<PAGE>
 
                                                                    EXHIBIT 10.1


                             EMPLOYMENT AGREEMENT
                             --------------------

          This EMPLOYMENT AGREEMENT is entered into as of this 26th day of
March, 1997 by and among Riverwood International Corporation, a Delaware
corporation ("Employer"), Riverwood Holding, Inc., a Delaware corporation
("Holding"), and Stephen Humphrey ("Executive").

                             W I T N E S S E T H :
                             - - - - - - - - - -  

          WHEREAS, Employer desires to employ Executive as its President and
Chief Executive Officer and to enter into this Agreement setting forth the terms
and conditions of such employment;

          WHEREAS, Executive desires to accept such employment on the terms and
conditions set forth herein and to enter into this Agreement;

          WHEREAS, Employer, the Company and Executive each agree that Executive
will have a prominent role in the management of the business, and the
development of the goodwill, of the Company and its subsidiaries and will
establish and develop relations and contacts with the principal customers and
suppliers of the Company and its subsidiaries in the United States and the rest
of the world, all of which constitute valuable goodwill of, and could be used by
Executive to compete unfairly with, the Company and its subsidiaries;

          WHEREAS, (i) in the course of his employment with Employer, Executive
                    -                                                          
will obtain confidential information and trade secrets concerning the worldwide
business and operations of the Company and the Subsidiaries that could be used
to compete unfairly with the Company and the Subsidiaries; (ii) the covenants
                                                            --               
and restrictions contained in Sections 8 through 13, inclusive, are intended to
protect the legitimate interests of Employer and the Company to protect their
respective goodwill, trade secrets and other confidential information and (iii)
                                                                           --- 
Executive desires to agree to be bound by such covenants and restrictions and to
enter into 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:
<PAGE>
 
          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 on the 31st day of March, 1997 and ending on the fifth anniversary
thereof (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 the Employment Period (as defined below)
hereunder, provided that a Non-Renewal Notice shall not constitute a notice to
Executive of his termination of employment by Employer unless such notice
specifically provides for such termination of employment and the specific date
thereof. 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 shall serve as President and Chief Executive Officer of Employer and
have 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 skill, 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 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. Executive shall serve
as a member of the respective Boards 

                                       2
<PAGE>
 
of Directors of Employer and Holding during the Employment Period.

          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 $500,000 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 that arrangement may be
maintained or established by Employer. Employer shall pay Executive the Base
Salary in 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 aggregate
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.
Notwithstanding the foregoing, Executive shall receive an annual bonus for 1997
at least equal to $250,000.

          (b)  Options.  Executive shall be granted non-qualified stock options
               -------                                                         
(the "Service Options") to purchase up to 112,500 shares of the Class A Common
Stock of Holding, par value $.01 per share (the "Common Stock"), and non-
qualified stock options (the "Performance Options," and together with the
Service Options, the "Options") to 

                                       3
<PAGE>
 
purchase up to an additional 112,500 shares of Common Stock. Each Option shall
be granted to Executive pursuant to and in accordance with the terms of the
Riverwood Holding, Inc. Stock Incentive Plan, have a ten year term and otherwise
be subject to the terms and conditions (which shall include those described in
this Section 4(b)) set forth in a separate Management Stock Option Agreement,
substantially in the form attached hereto as Exhibit A, to be entered into by
Executive and Holding (the "Option Agreement").

          The per share exercise price for the Common Stock covered by the
Service Options and the Performance Options shall be:

<TABLE>
<CAPTION>
                          Number of Shares
  Number of Shares           Covered By       Per Share   
 Covered By Service         Performance       Exercise 
      Options                 Options           Price    
 <S>                     <C>                  <C>
   37,500 shares         37,500 shares           $100
   37,500 shares         37,500 shares           $ 75
   37,500 shares         37,500 shares           $ 50
</TABLE>

          All other terms of the Options shall be contained in the Option
Agreement.

          5.  Employee 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 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 employees of Employer.

                                       4
<PAGE>
 
          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.

          (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.

          (c)  Vacation.  Executive shall be entitled to such vacation as is
               --------                                                     
available under the prevailing policies of Employer but not less than the
greater of five weeks of paid vacation or the number of weeks of paid vacation
per year calculated in accordance with Employer's vacation policy applicable to
senior executives, without carry-over accumulation.

          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, 

                                       5
<PAGE>
 
however, that Executive 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 the Option Agreement, after a demand for substantial
performance is delivered, and a reasonable opportunity to cure is given, to
Executive by Employer's Board, which demand identifies the manner in which
Employer's Board believes that Executive has not substantially performed his
duties or breached his obligations, (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.

          (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 on the
date hereof, (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) a material breach by Employer of any of its
                          --                                             
obligations hereunder or by Holding under the Option Agreement or (v) delivery
                                                                   -          
to Executive of a Nonrenewal Notice, provided in the case of any of clauses (i),
(iii) or (iv), Executive has delivered written notice of his intention to
terminate his employment for "Good Reason", specifying the provisions hereof on
which Executive 

                                       6
<PAGE>
 
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 with Employer 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) (A) his Base Salary,
                                                            -                  
     payable in installments based on Employer's regular payroll practices, for
     the period beginning on the Date of Termination and ending on the earlier
     of (x) the last day of the Initial Term or, if applicable, the then current
         -                                                                      
     Additional Term and (y) the third anniversary of the Date of Termination
                          -                                                  
     (the "Severance Period") 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 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
                              --------                                       

                                       7
<PAGE>
 
     Executive in a single lump sum and in satisfaction of Employer's
     obligations under clauses (A) and (B) 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 continued payments of his
     Base Salary 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 payments of Base Salary and
     Continued Benefits shall be reduced or canceled to the extent of any
     compensation, fees or comparable benefit coverage earned by (whether or not
     paid currently) or offered to Executive during the Severance Period by a
     subsequent employer or other entity for whom Executive performs services
     including consulting services.

               (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, if the Company has achieved the pro
     rated performance target for such calendar year (determined as provided in
     Section 7(e)(ii)), the Pro Rata Bonus 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), 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

                                       8
<PAGE>
 
     and for one month thereafter, as provided in Section 3 hereof.

          (iii)  Any benefits payable to Executive under any otherwise
     applicable plans, policies and practices of Employer shall not be limited
     by this Section 7(e), other than any such severance plan.

          (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.

          (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.   During the period of Executive's
              -----------------------                                    
employment with Employer and the ten year period following any termination of
such employment, 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 apparent 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, 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, 

                                       9
<PAGE>
 
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 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,
              ---------------                                                   
following any termination thereof, the period ending on the later of (i) the
                                                                      -     
first anniversary of the Date of Termination and (ii) the last day of the
                                                  --                     
Severance Period, Executive shall not, directly or indirectly, engage in
business with, serve as an agent or consultant to, become a partner, member,
principal or stockholder (other than a holder of less than 1% of the
outstanding voting shares of any publicly held company) of or become employed in
an executive capacity by, any person, firm or other entity that competes or has
a reasonable potential for competing anywhere in the United States or Europe
with any part of the business of Holding, Employer or any of their respective
subsidiaries that relates to producing, marketing, manufacturing, designing or
installing packaging or paper products, machines or related materials. Whether
any such person, firm or entity so competes or so has a reasonable potential for
competing shall be determined in good faith by Employer's Board.  For purposes
of this Section 9, the phrase employment "in an executive capacity" shall mean
employment in any position in connection with which Executive has or reasonably
would be viewed as having powers and authorities with respect to any other
person, firm or other entity or any part of the business thereof that are
substantially similar, with respect thereto, to the powers and authorities
assigned to the President and Chief Executive Officer of Employer in the By-Laws
of Employer as in effect on the date hereof, a copy of the relevant portions of
which has been delivered to and reviewed by Executive on the date hereof.

          10.  Non-Solicitation of Employees.  During the period of Executive's
               -----------------------------                                   
employment and, following any termination thereof, the period ending on the
third anniversary of the Date of Termination (such periods collectively, the
"Restriction Period"), Executive shall not, directly or indirectly, for his own
account or for the 

                                       10
<PAGE>
 
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, Employer or any of
their respective subsidiaries, or (b) induce any employee of Holding, Employer
                                   -                                 
or any of their respective subsidiaries who is a member 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 anywhere in the United
States or Europe 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 was a customer, client
or distributor of Holding, Employer or any of their respective subsidiaries at
any time during the Employment Period (in the case of any such activity during
the Employment Period) or during the twelve-month period preceding the date of
Executive's termination of employment with Holding, Employer and their
respective subsidiaries, other than any such solicitation during Executive's
employment with Holding or Employer on behalf of Holding, Employer or any of
their respective subsidiaries.

          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.  Whether documents or data are
"personal" or "non-personal" shall be 

                                       11
<PAGE>
 
determined as follows: Executive shall present any documents or data that he
wishes to take with him to the chief legal officer of Employer for his review.
The chief legal officer shall make an initial determination whether any such
documents or data are personal or non-personal, and with respect to such
documents or data that he determines to be non-personal, shall notify Executive
either that such documents or data must be retained by Employer or that Employer
must make and retain a copy thereof before Executive takes such documents or
data with him. Any disputes as to the personal or non-personal nature of any
such documents or data shall first be presented to the Chairman of Employer's
Board or to another representative designated by Employer's Board (such Chairman
or representative, the "Chairman"), and if such disputes are not promptly
resolved by Executive and the Chairman, such disputes shall be resolved through
arbitration pursuant to Section 17(b).

          13.  Injunctive Relief with Respect to Covenants. Executive
               -------------------------------------------           
acknowledges and agrees that the covenants, obligations and agreements 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, obligations or agreements
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, obligations or agreements referred to in this Section 13. These
injunctive remedies are cumulative and in addition to any other rights and
remedies Employer may have.  If Employer does not substantially prevail in
obtaining the injunctive relief it seeks, Employer shall reimburse the Executive
for any legal expenses incurred by him in defending against the imposition of
such injunctive relief. Employer, Holding and Executive hereby irrevocably
submit to the exclusive jurisdiction of the courts of the State of New York and
the Federal courts of the United States of America, in each case located in New
York City, in respect of the injunctive remedies set forth in this Section 13
and the interpretation and enforcement of Sections 8, 9, 10, 11, 12 and 13
insofar as such interpretation and enforcement

                                       12
<PAGE>
 
relate to any request or application for injunctive relief in accordance with
the provisions of this Section 13, and the parties hereto hereby irrevocably
agree that (i) the sole and exclusive appropriate venue for any suit or 
            -          
proceeding relating solely to such injunctive relief shall be in such a court,
(ii) all claims with respect to any request or application for such injunctive
 --                            
relief shall be heard and determined exclusively in such a court, (iii) any such
                                                                   ---
court shall have exclusive jurisdiction over the person of such parties and over
the subject matter of any dispute relating to any request or application for
such injunctive relief and (iv) each hereby waives any and all objections and
                            --
defenses based on forum, venue or personal or subject matter jurisdiction as
they may relate to an application for such injunctive relief in a suit or
proceeding brought before such a court in accordance with the provisions of this
Section 13. All disputes not relating to any request or application for
injunctive relief in accordance with this Section 13 shall be resolved by
arbitration as contemplated by Section 17(b).

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

          15.  Entire Agreement.  This Agreement (including the Exhibit hereto)
               ----------------                                                
constitutes the entire agreement among the parties hereto with respect to the
subject matter hereof, and all promises, representations, understandings,
arrangements.  All prior correspondence and proposals (including summaries of
proposed terms) and all prior promises, representations, understandings,
arrangements and 

                                       13
<PAGE>
 
agreements relating to such subject matter (including but not limited to those
made to or with Executive by any other person or entity) 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 the employment of Executive 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 adequate
under Delaware law made 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; Assignment.  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.  This
Agreement shall not be assignable by any party hereto without the prior written
consent of the other parties hereto, except pursuant to this Section 17(a) as
hereinafter provided.  Each of Holding and Employer may effect such an
assignment without prior written approval of Executive upon the transfer of all
or substantially all of its business and/or assets (whether by purchase, merger,
consolidation or otherwise), provided that the successor to such business and/or
                             --------                                           
assets shall expressly assume and agree to perform this Agreement in accordance
with the provisions of Section 14.

          (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 Commercial Arbitration Rules of the

                                       14
<PAGE>
 
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 Employer, one
appointed by Executive, and the third appointed by the other two arbitrators.
All expenses of 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.

          (d) Taxes.  Employer may withhold from any payments made under this
              -----                                                           
Agreement all federal, state, city 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.

                                       15
<PAGE>
 
          (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,
provided that the party giving such notice or communication shall have attempted
--------                                                                        
to telephone the party or parties to which notice is being given during regular
business hours on or before the day such notice or communication is being sent,
to advise such party or parties that such notice is being sent, 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 at:

               Riverwood International Corporation
               3350 Cumberland Circle
               Suite 1400
               Atlanta, Georgia  30339
               Attention:  General Counsel
               ---------                  

          (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
               ---------                      

                         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.

                                       16
<PAGE>
 
          (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 by
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.

                                       17
<PAGE>
 
          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.


                              RIVERWOOD INTERNATIONAL CORPORATION


                              By: /s/ B. Charles Ames
                                 ---------------------------------------
                                 Name:  B. Charles Ames
                                 Title: chief executive
                                          officer


                              RIVERWOOD HOLDING, INC.


                              By: /s/ B. Charles Ames
                                 --------------------------------------
                                 Name: B. Charles Ames
                                 Title: chief executive
                                          officer


                              Executive:


                                /s/ Stephen Humphrey
                               ---------------------------------------
                              Stephen Humphrey


                              Address:
                              ------- 
 
                              3350 Cumberland Circle
                              Suite 1400
                              Atlanta, Georgia  30339
<PAGE>
 
                                                                       Exhibit A
                                                                       ---------

                       MANAGEMENT STOCK OPTION AGREEMENT
                       ---------------------------------

          MANAGEMENT STOCK OPTION AGREEMENT, dated as of March 31, 1997, between
Riverwood Holding, Inc., a Delaware corporation (the "Company"), and Stephen
Humphrey (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") has established the Riverwood Holding, Inc. Stock
Incentive Plan, as the same may be amended from time to time (the "Plan"); and

          WHEREAS, on the date hereof, the Company, its indirect, wholly-owned
subsidiary, Riverwood International Corporation, a Delaware corporation
("Riverwood"), and the Grantee have entered into an Employment Agreement (as the
same may be amended from time to time, the "Employment Agreement"), providing
for, among other things, the grant to the Grantee of the stock options described
herein;

          WHEREAS, the Grantee and the Company desire to enter into an agreement
to evidence and confirm the grant of such stock 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:

          (i)  Certain Definitions.  As used in this Agreement, the following
               -------------------                                            
     terms shall have the following meanings:

          (1)  "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.

          (2)  "Affiliate" shall mean, with respect to any person, any other
                ---------                                                   
     person controlled by, controlling or under common control with such person.
<PAGE>
 
          (3)  "Applicable Percentage" shall mean, with respect to an EBITDA
                ---------------------                                       
     Target for any Fiscal Year, the portion of such EBITDA Target actually
     achieved by the Company and the Subsidiaries as of the end of such Fiscal
     Year, expressed as a percentage.

          (4)  "Board" shall mean the Board of Directors of the Company.
                -----                                                   

          (5)  "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.

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

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

               (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 out standing 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 en-  

                                       2
<PAGE>
 
          tities that are not, immediately prior to such sale, transfer or other
          disposition, Affiliates of the Company, Riverwood, the CD&R Fund or
          any Investor.

          (8)  "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).

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

          (10) "Company" shall have the meaning set forth in the introductory
                -------                                                      
     paragraph hereto.

          (11) "Covered Options" shall have the meaning set forth in Section
                ---------------                                             
     4(b) hereof.

          (12) "Cumulative EBITDA Target"  shall mean the sum of the EBITDA
                ------------------------                                   
     Targets for each of the fiscal years of the Company ending December 31,
     1997, 1998, 1999, 2000 and 2001 or, in the case of a determination of the
     Cumulative EBITDA Target prior to December 31, 2001 pursuant to Section
     3(b) or 9(b) hereof, the sum of such EBITDA Targets for each of the Fiscal
     Years ending prior to such date of determination and a pro rata portion of
     the EBITDA Target for the Fiscal Year which includes such date of
     determination, pro-rated through the end of the most recent calendar
     quarter ending on or prior to such date of determination, as the same may
     be adjusted from time to time in accordance with this Agreement.

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

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

          (15) "EBITDA" shall have the meaning assigned to such term in 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.

                                       3
<PAGE>
 
          (16) "EBITDA Target" shall mean, with respect to the 1997 Fiscal Year,
                -------------                                                   
     EBITDA of $210 million 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 its subsidiaries, the EBITDA
     Target for the relevant fiscal years may be appropriately adjusted by the
     Board to reflect such transaction or series of transactions.

          (17) "Employment Agreement" shall have the meaning set forth in the
                --------------------                                         
     recitals hereto.

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

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

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

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

          (22) "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.

          (23) "Fair Market Value" shall mean, as of any date, the fair market
                -----------------                                             
     value on such date of a 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 whole, the future prospects of the
     Company and the Subsidiaries and the industries in which they compete, the
     history and management of the 

                                       4
<PAGE>
 
     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, with respect
     Fiscal Year, beginning with the 1997 Fiscal Year, as promptly as
     practicable following the first business day of the subsequent Fiscal Year
     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.

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

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

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

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

          (28) "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.

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

          (30) "Grant Date" shall mean the date hereof, which is the date on
                ----------                                                  
     which the Options are granted to the Grantee.

          (31) "Grantee" shall have the meaning set forth in the introductory
                -------                                                      
     paragraph hereto.

                                       5
<PAGE>
 
          (32) "Installment" shall mean Performance Options with respect to
                -----------                                                
     7,500 shares.

          (33) "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.

          (34) "Management Stock Subscription Agreement" shall mean the
                ---------------------------------------                
     management stock subscription agreement to be 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.

          (35) "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 Prior
     Riverwood.

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

          (37) "Normal Termination Date" shall mean the tenth anniversary of the
                -----------------------                                         
     date hereof.

          (38) "Option Price" shall mean, with respect to an Option, the
                ------------                                            
     exercise price under such Option determined in accordance with Section 2(b)
     hereof, except as provided otherwise in Section 3(b)(iii).

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

          (40) "Performance Options" shall mean those Options that are subject
                -------------------                                           
     to the provisions of Section 3(b) hereof providing for the vesting of such
     Options on the basis of the financial performance of the Company and the
     Subsidiaries and/or the continued employment of the Grantee.  Performance
     Options have been granted to the Grantee pursuant to this Agreement with
     respect to 112,500 Shares.

                                       6
<PAGE>
 
          (41) "Plan" shall have the meaning set forth in the recitals hereto.
                ----                                                          

          (42) "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.

          (43) "Registration and Participation Agreement" shall have the meaning
                ----------------------------------------                        
     set forth in Section 7(f) hereof.

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

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

          (46) "Riverwood" shall have the meaning set forth in the recitals
                ---------                                                  
     hereto.

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

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

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

          (50) "Service Options" shall mean those Options that are subject to
                ---------------                                              
     the provisions of Section 3(a) hereof providing for the vesting of such
     Option on the basis of the Grantee's completion of service.  Service
     Options have been granted to the Grantee pursuant to this Agreement with
     respect to 112,500 Shares.

          (51) "Shares" shall mean the shares of Common Stock subject to the
                ------                                                      
     Options.

          (52) "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.

                                       7
<PAGE>
 
          2.  Grant of Options.
              ---------------- 

          (a)  Confirmation of Grant.  The Company hereby evidences and confirms
               ---------------------                                            
its grant to the Grantee, effective as of the date hereof, of (i) Service
                                                               -         
Options to purchase 112,500 Shares and (ii) Performance Options to purchase
                                        --                                 
112,500 Shares.  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.

          (b)  Option Price.  The Service Options and the Performance Options
               ------------                                                  
shall each be divided into three equal tranches, each such tranche covering
37,500 Shares and, subject to section 3(b) below, having a per share exercise
price for the Shares covered thereby determined in accordance with the following
schedule:

<TABLE>
<CAPTION>
                                         Number of                  
                                      Shares Covered            
              Number of Shares           by Each                    
              Covered By Each           Tranche of        Per Share             
             Tranche of Service        Performance        Exercise   
                  Options                Options           Price       
             <S>                      <C>                 <C>          
               37,500 Shares           37,500 Shares        $100    
               37,500 Shares           37,500 Shares        $ 75    
               37,500 Shares           37,500 Shares        $ 50     
</TABLE>

          3.  Exercisability.
              -------------- 

          (a)  Service Options.  Except as otherwise provided in this Agreement
               ---------------                                                 
and subject to the continuous employment of the Grantee with the Company or one
or more of the Subsidiaries until the applicable vesting date, each tranche of
Service Options shall become vested and exercisable in five annual installments,
on each of the first five anniversaries of the Grant Date, at the rate of 10%,
20%, 30%, 20% and 20%, respectively; provided that, if, on or prior to the fifth
                                     --------                                   
anniversary of the Grant Date, (x) the Grantee's employment is terminated by
                                -                                           
reason of an Extraordinary Termination or (y)(i)the CD&R Fund and, if
                                           -  -                      

                                       8
<PAGE>
 
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 a general or limited partner or 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.

          (b)  Performance Options.  Except as otherwise provided in this
               -------------------                                       
Agreement and subject to the continuous employment of the Grantee with the
Company or one or more of the Subsidiaries until the applicable vesting date as
follows:

          (i)   the Applicable Percentage of an Installment of each tranche of
     Performance Options shall become vested and exercisable on each of the
     first five anniversaries of the Grant Date, provided in the case of any
     such Installment that the Executive Committee of the Board determines that
     Company has achieved at least 75% of the EBITDA Target for the Fiscal Year
     ending immediately prior to such anniversary date;

          (ii)  100% of any Performance Options that, as of the fifth
     anniversary of the Grant Date, have not become vested and exercisable in
     accordance with the preceding clause (i) shall become vested and
     exercisable as of the date of such fifth anniversary if the Executive
     Committee of the Board determines that Company has achieved 100% of the
     Cumulative EBITDA Target for the five Fiscal Years ending December 31,
     2001; and

          (iii) if any Performance Options have not become vested and
     exercisable in accordance with either of the preceding clauses (i) or (ii)
     as of the fifth anniversary of the Grant Date, (x) as of the date of such
     fifth anniversary, and as of each anniversary of the Grant Date occurring
     thereafter, the Option Price for any Performance Options that have not
     become vested and exercisable in accordance with this clause (iii) as of
     such date, shall increase by 10% and (y) the lesser of (A) 100% of each
                                                             -              
     tranche of such unvested Performance Options and (B) Performance Options
                                                       -                     
     covering 7,500 Shares of each tranche of such unvested 

                                       9
<PAGE>
 
     Performance Options shall become vested and exercisable as of each of the
     sixth through ninth anniversaries of the Grant Date if the Executive
     Committee of the Board determines that Company has achieved at least 100%
     of the EBITDA Target for the Fiscal Year ending immediately prior to such
     anniversary date;

provided that if, on or prior to the fifth anniversary of the Grant Date, (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 a general or
limited partner or 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 the excess of (x) a proportionate share of each tranche of
                                     -                                          
Performance Options, over (y) the number of Performance Options of such tranche
                           -                                                   
that have previously become vested pursuant to Section 3(b)(i) shall vest and
become exercisable as of such date of termination.  Such proportionate share of
each tranche of Performance Options that shall become vested and exercisable
shall equal the product of (i) the percentage obtained by dividing (x) the
                            -                                       -     
cumulative EBITDA actually achieved by the Company during the period commencing
on January 1, 1997 and ending on the last day of the most recent calendar
quarter ending on or prior to the effective date of the Extraordinary
Termination or other termination, whichever is applicable, as determined by the
Executive Committee of the Board, by (y) the Cumulative EBITDA Target,
                                      -                               
multiplied by (ii) the total number of Shares initially subject to such tranche
               --                                                              
of 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
of termination in accordance with this Section 3(b) shall terminate and be
cancelled immediately on such date.

          Notwithstanding the foregoing provisions of this paragraph (b), 100%
of the Performance Options shall become vested and exercisable nine years and
six months following the Grant Date regardless of whether any EBITDA Target has
been achieved, subject to the continuous employment of the Grantee with the
Company or one or more of the Subsidiaries until such date.

                                      10
<PAGE>
 
          (c)  Conditions.  The Board, in its sole discretion, 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 Sections 5 and 6 hereof and the provisions
contained in the Management Stock Subscription Agreement related to the purchase
of 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
cancelled on the Normal Termination Date.

          (b)  Early Termination.  If the Grantee's employment is voluntarily or
               -----------------                                                
involuntarily terminated for any reason, any Options held by the Grantee that
have not become vested and exercisable on or before the effective date of such
termination shall terminate and be cancelled immediately upon such termination
of employment.  Subject to the provisions of Section 5(c), all 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 (such Options,
the Covered Options") shall remain exercisable for whichever of the following
periods is applicable, and if not exercised within such period, shall terminate
and be cancelled upon the expiration of such period: (i) if the Grantee's
                                                      -                  
employment is terminated by reason of an Extraordinary Termination, the Covered
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, the Covered
                   -                                   -                        
Options shall remain exercisable for a period of 60 days after the earliest to
occur 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 Covered
Options pursuant to Section 5(c)(i) and (z) the Normal Termination Date.
                                         -                               
Notwithstanding anything else contained in this Agreement, if the Grantee's
employment is 

                                      11
<PAGE>
 
terminated for Cause, all Options (whether or not then exercisable) shall
terminate and be cancelled 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 with
               ------------------------                                         
respect to full shares of Common Stock. No fractional shares of Common Stock
shall be issued.  Not  withstanding 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 govern  mental 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 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 Option is not
assignable or transferable, in whole or in part, and it 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) other than 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

                                      12
<PAGE>
 
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.

          (c)  Purchase of Options on Termination of Employment.
               ------------------------------------------------ 

          (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 Covered Options and shall have
     30 days from the date of the Grantee's termination of employment (such 30-
     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 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 sub  section
     are not fully exercised as provided herein other than as a result of any
     deferral of the payment of the Purchase Price therefor pursuant to Section
     10 hereof, the Grantee (or the Grantee's estate) shall be entitled to
     retain any Covered Options not so purchased, subject to all of the
     provisions of this Agreement (including, without limitation, Section
     4(b)).

                                      13
<PAGE>
 
         (ii)  Purchase Price, etc.  All purchases pursuant to this Section 5(c)
               -------------------                                              
     by the Company or the CD&R Fund shall be for a purchase price and effected
     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, 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, of
the Shares which may be purchased upon exercise of such Covered Options over
                                                                            
(ii) the aggregate Option Price of such Covered Options.
 --                                                     

          (g)  Payment.  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 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).  Subject to Section 10 hereof, 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 pur- 

                                      14
<PAGE>
 
chase 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 as a condition to the issuance
of such Shares. In the event any cash is paid to the Grantee or the Grantee's
estate or beneficiary pursuant to this Section 5, 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 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 outstanding Options
               ------------------                                             
shall have become and remain vested and exercisable as provided in Sections 3
and 4 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 whole 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 

                                      15
<PAGE>
 
satisfactory to the Company, and in an amount equal to the product of the number
of Exercise Shares, multiplied by the aggregate Option Price for such Exercise
Shares (such amount, 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 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, as of the Exercise Date, 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
tendering cash, tender shares of Common Stock that have been owned by the
Grantee for at least six months, having an aggregate 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 an aggregate 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 

                                      16
<PAGE>
 
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
          _______, 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, AS THE
          SAME MAY BE AMENDED FROM TIME TO TIME 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 FORTH IN A 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
          FROM TIME TO TIME, 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 

                                      17
<PAGE>
 
          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) while the Company is currently obligated under
                            --                                                
its Financing Agreements to file periodic reports with the Commission and,
accordingly, Rule 144 may be presently available with respect to sales of
securities of the Company, the Company has made no covenant to the Grantee to
continue 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.

          (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.

                                      18
<PAGE>
 
          (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
an 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 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 exercise of
any Options or receipt of any 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 

                                      19
<PAGE>
 
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, 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 and Vested Performance Options.  Subject to
               ----------------------------------------------             
Section 9(d), in the event of a Change in Control prior to the fifth anniversary
of the Grant Date, (i) each then outstanding Service Option (regardless of
                    -                                                     
whether such Service Option is at such time otherwise exercisable), (ii) each
                                                                     --      
then outstanding Performance Option that shall have become vested and
exercisable in accordance with Section 3(b) hereof prior to the Change in
Control, if any, and (iii) an additional one fifth of each tranche of the
                      ---                                                
Performance Options shall be canceled in exchange for a payment in cash of an
amount equal to the excess, if any, of (i) the product of the Change in Control
                                        -                                      
Price multiplied by the aggregate number of Shares covered by all such Options,
(ii) over the aggregate Option Price for all such Options.
 --                                                       

          (b)  Performance Options.  Subject to Section 9(d), in the event of a
               -------------------                                             
Change of Control prior to the fifth anniversary of the Grant Date and prior to
the date as of which any of the Performance Options shall have become vested and
exercisable in accordance with Section 3(b)(i) hereof, a proportionate share
(determined in accordance with the immediately succeeding sentence) of each
tranche of then outstanding Performance Options shall be canceled in exchange
for a payment in cash of an amount equal to the excess, if any, of (i) the
                                                                    -     
product of the Change in Control Price multiplied by the number of Shares
covered by such canceled proportionate share of such tranche of Performance
Options (ii) over the aggregate Option Price for such canceled proportionate
         --                                                                 
share of such tranche of Performance Options.  The proportionate share of each
tranche of the Performance Options that shall be so canceled shall be equal 

                                      20
<PAGE>
 
to the product of (A) the percentage obtained by dividing (x) the cumulative
                   -                                       -
EBITDA actually achieved by the Company during the period commencing on January
1, 1997 and ending on the last date of the Fiscal Year ending immediately
preceding the effective date of the Change in Control by (y) the Cumulative
                                                          -
EBITDA Target multiplied by (B) the total number of Shares initially subject to
                             -
such tranche of the Performance Options.

          (c)  Timing of Option Cancellation Payments; Discretionary
               -----------------------------------------------------
Acceleration.  Notwithstanding the provisions of the preceding paragraphs (a)
------------                                                                 
and (b), the Board (as constituted immediately prior to the Change in Control)
may determine, in its discretion, to accelerate the exercisability or cause the
cancellation and payment, calculated as provided in Section 9(a), in respect of
all or any additional portion of the Performance Options.  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 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 the 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 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 pay the
purchase price for any Covered Options that the Company may elect to purchase
from 

                                      21
<PAGE>
 
the Grantee pursuant to Section 5(c) if (i) the payment of such purchase price
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 Riverwood, the other borrowers
                     ----------------                                        
party thereto, The Chase Manhattan Bank, as administrative agent, and the
lenders party thereto from time to time, (B) the Equipment Packaging Machinery
                                          -                                   
Credit Agreement, dated as of March 21, 1996 (the "PMC Agreement"), among
Riverwood International Machinery, Inc., The Chase Manhattan Bank, as
administrative agent, and the lenders party thereto from time to time, (C) the
                                                                        -     
Indenture, dated as of March 27, 1996, as supplemented, among Riverwood, as
issuer, the Company and RIC Holding, Inc., as guarantors, and Fleet National
Bank of Connecticut, as trustee (the "Senior Note Indenture"), (D) the
                                                                -     
Indenture, dated as of March 27, 1996, as supplemented, among Riverwood, as
issuer, the Company and RIC Holding, 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 Former Riverwood or any of its subsidiaries prior
                       -                                                      
to the Acquisition that remains outstanding in any part on or after the
Acquisition, (II) by the Company or any Subsidiary 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 or the 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) the payment of such
                                                      --
purchase price 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 the payment of the purchase
               -----------------                                                
price for any Covered Options by the Company otherwise permitted under Section
5(c) is prevented solely by the terms of Section 10(a), (i) the payment of such
                                                         -                     
purchase price will be postponed and will be made 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 the payment of such purchase price
will not result in any 

                                      22
<PAGE>
 
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) the Grantee's right to receive payment of such purchase
                 --
price shall rank against other similar 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 right, provided that any
                                                           --------
such 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 the payment of the
               -------------------------                                       
purchase price for any Covered Options from the Grantee is delayed pursuant to
this Section 10, the purchase price for such Covered Options when the purchase
price is eventually paid 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 would have been paid 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 purchase price would
have been paid but for the operation of this Section 10 to the date on which
such purchase price is actually paid (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

                                      23
<PAGE>
 
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.

        (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, provided that the party giving such notice or communication
                 --------                                                   
shall have attempted to telephone the party or parties to which notice is being
given during regular business hours on or before the day such notice or
communication is being sent, to advise such party or parties that such notice is
being sent.  Copies of any notice or other communication given under this
Agreement shall also be given to:

                                      24
<PAGE>
 
          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.

          (c)  Waiver; Amendment.
               ----------------- 

          (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 

                                      25
<PAGE>
 
     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.

          (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 

                                      26
<PAGE>
 
exercise and perform such powers, duties and responsibilities.

                                      27
<PAGE>
 
          IN WITNESS WHEREOF, the Company and the Grantee have executed this
Agreement as of the date first above written.

                              RIVERWOOD HOLDING, INC.


                              By:______________________________
                                 Name:
                                 Title:


                              THE GRANTEE:



                              By:______________________________
                                 Stephen Humphrey


                              Address of the Grantee: