SEPARATION AGREEMENT AND MUTUAL RELEASE


     This is an Agreement  dated as of June 1, 1998 between Fort James Operating
Company,  its parent,  affiliates,  subsidiaries,  predecessors,  successors and
assigns  (collectively 'Fort  James' or the  'Company')  and  James K.  Goodwin
('Goodwin').

     A. Goodwin has been  employed by Fort James as  President,  North  American
Consumer  Products  business under his employment  agreement dated as of May 27,
1997 (the  'Employment  Agreement') and wishes to resign that  employment.  Fort
James and Goodwin  have agreed on the terms  under which he will  terminate  his
employment  with the Company.  The parties desire to resolve  matters  involving
Goodwin's  employment,  the Employment  Agreement and Goodwin's  separation from
employment with Fort James.

     B. Goodwin and Fort James further desire to settle, resolve and release any
and all existing or potential claims,  controversies,  differences,  disputes or
disagreements,  known or  unknown,  that  Goodwin  may have with  Fort  James in
exchange for Fort James'  agreement to provide Goodwin certain  compensation and
benefits  to which he  otherwise  he may not be  entitled.
   
     C. Fort James also desires to provide Goodwin with additional  compensation
over the next two (2) years in return for  Goodwin  agreeing  (i) not to compete
against Fort James, (ii) not to hire former Fort James employees who worked with
Goodwin in the Consumer  Products  Business of Fort James and (iii) to cooperate
with Fort James.

THEREFORE,  in  consideration of the above premises and the mutual covenants and
promises  contained  herein,  Goodwin  and  Fort  James  agree  as  follows:  1.
Termination  of  Employment.   Goodwin  agrees  to  voluntarily   terminate  his
employment  effective  at the close of  business  on June 30, 1998 (his 'Date of
Termination').  He will be paid all of his  regular  compensation  and  benefits
through that date. His last day of work and  responsibilities  shall be June 30,
1998.  2.  Severance  Payment.  Fort James shall pay Goodwin in a lump sum,  the
amount of  $2,675,574  representing  three (3) times the sum of (i) his  current
base  salary  and (ii) his 1997  Management  Incentive  Bonus,  less  authorized
deductions and deductions for required taxes. 3. Additional Bonus Payment.  Fort
James  shall  pay  Goodwin  $192,600,  representing  an amount  equivalent  to a
pro-rata bonus under the 1998 Management  Incentive Plan,  based on target level
company and personal performance, had Goodwin been otherwise eligible for such a
MIP bonus,  as well as  payments  for any unused and  accrued  vacation to which
Goodwin might be entitled on  termination  and which payment shall be in lieu of
any other benefit continuation which Goodwin shall expressly waive and elect not
to accept in this  Agreement.  4.  Pension,  SERP and  Other  Benefits.  (a) The
Company shall pay Goodwin in a lump sum an amount equal to the excess of (A) the
actuarial  equivalent  of the  benefit  under the  Company's  qualified  defined
benefit retirement plan and any excess or supplemental  retirement plan in which
Goodwin  participates (the'SERP') which Goodwin would receive if his employment
continued for three (3) years after the Effective  Date,  over (B) the actuarial
equivalent of Goodwin's actual benefit, as provided in Section 4(a)(i)(C) of the
Employment Agreement. (b) All Company provided medical,  prescription and dental
coverage,  life  insurance,  accidental  death and  dismemberment  and long term
disability  benefits  shall be provided to Goodwin and members of his family for
three (3) years  following his Date of  Termination,  to the extent  provided in
Section (a)(iii) of his Employment Agreement.  (c) Goodwin is the beneficiary of
27,650 restricted shares and 75,650 performance  shares   issued pursuant to the
1996 Stock  Incentive Plan (the 'Plan').  Goodwin agrees to relinquish all right
to the  restricted  and  performance  shares as of June 1, 1998. In return,  the
Company agrees to pay Goodwin as follows:

     (i) On July 15, 1998, an amount  equivalent to the value on July 1, 1998 of
54,913 shares of Common Stock of the Company (the 'Common Stock')  determined by
calculating  the average of the high and low price (the 'Average  Price') of the
Common  Stock  plus an amount  equal to  $61,747.80,  representing  the  accrued
dividends on such shares.

     (ii) On July 15, 1998, an amount equivalent to the value on July 1, 1998 of
9,217 shares of Common Stock  determined by calculating the Average Price of the
Common  Stock plus an amount  equal to  $1,382.55,  representing  the  quarterly
dividend on such shares.

     (iii) On July 15, 1999,  an amount  equivalent to the value on July 1, 1999
of 19,585  shares of Common  Stock using the Average  Price of the Common  Stock
plus an amount  equal to the  dividends  which would have  accrued but have been
unpaid on such shares as of July 1, 1999.

     (iv) On July 15, 2000, an amount equivalent to the value on July 1, 2000 of
19,585  shares of Common Stock using the Average  Price of the Common Stock plus
an amount equal to the  dividends  which would have accrued but have been unpaid
on such shares as of July 1, 2000.

          (d) Goodwin's  existing stock options shall be amended  effective June
30, 1998 as set forth in Exhibit A hereto. 

          (e) Nothing herein shall forfeit or otherwise  affect  Goodwin's right
to vested benefits in Fort James's StockPlus or Retirement Plans, including SERP
Plans which benefits shall be paid to Goodwin according to such plans.

          (f)  Goodwin  shall not be  entitled  to any other  bonus  payments or
profit  sharing awards  including any payments  under the  Management  Incentive
Plan.
          (g) All payments referred to herein are gross payments from which Fort
James  may  withhold  legal  and  authorized   amounts  for  payment  to  taxing
authorities as required by law.

          (h) The Company shall reimburse Goodwin for reasonable tax preparation
expenses for calendar  year 1998 and for legal  expenses in 1998 for tax advice,
estate planning and negotiation of this Agreement.

     5. Method of Payment. All cash payments required by this Agreement shall be
made by wire transfer to Goodwin's  account or accounts which he shall designate
in writing  to the  Company's  Senior  Vice  President,  General  Counsel.  Such
transfers  shall be  authorized  and  released  in  advance  so as to  arrive in
Goodwin's  account(s) by July 15, 1998, the 'Payment  Date',  except for amounts
representing  shares vesting in 1999 and 2000,  which will be paid July 15, 1999
and July 15, 2000 respectively.

     6. Company Car. Fort James agrees to transfer to Goodwin no later than July
31, 1998, the certificate of title to the automobile previously provided him for
his personal and business use. Goodwin  acknowledges  that after transfer of the
title to the car to him, Fort James will no longer be responsible  for providing
insurance  or  maintenance  for  the  vehicle  in any  manner  and he  shall  be
responsible for all costs associated with the vehicle from that date forward.

     7. General  Release.  In consideration of all payments due him hereunder or
under  the  Employment  Agreement,  Goodwin  hereby  agrees,  for  himself,  his
successors,  heirs,  representatives,  executors, agents and assigns, to release
and  forever  discharge  Fort James,  including  its  affiliates,  subsidiaries,
parents,  predecessors,  successors and assigns and their respective  directors,
officers,  employees  and  agents  thereof  from  any  and  all  claims,  debts,
responsibilities and liabilities of every kind and character  whatsoever,  known
or unknown, suspected or unsuspected,  which he has ever had or may have against
Fort James,  including  but not  limited  to, any and all claims  arising out of
Goodwin's  employment  or  termination  of employment  with Fort James.  Goodwin
acknowledges  that this Release  includes any and all claims whether in contract
or in tort,  claims that may be brought on his behalf by others,  claims brought
before  any  court or  administrative  agency,  or claims  under  any  national,
federal,  state or local statute or ordinance,  including any claims under Title
VII of the Civil Rights Act of 1964, the Age  Discrimination  in Employment Act,
the Americans with Disabilities Act or any other law.

     It  is  acknowledged  that  this  Separation  Agreement  does  not  release
Goodwin's  right  to any  vested  benefits  under  the  Fort  James  Corporation
Retirement  Plan for  Salaried  and Other  Non-Bargaining  Unit  Employees  (the
'Retirement Plan') or any vested rights in the Fort James Corporation  StockPlus
Plan (the  'StockPlus  Plan').  Goodwin's  eligibility  for  benefits  under the
Retirement  Plan, or the  StockPlus  Plan will be controlled by the terms of the
plans.

     8. Special Release Notification.  This Mutual Release includes a release of
all claims  under the Age  Discrimination  in  Employment  Act,  ('ADEA'),  and,
therefore,  pursuant to the requirements of the ADEA, Goodwin  acknowledges that
he has been  advised (1) that this  Release  includes but is not limited to, all
rights  or  claims  arising  under  the  ADEA up to and  including  the  date of
execution  of this  release,  but does not waive rights or claims that may arise
after the date of execution; (2) to consult with an attorney or other advisor of
his choosing  concerning his rights and obligations  under this Release;  (3) to
fully consider this Release before executing it, and that he has been offered at
least  twenty-one  (21)  days to do so;  (4)  that  this  Release  shall  become
effective and enforceable seven (7) days following  execution of this Separation
Agreement,  during which seven (7) day period  Goodwin  understands  that he may
revoke  his  acceptance  of this  Separation  Agreement  and  Mutual  Release by
delivering written notice to Clifford A. Cutchins, IV, Senior Vice President and
General  Counsel,  Fort  James  Corporation,  1650  Lake Cook  Road,  Deerfield,
Illinois 60015.

     9. Post Employment Restrictions, Obligations

          (a)  Goodwin  agrees to comply  with the terms of his  Confidentiality
Agreement  executed  May 13,  1991  between  himself  and Fort  James and not to
otherwise use or disclose Fort James  confidential  information in the future. A
copy of this Agreement is attached as Exhibit B.

          (b) In return for the  extension of the option  exercise  period,  the
extension of the vesting period for the restricted  shares and the conversion of
the performance shares to restricted shares as set forth herein, Goodwin agrees,
in order to protect the  Company's  goodwill,  trade  secrets  and  confidential
information and thereby help ensure the long-term success and development of the
business,  not to engage in  competitive  activities  on behalf of a competitive
business for a period of two (2) years  following the Date of  Termination  with
the Company for whatever reason, without first obtaining written permission from
either  the Senior  Vice  President  and  General  Counsel  or the  Senior  Vice
President,  Human  Resources,  which  shall  not be  unnecessarily  withheld  or
delayed.  'Engage in competitive  activities' means rendering  services or being
involved  directly or  indirectly  in any way or in any  capacity  whether as an
officer, director,  employee, agent, owner, shareholder or consultant (excluding
ownership  of less than 5% of the stock of a publicly  traded  company),  in the
manufacture,  development,  promotion or sale of any towel, tissue, foodservice,
communications  paper,  or  folding  cartons  for  food  packaging,  of the type
manufactured by Fort James (the 'Covered  Products').  A 'competitive  business'
means any person or entity engaged in the  manufacture or non-retail sale of the
Covered  Products.  Goodwin  acknowledges  that products of the Company are sold
throughout  North America and Western Europe.  Accordingly,  the geographic area
covered by this  restraint  shall include any county,  city,  town,  province or
comparable unit of local government where the Covered Products are manufactured,
marketed  or sold by the  Company.  The  parties  agree  that  this  non-compete
provision  supersedes  all prior  agreements  between them on this subject.  The
foregoing shall not prevent Goodwin from lecturing on behalf of companies not in
competition  with the Company at which lecture  employees of competitors  may be
present.

          (c)  Goodwin  agrees  for a period  of two (2)  years  not to  solicit
directly or indirectly for  employment  any employee or former  employee of Fort
James or its affiliates,  who worked in the Consumer Products business,  without
the  written  consent of the Senior  Vice  President,  Human  Resources  for the
Company, which shall not be unreasonably withheld or delayed.  Further,  Goodwin
agrees that if any Fort James employee  approaches him for  employment,  he will
refer them to the  appropriate  hiring official of his employer and will have no
involvement either in the hiring of the employee or in working with the employee
should such employee work for the same company for which Goodwin works.

          (d) Goodwin  agrees that as President of the Company's  North American
Consumer Products business, he possesses intimate knowledge about all aspects of
the  Company's  business,  business  plans and other  confidential  or propriety
information. He also agrees that these restrictions are reasonable and necessary
to protect  the  Company's  business  and in  consideration  of the  substantial
benefits  provided him  hereunder.  If Goodwin  violates any of his  obligations
under this  paragraph  9, the Company  shall have no further  obligation  to him
under this  Agreement as on the date of breach.  Goodwin agrees that the Company
will be irreparably  harmed and will be entitled to immediate  injunctive relief
in the event of such breach in addition to any other monetary remedies.

          (e) If any aspect of the above post employment restrictions are deemed
void or unenforceable by any court of competent jurisdiction,  the parties agree
that the  court  should  modify  these  restrictions  to a point  they  would be
enforceable and enforce the restrictions to that extent.

     10. Indemnity.  Fort James agrees to continue to indemnify and save Goodwin
harmless from all claims,  actions and liabilities which may arise in connection
with  his  reasonable   performance   of  his  duties  for  the  Company.   Such
indemnification  shall be to the same  extent as its  indemnification  of active
executives of equal rank but shall relate only to Goodwin's  alleged  actions or
failure to act during the period in which he was employed by the Company.

     11. Future Cooperation. Goodwin agrees to cooperate in providing transition
assistance related to his departure as may be reasonably required of him by Fort
James,  including  presences  as a  witness  in  legal  proceedings  as  may  be
necessary,  both  before  and after his Date of  Termination.  Fort  James  will
reimburse Goodwin for any reasonable expenses incurred in this regard.

     12.  Resignation.  By his  signature  hereto,  Goodwin  hereby  resigns his
position as President,  North American  Consumer  Products and any and all other
positions with the Company, its subsidiaries, its parent and its affiliates.

     13.  Confidentiality.  Goodwin agrees that he will not divulge the contents
of this  Agreement  which are  agreed to be  confidential  in nature  except (a)
Goodwin may divulge the contents to his spouse, attorney,  financial advisor and
income tax  preparer;  or (b)  except as may be  required  to comply  with legal
process.  It is further  agreed by  Goodwin  that if it is  necessary  that this
Agreement or a significant  portion be disclosed to those listed above,  Goodwin
agrees to instruct and request each of them, or use such other efforts as may be
reasonable,  to keep any  information  so  disclosed  confidential.  If  Goodwin
materially breaches this provision,  the Company will have no further obligation
to him under this Agreement.

     14. Entire Agreement. Goodwin understands and agrees that all terms of this
Separation  Agreement  and Mutual  Release  are  contractual  and are not a mere
recital.  The parties  represent and warrant that in  negotiating  and executing
this Separation  Agreement and Mutual  Release,  each have had an opportunity to
consult  with  legal  counsel  or other  representatives  of their own  choosing
concerning  the meaning and effect of each term or  provision  hereof,  and that
there  are  no   representations,   promises  or  agreements  other  than  those
specifically referred to or set forth in writing herein.

     The  parties  represent  and  warrant  that they have read this  Separation
Agreement and Mutual Release in its entirety,  fully understand and agree to its
term and  provisions,  and intend and agree that it is a final and legal binding
settlement and release of all claims Goodwin and/or Fort James may have.

     15.  Severability.  If any portions of this Separation Agreement and Mutual
Release  are void or deemed  unenforceable  for any  reason,  the  unenforceable
portions shall be deemed  severed from the remaining  portions of this Agreement
which shall otherwise remain in full force and effect.

     16. No  Waiver.  The  decision  of  either  party not to assert a claim for
breach  of the  Agreement  shall  not be  construed  as a waiver  of that or any
subsequent breach which might occur.

     17. Corporate Authority.  The officer executing this Agreement on behalf of
Fort James represents that he has full corporate  authority to do so and to bind
the Company, its parents, affiliates, subsidiaries, predecessors, successors and
assigns.

     18. Governing Law. This Agreement shall be governed and construed according
to the laws of the Commonwealth of Virginia.

                  IN WITNESS WHEREOF, the parties have affixed their signatures:


                            By:/s/James K. Goodwin                        
                            James K. Goodwin





                          FORT JAMES OPERATING COMPANY


                            By:/s/Daniel J. Girvan                          
                            Daniel J. Girvan
                            Senior Vice President




                             FORT JAMES CORPORATION

                           AMENDMENT TO STOCK OPTIONS


          FORT   JAMES   CORPORATION   (the "Company") and James K. Goodwin (the
"Participant")    hereby   agree  to this  Amendment to Stock Options as of June
 30, 1998.

          WHEREAS,  the  Participant  has been granted  certain  options to
acquire the shares of common  stock of the Company  ("Company  Stock")which are
listed below.

          WHEREAS,    in   connection   with the  Participant's  termination  of
employment, the Company and the Participant wish to modify certain
terms of such options.

          WHEREAS, the terms of this Amendment to Stock Options have been
approved by the Compensation Committee of Fort James Corporation
(the "Committee").

          THEREFORE, in consideration of the foregoing and the mutual
covenants hereinafter, the Company and the Participant agree as
follows:

1. In addition to any portion  that has  previously  vested,  the
               options  granted to the  Participant  on July 24, 1995 for 50,800
               shares (the '1995  Option') and on July 1, 1996 for 30,000 shares
               (the 1996 Option)  shall be fully vested and  exercisable as of
               July 1, 1998.

2. To the extent vested,  the 1995 Option and the 1996 Option and
               all previously  vested  options being the May 6, 1991 grant,  the
               June 13, 1991  grant,  the May 1, 1992 grant and the May 23, 1994
               grant may be exercised at any time on or before June 30, 2000. To
               the extent not previously exercised, the 1995 Option and the 1996
               Option shall expire and cease to be exercisable on July 1, 2000.

3. The options  granted to the Participant on January 6, 1998 for
               80,000 shares (the '1998 Option') shall be vested and exercisable
               under the following schedule:

                 Tranche            Number of Shares            Vesting Date

                    1                    40,000                January 6, 1999
                    2                    40,000                January 6, 2000


4. When vested,  Tranche 1 of the 1998 Option may be exercised at
               any  time  on or  before  January  5,  2001.  To the  extent  not
               previously  exercised,  Tranche 1 of the 1998 Option shall expire
               and cease to be  exercisable  of January 6,  2001.  When  vested,
               Tranche 2 of the 1998 Option may be  exercised  at any time on or
               before January 5, 2002.  To the extent not previously exercised,
               Tranche 2  of  the  1998 Option  shall   expire and cease to be 
               exercisable on January 6, 2002.

5. Any provisions of the options relating to the time for vesting or the period 
               to  exercise  the options  are  superseded  by this
               Amendment to Stock Options,  including  provisions  requiring the
               continuing  employment of the Participant or measuring periods to
               exercise the options  based on  termination  of employment by the
               Participant.

6. To the extent not  specifically  amended by the  provisions of this Amendment
               to Stock Options,  the terms and conditions of the
               options shall continue to apply.

7. Any  controversy  concerning  this  Amendment  to Stock   Options  shall be 
               resolved by the  Committee as it deems  proper,  and any
               interpretation  of this  Amendment  to  Stock  Options  or  other
               decision of the Committee shall be final and conclusive.

8. If the  Participant  dies before an option expires as provided
               in Sections 2 or 4, all of the  options  that he held at the time
               of his death (without regard to whether it has become exercisable
               pursuant to  Sections 1 or 3) may be  exercised  by the  personal
               representative of his estate. The options may be exercised at any
               time until the  expiration  date of the  options as  provided  in
               Sections 2 or 4.

9. As a further condition of this Amendment to Stock Options, and in
                consideration  of receipt of these  rights,  the  Participant
               agrees to comply with all provisions of the Separation  Agreement
               and  Mutual  Release  between  the  Participant  and  Fort  James
               Operating   Company.   If  the  Committee   determines  that  the
               Participant   has  violated  the  provisions  of  the  Separation
               Agreement,  the  options  shall  terminate  as of the date when a
               violation  of  the   Separation   Agreement   first  occurred  as
               determined  by the  Committee  (the  'Violation  Date')  and  the
               options shall no longer be exercisable as of the Violation Date.

10. Any notice to be given under the terms of this Amendment  to Stock  Options 
               shall be  addressed  to Fort  James  Corporation,
               Corporate Secretary, P.O. Box 89, Deerfield,  Illinois 60015, and
               any  notice  to be given to the  Participant  or to his  personal
               representative  shall be  addressed to him at the last address on
               the  records of the  Company  or at such other  address as either
               party may  hereafter  designate in writing to the other.  Notices
               shall be  deemed  to have  been  duly  given if  mailed,  postage
               prepaid, addressed as aforesaid.

        
         IN WITNESS WHEREOF, the Company and the Participant have caused this
Amendment to Stock Options to be signed, as of the dates below.

                                       FORT JAMES CORPORATION



Date ____________________              By:/s/Miles Marsh
                                       Miles Marsh
                                       Chairman of the Board and CEO


                                       JAMES K. GOODWIN



Date ____________________              By:/s/James K. Goodwin