
upon such termination. Nothing in this Agreement shall be deemed to confer on
the Grantee any right to continue in the employ of the Company or any
Subsidiary, or to interfere with or limit in any way the right of the Company
or any Subsidiary to terminate such employment at any time.

5. Restrictions on Exercise; Non-Transferability of Options;
Repurchase of Options.

(a) Restrictions on Exercise. The Options may be exercised only
to the extent they have become vested and exercisable pursuant to Section 3 of
this Agreement and only with respect to full shares of Common Stock. No
fractional shares of Common Stock shall be issued. Notwithstanding any other
provision of this Agreement, the Options may not be exercised in whole or in
part, and no certificates representing Shares shall be delivered, (i) (A)
unless all requisite approvals and consents of any governmental authority of
any kind having jurisdiction over the exercise of the Options shall have been
secured, (B) unless the purchase of the Shares upon the exercise of the Options
shall be exempt from registration under applicable U.S. federal and state
securities laws, and applicable non-U.S. securities laws, or the Shares shall
have been registered under such laws, and (C) unless all applicable U.S.
federal, state and local and non-U.S. tax withholding requirements shall have
been satisfied or (ii) if such exercise would result in a violation of the
terms or provisions of or a default or an event of default under any of the
Financing Agreements. The Company shall use commercially reasonable efforts to
obtain the consents and approvals referred to in clause (i)(A) of the preceding
sentence, to satisfy the withholding requirements referred to in clause (i)(C)
of the preceding sentence and to obtain the consent of the parties to the
Financing Agreements referred to in clause (ii) of the preceding sentence so as
to permit the Options to be exercised.

(b) Non-Transferability of Options. Except as contemplated by
Section 5(c), the Options may be exercised only by the Grantee or by the
Grantee's estate. Except as contemplated by Section 5(c), the Options are not
assignable or transferable, in whole or in part, and may not, directly or
indirectly, be offered, transferred, sold, pledged, assigned, alienated,
hypothecated or otherwise disposed of or encumbered (including without
limitation by gift, operation of law or otherwise), except that the Service
Options and the Performance Options may be transferred by will or by the laws
of descent and distribution to the estate of the Grantee upon the Grantee's
death, provided that the deceased Grantee's beneficiary or the representative
of the Grantee's estate shall acknowledge and agree in writing, in a form
reasonably acceptable to the Company, to be bound by the provisions of this
Agreement and the Plan as if such beneficiary or the estate were the Grantee.

(i) Termination of Employment. If the Grantee's
employment is terminated for any reason other than for Cause, the Company shall
have an option to purchase all or any portion of the Service Options and
Performance Options that have vested and become exercisable by the Grantee on
or prior to the effective date of termination of employment and all or any
portion of the Special Options (such Service Options, Performance Options and
Special Options collectively the "Covered Options") and shall have 30 days from
the date of the Grantee's termination of employment (such 30-

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<PAGE> 11

day period being hereinafter referred to as the "First Purchase Period") during
which to give notice in writing to the Grantee (or, if the Grantee's employment
was terminated by the Grantee's death, the Grantee's estate) of its election to
exercise or not to exercise such right to purchase all or a portion of the
Covered Options. The Company hereby undertakes to use reasonable efforts to act
as promptly as practicable following such termination to make such election. If
the Company (i) fails to give notice that it intends to exercise its right to
purchase the Covered Options within the First Purchase Period, or (ii) chooses
to purchase none or only a portion of the Covered Options, by giving such
notice, the CD&R Fund shall have the right to purchase all or any portion of
the Covered Options not purchased by the Company, and shall have until the
expiration of the earlier of (x) 30 days following the end of the First
Purchase Period, or (y) 30 days from the date of receipt by the CD&R Fund of
written notice that the Company does not intend to exercise its right with
respect to all of the Covered Options (such 30-day period being hereinafter
referred to as the "Second Purchase Period"), to give notice in writing to the
Grantee (or the Grantee's estate) of the CD&R Fund's exercise of its right to
purchase all or any portion of such Covered Options. If the rights of the
Company and the CD&R Fund to purchase all of the Covered Options granted in
this subsection are not fully exercised as provided herein other than as a
result of Section 10 hereof, the Grantee (or the Grantee's estate) shall be
entitled to retain any such Covered Options not so purchased that are Service
Options or Performance Options, subject to all of the provisions of this
Agreement (including, without limitation, Section 4(b)(i)) and any such Covered
Options that are Special Options shall immediately terminate and be canceled as
provided in Section 4(b)(ii).

(ii) Purchase Price, etc. All purchases of any Covered
Options pursuant to this Section 5(c) by the Company or the CD&R Fund shall be
for a purchase price and in the manner prescribed by Sections 5(f), (g) and
(h).

(d) Notice of Termination. The Company shall give written notice
of any termination of the Grantee's employment to the CD&R Fund, except that if
such termination (if other than as a result of death) is by the Grantee, the
Grantee shall give written notice of such termination to the Company and the
Company shall give written notice of such termination to the CD&R Fund.

(e) Public Offering. In the event that a Public Offering has been
consummated, neither the Company nor the CD&R Fund shall have any rights to
purchase the Covered Options pursuant to Section 5(c).

(f) Purchase Price. Subject to Section 10(c) hereof, the purchase
price to be paid to the Grantee (or the Grantee's estate) for the Covered
Options purchased pursuant to Section 5(c) shall be equal to the excess, if
any, of (i) the Fair Market Value of the Shares which may be purchased upon
exercise of such Covered Options as of the effective date of the termination of
employment that gives rise to the right of the Company and the CD&R Fund to
purchase such Covered Options over (ii) the aggregate Option Price of such
Covered Options.

(g) Payment. Subject to Section 10 hereof, the completion of a
purchase pursuant to this Section 5 shall take place at the principal office of
the Company on the tenth business day

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<PAGE> 12

following the receipt by the Grantee (or the Grantee's estate) of the CD&R
Fund's or the Company's notice of its exercise of the right to purchase the
Covered Options pursuant to Section 5(c). The purchase price shall be paid by
delivery to the Grantee (or the Grantee's estate) of a check for the purchase
price payable to the order of the Grantee (or the Grantee's estate), against
delivery of such instruments as the Company may reasonably request, signed by
the Grantee (or the Grantee's estate), free and clear of all security
interests, liens, claims, encumbrances, charges, options, restrictions on
transfer, proxies and voting and other agreements of whatever nature.

(h) Application of the Purchase Price to Certain Loans. The
Grantee agrees that the Company and the CD&R Fund shall be entitled to apply
any amounts to be paid by the Company or the CD&R Fund, as the case may be, to
purchase the Covered Options pursuant to this Section 5 to discharge any
indebtedness of the Grantee to the Company or any Subsidiary, or indebtedness
that is guaranteed by the Company or any Subsidiary, including, but not limited
to, any indebtedness of the Grantee incurred to purchase any shares of Common
Stock.

(i) Withholding. Whenever Shares are to be issued pursuant to the
Options, the Company may require the recipient of the Shares to remit to the
Company an amount sufficient to satisfy any applicable U.S. federal, state and
local and non-U.S. tax withholding requirements. In the event any cash is paid
to the Grantee or the Grantee's estate or beneficiary pursuant to this Section
5 or Section 9, the Company shall have the right to withhold an amount from
such payment sufficient to satisfy any applicable U.S. federal, state and local
and non-U.S. tax withholding requirements. If shares of Common Stock are traded
on a national securities exchange or bid and ask prices for shares of Common
Stock are quoted on the NASDAQ, the Company may, if requested by the Grantee,
withhold shares of Common Stock to satisfy the minimum applicable withholding
requirements, subject to the provisions of the Plan and any rules adopted by
the Board regarding compliance with applicable law, including, but not limited
to, Section 16(b) of the Exchange Act.

6. Manner of Exercise. To the extent that any of the Options
shall have become and remain vested and exercisable as provided in Section 3
and subject to such reasonable administrative regulations as the Board may have
adopted, such Options may be exercised, in whole or in part, by notice to the
Secretary of the Company in writing given on the date as of which the Grantee
will so exercise the Options (the "Exercise Date"), specifying the number of
Shares with respect to which the Options are being exercised (the "Exercise
Shares"), subject to the execution by the Company and the Grantee of a
Management Stock Subscription Agreement substantially in the form attached to
the Plan as Exhibit A ("Management Stock Subscription Agreement"), or in such
other form as may be agreed upon by the Company and the Grantee, such
Management Stock Subscription Agreement to contain (unless a Public Offering
shall have occurred prior to the Exercise Date) provisions corresponding to
Section 5(c) hereof, and the delivery to the Company by the Grantee, on or
within five days following the Exercise Date, in accordance with the Management
Stock Subscription Agreement, full payment for the Exercise Shares in United
States dollars in cash, or cash equivalents satisfactory to the Company, and in
an amount equal to the product of the number of Exercise Shares, multiplied by
$100 (the "Exercise Price"). Upon execution by the Company and the Grantee of
the Management Stock Subscription Agreement and delivery to the Company by the
Grantee of

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<PAGE> 13

the Exercise Price, the Company shall deliver to the Grantee a certificate or
certificates representing the Exercise Shares, registered in the name of the
Grantee and bearing appropriate legends as provided in Section 7(b) hereof. If
shares of Common Stock are traded on a U.S. national securities exchange or bid
and ask prices for shares of Common Stock are quoted over NASDAQ, the Grantee
may, in lieu of cash, tender shares of Common Stock that have been owned by the
Grantee for at least six months, having a Fair Market Value on the Exercise
Date equal to the Exercise Price or may deliver a combination of cash and such
shares of Common Stock having a Fair Market Value equal to the difference
between the Exercise Price and the amount of such cash as payment of the
Exercise Price, subject to such rules and regulations as may be adopted by the
Board to provide for the compliance of such payment procedure with applicable
law, including Section 16(b) of the Exchange Act. The Company may require the
Grantee to furnish or execute such other documents as the Company shall
reasonably deem necessary (i) to evidence such exercise, (ii) to determine
whether registration is then required under the Securities Act and (iii) to
comply with or satisfy the requirements of the Securities Act, applicable state
or non-U.S. securities laws or any other law.

7. Grantee's Representations, Warranties and Covenants.

(a) Investment Intention. The Grantee represents and warrants
that the Options have been, and any Exercise Shares will be, acquired by the
Grantee solely for the Grantee's own account for investment and not with a view
to or for sale in connection with any distribution thereof. The Grantee agrees
that the Grantee will not, directly or indirectly, offer, transfer, sell,
pledge, hypothecate or otherwise dispose of all or any of the Options or any of
the Exercise Shares (or solicit any offers to buy, purchase or otherwise
acquire or take a pledge of all or any of the Options or any of the Exercise
Shares), except in compliance with the Securities Act and the rules and
regulations of the Commission thereunder, and in compliance with applicable
state securities or "blue sky" laws and non-U.S. securities laws. The Grantee
further understands, acknowledges and agrees that none of the Exercise Shares
may be transferred, sold, pledged, hypothecated or otherwise disposed of unless
the provisions of the related Management Stock Subscription Agreement shall
have been complied with or have expired.

(b) Legends. The Grantee acknowledges that any certificate
representing the Exercise Shares shall bear an appropriate legend, which will
include, without limitation, the following language:

"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
PROVISIONS OF A MANAGEMENT STOCK SUBSCRIPTION AGREEMENT, DATED AS OF
_______ __, 19___, AND NEITHER THIS CERTIFICATE NOR THE SHARES
REPRESENTED BY IT ARE ASSIGNABLE OR OTHERWISE TRANSFERABLE EXCEPT IN
ACCORDANCE WITH THE PROVISIONS OF SUCH MANAGEMENT STOCK SUBSCRIPTION
AGREEMENT, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE
COMPANY. THE SHARES REPRESENTED BY THIS CERTIFICATE ARE ENTITLED TO
CERTAIN OF THE BENEFITS OF AND ARE BOUND BY CERTAIN OF THE OBLIGATIONS
SET

13
<PAGE> 14

FORTH IN A REGISTRATION AND PARTICIPATION AGREEMENT, DATED AS OF MARCH
27, 1996, AMONG THE COMPANY AND CERTAIN STOCKHOLDERS OF THE COMPANY, A
COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY."

"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER ANY STATE OR NON-U.S.
SECURITIES LAWS AND MAY NOT BE TRANSFERRED, SOLD, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS (i) (A) SUCH DISPOSITION
IS PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, (B) THE HOLDER HEREOF SHALL HAVE
DELIVERED TO THE COMPANY AN OPINION OF COUNSEL, WHICH OPINION AND
COUNSEL SHALL BE REASONABLY SATISFACTORY TO THE COMPANY, TO THE EFFECT
THAT SUCH DISPOSITION IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF
SUCH ACT OR (C) A NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE
COMMISSION, REASONABLY SATISFACTORY TO COUNSEL FOR THE COMPANY, SHALL
HAVE BEEN OBTAINED WITH RESPECT TO SUCH DISPOSITION AND (ii) SUCH
DISPOSITION IS PURSUANT TO REGISTRATION UNDER ANY APPLICABLE STATE AND
NON-U.S. SECURITIES LAWS OR AN EXEMPTION THEREFROM."

(c) Securities Law Matters. The Grantee acknowledges receipt of
advice from the Company that (i) the Exercise Shares have not been registered
under the Securities Act or qualified under any state securities or "blue sky"
or non-U.S. securities laws, (ii) it is not anticipated that there will be any
public market for the Exercise Shares, (iii) the Exercise Shares must be held
indefinitely and the Grantee must continue to bear the economic risk of the
investment in the Exercise Shares unless the Exercise Shares are subsequently
registered under the Securities Act and such state laws or an exemption from
registration is available, (iv) Rule 144 is not presently available with
respect to sales of securities of the Company and the Company has made no
covenant to make Rule 144 available, (v) when and if the Exercise Shares may be
disposed of without registration in reliance upon Rule 144, such disposition
can be made only in limited amounts in accordance with the terms and conditions
of such Rule, (vi) the Company does not plan to file reports with the
Commission or make public information concerning the Company available unless
required to do so by law or the terms of its Financing Agreements, (vii) if the
exemption afforded by Rule 144 is not available, sales of the Exercise Shares
may be difficult to effect because of the absence of public information
concerning the Company, (viii) a restrictive legend in the form heretofore set
forth shall be placed on the certificates representing the Exercise Shares and
(ix) a notation shall be made in the appropriate records of the Company
indicating that the Exercise Shares are subject to restrictions on transfer set
forth in this Agreement and, if the Company should in the future engage the
services of a stock transfer agent, appropriate stop-transfer restrictions will
be issued to such transfer agent with respect to the Exercise Shares.

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<PAGE> 15

(d) Compliance with Rule 144. If any of the Exercise Shares are
to be disposed of in accordance with Rule 144, the Grantee shall transmit to
the Company an executed copy of Form 144 (if required by Rule 144) no later
than the time such form is required to be transmitted to the Commission for
filing and such other documentation as the Company may reasonably require to
assure compliance with Rule 144 in connection with such disposition.

(e) Ability to Bear Risk. The Grantee covenants that the Grantee
will not exercise all or any of the Options unless (i) the financial situation
of the Grantee is such that the Grantee can afford to bear the economic risk of
holding the Exercise Shares for an indefinite period and (ii) the Grantee can
afford to suffer the complete loss of the Grantee's investment in the Exercise
Shares.

(f) Registration; Restrictions on Sale upon Public Offering. The
Grantee acknowledges and agrees that in respect of any Exercise Shares
purchased upon exercise of all or any of the Options, the Grantee shall be
entitled to the rights and subject to the obligations created under the
Registration and Participation Agreement, dated as of March 27, 1996, among the
Company and certain stockholders of the Company, as the same may be amended,
modified or supplemented from time to time (the "Registration and Participation
Agreement"), to the extent set forth therein. The Grantee agrees that, in the
event that the Company files a registration statement under the Securities Act
with respect to any underwritten public offering of any shares of its capital
stock, the Grantee will not effect any public sale or distribution of any
shares of the Common Stock (other than as part of such public offering),
including but not limited to, pursuant to Rule 144 or Rule 144A under the
Securities Act, during the 20 days prior to and the 180 days after the
effective date of any such registration statement. The Grantee further
understands and acknowledges that any sale, transfer or other disposition of
the Exercise Shares by him following a public offering will be subject to
compliance with, and may be limited under, the federal securities laws and/or
state "blue sky" and/or Non-U.S. securities laws.

(g) Section 83(b) Election. The Grantee agrees that, within 20
days of any Exercise Date that occurs prior to a Public Offering, the Grantee
shall give notice to the Company in the event the Grantee has made or intends
to make an election pursuant to Section 83(b) of the Internal Revenue Code of
1986, as amended, with respect to the Exercise Shares purchased on such date,
and acknowledges that the Grantee will be solely responsible for any and all
tax liabilities payable by the Grantee in connection with the Grantee's receipt
of the Exercise Shares or attributable to the Grantee's making or failing to
make such an election.

8. Representations and Warranties of the Company. The Company
represents and warrants to the Grantee that (a) the Company has been duly
incorporated and is an existing corporation in good standing under the laws of
the State of Delaware, (b) this Agreement has been duly authorized, executed
and delivered by the Company and constitutes a valid and legally binding
obligation of the Company enforceable against the Company in accordance with
its terms and (c) the Exercise Shares, when issued, delivered and paid for,
upon exercise of the Options in accordance with the terms hereof and the
Management Stock Subscription Agreement, will be duly authorized,

15
<PAGE> 16

validly issued, fully paid and nonassessable, and free and clear of any liens
or encumbrances other than those created pursuant to this Agreement, the
Management Stock Subscription Agreement or otherwise in connection with the
transactions contemplated hereby.

9. Change in Control.

(a) Service Options, Vested Performance Options and Special
Options. Subject to Section 9(d), in the event of a Change in Control, (x) each
then outstanding Service Option and Special Option (regardless of whether such
Service Option or Special Option is at such time otherwise exercisable) shall
be canceled in exchange for a payment in cash of an amount equal to the product
of (i) the excess, if any, of the Change in Control Price over the Option Price
therefor, multiplied by (ii) the aggregate number of Shares covered by such
Service Options and Special Options, and (y) if the Performance Options shall
have become vested and exercisable in accordance with Section 3(b) hereof prior
to the Change in Control, each then outstanding Performance Option shall be
canceled in exchange for a payment in cash of an amount equal to the product of
(i) the excess, if any, of the Change in Control Price over the Option Price
therefor, multiplied by (ii) the aggregate number of Shares covered by such
Performance Options.

(b) Performance Options. Subject to Section 9(d), in the event of
a Change of Control prior to the date as of which the Performance Options shall
have become vested and exercisable in accordance with Section 3(b) hereof, a
proportionate share (determined in accordance with the immediately succeeding
sentence) of each then outstanding Performance Option shall be canceled in
exchange for a payment in cash of an amount equal to the product of (i) the
excess, if any, of the Change in Control Price over the Option Price,
multiplied by (ii) the number of Shares covered by such canceled proportionate
share of the Performance Options. The proportionate share of the Performance
Options that shall be so canceled shall be equal to the product of (A) the
percentage obtained by dividing (x) the cumulative EBITDA achieved by the
Company as of the date of the Change in Control by (y) the Cumulative EBITDA
Target multiplied by (B) the total number of Shares subject to then outstanding
Performance Options.

(c) Timing of Option Cancellation Payments. The cash payments
described in paragraphs (a) and (b) above, shall be payable in full, as soon as
reasonably practicable, but in no event later than, 30 days following the
Change in Control.

(d) Alternative Options. Notwithstanding Sections 9(a), 9(b) and
9 (c) hereof, no cash settlement or other payment shall be made with respect to
any Option in the event that the transaction constituting the Change in Control
is to be accounted for using the "pooling of interest" method of accounting. In
such event, the portion of each Option then held by the Grantee that, but for
the provisions of this paragraph (d), would have been settled for cash pursuant
to paragraphs (a) or (b) of this Section 9 in connection with the Change in
Control, shall become fully vested immediately prior to the consummation of
such transaction and each such Grantee shall have the right, subject to
compliance with all applicable securities laws, to (i) exercise such portion of
the Options in connection with the Change in Control or (ii) provided such
opportunity is made available by the

16
<PAGE> 17

New Employer, exchange such portion of the Options for fully exercisable
options to purchase common stock of the New Employer having substantially
equivalent economic value to the Options being exchanged therefor (determined
at the time of the Change in Control).

10. Certain Restrictions on Repurchases

(a) Financing Agreements, etc. Notwithstanding any other
provision of this Agreement, the Company shall not be obligated or permitted to
purchase any Covered Options from the Grantee if (i) such purchase would result
in a violation of the terms or provisions of, or result in a default or an
event of default under, (A) the Credit Agreement, (B) the Equipment Packaging
Machinery Credit Agreement, dated as of March 21, 1996 (the "PMC Agreement"),
among Riverwood International Machinery, Inc., Chemical Bank, as administrative
agent, and the lenders party thereto from time to time, (C) the Indenture,
dated as of March 27, 1996, among Parent, as issuer, the Company and Newco, as
guarantors, and Fleet National Bank of Connecticut, as trustee (the "Senior
Note Indenture"), (D) the Indenture, dated as of March 27, 1996, among Parent,
as issuer, the Company and Newco, as guarantors, and Fleet National Bank of
Massachusetts, as trustee (together with the Senior Note Indenture, the
"Indentures"), or (E) any other guarantee, financing or security agreement or
document entered into (I) by Riverwood or any of its subsidiaries prior to the
Closing Date that remains outstanding in any part on or after the Closing Date,
(II) by the Company or any of its subsidiaries in connection with the
Acquisition, or the financing of the Acquisition, or (III) otherwise from time
to time in connection with the operations of the Company, Riverwood or any of
the other Subsidiaries (the Credit Agreement, the Indentures and such other
agreements and documents, as each may be amended, modified or supplemented from
time to time, are referred to herein as the "Financing Agreements"), in each
case as the same may be amended, modified or supplemented from time to time,
(ii) such purchase would violate any of the terms or provisions of the
Certificate of Incorporation of the Company or (iii) the Company has no funds
legally available therefor under the General Corporation Law of the State of
Delaware.

(b) Delay of Purchase. In the event that a purchase of Covered
Options by the Company otherwise permitted under Section 5(c) is prevented
solely by the terms of Section 10(a), (i) such purchase will be postponed and
will take place without the application of further conditions or impediments
(other than as set forth in Section 5 hereof or in this Section 10) at the
first opportunity thereafter when the Company has funds legally available
therefor and when such purchase will not result in any default, event of
default or violation under any of the Financing Agreements or in a violation of
any term or provision of the Certificate of Incorporation of the Company and
(ii) such purchase right shall rank against other similar purchase rights with
respect to shares of Common Stock or options in respect thereof according to
priority in time of the effective date of the event giving rise to any such
purchase right, provided that any such purchase right as to which a common date
determines priority shall be of equal priority and shall share pro rata in any
purchase payments made pursuant to clause (i) above.

(c) Purchase Price Adjustment. In the event that a purchase of
the Covered Options from the Grantee is delayed pursuant to this Section 10,
the purchase price for such Covered Options when

17
<PAGE> 18

the purchase of such Covered Options eventually takes place as contemplated by
Section 10(b) shall be the sum of (a) the purchase price of such Covered
Options determined in accordance with Section 5(f) at the time that the
purchase of such Covered Options would have occurred but for the operation of
this Section 10, plus (b) an amount equal to interest on such purchase price
for the period from the date on which the completion of the purchase would have
taken place but for the operation of this Section 10 to the date on which such
purchase actually takes place (the "Delay Period"), at an annual rate of
interest equal to the weighted average cost of the Company's bank indebtedness
outstanding during the Delay Period.

11. No Rights as Stockholder. The Grantee shall have no voting or
other rights as a stockholder of the Company with respect to any Shares covered
by the Options until the exercise of the Options and the issuance of a
certificate or certificates to the Grantee for such Shares. No adjustment shall
be made for dividends or other rights for which the record date is prior to the
issuance of such certificate or certificates.

12. Capital Adjustments. The number and price of the Shares
covered by the Options shall be proportionately adjusted to reflect any stock
dividend, stock split or share combination of the Common Stock or any
recapitalization of the Company. Subject to any required action by the
stockholders of the Company and Section 9 hereof, in any merger, consolidation,
reorganization, exchange of shares, liquidation or dissolution, the Options
shall pertain to the securities and other property, if any, that a holder of
the number of shares of Common Stock covered by the Options would have been
entitled to receive in connection with such event.

13. Miscellaneous.

(a) Notices. All notices and other communications required or
permitted to be given under this Agreement shall be in writing and shall be
deemed to have been given if delivered personally or sent by certified or
express mail, return receipt requested, postage prepaid, or by any recognized
international equivalent of such delivery, to the Company, the CD&R Fund or the
Grantee, as the case may be, at the following addresses or to such other
address as the Company, the CD&R Fund or the Grantee, as the case may be, shall
specify by notice to the others:

(i) if to the Company, to it at:

Riverwood Holding, Inc.
Suite 1200
1105 North Market Street
P.O. Box 8985
Wilmington, Delaware 19899
Attention: General Counsel

(ii) if to the Grantee, to the Grantee at the address set forth
on the signature page hereof.

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<PAGE> 19

(iii) if to the CD&R Fund, to:

Clayton, Dubilier & Rice Fund V
Limited Partnership
Foulkstone Plaza, Suite 102
1403 Foulk Road
Wilmington, Delaware 19803
Attention: Joseph L. Rice, III

All such notices and communications shall be deemed to have been received on
the date of delivery if delivered personally or on the third business day after
the mailing thereof. Copies of any notice or other communication given under
this Agreement shall also be given to:

Clayton, Dubilier & Rice, Inc.
375 Park Avenue
New York, New York 10152
Attention: Kevin J. Conway

and

Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Attention: Franci J. Blassberg, Esq.

The CD&R Fund also shall be given a copy of any notice or other communication
between the Grantee and the Company under this Agreement at its address as set
forth above.

(b) Binding Effect; Benefits. This Agreement shall be binding
upon and inure to the benefit of the parties to this Agreement and their
respective successors and assigns. Except as provided in Section 5, nothing in
this Agreement, express or implied, is intended or shall be construed to give
any person other than the parties to this Agreement or their respective
successors or assigns any legal or equitable right, remedy or claim under or in
respect of any agreement or any provision contained herein.

19
<PAGE> 20

(i) Waiver. Any party hereto or beneficiary hereof may
by written notice to the other parties (A) extend the time for the
performance of any of the obligations or other actions of the other
parties under this Agreement, (B) waive compliance with any of the
conditions or covenants of the other parties contained in this
Agreement and (C) waive or modify performance of any of the
obligations of the other parties under this Agreement, provided that
any waiver of the provisions of Section 5 must be consented to in
writing by the CD&R Fund. Except as provided in the preceding
sentence, no action taken pursuant to this Agreement, including,
without limitation, any investigation by or on behalf of any party or
beneficiary, shall be deemed to constitute a waiver by the party or
beneficiary taking such action of compliance with any representations,
warranties, covenants or agreements contained herein. The waiver by
any party hereto or beneficiary hereof of a breach of any provision of
this Agreement shall not operate or be construed as a waiver of any
preceding or succeeding breach and no failure by a party or
beneficiary to exercise any right or privilege hereunder shall be
deemed a waiver of such party's or beneficiary's rights or privileges
hereunder or shall be deemed a waiver of such party's or beneficiary's
rights to exercise the same at any subsequent time or times hereunder.

(ii) Amendment. This Agreement may not be amended,
modified or supplemented orally, but only by a written instrument
executed by the Grantee and the Company, and (in the case of any
amendment, modification or supplement that adversely affects the
rights of the CD&R Fund hereunder) consented to by the CD&R Fund in
writing. The parties hereto acknowledge that the Company's consent to
an amendment or modification of this Agreement may be subject to the
terms and provisions of the Financing Agreements.

(d) Assignability. Neither this Agreement nor any right,
remedy, obligation or liability arising hereunder or by reason hereof shall be
assignable by the Company or the Grantee without the prior written consent of
the other parties and the CD&R Fund. The CD&R Fund may assign from time to time
all or any portion of its rights under Section 5 to one or more persons or
other entities designated by it.

(e) Applicable Law. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK, EXCEPT TO
THE EXTENT THAT THE CORPORATE LAW OF THE STATE OF DELAWARE SPECIFICALLY AND
MANDATORILY APPLIES.

(f) Section and Other Headings, etc. The section and
other headings contained in this Agreement are for reference purposes only and
shall not affect the meaning or interpretation of this Agreement.

(g) Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original and all
of which together shall constitute one and the same instrument.

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<PAGE> 21

(h) Delegation by the Board. All of the powers, duties
and responsibilities of the Board specified in this Agreement may, to the full
extent permitted by applicable law, be exercised and performed by any duly
constituted committee thereof to the extent authorized by the Board to exercise
and perform such powers, duties and responsibilities.

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<PAGE> 22

IN WITNESS WHEREOF, the Company and the Grantee have executed this
Agreement as of the date first above written.

RIVERWOOD HOLDING, INC.

By: /s/ Stephen M. Humphrey
----------------------------------------------
Name: Stephen M. Humphrey
Title: President and Chief Executive Officer

THE GRANTEE:

By: /s/ Thomas M. Gannon
----------------------------------------------
Name: Thomas M. Gannon

Address of the Grantee:

<TABLE>
<S> <C>
Item A
- ------
Total Number of Shares
of Common Stock for
the Purchase of Which
Service Options Have Been
Granted: 15,000 Shares

Item B
- ------
Total Number of Shares
of Common Stock for
the Purchase of Which
Performance Options Have Been
Granted: 7,500 Shares

Item C
- ------
Total Number of Shares
of Common Stock for
the Purchase of Which
Special Options Have Been
Granted: 7,500 Shares
</TABLE>

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<PAGE> 23

Exhibit A

MANAGEMENT STOCK SUBSCRIPTION AGREEMENT

MANAGEMENT STOCK SUBSCRIPTION AGREEMENT, dated as of __________ __,
199_, between Riverwood Holding, Inc., a Delaware corporation (the "Company"),
and the Purchaser whose name appears on the signature page hereof (the
"Purchaser").

W I T N E S S E T H:

WHEREAS, pursuant to the Company's Stock Incentive Plan (the "Plan"),
the Board of Directors of the Company (the "Board") granted to the Purchaser
certain options (the "Options") to purchase shares (each, a "Share" and,
collectively, the "Shares") of the Company's Class A Common Stock, par value
$.01 per share (the "Class A Common Stock"), at an exercise price of $___ per
Share;

WHEREAS, the Purchaser desires to exercise the Options and purchase
the Shares;

WHEREAS, in connection with the Purchaser's exercise of the Options
and purchase of the Shares, the Company desires to enter into an agreement with
the Purchaser evidencing the sale of the Shares to the Purchaser and setting
forth the terms and conditions thereof.

NOW, THEREFORE, to implement the foregoing and in consideration of the
mutual promises, covenants and agreements contained herein, the parties hereto
hereby agree as follows:

1. Purchase and Sale of Common Stock.

(a) Purchase of Common Stock. Subject to all of the terms and
conditions of this Agreement, the Purchaser hereby subscribes for and shall
purchase, and the Company shall sell to the Purchaser, the Shares, at a
purchase price of $___ per Share, at the Closing provided for in Section 2(a)
hereof. Notwithstanding anything in this Agreement to the contrary, the Company
shall have no obligation to sell any Class A Common Stock (i) to (x) any person
who will not be an employee of the Company, Riverwood or a Subsidiary (as
defined in Section 6(c)) immediately following the Closing at which such Class
A Common Stock is to be sold or (y) any person who is a resident of a
jurisdiction in which the sale of Class A Common Stock to such person would
constitute a violation of the securities, "blue sky" or other laws of such
jurisdiction or (ii) prior to the time the Registration Statement is effective.

(b) Consideration. Subject to all of the terms and conditions of
this Agreement, the Purchaser shall deliver to the Company at the Closing
referred to in Section 2(a) hereof, immediately available funds in the amount
of the aggregate purchase price set forth on the signature page hereof.

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<PAGE> 24

2. Closing.

(a) Time and Place. Except as otherwise mutually agreed by the
Company and the Purchaser, the closing (the "Closing") of the transaction
contemplated by this Agreement shall be held at the offices of Debevoise &
Plimpton, 875 Third Avenue, New York, New York at 10:00 a.m. (New York time) on
or about ___ __,199_.

(b) Delivery by the Company. At the Closing, the Company shall
deliver to the Purchaser a stock certificate registered in such Purchaser's
name and representing the Shares, which certificate shall bear the legends set
forth in Section 3(b) hereof.

(c) Delivery by the Purchaser. At the Closing, the Purchaser
shall deliver to the Company the consideration referred to in Section 1(b)
hereof.

3. Purchaser's Representations, Warranties and Covenants.

(a) Investment Intention. The Purchaser represents and warrants
that the Purchaser is acquiring the Shares solely for the Purchaser's own
account for investment and not with a view to or for sale in connection with
any distribution thereof. The Purchaser agrees that the Purchaser will not,
directly or indirectly, offer, transfer, sell, pledge, hypothecate or otherwise
dispose of any of the Shares (or solicit any offers to buy, purchase or
otherwise acquire or take a pledge of any Shares), except in compliance with
the Securities Act of 1933, as amended (the "Securities Act"), and the rules
and regulations of the Securities and Exchange Commission (the "Commission")
thereunder, and in compliance with applicable state securities or "blue sky"
laws and foreign securities laws, if any. The Purchaser further understands,
acknowledges and agrees that none of the Shares may be transferred, sold,
pledged, hypothecated or otherwise disposed of (i) unless the provisions of
Sections 4 through 8 hereof, inclusive, shall have been complied with or have
expired, (ii) unless (A) such disposition is pursuant to an effective
registration statement under the Securities Act, (B) the Purchaser shall have
delivered to the Company an opinion of counsel, which opinion and counsel shall
be reasonably satisfactory to the Company, to the effect that the Purchaser is
not an "affiliate" of the Company within the meaning of Rule 405 promulgated
under the Securities Act ("Rule 405") or, if the Purchaser is an affiliate
within the meaning of Rule 405, to the effect that such disposition is exempt
from the provisions of Section 5 of the Securities Act or (C) a no-action
letter from the Commission, reasonably satisfactory to the Company, shall have
been obtained with respect to such disposition and (iii) unless such
disposition is pursuant to registration under any applicable state or foreign
securities laws or an exemption therefrom.

(b) Legends. The Purchaser acknowledges that the certificate or
certificates representing the Shares shall bear the following legends:

"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
PROVISIONS OF A MANAGEMENT STOCK SUBSCRIPTION AGREEMENT, DATED AS OF
____ __, 199_, AND NEITHER THIS CERTIFICATE NOR THE

24
<PAGE> 25

SHARES REPRESENTED BY IT ARE ASSIGNABLE OR OTHERWISE TRANSFERABLE
EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF SUCH MANAGEMENT STOCK
SUBSCRIPTION AGREEMENT, A COPY OF WHICH IS ON FILE WITH THE SECRETARY
OF THE COMPANY. THE SHARES REPRESENTED BY THIS CERTIFICATE ARE
ENTITLED TO THE BENEFITS OF AND ARE BOUND BY THE OBLIGATIONS SET FORTH
IN A REGISTRATION AND PARTICIPATION AGREEMENT, DATED AS OF MARCH 27,
1996, AMONG THE COMPANY AND CERTAIN STOCKHOLDERS OF THE COMPANY, A
COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY."

"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED,
SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS (i) THE
PROVISIONS OF SECTIONS 4 THROUGH 8 OF THE MANAGEMENT STOCK
SUBSCRIPTION AGREEMENT, INCLUSIVE, SHALL HAVE BEEN COMPLIED WITH OR
HAVE EXPIRED, (ii) UNLESS (A) SUCH DISPOSITION IS PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, (B) THE HOLDER HEREOF SHALL HAVE DELIVERED TO THE COMPANY AN
OPINION OF COUNSEL, WHICH OPINION AND COUNSEL SHALL BE REASONABLY
SATISFACTORY TO THE COMPANY, TO THE EFFECT THAT THE HOLDER IS NOT AN
AFFILIATE OF THE COMPANY OR, IF THE HOLDER IS AN AFFILIATE, TO THE
EFFECT THAT SUCH DISPOSITION IS EXEMPT FROM THE PROVISIONS OF SECTION
5 OF SUCH ACT OR (C) A NO-ACTION LETTER FROM THE SECURITIES AND
EXCHANGE COMMISSION, REASONABLY SATISFACTORY TO COUNSEL FOR THE
COMPANY, SHALL HAVE BEEN OBTAINED WITH RESPECT TO SUCH DISPOSITION AND
(iii) SUCH DISPOSITION IS PURSUANT TO REGISTRATION UNDER ANY
APPLICABLE STATE SECURITIES LAWS OR AN EXEMPTION THEREFROM. IF THE
PURCHASER IS A CITIZEN OR RESIDENT OF ANY JURISDICTION OTHER THAN THE
UNITED STATES, OR THE PURCHASER DESIRES TO EFFECT ANY TRANSFER IN ANY
SUCH JURISDICTION, THEN, IN ADDITION TO THE FOREGOING, COUNSEL FOR THE
PURCHASER (WHICH COUNSEL SHALL BE REASONABLY SATISFACTORY TO THE
COMPANY) SHALL HAVE FURNISHED THE COMPANY WITH AN OPINION OR OTHER
ADVICE REASONABLY SATISFACTORY TO THE COMPANY TO THE EFFECT THAT SUCH
TRANSFER WILL COMPLY WITH THE SECURITIES LAWS OF SUCH JURISDICTION."

(c) Securities Law Matters. The Purchaser acknowledges receipt of
advice from the Company that (i) the offer and sale of the Shares hereby have
been registered on Form S-8 under the Securities Act but have not been
qualified under state securities or "blue sky" laws, (ii) the resale of the
Shares by persons who are affiliates of the Company, within the meaning of Rule
405, has not been registered under the Securities Act or qualified under any
state securities or "blue sky" laws, (iii) it is not anticipated that there
will be any public market for the Shares, (iv) the Shares must be

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<PAGE> 26

held indefinitely and the Purchaser must continue to bear the economic risk of
the investment in the Shares unless there is a public market for the Shares
and, to the extent required under the Securities Act, the Shares are registered
for resale under the Securities Act and such state laws or an exemption from
registration is available, (v) Rule 144 promulgated under the Securities Act
("Rule 144") is not presently available with respect to the sales of any
securities of the Company, and the Company has made no covenant to make Rule
144 available, (vi) when and if the Shares may be disposed of without
registration in reliance upon Rule 144, such disposition by an affiliate of the
Company, within the meaning of Rule 405, can be made only in limited amounts in
accordance with the terms and conditions of Rule 144, (vii) the Company does
not plan to file reports with the Commission or make public information
concerning the Company available unless required to do so by law or the terms
of its Financing Agreements (as defined below), (viii) if the exemption
afforded by Rule 144 is not available, sales of the Shares may be difficult to
effect because of the absence of public information concerning the Company,
(ix) a restrictive legend in the form heretofore set forth shall be placed on
the certificates representing the Shares and (x) a notation shall be made in
the appropriate records of the Company indicating that the Shares are subject
to restrictions on transfer set forth in this Agreement and, if the Company
should in the future engage the services of a stock transfer agent, appropriate
stop-transfer restrictions will be issued to such transfer agent with respect
to the Shares.

(d) Compliance with Rule 144. If any of the Shares are to be
disposed of in accordance with Rule 144, the Purchaser shall transmit to the
Company an executed copy of Form 144 (if required by Rule 144) no later than
the time such form is required to be transmitted to the Commission for filing
and such other documentation as the Company may reasonably require to assure
compliance with Rule 144 in connection with such disposition.

(e) Ability to Bear Risk. The Purchaser represents and warrants
that (i) the financial situation of the Purchaser is such that the Purchaser
can afford to bear the economic risk of holding the Shares for an indefinite
period and (ii) the Purchaser can afford to suffer the complete loss of the
Purchaser's investment in the Shares.

(f) Access to Information. The Purchaser represents and warrants
that (i) the Purchaser has carefully reviewed the Registration Statement and
the other materials furnished to the Purchaser in connection with the
transaction contemplated hereby, (ii) the Purchaser has been granted the
opportunity to ask questions of, and receive answers from, representatives of
the Company concerning the terms and conditions of the purchase of the Shares
and to obtain any additional information that the Purchaser deems necessary to
verify the accuracy of the information contained in such materials and (iii)
the Purchaser is, and will be at the time of the Closing, an officer or key
employee of the Company, Riverwood or a Subsidiary.

(g) Restrictions on Sale upon Public Offering. The Purchaser
acknowledges and agrees that the Purchaser shall be entitled to the rights and
subject to the obligations created under the Registration and Participation
Agreement, dated as of March 27, 1996, among the Company and certain other
shareholders of the Company, as the same may be amended from time to time (the
"Registration and Participation Agreement"), and the Shares shall be deemed to
be "registrable

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<PAGE> 27

securities," as defined in the Registration and Participation Agreement, in
each case, to the extent provided therein.

(h) Registration. The Purchaser acknowledges and agrees that, in
the event that the Company files a registration statement under the Securities
Act with respect to an underwritten public offering of any shares of its
capital stock, the Purchaser will not effect any public sale or distribution of
any shares of the Common Stock (other than as part of such underwritten public
offering), including but not limited to, pursuant to Rule 144 or Rule 144A
under the Securities Act, during the 20 days prior to and the 180 days after
the effective date of such registration statement. The Purchaser further
understands and acknowledges that any sale, transfer or other disposition of
the Shares by him following a Public Offering will be subject to compliance
with, and may be limited under, the federal securities laws and/or state "blue
sky" securities laws.

(i) Section 83(b) Election. The Purchaser agrees that, within 20
days after the Closing, the Purchaser shall give notice to the Company in the
event that the Purchaser has made or intends to make an election pursuant to
section 83(b) of the Internal Revenue Code of 1986, as amended, with respect to
the Shares purchased at such Closing, and acknowledges that the Purchaser will
be solely responsible for any and all tax liabilities payable by the Purchaser
in connection with the Purchaser's receipt of the Shares or attributable to the
Purchaser's making or failing to make such an election.

4. Restrictions on Disposition of Shares. Neither the Purchaser
nor any of the Purchaser's heirs or representatives shall sell, assign,
transfer, pledge or otherwise directly or indirectly dispose of or encumber any
of the Shares to or with any other person, firm, trust, association,
corporation or entity (including, without limitation, transfers to any other
holder of the Company's capital stock, dispositions by gift, by will, by a
corporation as a distribution in liquidation or by operation of law other than
a transfer of Shares upon the death of the Purchaser by operation of law to the
estate of the Purchaser or by will to the beneficiary named therein provided
that such estate or beneficiary, whichever is applicable, shall be bound by all
of the provisions of this Agreement) except as provided in Sections 5 through 8
hereof, inclusive. The restrictions contained in this Section 4 (x) shall
terminate in the event that an underwritten public offering of the Common Stock
led by one or more underwriters at least one of which is an underwriter of
nationally recognized standing (a "Public Offering") has been consummated and
(y) shall not apply to a sale as part of the Public Offering or to a sale as
part of a "qualifying sale" within the meaning of Section 5 of the Stockholders
Agreement.

5. Options of the Company and the CD&R Fund Upon Proposed
Disposition.

(a) Rights of First Refusal. If the Purchaser desires to accept
an offer (which must be in writing and for cash, be irrevocable by its terms
for at least 60 days and be a bona fide offer as determined in good faith by
the Board of Directors of the Company, the "Board") from any prospective
purchaser to purchase all or any part of the Shares at any time owned by the
Purchaser, the Purchaser shall give notice in writing to the Company and the
Clayton, Dubilier & Rice Fund V Limited Partnership (the "CD&R Fund") (i)
designating the number of Shares proposed to be sold,

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<PAGE> 28

(ii) naming the prospective purchaser of such Shares and (iii) specifying the
price (the "Offer Price") at and terms (the "Offer Terms") upon which the
Purchaser desires to sell the same. During the 30-day period following receipt
of such notice by the Company and the CD&R Fund (the "First Refusal Period"),
the Company shall have the right to purchase from the Purchaser the Shares
specified in such notice, at the Offer Price and on the Offer Terms. The
Company hereby undertakes to use reasonable efforts to act as promptly as
practicable following such notice to determine whether it shall elect to
exercise such right. If the Company fails to exercise such rights within the
First Refusal Period, the CD&R Fund shall have the right to purchase the Shares
specified in such notice, at the Offer Price and on the Offer Terms, at any
time during the period beginning at the earlier of (x) the end of the First
Refusal Period and (y) the date of receipt by the CD&R Fund of written notice
that the Company has elected not to exercise its rights and ending 30 days
thereafter (the "Second Refusal Period"). The rights provided hereunder shall
be exercised by irrevocable written notice to the Purchaser given at any time
during the applicable period. If such right is exercised, the Company or the
CD&R Fund, as the case may be, shall deliver to the Purchaser a certified or
bank check for the Offer Price, payable to the order of the Purchaser, against
delivery of certificates or other instruments representing the Shares so
purchased, appropriately endorsed by the Purchaser. If such right shall not
have been exercised prior to the expiration of the Second Refusal Period, then
at any time during the 30 days following the expiration of the Second Refusal
Period, the Purchaser may sell such Shares to (but only to) the intended
purchaser named in the Purchaser's notice to the Company and the CD&R Fund at
no less than the Offer Price and on terms no less favorable to the Purchaser
than the Offer Terms specified in such notice, free of all restrictions or
obligations imposed by, and free of any rights or benefits set forth in this
Agreement, provided that such intended purchaser shall have agreed in writing,
pursuant to an instrument of assumption satisfactory in substance and form to
the Company, to make and be bound by the representations, warranties and
covenants set forth in Section 3 hereof, other than those set forth in Sections
3(f)(i) and (iii) and other than references to Sections 4 through 8 of this
Agreement contained in Sections 3(a)(i) and 3(b). The right of the Purchaser to
sell Shares set forth in this Section 5(a), subject to the rights of first
refusal set forth in this Section 5(a), shall be suspended during the Option
Periods referred to in Section 6 hereof, but the provisions of Section 6 shall
not otherwise restrict the ability of the Purchaser to sell the Shares, whether
before or after such Option Periods, pursuant to the terms and subject to the
restrictions set forth in this Section 5(a).

(b) Public Offering. In the event that a Public Offering has been
consummated, neither the Company nor the CD&R Fund shall have any rights to
purchase the Shares from the Purchaser pursuant to this Section 5 and this
Section 5 shall not apply to a sale to the underwriters as part of the Public
Offering or at any time thereafter.

6. Options Effective on Termination of Employment or Unforeseen
Personal Hardship of the Purchaser.

(a) Termination of Employment. If the Purchaser's Employment is
terminated for any reason whatsoever, the Company shall have an initial option
to repurchase all or any portion of the Shares then held by the Purchaser (or,
if the Purchaser's Employment was terminated by the

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<PAGE> 29

Purchaser's death, the Purchaser's estate) and shall have 60 days from the date
of the Purchaser's termination (such 60-day period being hereinafter referred
to as the "First Option Period") during which to give notice in writing to the
Purchaser (or the Purchaser's estate) of its election to exercise or not to
exercise such initial option. The Company hereby undertakes to use reasonable
efforts to act as promptly as practicable following such termination to make
such election. If the Company (i) fails to give notice that it intends to
exercise such option within the First Option Period or (ii) chooses to
repurchase none or only a portion of the Shares then held by the Purchaser (or
the Purchaser's estate), by giving such notice, the CD&R Fund shall have an
additional option to repurchase all or any portion of the Shares not
repurchased by the Company, and shall have until the expiration of the earlier
of (x) 60 days following the end of the First Option Period and (y) 60 days
from the date of receipt by the CD&R Fund of written notice that the Company
does not intend to exercise its initial option with respect to all of the
Purchaser's Shares (such 60-day period being hereinafter referred to as the
"Second Option Period") to give notice in writing to the Purchaser (or the
Purchaser's estate) of the CD&R Fund's exercise of its option. If (x) the
Company and the CD&R Fund have failed to exercise their respective options
pursuant to this Section 6(a) or have exercised such options with respect to
less than all of the Shares held by the Purchaser (or his estate) within the
time periods specified herein, (y) the Purchaser's Employment is terminated by
the Purchaser for Good Reason, by the Company and its Subsidiaries other than
for Cause or by reason of the Purchaser's Retirement at Normal Retirement Age,
death or Permanent Disability and (z) the Purchaser has held the shares for a
minimum period of six months, then on notice from the Purchaser (or his estate)
in writing and delivered to the Company within 30 days following the end of the
Second Option Period, the Company shall be required to purchase all (but not
less than all) of the Shares then held by the Purchaser (or his estate). All
purchases pursuant to this Section 6(a) by the Company or the CD&R Fund shall
be for a purchase price and effected in the manner prescribed by Section 7
hereof.

(b) Unforeseen Personal Hardship. In the event that the
Purchaser, while in Employment, experiences Unforeseen Personal Hardship, the
Board will carefully consider any request by the Purchaser that the Company
repurchase the Purchaser's Shares at a price determined in accordance with
Section 7 hereof, but the Company shall have no obligation to repurchase such
Shares. The Board shall consider such request with respect to Unforeseen
Personal Hardship as soon as practicable after receipt by the Company of a
written request by the Purchaser, such request to include sufficient details of
the Purchaser's Unforeseen Personal Hardship to permit the Board to review the
request and the circumstances in an informed manner.

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<PAGE> 30

(i) "Cause" shall mean (A) the willful failure of the Purchaser
substantially to perform his duties under the employment agreement among the
Company, RIC and the Grantee, as amended and restated in connection with the
Acquisition (the "Employment Agreement") (other than any such failure due to
physical or mental illness), or other willful and material breach by the
Purchaser of any of his obligations under the Employment Agreement or under any
of Sections 3 through 8, inclusive, hereof or the similar provisions of any
Option Agreement, after a demand for substantial performance is delivered, and
a reasonable opportunity to cure is given, to the Purchaser by the Board of
Directors of RIC, which demand identifies the manner in which such Board
believes that the Purchaser has not substantially performed his duties or
breached his obligations, (B) the Purchaser engaging in willful and serious
misconduct that has caused or would reasonably be expected to result in
material injury to RIC or any of its affiliates, or (C) the Purchaser's
conviction of, or entering a plea of nolo contendere to, a crime that
constitutes a felony.

(ii) "Good Reason" shall have the meaning assigned to such term in
the Employment Agreement.

(iii) "Permanent Disability" shall mean a physical or mental
disability that prevents the performance by the Purchaser of his duties under
the Employment Agreement lasting for a continuous period of six months or
longer. The determination of the Purchaser's Permanent Disability shall be made
by an independent physician who is reasonably acceptable to RIC and the
Purchaser and shall be final and binding and shall be based on such competent
medical evidence as shall be presented to it by the Purchaser or by any
physician or group of physicians or other competent medical experts employed by
the Purchaser and/or RIC to advise such independent physician.

(iv) "Retirement at Normal Retirement Age" shall mean retirement
from Employment at age 65 or later.

(v) "Subsidiary" shall mean any corporation or other Person
(other than RIC), a majority of whose outstanding voting securities or other
equity interests is owned, directly or indirectly, by the Company.

(vi) "Unforeseen Personal Hardship" shall mean financial hardship
arising from (x) extraordinary medical expenses or other expenses directly
related to illness or disability of the Purchaser, a member of the Purchaser's
immediate family or one of the Purchaser's parents or (y) payments necessary or
required to prevent the eviction of the Purchaser from the Purchaser's
principal residence or foreclosure on the mortgage on that residence. The
Board's reasoned and good faith determination of Unforeseen Personal Hardship
shall be binding on the Company and the Purchaser.

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<PAGE> 31

(d) Notice of Termination. The Company shall give written notice
of any termination of the Purchaser's Employment to the CD&R Fund, except that
if such termination (if other than as a result of death) is by the Purchaser,
the Purchaser shall give written notice of such termination to the Company and
the Company shall give written notice of such termination to the CD&R Fund.

(e) Public Offering. In the event that a Public Offering has been
consummated, neither the Company nor the CD&R Fund shall have any right to
purchase the Shares pursuant to this Section 6 and this Section 6 shall not
apply to a sale as part of the Public Offering.

7. Determination of the Purchase Price; Manner of Payment.

(a) Purchase Price. (i) For the purposes of any purchase of the
Shares pursuant to Section 6, and subject to Section 11(c), the purchase price
per Share to be paid to the Purchaser (or his estate) for each Share (the
"Purchase Price") shall be the Fair Market Value (as defined in paragraph (ii)
below) of such Share as of the effective date of the termination of employment
or determination of financial hardship, as the case may be, that gives rise to
the right or obligation to repurchase, provided that if the Purchaser's
employment is terminated by the Company, RIC or any Subsidiary for Cause, the
Purchase Price for such Shares shall be the lesser of (i) the Fair Market Value
of such Shares as of the effective date of such termination of employment and
(ii) the price at which the Purchaser purchased such Shares from the Company.

(ii) Whenever determination of the Fair Market Value of the Shares
is required by this Agreement, such "Fair Market Value" shall be such amount as
is determined in good faith by the Executive Committee of the Board (the
"Executive Committee"), as of the date such Fair Market Value is required to be
determined hereunder. In making a determination of Fair Market Value, the
Executive Committee shall give due consideration to such factors as it deems
appropriate, including, without limitation, the earnings and certain other
financial and operating information of the Company, RIC and the Subsidiaries in
recent periods, the potential value of the Company, RIC and the Subsidiaries as
a whole, the future prospects of the Company, RIC and the Subsidiaries and the
industries in which they compete, the history and management of the Company,
RIC and the Subsidiaries, the general condition of the securities markets, the
fair market value of securities of companies engaged in businesses similar to
those of the Company, RIC and the Subsidiaries and a valuation of the Shares,
which shall be performed, with respect to the 1996 fiscal year, as promptly as
practicable following the first business day of the 1997 fiscal year of the
Company and each subsequent fiscal year by an independent valuation firm chosen
by the Executive Committee. The determination of Fair Market Value will not
give effect to any restrictions on transfer of the Shares or the fact that such
Shares would represent a minority interest in the Company. The Fair Market
Value as determined in good faith by the Executive Committee and in the absence
of fraud shall be binding and conclusive upon all parties hereto and the CD&R
Fund. If the Company subdivides (by any stock split, stock dividend or
otherwise) the Common Stock into a greater number of shares, or combines (by
reverse stock split or otherwise) the Common Stock into a smaller number of
shares after the Executive Committee shall have determined the Purchase Price
for the Shares (without

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<PAGE> 32

taking into consideration such subdivision or combination) and prior to the
consummation of the purchase, the Purchase Price (including any minimum or
maximum Purchase Price specified herein or in effect as a result of a prior
adjustment) shall be appropriately adjusted to reflect such subdivision or
combination and the Executive Committee's determination as to any such judgment
in good faith shall be binding and conclusive on all parties hereto and the
CD&R Fund, provided however that, in the case of any determination of Fair
Market Value as of any date prior to January 1, 1997, such Fair Market Value
shall be deemed to be equal to $100 unless the Executive Committee determines
otherwise.

(b) Payment. Subject to Section 11 hereof, the completion of a
purchase pursuant to Section 6 hereof shall take place at the principal office
of the Company on the tenth business day following (i) the receipt by the
Purchaser (or the Purchaser's estate) of the notice of the CD&R Fund or the
Company, as the case may be, of its exercise of its option to purchase pursuant
to Section 6(a) or (ii) the Company's receipt of notice by the Purchaser (or
his estate) to sell Shares pursuant to Section 6(a) or (iii) the Board's
determination (which shall be delivered to the Purchaser) that the Company is
authorized to purchase Shares as a result of Unforeseen Personal Hardship
pursuant to Section 6(b). The Purchase Price shall be paid by delivery to the
Purchaser (or the Purchaser's estate) of a certified or bank check for the
Purchase Price payable to the order of the Purchaser (or the Purchaser's
estate), against delivery of certificates or other instruments representing the
Shares so purchased, appropriately endorsed by the Purchaser (or the
Purchaser's estate), free and clear of all security interests, liens, claims,
encumbrances, charges, options, restrictions on transfer, proxies and voting
and other agreements of whatever nature.

(c) Application of the Purchase Price to Certain Loans. The
Purchaser agrees that the Company and the CD&R Fund shall be entitled to apply
any amounts to be paid by the Company or the CD&R Fund, as the case may be, to
repurchase Shares pursuant to Section 5 or 6 hereof to discharge any
indebtedness of the Purchaser to the Company, RIC or any Subsidiary, including,
without limitation, indebtedness of the Purchaser incurred to purchase the
Shares or indebtedness to a third party that is guaranteed by the Company, RIC
or any Subsidiary.

8. Take-Along Rights.

(a) Take-Along Notice. Subject to the prior application of the
provisions of Section 5(a), if the holders of at least 51% of the shares of
Common Stock owned from time to time by any of the Investors (a "Controlling
Group"), acting jointly, intend to effect a sale of all of their shares of
Common Stock to a third party (a "100% Buyer") and elect to exercise their
rights under this Section 8, such Controlling Group shall deliver written
notice (a "Take-Along Notice") to the Purchaser, which notice shall (a) state
(i) that the Controlling Group wishes to exercise its rights under this Section
8 with respect to such transfer, (ii) the name and address of the 100% Buyer,
(iii) the per share amount and form of consideration the Controlling Group
proposes to receive for its shares of Common Stock and (iv) the terms and
conditions of payment of such consideration and all other material terms and
conditions of such transfer, (b) contain an offer (the "Take-Along Offer") by
the 100% Buyer to purchase from the Purchaser all of his Shares on and subject
to the same terms and

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<PAGE> 33

conditions offered to the Controlling Group and (c) state the anticipated time
and place of the closing of the purchase and sale of the shares (a "Section 8
Closing"), which (subject to such terms and conditions) shall occur not fewer
than five (5) days nor more than ninety (90) days after the date such
Take-Along Notice is delivered, provided that if such Section 8 Closing shall
not occur prior to the expiration of such 90-day period, the Controlling Group
shall be entitled to deliver another Take-Along Notice with respect to such
Take-Along Offer.

(b) Conditions to Take-Along. Upon delivery of a Take-Along
Notice, the Purchaser shall have the obligation to transfer all of the
Purchaser's Shares pursuant to the Take-Along Offer, as the same may be
modified from time to time, provided that the Controlling Group transfers all
of its shares of Common Stock to the 100% Buyer at the Section 8 Closing.
Within 10 days of receipt of the Take-Along Notice, the Purchaser shall (i)
execute and deliver to the Controlling Group a power of attorney and a letter
of transmittal and custody agreement appointing, and in form and substance
reasonably satisfactory to, the Controlling Group or one or more of their
respective affiliates designated by the Controlling Group (the "Custodian"),
the true and lawful attorney-in-fact and custodian for the Purchaser, with full
power of substitution, and authorizing the Custodian to take such actions as
the Custodian may deem necessary or appropriate to effect the sale and transfer
of the Shares to the 100% Buyer, upon receipt of the purchase price therefor at
the Section 8 Closing, free and clear of all security interests, liens, claims,
encumbrances, charges, options, restrictions on transfer, proxies and voting
and other agreements of whatever nature, and to take such other action as may
be necessary or appropriate in connection with such sale, including consenting
to any amendments, waivers, modifications or supplements to the terms of the
sale (provided that the Controlling Group also so consents, and, to the extent
applicable, sells and transfers its shares of Common Stock on the same terms as
so amended, waived, modified or supplemented) and (ii) deliver to the
Controlling Group certificates representing the Shares, together with all
necessary duly executed stock powers.

(c) Remedies. The Purchaser acknowledges that the Controlling
Group would be irreparably damaged in the event of a breach or a threatened
breach by the Purchaser of any of its obligations under this Section 8 and the
Purchaser agrees that, in the event of a breach or a threatened breach by the
Purchaser of any such obligation, the Controlling Group shall, in addition to
any other rights and remedies available to it in respect of such breach, be
entitled to an injunction from a court of competent jurisdiction (without any
requirement to post bond) granting it specific performance by the Purchaser of
its obligations under this Section 8. In the event that the Controlling Group
shall file suit to enforce the covenants contained in this Section 8 (or obtain
any other remedy in respect of any breach thereof), the prevailing party in the
suit shall be entitled to recover, in addition to all other damages to which it
may be entitled, the costs incurred by such party in conducting the suit,
including reasonable attorney's fees and expenses. In the event that, following
a breach or a threatened breach by the Purchaser of the provisions of this
Section 8, the Controlling Group does not obtain an injunction granting it
specific performance of the Purchaser's obligations under this Section 8 in
connection with such proposed sale prior to the time the Controlling Group
completes the sale of its shares of Common Stock or, in its sole discretion,
abandons such sale, then the Company shall have the option to purchase the
Shares from the Purchaser at a purchase price per Share equal to the price

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<PAGE> 34

at which the Purchaser purchased such shares of Common Stock from the Company
or, if less, the per share consideration payable pursuant to the Take-Along
Offer.

(d) Public Offering. In the event that a Public Offering has been
consummated, the provisions of this Section 8 shall terminate and cease to have
further effect.

9. Representations and Warranties of the Company. The Company
represents and warrants to the Purchaser that (a) the Company has been duly
incorporated and is an existing corporation in good standing under the laws of
the State of Delaware, (b) this Agreement has been duly authorized, executed
and delivered by the Company and constitutes a valid and legally binding
obligation of the Company enforceable against the Company in accordance with
its terms and (c) the Shares, when issued, delivered and paid for in accordance
with the terms hereof, will be duly and validly issued, fully paid and
nonassessable, and free and clear of any liens or encumbrances other than those
created pursuant to this Agreement, or otherwise in connection with the
transactions contemplated hereby.

10. Covenants of the Company.

(a) Rule 144. The Company agrees that at all times after it has
filed a registration statement after the date hereof pursuant to the
requirements of the Securities Act or Section 12 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), relating to any class of equity
securities of the Company (other than (i) the registration of equity securities
of the Company and/or options or interests in respect thereof to be offered
primarily to directors and/or members of management and employees, sales agents
or similar representatives of the Company, RIC or the Subsidiaries, directors
or senior executives of corporations in which entities managed or sponsored by
Clayton, Dubilier & Rice, Inc. have made equity investments and/or other
persons with whom CD&R has consulting or other advisory relationships, or (ii)
the registration of equity securities and/or options or other interests in
respect thereof solely on Form S-4 or S-8 or any successor form), it will file
the reports required to be filed by it under the Securities Act and the
Exchange Act and the rules and regulations adopted by the Commission thereunder
(or, if the Company is not required to file such reports, it will, upon the
request of the Purchaser, make publicly available such information as necessary
to permit sales pursuant to Rule 144 under the Securities Act), to the extent
required from time to time to enable the Purchaser to sell the Shares without
registration under the Securities Act within the limitation of the exemptions
provided by (i) Rule 144, as such Rule may be amended from time to time, or
(ii) any successor rule or regulation hereafter adopted by the Commission.

(b) State Securities Laws. The Company agrees to use its best
efforts to comply with all state securities or "blue sky" laws applicable to
the sale of the Shares to the Purchaser, provided that the Company shall not be
obligated to qualify or register the Shares under any such law or to qualify as
a foreign corporation or file any consent to service of process under the laws
of any jurisdiction or subject itself to taxation as doing business in any such
jurisdiction.

11. Certain Restrictions on Repurchases.

34
<PAGE> 35

(a) Financing Agreements, etc. Notwithstanding any other
provision of this Agreement, the Company shall not be obligated or permitted to
complete a repurchase of any Shares from the Purchaser if (i) such repurchase
would result in a violation of the terms or provisions of, or result in a
default or an event of default under, (A) the Credit Agreement, dated as of
March 21, 1996 (the "Credit Agreement"), among Parent, the other borrowers
party thereto, Chemical Bank, as administrative agent, and the lenders party
thereto from time to time, as such agreement may be assumed by RIC as successor
in interest to Parent, (B) the Equipment Packaging Machinery Credit Agreement,
dated as of March 21, 1996 (the "PMC Agreement"), among Riverwood International
Machinery, Inc., Chemical Bank, as administrative agent, and the lenders party
thereto from time to time, (C) the Indenture, dated as of March 27, 1996, among
Parent, as issuer, the Company and Newco, as guarantors, and Fleet National
Bank of Connecticut, as trustee (the "Senior Note Indenture"), (D) the
Indenture, dated as of March 27, 1996, among Parent, as issuer, the Company and
Newco, as guarantors, and Fleet National Bank of Massachusetts, as trustee
(together with the Senior Note Indenture, the "Indentures"), or (E) any other
guarantee, financing or security agreement or document entered into (I) by
Riverwood or any of its subsidiaries prior to the Effective Time that remains
outstanding in any part on or after the Effective Time, (II) by the Company or
any of its subsidiaries in connection with the Acquisition, or the financing of
the Acquisition or (III) otherwise from time to time in connection with the
operations of the Company, RIC or the Subsidiaries (the Credit Agreement, the
PMC Agreement, the Indentures and such other agreements and documents, as each
may be amended, modified or supplemented from time to time, are referred to
herein as the "Financing Agreements"), in each case as the same may be amended,
modified or supplemented from time to time, (ii) such repurchase would violate
any of the terms or provisions of the Certificate of Incorporation of the
Company or (iii) the Company has no funds legally available therefor under the
General Corporation Law of the State of Delaware.

(b) Delay of Repurchase. In the event that the completion of a
repurchase by the Company otherwise permitted or required under Section 6(a) is
prevented solely by the terms of Section 11(a), the Company shall provide
written notice thereof to the Purchaser and (i) such repurchase will be
postponed and will take place without the application of further conditions or
impediments (other than as set forth in Section 7 hereof or in this Section 11)
at the first opportunity thereafter when the Company has funds legally
available therefor and when such repurchase will not result in any default,
event of default or violation under any of the Financing Agreements or in a
violation of any term or provision of the Certificate of Incorporation of the
Company and (ii) such repurchase obligation shall rank against other similar
repurchase obligations with respect to shares of Common Stock or options or
deferred stock units in respect thereof according to priority in time of the
effective date of the termination of employment or, if applicable,
determination of financial hardship giving rise to such repurchase obligation;
provided that (A) repurchase obligations arising pursuant to the exercise of a
Purchaser's right to require a repurchase under Section 6(a) and repurchase
obligations arising under Section 6(b) by reason of an approved financial
hardship shall take precedence over repurchase obligations arising pursuant to
the Company's exercise of its right to repurchase the Shares under Section 6(a)
and (B) repurchase obligations as to which a common date

35
<PAGE> 36

determines priority shall be of equal priority and shall share pro rata in any
repurchase payments made pursuant to clause (i) above.

(c) Purchase Price Adjustment. In the event that a repurchase of
Shares from the Purchaser is delayed pursuant to this Section 11, the purchase
price per Share when the repurchase of such Shares eventually takes place as
contemplated by Section 11(b) shall be equal to the Purchase Price per Share
determined under Section 7 as of the date of the termination or determination
of financial hardship giving rise to such repurchase, increased by interest on
such Purchase Price for the period from the date such repurchase would have
taken place but for a delay of such repurchase pursuant to Section 11(a) to the
date on which the repurchase actually takes place (the "Delay Period"), at an
annual rate of interest equal to the weighted average cost of the Company's
bank indebtedness outstanding during the Delay Period.

12. Miscellaneous.

(a) Notices. All notices and other communications required or
permitted to be given under this Agreement shall be in writing and shall be
deemed to have been given if delivered personally or sent by certified or
express mail, return receipt requested, postage prepaid, or by any recognized
international equivalent of such mail delivery, to the Company, the CD&R Fund
or the Purchaser, as the case may be, at the following addresses or to such
other address as the Company, the CD&R Fund or the Purchaser, as the case may
be, shall specify by notice to the others:

(i) if to the Company, to it at:

Riverwood Holding, Inc.
Suite 1200
1105 North Market Street
P.O. Box 8985
Wilmington, Delaware 19899
Attention: General Counsel

(ii) if to the Purchaser, to the Purchaser at the address set
forth on the signature page hereof.

(iii) if to the CD&R Fund, to:

Clayton, Dubilier & Rice Fund V Limited Partnership
Foulkstone Plaza, Suite 102
1403 Foulk Road
Wilmington, Delaware 19803
Attention: Joseph L. Rice, III

36
<PAGE> 37

Clayton, Dubilier & Rice, Inc.
375 Park Avenue
New York, New York 10152
Attention: Kevin J. Conway

and

Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Attention: Franci J. Blassberg, Esq.

The CD&R Fund also shall be given a copy of any notice or other communication
between the Purchaser and the Company under this Agreement at its address as
set forth above.

(b) Binding Effect; Benefits. This Agreement shall be binding
upon the parties to this Agreement and their respective successors and assigns
and shall inure to the benefit of the parties to the Agreement, the CD&R Fund
and their respective successors and assigns. Except as provided in Sections 4
through 8, inclusive, nothing in this Agreement, express or implied, is
intended or shall be construed to give any person other than the parties to
this Agreement, the CD&R Fund or their respective successors or assigns any
legal or equitable right, remedy or claim under or in respect of any agreement
or any provision contained herein.

(i) Waiver. Any party hereto or beneficiary hereof may by written
notice to the other parties (A) extend the time for the performance of any of
the obligations or other actions of the other parties under this Agreement, (B)
waive compliance with any of the conditions or covenants of the other parties
contained in this Agreement and (C) waive or modify performance of any of the
obligations of the other parties under this Agreement, provided that any waiver
of the provisions of Sections 4 through 8, inclusive, must be consented to in
writing by the CD&R Fund. Except as provided in the preceding sentence, no
action taken pursuant to this Agreement, including, without limitation, any
investigation by or on behalf of any party or beneficiary shall be deemed to
constitute a waiver by the party or beneficiary taking such action of
compliance with any representations, warranties, covenants or agreements
contained herein. The waiver by any party hereto or beneficiary hereof of a
breach of any provision of this Agreement shall not operate or be construed as
a waiver of any preceding or succeeding breach and no failure by a party to
exercise any right or privilege hereunder shall be deemed a waiver of such
party's or beneficiary's rights or privileges hereunder or shall be

37
<PAGE> 38

deemed a waiver of such party's or beneficiary's rights to exercise the same at
any subsequent time or times hereunder.

(ii) Amendment. This Agreement may not be amended, modified or
supplemented orally, but only by a written instrument executed by the Purchaser
and the Company, and, in the case of any amendment modification or supplement
to or affecting any of Sections 4 through 8 inclusive or that adversely affects
the rights of the CD&R Fund hereunder consented to by the CD&R Fund in writing.
The parties hereto acknowledge that the Company's consent to an amendment or
modification of this Agreement may be subject to the terms and provisions of
the Financing Agreements.

(d) Assignability. Neither this Agreement nor any right, remedy,
obligation or liability arising hereunder or by reason hereof shall be
assignable by the Company or the Purchaser without the prior written consent of
the other parties and the CD&R Fund. The CD&R Fund may assign from time to time
all or any portion of its rights under Sections 4 through 8 hereof to one or
more persons or other entities designated by it.

(e) Applicable Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK, EXCEPT TO THE
EXTENT THAT THE CORPORATE LAW OF THE STATE OF DELAWARE SPECIFICALLY AND
MANDATORILY APPLIES.

(f) Section and Other Headings, etc. The section and other
headings contained in this Agreement are for reference purposes only and shall
not affect the meaning or interpretation of this Agreement.

(g) Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute one and the same instrument.

(h) Delegation by the Board. All of the powers, duties and
responsibilities of the Board specified in this Agreement may, to the full
extent permitted by applicable law, be exercised and performed by any duly
constituted committee thereof to the extent authorized by the Board to exercise
and perform such powers, duties and responsibilities.

38
<PAGE> 39

IN WITNESS WHEREOF, the Company and the Purchaser have executed this
Agreement as of the date first above written.

RIVERWOOD HOLDING, INC.

By:
--------------------------
Name:
Title:

THE PURCHASER:

By:
--------------------------
Name:

Address of the Purchaser:

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

<TABLE>
<S> <C>
Total Number of Shares
of Common Stock to be
Purchased:

------------------
Total Cash Purchase
Price:
------------------
</TABLE>

<PAGE> 1

EXHIBIT 21

SUBSIDIARIES OF REGISTRANT

<TABLE>
<CAPTION>
JURISDICTION OF
SUBSIDIARY INCORPORATION
- ----------------------------------------------------------------------------------------------------------

<S> <C>
Creacom S.A.........................................................................................France
Danapak Riverwood Multipack A/S....................................................................Denmark
Entreprise Maillet E.U.R.L. ........................................................................France
Fadec E.U.R.L. .....................................................................................France
Financiere de Developpement S.A.....................................................................France
Fiskeby Board AB....................................................................................Sweden
Fiskeby Board A/S..................................................................................Denmark
Fiskeby Board Ltd. .........................................................................United Kingdom
Fiskeby Holding AB..................................................................................Sweden
Igaras Argentina S.A. ...........................................................................Argentina
Igaras Papeis e Embalagens S.A. ....................................................................Brazil
Igaras Servicos Florestais Ltda.....................................................................Brazil
Imprimerie Generale S.A.............................................................................France
Lemaire S.A.........................................................................................France
New Materials Limited.......................................................................United Kingdom
Ouachita Machine Works (Partnership).............................................................Louisiana
Rengo Riverwood Packaging, Ltd.......................................................................Japan
RIC Holding, Inc..................................................................................Delaware
Riverwood Brazilian Investments, Inc. ............................................................Delaware
Riverwood Cartons Pty. Ltd. .....................................................................Australia
Riverwood do Brasil Ltda............................................................................Brazil
Riverwood Espana, S.A. ..............................................................................Spain
Riverwood International Asia Pacific Limited.....................................................Hong Kong
Riverwood International Asia Pte Ltd.............................................................Singapore
Riverwood International Australia Pty. Ltd.......................................................Australia
Riverwood International B.V. ..................................................................Netherlands
Riverwood International Corporation...............................................................Delaware
Riverwood International Corporation Philanthropic Fund............................................Delaware
Riverwood International (Cyprus) Limited............................................................Cyprus
Riverwood International Enterprises, Inc..........................................................Delaware
Riverwood International (Europe) S.A...............................................................Belgium
Riverwood International Japan, Ltd...................................................................Japan
Riverwood International Limited.............................................................United Kingdom
Riverwood International Machinery, Inc. ..........................................................Delaware
Riverwood International Mexicana, S. de R.L. de C.V. ...............................................Mexico
Riverwood International Pension Trustee Company Ltd.........................................United Kingdom
Riverwood International, S.A. ......................................................................France
Riverwood International S.p.A. ......................................................................Italy
Riverwood Mehrstruckverpackung G.m.b.H. ...........................................................Germany
Riverwood Swedish Investments, Inc. ..............................................................Delaware
Slevin South Company..............................................................................Arkansas
</TABLE>

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF RIVERWOOD HOLDING, INC. FOR THE YEAR ENDED DECEMBER 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 13,840
<SECURITIES> 0
<RECEIVABLES> 142,221
<ALLOWANCES> 2,132
<INVENTORY> 167,388
<CURRENT-ASSETS> 332,326
<PP&E> 1,495,490
<DEPRECIATION> 310,008
<TOTAL-ASSETS> 2,417,601
<CURRENT-LIABILITIES> 278,777
<BONDS> 1,680,415
0
0
<COMMON> 75
<OTHER-SE> 336,825
<TOTAL-LIABILITY-AND-EQUITY> 2,417,601
<SALES> 1,135,569
<TOTAL-REVENUES> 1,135,569
<CGS> 936,957
<TOTAL-COSTS> 936,957
<OTHER-EXPENSES> 170,934
<LOSS-PROVISION> 1,565
<INTEREST-EXPENSE> 178,030
<INCOME-PRETAX> (149,078)
<INCOME-TAX> (617)
<INCOME-CONTINUING> (140,304)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (140,304)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0

</TABLE>

<PAGE> 1

EXHIBIT 99

RIVERWOOD HOLDING, INC.

RECONCILIATION OF INCOME (LOSS) FROM OPERATIONS TO EBITDA
(IN THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
COATED CONTAINER-
BOARD BOARD CORPORATE TOTAL
-------- ---------- --------- --------
<S> <C> <C> <C> <C>
COMPANY:
FIRST QUARTER 1998:
Income (Loss) from Operations....................... $ 16,572 $ (4,620) $ (4,706) $ 7,246
Add: Depreciation and amortization.................. 24,285 3,878 286 28,449
Purchased asset costs(A)...................... 6,396 911 -- 7,307
Dividends from equity investments............. -- -- 618 618
Other non-cash charges(B)..................... 758 286 1,624 2,668
-------- -------- -------- --------
EBITDA(C)............................................. $ 48,011 $ 455 $ (2,178) $ 46,288
======== ======== ======== ========
SECOND QUARTER 1998:
Income (Loss) from Operations....................... $ 17,398 $ (2,711) $ (4,380) $ 10,307
Add: Depreciation and amortization.................. 27,198 1,776 244 29,218
Purchased asset costs(A)...................... 5,563 911 -- 6,474
Dividends from equity investments............. -- -- 994 994
Other non-cash charges(B)..................... 15,024 465 1,144 16,633
-------- -------- -------- --------
EBITDA(C)............................................. $ 65,183 $ 441 $ (1,998) $ 63,626
======== ======== ======== ========
THIRD QUARTER 1998:
Income (Loss) from Operations....................... $ 35,169 $ (4,482) $ (4,112) $ 26,575
Add: Depreciation and amortization.................. 25,861 2,963 (925) 27,899
Purchased asset costs(A)...................... 5,999 911 -- 6,910
Dividends from equity investments............. -- -- 915 915
Other non-cash charges(B)..................... 1,591 375 2,321 4,287
-------- -------- -------- --------
EBITDA(C)............................................. $ 68,620 $ (233) $ (1,801) $ 66,586
======== ======== ======== ========
FOURTH QUARTER 1998:
Income (Loss) from Operations....................... $ 9,613 $(11,869) $(14,194) $(16,450)
Add: Depreciation and amortization.................. 30,282 4,143 138 34,563
Purchased asset costs(A)...................... 5,457 911 -- 6,368
Dividends from equity investments............. 700 -- 3,736 4,436
Other non-cash charges(B)..................... (2,675) (2,813) 3,529 (1,959)
-------- -------- -------- --------
EBITDA(C)............................................. $ 43,377 $ (9,628) $ (6,791) $ 26,958
======== ======== ======== ========
YEAR ENDED DECEMBER 31, 1998:
Income (Loss) from Operations....................... $ 78,752 $(23,682) $(27,392) $ 27,678
Add: Depreciation and amortization.................. 107,626 12,760 (257) 120,129
Purchased asset costs(A)...................... 23,415 3,644 -- 27,059
Dividends from equity investments............. 700 -- 6,263 6,963
Other non-cash charges(B)..................... 14,698 (1,687) 8,618 21,629
-------- -------- -------- --------
EBITDA(C)............................................. $225,191 $ (8,965) $(12,768) $203,458
======== ======== ======== ========
</TABLE>

1
<PAGE> 2

RIVERWOOD HOLDING, INC.

RECONCILIATION OF INCOME (LOSS) FROM OPERATIONS TO EBITDA
(IN THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
COATED CONTAINER-
BOARD BOARD CORPORATE TOTAL
-------- ---------- --------- --------
<S> <C> <C> <C> <C>
COMPANY:
FIRST QUARTER 1997:
Income (Loss) from Operations....................... $ 15,779 $(13,006) $ (4,512) $ (1,739)
Add: Depreciation and amortization.................. 20,949 3,803 358 25,110
Purchased asset costs(A)...................... 6,219 911 -- 7,130
Dividends from equity investments............. -- -- 750 750
Other non-cash charges(B)..................... 1,538 254 110 1,902
-------- -------- -------- --------
EBITDA(C)............................................. $ 44,485 $ (8,038) $ (3,294) $ 33,153
======== ======== ======== ========
SECOND QUARTER 1997:
Income (Loss) from Operations....................... $ 19,307 $(12,532) $ (6,530) $ 245
Add: Depreciation and amortization.................. 23,420 3,944 289 27,653
Purchased asset costs(A)...................... 4,866 911 -- 5,777
Dividends from equity investments............. -- -- 945 945
Other non-cash charges(B)..................... 253 2,966 1,741 4,960
-------- -------- -------- --------
EBITDA(C)............................................. $ 47,846 $ (4,711) $ (3,555) $ 39,580
======== ======== ======== ========
THIRD QUARTER 1997:
Income (Loss) from Operations....................... $ 17,996 $ (6,385) $ (4,096) $ 7,515
Add: Depreciation and amortization.................. 23,969 3,397 265 27,631
Purchased asset costs(A)...................... 6,724 911 -- 7,635
Dividends from equity investments............. -- -- 1,022 1,022
Other non-cash charges(B)..................... 499 75 986 1,560
-------- -------- -------- --------
EBITDA(C)............................................. $ 49,188 $ (2,002) $ (1,823) $ 45,363
======== ======== ======== ========
FOURTH QUARTER 1997:
Income (Loss) from Operations....................... $ 11,737 $ (9,321) $ (1,525) $ 891
Add: Depreciation and amortization.................. 22,542 5,600 305 28,447
Purchased asset costs(A)...................... 11,024 911 -- 11,935
Dividends from equity investments............. -- -- 2,511 2,511
Other non-cash charges(B)..................... 767 2,017 1,263 4,047
-------- -------- -------- --------
EBITDA(C)............................................. $ 46,070 $ (793) $ 2,554 $ 47,831
======== ======== ======== ========
YEAR ENDED DECEMBER 31, 1997:
Income (Loss) from Operations....................... $ 64,819 $(41,244) $(16,663) $ 6,912
Add: Depreciation and amortization.................. 90,880 16,744 1,217 108,841
Purchased asset costs(A)...................... 28,833 3,644 -- 32,477
Dividends from equity investments............. -- -- 5,228 5,228
Other non-cash charges(B)..................... 3,057 5,312 4,100 12,469
-------- -------- -------- --------
EBITDA(C)............................................. $187,589 $(15,544) $ (6,118) $165,927
======== ======== ======== ========
</TABLE>

2
<PAGE> 3

RIVERWOOD HOLDING, INC.

RECONCILIATION OF INCOME (LOSS) FROM OPERATIONS TO EBITDA
(IN THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
U.S.
TIMBERLANDS/
COATED CONTAINER- WOOD
BOARD BOARD PRODUCTS CORPORATE TOTAL
-------- ---------- ------------ --------- --------
<S> <C> <C> <C> <C> <C>
COMPANY:
SECOND QUARTER 1996:
Income (Loss) from Operations........... $ 19,768 $ (7,260) $ -- $ (6,396) $ 6,112
Income from discontinued operations..... -- -- 15,356 -- 15,356
Add: Depreciation and amortization...... 21,295 4,320 1,950 672 28,237
Purchased asset costs(A).......... 9,877 1,217 844 (41) 11,897
Dividends from equity
investments..................... -- -- -- 1,408 1,408
Other non-cash charges(B)......... 1,506 (541) 784 80 1,829
-------- -------- ------- -------- --------
EBITDA(C)................................. $ 52,446 $ (2,264) $18,934 $ (4,277) $ 64,839
======== ======== ======= ======== ========
THIRD QUARTER 1996:
Income (Loss) from Operations........... $ 20,563 $(12,207) $ -- $ (5,312) $ 3,044
Income from discontinued operations..... -- -- 17,453 -- 17,453
Add: Depreciation and amortization...... 17,484 4,644 2,241 475 24,844
Purchased asset costs(A).......... 7,021 700 1,138 87 8,946
Dividends from equity
investments..................... -- -- -- 696 696
Other non-cash charges(B)......... 1,506 (535) 1,313 36 2,320
-------- -------- ------- -------- --------
EBITDA(C)................................. $ 46,574 $ (7,398) $22,145 $ (4,018) $ 57,303
======== ======== ======= ======== ========
FOURTH QUARTER 1996:
Income (Loss) from Operations........... $ 14,645 $(11,502) $ -- $(10,880) $ (7,737)
Income from discontinued operations..... -- -- 2,737 -- 2,737
Add: Depreciation and amortization...... 23,921 5,354 618 (140) 29,753
Purchased asset costs(A).......... (3,269) 770 295 (46) (2,250)
Dividends from equity
investments..................... -- -- -- 3,287 3,287
Other non-cash charges(B)......... 1,132 (584) 76 4 628
-------- -------- ------- -------- --------
EBITDA(C)................................. $ 36,429 $ (5,962) $ 3,726 $ (7,775) $ 26,418
======== ======== ======= ======== ========
NINE MONTHS ENDED DECEMBER 31, 1996:
Income (Loss) from Operations........... $ 54,976 $(30,969) $ -- $(22,588) $ 1,419
Income from discontinued operations..... -- -- 35,546 -- 35,546
Add: Depreciation and amortization...... 62,700 14,318 4,809 1,007 82,834
Purchased asset costs(A).......... 13,629 2,687 2,277 -- 18,593
Dividends from equity
investments..................... -- -- -- 5,391 5,391
Other non-cash charges(B)......... 4,144 (1,660) 2,173 120 4,777
-------- -------- ------- -------- --------
EBITDA(C)................................. $135,449 $(15,624) $44,805 $(16,070) $148,560
======== ======== ======= ======== ========
- -------------------------------------------------------------------------------------------------------
PREDECESSOR:
FIRST QUARTER 1996:
Income (Loss) from Operations........... $ 24,638 $ (5,955) $13,868 $(16,901) $ 15,650
Add: Depreciation and amortization...... 17,800 4,332 1,735 571 24,438
Dividends from equity
investments..................... -- -- -- -- --
Pro forma adjustments............. 3,471 120 218 9,533 13,342
Other non-cash charges(B)......... 1,265 261 945 232 2,703
-------- -------- ------- -------- --------
Proforma EBITDA........................... $ 47,174 $ (1,242) $16,766 $ (6,565) $ 56,133
======== ======== ======= ======== ========
</TABLE>

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

Notes:

(A) Certain expenses and costs are excluded from the Company's Income from
Operations in determining EBITDA (as defined below), including amortization,
depreciation or expenses associated with the

3
<PAGE> 4

write-up of inventory, fixed assets and intangible assets in accordance with
APB 16 and APB Opinion No. 17, "Intangible Assets", collectively referred to
as the "Purchased asset costs."

(B) Other non-cash charges include non-cash charges for LIFO accounting,
pension, postretirement and postemployment benefits, depletion of prepaid
timber and amortization of premiums on hedging contracts deducted in
determining net income other than Purchased asset costs (see (A) above).
During the fourth quarter of 1998, the Company recorded a credit of $9.4
million related to a LIFO inventory valuation offset by $3.7 million in
charge copy taken in the first three quarters of 1998. The net credit
relating to LIFO inventory valuation for the year ended December 31, 1998,
was $5.9 million.

(C) EBITDA is defined as consolidated net income (exclusive of non-cash charges
resulting from purchase accounting during the periods subsequent to the
Merger) before consolidated interest expense, consolidated income taxes,
consolidated depreciation and amortization, cost of timber harvested and
other non-cash charges deducted in determining consolidated net income and
extraordinary items and the cumulative effect of accounting changes and
earnings of, but including dividends from, non-controlled affiliates. EBITDA
excludes (i) equity earnings of Igaras from the Company's investment in
Igaras but includes dividends actually received from Igaras, (ii) Other
Costs of the Predecessor (see Note 18 in Notes to Consolidated Financial
Statements), and (iii) Purchased Asset Costs resulting from purchase
accounting for periods subsequent to the Merger. The Company believes that
EBITDA provides useful information regarding the Company's debt service
ability, but should not be considered in isolation or as a substitute for
the Consolidated Statements of Operations or cash flow data.