Document:

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                                                                     Exhibit 4.1

                           BENTON OIL AND GAS COMPANY
                         1998 STOCK-BASED INCENTIVE PLAN

SECTION 1.   PURPOSE; DEFINITIONS

         The purpose of the Plan is to give the Company a competitive advantage
in attracting, retaining and motivating officers and employees and to provide
the Company and its Subsidiaries and Associated Companies with a stock plan
providing incentives directly linked to the profitability of the Company's
businesses and increases in shareholder value.

         For purposes of the Plan, the following terms are defined as set forth
below:

         a. "Associated Company" means any corporation (or partnership, joint
venture, or other enterprise), of which the Company owns or controls, directly
or indirectly, 10% or more, but less than 50% of the outstanding shares of stock
normally entitled to vote for the election of directors (or comparable equity
participation and voting power).

         b. "Award" means a Stock Appreciation Right, Stock Option, Restricted
Stock, unrestricted share of Common Stock, dividend equivalent, interest
equivalent or other award granted under this Plan.

         c. "Board" means the Board of Directors of the Company.

         d. "Change in Control" and "Change in Control Price" have the meanings
set forth in Sections 9(b) and (c), respectively.

         e. "Code" means the Internal Revenue Code of 1986, as amended from time
to time, and any successor thereto.

         f. "Commission" means the Securities and Exchange Commission or any
successor agency.

         g. "Committee" means the Compensation Committee referred to in Section
2.

         h. "Common Stock" means common stock, par value $0.01 per share, of the
Company.

         i. "Company" means Benton Oil and Gas Company, a Delaware corporation.

         j. "Covered Employee" means a participant designated prior to the grant
of shares of Restricted Stock by the Committee who is or may be a "covered
employee" within the meaning of Section 162(m)(3) of the Code in the year in
which Restricted Stock is expected to be taxable to such participant.
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         k. "Disability" means permanent and total disability as determined by
the Committee for purposes of the Plan.

         l. "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, and any successor thereto.

         m. "Fair Market Value" means, as of any given date, the average of the
highest and lowest sales prices of the Common Stock reported as the New York
Stock Exchange-Composite Transactions for such day, or if the Common Stock was
not traded on the New York Stock Exchange on such day, then on the next
preceding day on which the Common Stock was traded, all as reported by The Wall
Street Journal under the heading New York Stock Exchange-Composite Transactions
or by such other source as the Committee may select.

         n. "Incentive Stock Option" means any Stock Option designated as, and
qualified as, an "incentive stock option" within the meaning of Section 422 of
the Code.

         o. "Non-Employee Director" means a member of the Board who qualifies as
a Non-Employee Director as defined in Rule 16b-3(b)(3), as promulgated by the
Commission under the Exchange Act, or any successor definition adopted by the
Commission.

         p. "NonQualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.

         q. "Qualified Performance-Based Award" means an Award of Restricted
Stock designated as such by the Committee at the time of grant, based upon a
determination that (i) the recipient is or may be a "covered employee" within
the meaning of Section 162(m)(3) of the Code in the year in which the Company
would expect to be able to claim a tax deduction with respect to such Restricted
Stock and (ii) the Committee wishes such Award to qualify for the Section 162(m)
Exemption.

         r. "Performance Goals" means the performance goals established by the
Committee in connection with the grant of Restricted Stock. In the case of
Qualified Performance-Based Awards, (i) such goals shall be based on the
attainment of specified levels of one or more of the following measures:
earnings per share, sales, net profit after tax, gross profit, operating profit,
cash generation, economic value added, production volume, return on equity,
change in working capital, return on capital, cash flow, reserve value or
shareholder return, and (ii) such Performance Goals shall be set by the
Committee within the time period prescribed by Section 162(m) of the Code and
related regulations.

         s. "Plan" means the Benton Oil and Gas Company 1998 Stock-Based
Incentive Plan, as set forth herein and as hereinafter amended from time to
time.

         t. "Restricted Stock" means an Award granted under Section 7.

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         u. "Retirement" means retirement from employment with the Company, a
Subsidiary or an Associated Company as determined by the Committee for purposes
of an Award under the Plan.

         v. "Rule 16b-3" means Rule 16b-3, as promulgated by the Commission
under Section 16(b) of the Exchange Act, as amended from time to time.

         w. "Section 162(m) Exemption" means the exemption from the limitation
on deductibility imposed by Section 162(m) of the Code that is set forth in
Section 162(m)(4)(C) of the Code.

         x. "Stock Appreciation Right" means an Award granted under Section 6.

         y. "Stock Option" means an Award granted under Section 5.

         z. "Subsidiary" means: (i) for the purpose of an Incentive Stock
Option, any corporation (other than the Company) in an unbroken chain of
corporations beginning with the Company if, at the time of the granting of the
Incentive Stock Option, each of the corporations other than the last corporation
in the unbroken chain owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in such
chain; and (ii) for the purposes of a NonQualified Stock Option, a Stock
Appreciation Right or Restricted Stock Award, any corporation (or partnership,
joint venture, or other enterprise) of which the Company owns or controls,
directly or indirectly, 50% or more of the outstanding shares of stock normally
entitled to vote for the election of directors (or comparable equity
participation and voting power).

         aa. "Termination of Employment" means the termination of the
participant's employment with the Company and any Subsidiary or Associated
Company. A participant employed by a Subsidiary or an Associated Company shall
also be deemed to incur a Termination of Employment if the Subsidiary or
Associated Company ceases to be such a Subsidiary or Associated Company, as the
case may be, and the participant does not immediately thereafter become an
employee of the Company or another Subsidiary or Associated Company. Temporary
absences from employment because of illness, vacation or leave of absence and
transfers among the Company and its Subsidiaries, or, if the Committee so
determines, among the group consisting of the Company, its Subsidiaries and
Associated Companies, shall not be considered Terminations of Employment.

         In addition, certain other terms used herein have definitions given to
them in the first place in which they are used.

SECTION 2.   ADMINISTRATION

         The Plan shall be administered by the Compensation Committee of the
Board of Directors of the Company, or such other committee of the Board as the
Board may from time to time designate (the "Committee"), which shall be composed
of not less than two Non-Employee

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Directors, each of whom shall be an "outside director" for purposes of Section
162(m)(4) of the Code, and shall be appointed by and serve at the pleasure of
the Board.

         The Committee shall have plenary authority to grant Awards pursuant to
the terms of the Plan or, in the Committee's discretion, in connection with
awards under other bonus plans or programs of the Company, to officers and
employees of the Company and its Subsidiaries and Associated Companies.

         Among other things, the Committee shall have the authority, subject to
the terms of the Plan:

         (a) To select the officers and employees to whom Awards may from time
to time be granted;

         (b) To determine whether and to what extent Incentive Stock Options,
NonQualified Stock Options, Stock Appreciation Rights and Restricted Stock, or
any combination thereof, are to be granted hereunder;

         (c) To determine the number of shares of Common Stock to be covered by
each Award granted hereunder;

         (d) To determine the terms and conditions of any Award granted
hereunder (including, but not limited to, the option price (subject to Section
5(a)) or base price, as applicable, any vesting condition, restriction or
limitation (which may be related to the performance of the participant, the
Company or any Subsidiary or Associated Company) and any vesting acceleration or
forfeiture waiver regarding any Award and the shares of Common Stock relating
thereto, based on such factors as the Committee shall determine;

         (e) To modify, amend or adjust the terms and conditions of any Award,
at any time or from time to time, including but not limited to Performance
Goals; provided, however, that the Committee may not adjust upwards the amount
payable with respect to a Qualified Performance-Based Award or waive or alter
the Performance Goals associated therewith;

         (f) To determine under what circumstances an Award may be settled in
cash or Common Stock under Sections 5(g) and 6(d)(ii);

         (g) To determine under what circumstances dividends, dividend
equivalents or interest equivalents with respect to an Award shall be paid; and

         (h) To certify, in writing, that any and all performance goals and
other material terms related to Qualified Performance-Based Awards have been
satisfied, as contemplated by Section 1.162-27(e)(5) of the Income Tax
Regulations (the "Regulations").

         The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall
from time to time deem advisable, to

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interpret the terms and provisions of the Plan and any Award issued under the
Plan (and any award certificate relating thereto) and to otherwise supervise the
administration of the Plan.

         The Committee may act only by a majority of its members then in office,
except that the members thereof may delegate all or a portion of the
administration of the Plan to senior managers of the Company or its Subsidiaries
(provided that no such delegation may be made that would cause Awards or other
transactions under the Plan to cease to be exempt from Section 16(b) of the
Exchange Act or not to qualify for, or cease to qualify for, the Section 162(m)
Exemption).

         Any determination made by the Committee or pursuant to delegated
authority pursuant to the provisions of the Plan with respect to any Award shall
be made in the sole discretion of the Committee or such delegate at the time of
the grant of the Award or, unless in contravention of any express term of the
Plan, at any time thereafter. All decisions made by the Committee or any
appropriate delegate pursuant to the provisions of the Plan shall be final and
binding on all persons, including the Company and Plan participants.

         Any authority granted to the Committee may also be exercised by the
full Board, except to the extent that the grant or exercise of such authority
would cause any Award or transaction to become subject to (or lose an exemption
under) the short-swing profit recovery provisions of Section 16 of the Exchange
Act or cause an award designated as a Qualified Performance-Based Award not to
qualify for, or to cease to qualify for, the Section 162(m) Exemption. To the
extent that any permitted action taken by the Board conflicts with action taken
by the Committee, the Board action shall control.

SECTION 3.   COMMON STOCK SUBJECT TO PLAN

         The total number of shares of Common Stock reserved and available for
grant under the Plan shall not exceed 1,400,000. No participant may be granted
Awards covering in excess of 500,000 shares of Common Stock in any calendar
year. Shares subject to an Award under the Plan may be authorized and unissued
shares or may be treasury shares, or both.

         If any shares of Restricted Stock are forfeited, or if any Stock Option
or Stock Appreciation Right terminates without being exercised, or if any Stock
Appreciation Right (whether granted alone or in conjunction with a Stock Option)
is exercised for cash, shares subject to such Awards shall again be available
for distribution in connection with Awards under the Plan.

         In the event of any change in corporate capitalization, such as a stock
split or a corporate transaction, such as any merger, consolidation, separation,
including a spin-off, or other distribution of stock or property (without regard
to the payment of any cash dividends by the Company in the ordinary course) of
the Company, any reorganization (whether or not such reorganization comes within
the definition of such term in Section 368 of the Code) or any partial or
complete liquidation of the Company, the Committee or Board may make such

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substitution or adjustments in the aggregate number and kind of shares reserved
for issuance under the Plan, in the maximum number of shares with respect to
which any participant may be granted Awards in any calendar year, in the number,
kind and option price or base price, as applicable, of shares subject to
outstanding Stock Options and Stock Appreciation Rights, in the number and kind
of shares subject to other outstanding Awards granted under the Plan and/or such
other equitable substitution or adjustments as it may determine to be
appropriate in its sole discretion; provided, however, that the number of shares
subject to any Award shall always be a whole number. Such adjusted option price
shall also be used to determine the amount payable by the Company upon the
exercise of any Stock Appreciation Right associated with any Stock Option.

SECTION 4.   ELIGIBILITY

         Officers and employees of the Company, a Subsidiary or an Associated
Company who are responsible for or contribute to the growth and profitability of
the business of the Company, a Subsidiary or an Associated Company are eligible
to be granted Awards under the Plan.

SECTION 5.   STOCK OPTIONS

         Stock Options may be granted alone or in addition to other Awards
granted under the Plan and may be of two types: Incentive Stock Options and
NonQualified Stock Options. Any Stock Option granted under the Plan shall be in
such form as the Committee may from time to time approve.

         The Committee shall have the authority to grant any optionee Incentive
Stock Options, NonQualified Stock Options or both types of Stock Options (in
each case with or without Stock Appreciation Rights); provided, however, that
grants hereunder are subject to the aggregate limit on grants to individual
participants set forth in Section 3. Incentive Stock Options may be granted only
to employees of the Company and its subsidiaries (within the meaning of Section
424(f) of the Code). To the extent that any Stock Option is not designated as an
Incentive Stock Option or, even if so designated, does not qualify as an
Incentive Stock Option, it shall constitute a NonQualified Stock Option.

         Stock Options shall be evidenced by option agreements, the terms and
provisions of which may differ. An option agreement shall indicate on its face
whether it is intended to be an agreement for an Incentive Stock Option or a
NonQualified Stock Option. The grant of a Stock Option shall occur on the date
the Committee by resolution selects an individual to be a participant in any
grant of a Stock Option, determines the number of shares of Common Stock to be
subject to such Stock Option to be granted to such individual and specifies the
terms and provisions of the Stock Option, or on such later date as is specified
by the Committee.

         Anything in the Plan to the contrary notwithstanding, no term of the
Plan relating to Incentive Stock Options shall be interpreted, amended or
altered nor shall any discretion or

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authority granted under the Plan be exercised so as to disqualify the Plan under
Section 422 of the Code or, without the consent of the optionee affected, to
disqualify any Incentive Stock Option under such Section 422.

         Stock Options granted under the Plan shall be subject to the following
terms and conditions and shall contain such additional terms and conditions as
the Committee shall deem desirable:

         (a) Option Price. The option price per share of Common Stock
purchasable under a Stock Option shall be determined by the Committee and set
forth in the option agreement, and shall not be less than the Fair Market Value
of the Common Stock subject to the Stock Option on the date of grant. The option
price per share shall not be decreased thereafter except pursuant to Section 3
of this Plan.

         (b) Option Term. The term of each Stock Option shall be fixed by the
Committee, but no Stock Option shall be exercisable more than 10 years after the
date the Stock Option is granted.

         (c) Exercisability. Except as otherwise provided herein, Stock Options
shall be exercisable at such time or times and subject to such terms and
conditions as shall be determined by the Committee. If the Committee provides
that any Stock Option is exercisable only in installments, the Committee may at
any time waive such installment exercise provisions, in whole or in part, based
on such factors as the Committee may determine. In addition, the Committee may
at any time accelerate the exercisability of any Stock Option.

         (d) Method of Exercise. Subject to the provisions of this Section 5,
Stock Options may be exercised, in whole or in part, at any time during the
option term by giving written notice of exercise, or notice in accordance with
such other procedures as may be established from time to time, to the Company or
its designated agent specifying the number of shares of Common Stock subject to
the Stock Option to be purchased.

         Such notice shall be accompanied by payment in full of the purchase
price in cash or by certified or cashier's check or such other instrument as the
Company may accept. If approved by the Committee, payment, in full or in part,
may also be made in the form of unrestricted Common Stock already owned by the
optionee of the same class as the Common Stock subject to the Stock Option
(based on the Fair Market Value of the Common Stock on the date the Stock Option
is exercised); provided, however, that, in the case of an Incentive Stock
Option, the right to make a payment in the form of already owned shares of
Common Stock of the same class as the Common Stock subject to the Stock Option
may be authorized only at the time the Stock Option is granted and provided,
further, that, in the case of either an Incentive Stock Option or a NonQualified
Stock Option, such already owned shares have been held by the optionee for at
least six months at the time of exercise.

         In the discretion of the Committee, payment for any shares subject to a
Stock Option may also be made by delivering a properly executed exercise notice
to the Company, together with a copy of irrevocable instructions to a broker to
deliver promptly to the Company the amount of

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sale or loan proceeds necessary to pay the purchase price, and, if requested, by
the amount of any federal, state, local or foreign withholding taxes. To
facilitate the foregoing, the Company may enter into agreements for coordinated
procedures with one or more brokerage firms.

         In addition, in the discretion of the Committee, payment for any shares
subject to a Stock Option may also be made by instructing the Company or its
designated agent to withhold a number of such shares having a Fair Market Value
on the date of exercise equal to the aggregate exercise price of such Stock
Option.

         No shares of Common Stock shall be issued until full payment therefor
has been made. An optionee shall have all of the rights of a shareholder of the
Company holding the class or series of Common Stock that is subject to such
Stock Option (including, if applicable, the right to vote the shares and the
right to receive dividends), when the optionee has given written notice of
exercise, has paid in full for such shares and, if requested, has given the
representation described in Section 12(a).

         (e) Nontransferability of Stock Options. No Stock Option shall be
transferable by the optionee other than by will or by the laws of descent and
distribution, or, in the Committee's discretion, pursuant to a written
beneficiary designation. All Stock Options shall be exercisable, subject to the
terms of this Plan, only by the optionee or guardian or legal representative or
beneficiary of the optionee, it being understood that the terms "holder" and
"optionee" include any such guardian, legal representative or beneficiary.

         (f) Termination of Employment. The Stock Option and its related Stock
Appreciation Right, if any, may be exercised in full or in part from time to
time within ten years from the date of the grant, or such shorter period as may
be specified by the Committee in the option agreement, provided that in any
event each shall lapse and cease to be exercisable upon, or within such period
following, Termination of Employment as shall have been determined by the
Committee and as specified in the Stock Option agreement or Stock Appreciation
Right award certificate; provided, however, that such period following
Termination of Employment shall not exceed twelve months unless employment shall
have terminated:

                  (i) as a result of Retirement or Disability, in which event
         such period shall not exceed --

                           (A) in the case of a Stock Option, the original term
                  of the Stock Option; and

                           (B) in the case of a Stock Appreciation Right, one
                  year after such Retirement or Disability or after resignation
                  as an officer or employee of the Company, whichever shall last
                  occur; or

                  (ii) as a result of death, or death shall have occurred
         following Termination of Employment and while the Stock Option or Stock
         Appreciation Right was still exercisable, in which event such period
         shall not exceed the original term of the Stock

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         Option; and provided, further, that such period following Termination
         of Employment shall in no event exceed the original exercise period of
         the Stock Option or related Stock Appreciation Right, if any.

SECTION 6.   STOCK APPRECIATION RIGHT

         (a) Grant and Exercise. Stock Appreciation Rights may be granted in
conjunction with all or part of any Stock Option granted under the Plan. In the
case of a NonQualified Stock Option, such rights may be granted either at or
after the time of grant of such Stock Option. In the case of an Incentive Stock
Option, such rights may be granted only at the time of grant of such Stock
Option. In addition, Stock Appreciation Rights may be granted without
relationship to a Stock Option to employees residing in foreign jurisdictions,
where the grant of a Stock Option is impossible or impracticable because of
securities or tax laws or other governmental regulations.

         (b) Freestanding Stock Appreciation Rights. A Stock Appreciation Right
granted without relationship to a Stock Option, pursuant to Section 6(a), shall
be exercisable as determined by the Committee, but in no event after ten years
from the date of grant. The base price of a Stock Appreciation Right granted
without relationship to a Stock Option shall be the Fair Market Value of a share
of Common Stock on the date of grant. A Stock Appreciation Right granted without
relationship to a Stock Option shall entitle the holder, upon receipt of such
right, to a cash payment determined by multiplying (i) the difference between
the base price of the Stock Appreciation Right and the Fair Market Value of a
share of Common Stock on the date of exercise of the Stock Appreciation Right,
by (ii) the number of shares of Common Stock as to which Stock Appreciation
Right shall have been exercised. A freestanding Stock Appreciation Right may be
exercised by giving written notice of exercise to the Company or its designated
agent specifying the number of shares of Common Stock as to which such Stock
Appreciation Right is being exercised.

         (c) Tandem Stock Appreciation Rights. A Stock Appreciation Right
granted in conjunction with a Stock Option may be exercised by an optionee in
accordance with Section 6(d) by surrendering the applicable portion of the
related Stock Option in accordance with procedures established by the Committee.
Upon such exercise and surrender, the optionee shall be entitled to receive an
amount determined in the manner prescribed in Section 6(d). Stock Options which
have been so surrendered shall no longer be exercisable to the extent the
related Stock Appreciation Rights have been exercised. A Stock Appreciation
Right shall terminate and no longer be exercisable upon the termination or
exercise of the related Stock Option.

         (d) Terms and Conditions. Stock Appreciation Rights granted in
conjunction with a Stock Option shall be subject to such terms and conditions as
shall be determined by the Committee, including the following:

                  (i) Stock Appreciation Rights shall be exercisable only at
         such time or times and to the extent that the Stock Options to which
         they relate are exercisable in accordance with the provisions of
         Section 5 and this Section 6.

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                  (ii) Upon the exercise of a Stock Appreciation Right, an
         optionee shall be entitled to receive an amount in cash, equal to the
         excess of the Fair Market Value of one share of Common Stock over the
         option price per share specified in the related Stock Option multiplied
         by the number of shares in respect of which the Stock Appreciation
         Right shall have been exercised.

                  (iii) Stock Appreciation Rights shall be transferable only to
         permitted transferees of the underlying Stock Option in accordance with
         Section 5(e).

                  (iv) Upon the exercise of a Stock Appreciation Right, the
         Stock Option or part thereof to which such Stock Appreciation Right is
         related shall be deemed to have been exercised for the purpose of the
         limitation set forth in Section 3 on the number of shares of Common
         Stock to be issued under the Plan, but only to the extent of the number
         of shares covered by the Stock Appreciation Right at the time of
         exercise based on the value of the Stock Appreciation Right at such
         time.

SECTION 7.   BONUS SHARES AND RESTRICTED STOCK

         (a) Administration. Awards of shares of Common Stock or Restricted
Stock may be made either alone or in addition to other Awards granted under the
Plan. In addition, a participant may receive unrestricted shares of Common Stock
or Restricted Stock in lieu of certain cash payments awarded under other plans
or programs of the Company. The Committee shall determine the officers and
employees to whom and the time or times at which grants of unrestricted shares
of Common Stock and Restricted Stock will be awarded, the number of shares to be
awarded to any participant (subject to the aggregate limit on grants to
individual participants set forth in Section 3 in the case of Qualified
Performance-Based Awards), the conditions for vesting, the time or times within
which such Awards may be subject to forfeiture and any other terms and
conditions of the Awards, in addition to those contained in Section 7(c).

         (b) Awards and Certificates. Awards of unrestricted shares of Common
Stock and Restricted Stock shall be evidenced in such manner as the Committee
may deem appropriate, including, book-entry registration or delivery of one or
more stock certificates to the participant, or, in the case of Restricted Stock,
a custodian or escrow agent. Any stock certificate issued in respect of
unrestricted shares or shares of Restricted Stock shall be registered in the
name of such participant. The Committee may require that the stock certificates
evidencing shares of Restricted Stock be held in custody or escrow by the
Company or its designated agent until the restrictions thereon shall have lapsed
and that, as a condition of any Award of Restricted Stock, the participant shall
have delivered a stock power, endorsed in blank, relating to the Common Stock
covered by such Award.

         (c) Terms and Conditions. Shares of Restricted Stock shall be subject
to the following terms and conditions:

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                  (i) The Committee may, prior to or at the time of grant,
         designate an Award of Restricted Stock as a Qualified Performance-Based
         Award, in which event it shall condition the grant or vesting, as
         applicable, of such Restricted Stock upon the attainment of Performance
         Goals. If the Committee does not designate an Award of Restricted Stock
         as a Qualified Performance-Based Award, it may also condition the grant
         or vesting thereof upon the attainment of Performance Goals. Regardless
         of whether an Award of Restricted Stock is a Qualified
         Performance-Based Award, the Committee may also condition the grant or
         vesting thereof upon the continued service of the participant. The
         conditions for grant or vesting and the other provisions of Restricted
         Stock Awards (including without limitation any applicable Performance
         Goals) need not be the same with respect to each recipient. The
         Committee may at any time, in its sole discretion, accelerate or waive,
         in whole or in part, any of the foregoing restrictions; provided,
         however, that in the case of Restricted Stock that is a Qualified
         Performance-Based Award, the applicable Performance Goals have been
         satisfied.

                  (ii) Subject to the provisions of the Plan and the terms of
         the Restricted Stock Award, during the period, if any, set by the
         Committee, commencing with the date of such Award for which such
         participant's continued service is required (the "Restriction Period"),
         and until the later of (A) the expiration of the Restriction Period and
         (B) the date the applicable Performance Goals (if any) are satisfied,
         the participant shall not be permitted to sell, assign, transfer,
         pledge or otherwise encumber shares of Restricted Stock.

                  (iii) Except as provided in this paragraph (iii) and Sections
         7(c)(i) and 7(c)(ii) and the terms of the Restricted Stock Award, the
         participant shall have, with respect to the shares of Restricted Stock,
         all of the rights of a stockholder of the Company holding the class or
         series of Common Stock that is the subject of the Restricted Stock,
         including, if applicable, the right to vote the shares and the right to
         receive any cash dividends. If so determined by the Committee under the
         applicable terms of the Restricted Stock Award and subject to Section
         12(e) of the Plan, (A) cash dividends on the class or series of Common
         Stock that is the subject of the Restricted Stock Award shall be
         automatically deferred and reinvested in additional Restricted Stock,
         held subject to the vesting of the underlying Restricted Stock, or held
         subject to meeting Performance Goals applicable only to dividends, and
         (B) dividends payable in Common Stock shall be paid in the form of
         Restricted Stock of the same class as the Common Stock with which such
         dividend was paid, held subject to the vesting of the underlying
         Restricted Stock, or held subject to meeting Performance Goals
         applicable only to dividends.

                  (iv) Except to the extent otherwise provided under the
         applicable terms of the Restricted Stock Award and Sections 7(c)(i),
         7(c)(ii), 7(c)(v) and 9(a)(ii), upon a participant's Termination of
         Employment for any reason during the Restriction Period or before the
         applicable Performance Goals are satisfied, all shares still subject to
         restriction shall be forfeited by the participant.

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                  (v) Except to the extent otherwise provided in Section
         9(a)(ii), in the event of a participant's Termination of Employment by
         reason of Retirement, the Committee shall have the discretion to waive,
         in whole or in part, any or all remaining restrictions (other than, in
         the case of Restricted Stock with respect to which a participant is a
         Covered Employee, satisfaction of the applicable Performance Goals
         unless the participant's employment is terminated by reason of death or
         Disability) with respect to any or all of such participant's shares of
         Restricted Stock.

                  (vi) If and when any applicable Performance Goals are
         satisfied and the Restriction Period expires without a prior forfeiture
         of the Restricted Stock, unlegended certificates for such shares shall
         be delivered to the participant upon surrender of the legended
         certificates, or the restrictions on such shares shall be removed from
         the book-entry registration.

SECTION 8. DIVIDEND EQUIVALENTS AND INTEREST EQUIVALENTS

         (a) The Committee may provide that a participant to whom a Stock Option
has been awarded, which is exercisable in whole or in part at a future time for
shares of Common Stock (such shares, the "Option Shares") shall be entitled to
receive an amount per Option Share, equal in value to the cash dividends, if
any, paid per share of Common Stock on issued and outstanding shares, as of the
dividend record dates occurring during the period between the date of the Award
and the time each such Option Share is delivered pursuant to the exercise of
such Stock Option. Such amounts (herein called "dividend equivalents") may, in
the discretion of the Committee, be:

                  (i) paid in cash or shares of Common Stock from time to time
         prior to or at the time of the delivery of such shares of Common Stock
         or upon expiration of the Stock Option if it shall not have been fully
         exercised (except that payment of the dividend equivalents on an
         Incentive Stock Option may not be made prior to exercise); or

                  (ii) converted into contingently credited shares of Common
         Stock (with respect to which dividend equivalents shall accrue) in such
         manner, at such value, and deliverable at such time or times, as may be
         determined by the Committee.

Such shares of Common Stock (whether delivered or contingently credited) shall
be charged against the limitations set forth in Section 3.

         (b) The Committee, in its discretion, may authorize payment of interest
equivalents on any portion of any Award payable at a future time in cash, an
interest equivalents on dividend equivalents which are payable in cash at a
future time.

                                       12
<PAGE>   13
SECTION 9.   CHANGE IN CONTROL PROVISIONS

         (a) Impact of Event. Notwithstanding any other provision of the Plan to
the contrary, in the event of a Change in Control:

                  (i) Any Stock Options and Stock Appreciation Rights
         outstanding as of the date such Change in Control is determined to have
         occurred, and which are not then exercisable and vested, shall become
         fully exercisable and vested to the full extent of the original grant.

                  (ii) The restrictions and deferral limitations applicable to
         any Restricted Stock shall lapse, and such Restricted Stock shall
         become free of all restrictions and become fully vested and
         transferable to the full extent of the original grant.

         (b) Definition of Change in Control. For purposes of the Plan, a
"Change in Control" shall mean the happening of any of the following events:

                  (i) The acquisition by any individual, entity or group (with
         the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange
         Act of 1934, as amended (the "Exchange Act")) (a "Person") of
         beneficial ownership (within the meaning of Rule 13d-3 promulgated
         under the Exchange Act) of 51% or more of either (A) the then
         outstanding shares of common stock of the Company (the "Outstanding
         Company Common Stock") or (B) the combined voting power of the then
         outstanding voting securities of the Company entitled to vote generally
         in the election of directors (the "Outstanding Company Voting
         Securities"); provided, however, that, for purposes of this subsection
         (i), the following acquisitions shall not constitute a Change of
         Control: (1) any acquisition directly from the Company, (2) any
         acquisition by the Company, (3) any acquisition by any employee benefit
         plan (or related trust) sponsored or maintained by the Company or any
         corporation controlled by the Company or (4) any acquisition by any
         corporation pursuant to a transaction which complies with clauses (A),
         (B) and (C) of subsection (iii) of this Section 9; or

                  (ii) Individuals who, as of the date hereof, constitute the
         Board (the "Incumbent Board") cease for any reason to constitute at
         least a majority of the Board; provided, however, that any individual
         becoming a director subsequent to the date hereof whose election, or
         nomination for election by the Company's stockholders, was approved by
         a vote of at least a majority of the directors then comprising the
         Incumbent Board shall be considered as though such individual were a
         member of the Incumbent Board, but excluding, for this purpose, any
         such individual whose initial assumption of office occurs as a result
         of an actual or threatened election contest with respect to the
         election or removal of directors or other actual or threatened
         solicitation of proxies or consents by or on behalf of a Person other
         than the Board; or

                  (iii) Approval by the stockholders of the Company of a
         reorganization, merger or consolidation or sale or other disposition of
         all or substantially all of the assets of the Company or the
         acquisition of assets or stock of another corporation (a "Business
         Combination"), in each case, unless, following such Business
         Combination, (A) all or

                                       13
<PAGE>   14
         substantially all of the individuals and entities who were the
         beneficial owners, respectively, of the Outstanding Company Common
         Stock and Outstanding Company Voting Securities immediately prior to
         such Business Combination beneficially own, directly or indirectly,
         more than 60% of, respectively, the then outstanding shares of common
         stock and the combined voting power of the then outstanding voting
         securities entitled to vote generally in the election of directors, as
         the case may be, of the corporation resulting from such Business
         Combination (including, without limitation, a corporation which as a
         result of such transaction owns the Company or all or substantially all
         of the Company's assets either directly or through one or more
         subsidiaries) in substantially the same proportions as their ownership,
         immediately prior to such Business Combination of the Outstanding
         Company Common Stock and Outstanding Company Voting Securities, as the
         case may be, (B) no Person (excluding any corporation resulting from
         such Business Combination or any employee benefit plan (or related
         trust) of the Company or such corporation resulting from such Business
         Combination) beneficially owns, directly or indirectly, 20% or more
         of, respectively, the then outstanding shares of common stock of the
         corporation resulting from such Business Combination or the combined
         voting power of the then outstanding voting securities of such
         corporation except to the extent that such ownership existed prior to
         the Business Combination and (C) at least a majority of the members of
         the board of directors of the corporation resulting from such Business
         Combination were members of the Incumbent Board at the time of the
         execution of the initial agreement, or of the action of the Board,
         providing for such Business Combination; or

         (iv) Approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.

         (c) Change in Control Price. For purposes of the Plan, "Change in
Control Price" means the higher of (i) the highest reported sales price, regular
way, of a share of Common Stock in any transaction reported on the New York
Stock Exchange Composite Tape or other national exchange on which such shares
are listed or on NASDAQ during the 60-day period prior to and including the date
of a Change in Control or (ii) if the Change in Control is the result of a
tender or exchange offer or a Corporate Transaction, the highest price per share
of Common Stock paid in such tender or exchange offer or Corporate Transaction;
provided, however, that in the case of Incentive Stock Options and Stock
Appreciation Rights relating to Incentive Stock Options, the Change in Control
Price shall be in all cases the Fair Market Value of the Common Stock on the
date such Incentive Stock Option or Stock Appreciation Right is exercised. To
the extent that the consideration paid in any such transaction described above
consists all or in part of securities or other noncash consideration, the value
of such securities or other noncash consideration shall be determined in the
sole discretion of the Board.

SECTION 10.  AMENDMENT AND TERMINATION

         The Board may amend, alter, or discontinue the Plan, but no amendment,
alteration or discontinuation shall be made which would impair the rights of an
optionee under any Award

                                       14
<PAGE>   15
theretofore granted without the optionee's or recipient's consent, except such
an amendment made to cause the Plan to qualify for any exemption provided by
Rule 16b-3. In addition, no such amendment shall be made without the approval of
the Company's stockholders to the extent such approval is required by law or
agreement.

         The Committee may amend the terms of any Stock Option or other Award
theretofore granted, prospectively or retroactively, but no such amendment shall
cause a Qualified Performance-Based Award to cease to qualify for the Section
162(m) Exemption or impair the rights of any holder without the holder's consent
except such an amendment made to cause the Plan or Award to qualify for any
exemption provided by Rule 16b-3.

         Subject to the above provisions, the Board shall have authority to
amend the Plan to take into account changes in law and tax and accounting rules
as well as other developments, and to grant Awards which qualify for beneficial
treatment under such rules without stockholder approval.

SECTION 11.  UNFUNDED STATUS OF PLAN

         It is presently intended that the Plan constitute an "unfunded" plan
for incentive and deferred compensation. The Committee may authorize the
creation of trusts or other arrangements to meet the obligations created under
the Plan to deliver Common Stock or make payments; provided, however, that
unless the Committee otherwise determines, the existence of such trusts or other
arrangements is consistent with the "unfunded" status of the Plan.

SECTION 12.  GENERAL PROVISIONS

         (a) The Committee may require each person purchasing or receiving
shares pursuant to an Award to represent to and agree with the Company in
writing that such person is acquiring the shares without a view to the
distribution thereof. The certificates for such shares may include any legend,
or, in the case of book-entry registration any notation, which the Committee
deems appropriate to reflect any restrictions on transfer.

         Notwithstanding any other provision of the Plan or certificates made
pursuant thereto, the Company shall not be required to issue or deliver any
stock certificate or certificates for shares of Common Stock, or account for
such shares by book-entry registration, under the Plan prior to fulfillment of
all of the following conditions:

                  (1) Listing or approval for listing upon notice of issuance,
         of such shares on the New York Stock Exchange, Inc., or such other
         securities exchange as may at the time be the principal market for the
         Common Stock;

                  (2) Any registration or other qualification of such shares of
         the Company under any state, federal or foreign law or regulation, or
         the maintaining in effect of any

                                       15
<PAGE>   16
         such registration or other qualification which the Committee shall, in
         its absolute discretion upon the advice of counsel, deem necessary or
         advisable; and

                  (3) Obtaining any other consent, approval, or permit from any
         state or federal governmental agency or foreign governmental body which
         the Committee shall, in its absolute discretion after receiving the
         advice of counsel, determine to be necessary or advisable.

         (b) Nothing contained in the Plan shall prevent the Company or any
Subsidiary or Associated Company from adopting other or additional compensation
arrangements for its employees.

         (c) Adoption of the Plan shall not confer upon any employee any right
to continued employment, nor shall it interfere in any way with the right of the
Company or a Subsidiary or an Associated Company to terminate the employment of
any employee at any time.

         (d) No later than the date as of which an amount first becomes
includible in the gross income of the participant for federal income tax
purposes with respect to any Award under the Plan, the participant shall pay to
the Company, or make arrangements satisfactory to the Company regarding the
payment of, any federal, state, local or foreign taxes of any kind required by
law to be withheld with respect to such amount. Unless otherwise determined by
the Company, withholding obligations may be settled with Common Stock, including
Common Stock that is part of the Award that gives rise to the withholding
requirement. The obligations of the Company under the Plan shall be conditional
on such payment or arrangements, and the Company and its Subsidiaries or
Associated Companies shall, to the extent permitted by law, have the right to
deduct any such taxes from any payment otherwise due to the participant. The
Committee may establish such procedures as it deems appropriate, including
making irrevocable elections, for the settlement of withholding obligations with
Common Stock.

         (e) Reinvestment of dividends in additional Restricted Stock at the
time of any dividend payment shall only be permissible if sufficient shares of
Common Stock are available under Section 3 for such reinvestment (taking into
account then outstanding Stock Options and other Awards).

         (f) Upon approval by the Board, in lieu of receiving shares of
restricted stock or upon exercise of stock options, a participant may make an
irrevocable election in the year prior to the performance of services that
related to the expected receipt of restricted stock, and/or make an irrevocable
election to Company shares upon the exercise of stock options, to a deferred
compensation arrangement adopted by the Board.

         (g) The Committee, in its sole discretion, may establish such
procedures as it deems appropriate for a participant to designate a beneficiary
to whom any amounts payable in the event of the participant's death are to be
paid or by whom any rights of the participant, after the participant's death,
may be exercised.

                                       16
<PAGE>   17
         (h) In the case of a grant of an Award to any employee of a Subsidiary
or Affiliated Company, the Company may, if the Committee so directs, issue or
transfer the shares of Common Stock, if any, covered by the Award to the
Subsidiary or Affiliated Company, for such lawful consideration as the Committee
may specify, upon the condition or understanding that the Subsidiary or
Affiliated Company will transfer the shares of Common Stock to the employee in
accordance with the terms of the Award specified by the Committee pursuant to
the provisions of the Plan.

         (i) The Plan and all Awards made and actions taken thereunder shall be
governed by and construed in accordance with the laws of the State of Delaware,
without reference to principles of conflict of laws.

SECTION 13.  EFFECTIVE DATE OF PLAN

      The Plan shall be effective as of July 14, 1998.

                                       17<PAGE>   1
                                  Exhibit 10(m)

                         MAX & ERMA'S RESTAURANTS, INC.

                               SEVERANCE AGREEMENT
                               -------------------
                        IN THE EVENT OF CHANGE IN CONTROL
                        ---------------------------------

         This Agreement is made this 10th day of January, 2000, by and between
__________ ("Executive") and MAX & ERMA'S RESTAURANTS, INC., a Delaware
corporation with its principal office at 4849 Evanswood Drive, Columbus, Ohio,
its affiliates, subsidiaries, successors, and assigns (the "Company").

                                    RECITALS

         A. The Company competes in the casual dining segment of the restaurant
industry by operating Max & Erma's Restaurants that offer a variety of high
quality food in a casual, comfortable, and fun atmosphere and with a uniquely
personable style.

         B. The Executive is a principal officer of the Company and an integral
part of its management.

         C. The Company considers the Executive's continued services to be in
the best interest of the Company and desires, through this Agreement, to assure
the Executive's continued services on behalf of the Company on an objective and
impartial basis and without distraction or conflict of interest in the event of
an attempt to obtain control of the Company.

                                    AGREEMENT

         NOW, THEREFORE, the parties agree as follows:

         1. DEFINITIONS. For purposes of this Agreement, the following terms
shall have the following meanings unless otherwise expressly provided in this
Agreement:

                  (a) Change in Control. A "Change in Control" shall be deemed
         to have occurred if and when, after the date hereof, (i) any "person"
         (as that term is used in Section 13(d) and 14(d) of the Securities
         Exchange Act of 1934, as amended (the "Exchange Act") on the date
         hereof), including any "group" as such term is used in Section 13(d)(3)
         of the Exchange Act on the date hereof, shall acquire (or disclose the
         previous acquisition of) beneficial ownership (as that term is defined
         in Section 13(d) of the Exchange Act and the rules thereunder on the
         date hereof) of shares of the outstanding stock of any class or classes
         of the Company which results in such person or group possessing more
         than 50% of the total voting power of the Company's outstanding voting
         securities ordinarily having the right to vote for the election of
         directors of the Company; or (ii) as the result of, or in connection
         with, any tender or exchange offer, merger or other business
         combination, or contested election, or any combination of the foregoing
         transactions (a "Transaction"), the owners of the voting shares of the
         Company

<PAGE>   2

         outstanding immediately prior to such Transaction own less than
         a majority of the voting shares of the Company after the Transaction;
         or (iii) during any period of two consecutive years during the term of
         this Agreement, individuals who at the beginning of such period
         constitute the Board of Directors of the Company (or who take office
         following the approval of a majority of the directors then in office
         who were directors at the beginning of the period) cease for any reason
         to constitute at least one-half thereof, unless the election of each
         director who was not a director at the beginning of such period has
         been approved in advance by directors of the Company representing at
         least one-half of the directors then in office who were directors at
         the beginning of the period; or (iv) the sale, exchange, transfer, or
         other disposition of all or substantially all of the assets of the
         Company (a "Sale Transaction").

                  Notwithstanding the foregoing, a "Change in Control" shall not
         be deemed to have occurred for purposes of this Agreement (a) if the
         Executive, alone or as part of any "group" as such term is used in
         Section 13(d)(3) of the Exchange Act on the date hereof, shall acquire
         (or disclose the previous acquisition thereof) beneficial ownership (as
         that term is defined in Section 13(d) on the Exchange Act and the rules
         thereunder on the date hereof) of shares of the outstanding stock of
         any class or classes of the Company that results in the Executive or
         the Executive as part of any "group" possessing more than 50% of the
         total voting power of the Company's outstanding voting securities
         ordinarily having the right to vote for the election of directors of
         the Company; (b) upon the occurrence of any Transaction, Sale
         Transaction, consolidation, or reorganization involving the Company and
         the Executive, alone or with other officers of the Company, or any
         entity in which the Executive (alone or with other officers) has,
         directly or indirectly, any equity or ownership interest, except where
         such entity is a publicly traded company and the Executive does not own
         more than a 1% interest in such entity prior to the Transaction, Sale
         Transaction, consolidation, or reorganization; (c) in a transaction
         otherwise commonly referred to as a "management leveraged buyout"; or
         (d) in an acquisition of stock of the Company by employee benefit plans
         sponsored by the Company.

                  (b) Date of Termination. "Date of Termination" shall mean (i)
         if the Executive's employment is terminated for Disability, 30 days
         after a Notice of Termination is given (provided that the Executive
         shall not have returned to the performance of his duties on a full-time
         basis during such 30-day period), (ii) if the Executive's employment is
         terminated for Cause, the date specified in the Notice of Termination,
         (iii) if the Executive's employment is terminated by death, the date of
         death, and (iv) if the Executive's employment is terminated for any
         other reason, the date on which a Notice of Termination is given, or,
         if the Company terminates the Executive's employment without giving a
         Notice of Termination, the date on which such termination is effective.

                  (c) Disability. The Executive's employment shall be deemed to
         have been terminated by "Disability" if, as a result of his incapacity
         due to physical or mental illness, he shall have been absent from his
         duties with the Company on a full-time basis for the entire period of
         six consecutive months, and within 30 days after written notice of
         termination is given (which may occur before or after the end of such
         six-month period) he shall not have returned to the full-time
         performance of his duties.

<PAGE>   3

                  (d) Effective Period. The "Effective Period" means the
         13-month period following any Change in Control (even if such 13-month
         period shall extend beyond the term of this Agreement or any extension
         thereof).

                  (e) Notice of Termination. A "Notice of Termination" shall
         mean a notice which shall set forth in reasonable detail the facts and
         circumstances claimed to provide a basis for termination of the
         Executive's employment.

                  (f) Termination for Cause. The Company shall only have "Cause"
         to terminate the Executive's employment hereunder upon the occurrence
         of one or more of the following grounds:

                           (i) Commission of a crime which is a felony, fraud,
                  or embezzlement, or any misdemeanor involving an act of moral
                  turpitude or committed in connection with the Executive's
                  employment and which causes the Company a substantial
                  detriment or embarrassment;

                           (ii) Engagement in activities or conduct clearly
                  injurious to the best interests or reputation of the Company;

                           (iii) The willful and continued refusal or failure to
                  perform reasonably assigned duties and responsibilities in a
                  competent or satisfactory manner as determined by the Company;

                           (iv) The willful and continued insubordination of the
                  Executive;

                           (v) The willful and continued violation of any of the
                  material terms and conditions of this Agreement or any other
                  written agreement or agreements that the Executive may from
                  time to time have with the Company; or

                           (vi) The willful and continued violation of any of
                  the Company's rules of conduct or behavior, such as may be
                  provided in any employee handbook or as the Company may
                  promulgate from time to time.

                  Notwithstanding the foregoing, the Executive shall not be
         deemed to have been terminated for Cause under this Agreement unless
         and until there shall have been delivered to the Executive a copy of a
         resolution duly adopted by the affirmative vote of not less than
         three-quarters of the Board at a meeting called and held for such
         purposes, after notice to the Executive and an opportunity for the
         Executive, together with the Executive's counsel (if the Executive
         chooses to have counsel present at such meeting), to be heard before
         the Board, finding that, in the good faith opinion of the Board, the
         Executive had committed an act constituting Cause as defined in this
         Agreement and specifying the particulars of the act constituting Cause
         in detail. Nothing in this Agreement will limit the right of the
         Executive or the Executive's beneficiaries to contest the validity or
         propriety of any such determination.

                  (g) Termination For Good Reason. "Good Reason" shall mean,
         unless the Executive shall have consented in writing thereto,
         termination by the Executive of his employment following a Change in
         Control because of any of the following:

<PAGE>   4

                           (i) A reduction in Executive's title, duties,
                  responsibilities, or status, as compared to such title,
                  duties, responsibilities, or status immediately prior to the
                  Change in Control or as the same may be increased after the
                  Change in Control;

                           (ii) The assignment to the Executive of duties
                  inconsistent with the Executive's office on the date of the
                  Change in Control or as the same may be increased after the
                  Change in Control;

                           (iii) A reduction by the Company in the Executive's
                  base salary as in effect immediately prior to the Change in
                  Control or as the same may be increased after the Change in
                  Control, or a reduction by the Company after a Change in
                  Control in the Executive's total compensation (including
                  bonus) so that the Executive's total cash compensation in a
                  given calendar year is less than 90% of Executive's total
                  compensation for the prior calendar year;

                           (iv) A requirement that the Executive relocate
                  anywhere not mutually acceptable to the Executive and the
                  Company or the imposition on the Executive of business travel
                  obligations substantially greater than his business travel
                  obligations during the year prior to the Change in Control;

                           (v) The relocation of the Company's principal
                  executive offices to a location outside the greater Columbus,
                  Ohio area;

                           (vi) The failure by the Company to continue in effect
                  any material fringe benefit or compensation plan, retirement
                  plan, life insurance plan, health and accident plan, or
                  disability plan in which the executive is participating at the
                  time of a Change in Control (or plans providing the Executive
                  with substantially similar benefits), the taking of any action
                  by the Company which would adversely affect the Executive's
                  participation in or materially reduce his benefits under any
                  of such plans or deprive him of any material fringe benefit
                  enjoyed by him at the time of the Change in Control, or the
                  failure by the Company to provide him with the number of paid
                  vacation days to which he is then entitled on the basis of
                  years of service with the Company in accordance with the
                  normal vacation policy then in effect immediately prior to the
                  Change in Control;

                           (vii) Any breach of this Agreement on the part of the
                  Company; or

                           (viii) Failure of any successor to assume all
                  obligations under this Agreement.

                  (h) Termination for Retirement. Termination by the Company of
         the Executive's employment based on "Retirement" shall mean termination
         in accordance with the Corporation's normal retirement policy
         applicable to its salaried employees as in effect immediately prior to
         the Change in Control or in accordance with any other retirement
         arrangement established with the Executive's consent with respect to
         the Executive.

<PAGE>   5

                  (i) Window Period. The "Window Period" means the thirteenth
         (13th) month following any Change in Control (even if such thirteenth
         (13th) month shall extend beyond the term of this Agreement or any
         extension thereof).

         2. PREVIOUS AGREEMENT TERMINATED. The Employment Agreement between the
Company and the Executive, dated December 12, 1984, is hereby terminated.

         3. TERM. Unless sooner terminated as herein provided, the term of this
Agreement shall commence on the date hereof and shall continue until the third
anniversary of the Commencement Date (the "Termination Date"); provided,
however, that commencing on the Termination Date and on each anniversary date
thereof the term of this Agreement shall automatically be extended for one
additional year beyond the then existing term unless, not later than one hundred
twenty (120) days immediately preceding the Termination Date of the then
existing term, the Company shall have given the Executive notice that it wishes
to terminate this Agreement in which case the Agreement shall terminate at the
end of the then existing term. The Company may not give such notice at any time
while it has knowledge that any third person has taken steps or announced an
intention to take steps reasonably calculated to effect a Change in Control.
Notwithstanding the above, if a "Change in Control" (as defined herein) of the
Company occurs during the term of this Agreement, the term of this Agreement
will be extended for thirteen (13) months beyond the end of the month in which
any such Change in Control occurs. It is understood that no amounts or benefits
shall be payable under this Agreement unless (i) there shall have been a Change
in Control during the term of this Agreement and (ii) the Executive's employment
is terminated at any time during the Effective Period or the Window Period as
provided in Section 5 hereof. It is further understood that the Company may
terminate the Executive's employment at any time after a Change in Control,
subject to the Company providing, if required to do so in accordance with the
terms hereof, the severance payments and benefits hereinafter specified, which
payments and benefits shall only be available if a Change in Control has
occurred prior to such termination. Prior to a Change in Control, this Agreement
shall terminate immediately if the Executive's employment with the Company is
terminated for any reason, and Executive shall be entitled to no payments or
benefits hereunder.

         4. TERMINATION FOLLOWING A CHANGE IN CONTROL. Any termination of
Executive's employment by the Company for Cause, Disability, or otherwise or by
the Executive for Good Reason, which occurs at any time during the Effective
Period or the Window Period, shall be communicated by written Notice of
Termination to the other party.

         5. COMPENSATION UPON TERMINATION FOLLOWING A CHANGE IN CONTROL. The
Executive shall be entitled to the severance benefits provided in Section 5
hereof if his employment is terminated within the Effective Period or the Window
Period following a Change in Control of the Company (even if such Effective
Period or the Window Period extends beyond the term of this Agreement or any
extension thereof) unless his termination is (i) because of his death or
Retirement, (ii) by the Company for Cause or Disability, or (iii) by the
Executive other than for Good Reason; provided however, that the Executive may
terminate his employment for any reason during the Window Period, and shall be
entitled to the severance benefits provided in Section 5(c) hereof.

                  (a) For Cause. If, at any time during the Effective Period or
         the Window Period, the Executive's employment shall be terminated for
         Cause, the Company shall pay his full base salary through the Date of
         Termination at the rate in effect at the time Notice of

<PAGE>   6

         Termination is given, and the Company shall have no further obligations
         to the Executive under this Agreement.

                  (b) Death, Disability, or Retirement. If, at any time during
         the Effective Period or the Window Period, the Executive's employment
         is terminated by reason of the Executive's death, Disability, or
         Retirement, the Company shall pay to the Executive or his legal
         representative his full base salary through the Date of Termination,
         and the Company shall have no further obligation to the Executive or
         his legal representative under this Agreement.

                  (c) For Good Reason or without Cause. If, at any time during
         the Effective Period or the Window Period, the Executive's employment
         is terminated by the Company for any reason other than Cause, death,
         Disability, or Retirement; or is terminated by the Executive for Good
         Reason, at any time during the Effective Period; or is terminated by
         the Executive during the Window Period for any reason, then:

                           (i) The Company shall pay to the Executive, not later
                  than 30 days following the Date of Termination, the
                  Executive's accrued but unpaid base salary through the Date of
                  Termination plus compensation for any current and carried-over
                  unused vacation days in accordance with the applicable
                  personnel policy and the unpaid balance of the current year's
                  premiums under any split dollar life insurance policy on the
                  life of the Executive held by the Company.

                           (ii) The Company shall pay to the Executive, not
                  later than 30 days following the Date of Termination, an
                  amount in cash equal to the product of (x) the average annual
                  bonus paid to the Executive for the last three full fiscal
                  years ending prior to the Date of Termination or, if the
                  Executive has been employed by the Company for less than three
                  full fiscal years prior to the Date of Termination, the
                  average annual bonus paid to the Executive for the entire
                  period of the Executive's employment prior to the Date of
                  Termination and (y) the fraction obtained by dividing (A) the
                  number of days between the Date of Termination and the last
                  day of the last full fiscal year ending prior to such date and
                  (B) 365.

                           (iii) All outstanding stock options issued to the
                  Executive shall become 100% vested and thereafter exercisable
                  in accordance with such governing stock option plans and
                  agreements, and the ownership of the unvested portion of the
                  Company's cash value of any split dollar life insurance policy
                  shall become 100% vested in the Executive.

                           (iv) In lieu of any further payments of salary to the
                  Executive after the Date of Termination, the Company shall pay
                  to the Executive, not later than thirty (30) days following
                  the Date of Termination and notwithstanding any dispute
                  between the Executive and Company as to the payment to the
                  Executive of any other amounts under this Agreement or
                  otherwise, a lump sum cash severance payment (the "Severance
                  Payment") equal to 2.99 times the average annual compensation
                  which was payable to the Executive by the Company (or any
                  other company (an "Affiliate") affiliated with the Company
                  within the meaning of Section 1504 of the Internal Revenue
                  Code of 1986, as amended (the "Code")) and includable in the
                  Executive's gross income for federal income tax purposes for
                  the
<PAGE>   7

                  five taxable years ending prior to the date on which a
                  Change in Control of the Company occurred (or such portion of
                  such period during which the Executive performed personal
                  services for the Company or an Affiliate). Compensation
                  payable to the Executive by the Company or an Affiliate shall
                  include every type and form of compensation includable in the
                  Executive's gross income for federal income tax purposes in
                  respect of the Executive's employment by the Company or an
                  Affiliate.

                  (d) Excess Parachute Payments. If any portion of the aggregate
         payments under Section 5 hereof which are considered "parachute
         payments" within the meaning of Section 280G(b)(2) of the Internal
         Revenue Code of 1986, as amended (the "Code"), shall be determined by
         the Corporation's independent auditors to be nondeductible to the
         Company, then the aggregate present value of all of the amounts payable
         to the Executive under Section 5(c) hereof shall be reduced to the
         maximum amount which would cause all of the payments under Section 5(c)
         to be deductible and in such event the executive shall have the option,
         but not the obligation, to designate or select those kinds of payments
         which shall be reduced and the order of such reductions, but failure of
         the Executive to make such selections within a period of 30 days
         following notice of the determination that a reduction is necessary
         will result in a reduction of all such payments, pro rata. If the
         Executive disagrees with the determination of the reduced amount by the
         Company's auditors, he may contest that determination by giving notice
         of such contest within 30 days of learning of the determination and may
         use an accountant of his choice in connection with such contest. The
         Company shall pay all of the Executive's costs in connection with such
         contest if the ultimate determination by the two accountants (that of
         the Company and that of the Executive) in consultation with each other,
         or by a third accountant jointly chosen by the two first-named
         accountants in the event the first two cannot agree, represents a
         lesser reduction in the amounts payable under Section 5(c) hereof than
         the Company's independent auditors established in the first instance.
         Otherwise, the Executive shall pay his own and any additional costs
         incurred by the Company in contesting such determination. If there is a
         final determination by the Internal Revenue Service or a court of
         competent jurisdiction that the Company overpaid amounts under Section
         280G of the Code, the amount of the overpayment shall be treated as a
         loan to the Executive and shall be repaid immediately, together with
         interest on such amount at the prime rate of interest at Huntington
         National Bank, Columbus, Ohio, or any successor thereto, in effect from
         time to time. If the Internal Revenue Service or a court of competent
         jurisdiction finally determines, or if the Code or regulations
         thereunder shall change such that the Corporation underpaid the
         Executive under Section 280G of the Code, the Corporation shall pay the
         difference to the Executive with interest as specified above.

                  (e) Avoidance of Penalty Taxes. This Section 5 shall be
         interpreted so as to avoid the imposition of excise taxes on the
         Executive under Section 4999 of the Code, and the Executive may in his
         sole discretion elect to reduce any payments he may be eligible to
         receive under this Agreement to prevent the imposition of such excise
         taxes.

                  (f) Other Rights not Affected. The Executive's right to
         receive payment under this Agreement shall not decrease the amount of,
         or otherwise adversely affect, any other benefits payable to the
         Executive under any plan, agreement, or arrangement relating to
         employee benefits provided by the Company.

<PAGE>   8

                  (g) No Duty to Mitigate. The Executive shall not be required
         to mitigate the amount of any payment provided for in this Section 5 by
         seeking other employment or otherwise, nor shall the amount of any
         payment provided for in this Section 5 be reduced by any compensation
         earned by the Executive as the result of employment by another employer
         or by reason of the Executive's receipt of or right to receive any
         retirement or other benefits after the Date of Termination of
         employment or otherwise.

         6. SUCCESSORS; BINDING AGREEMENT

                  (a) The Company will require any successor (whether direct or
         indirect, by purchase, merger, consolidation, or otherwise) to all or
         substantially all of the business and/or assets of the Company and its
         subsidiaries to expressly assume and agree to perform this Agreement in
         the same manner and to the same extent that the Company would be
         required to perform it if no succession had taken place. Failure of the
         Company to obtain such agreement prior to the effectiveness of any such
         succession shall be a breach of this Agreement and shall entitle the
         Executive to compensation in the same amount and on the same terms as
         he would be entitled hereunder if he terminated his employment for Good
         Reason during the Effective Period or for any reason during the Window
         Period, except that for purposes of implementing the foregoing, the
         date on which any such succession becomes effective shall be deemed the
         Date of Termination. As used in this Agreement, "Company" shall mean
         the Company as defined above and any successor to its business and/or
         assets as aforesaid which executes and delivers the agreement provided
         for in this Section 6 or which otherwise becomes bound by all the terms
         and provisions of this Agreement by operation of law. Nothing contained
         in this Section 6 shall be construed to modify or affect the definition
         of a "Change in Control" contained in Section 1 hereof.

                  (b) This Agreement shall inure to the benefit of and be
         enforceable by the Executive's personal or legal representatives,
         executors, administrators, successors, heirs, distributees, devisees,
         and legatees.

         7. ARBITRATION. Any dispute or controversy arising out of or relating
to this Agreement, or any breach thereof, shall be settled by arbitration in
accordance with the rules of the American Arbitration Association. The award of
the arbitrator shall be final, conclusive, and nonappealable and judgment upon
such award rendered by the arbitrator may be entered in any court having
jurisdiction thereof. The arbitrator shall mean an arbitrator qualified to serve
in accordance with the rules of the American Arbitration Association and one who
is approved by both the Company and the Executive. In the absence of such
approval, each party shall designate a person qualified to serve as an
arbitrator in accordance with the rules of the American Arbitration Association
and the two persons so designated shall select the arbitrator from among those
persons qualified to serve in accordance with the rules of the American
Arbitration Association. The arbitration shall be held in Columbus, Ohio or
other such place as may be agreed upon at the time by the parities to the
arbitration.

         8. ENFORCEMENT OF AGREEMENT. The Company is aware that upon the
occurrence of a Change in Control, the Board of Directors or a shareholder of
the Company may then cause or attempt to cause the Company to refuse to comply
with its obligations under this Agreement, or may cause or attempt to cause the
Company to institute, or may institute arbitration or litigation seeking to have
this Agreement declared unenforceable, or may take or attempt to take other

<PAGE>   9

action to deny the Executive the benefits intended under this Agreement. In
these circumstances, the purpose of this Agreement could be frustrated.
Accordingly, if following a Change in Control it should appear to the Executive
that the Company has failed to comply with any of its obligations under Section
5(c) of this Agreement or in the event that the Company or any other person
takes any action to declare Section 5(c) of this Agreement void or
unenforceable, or institutes any arbitration, litigation, or other legal action
designed to deny, diminish or to recover from the Executive the benefits
entitled to be provided to him under Section 5(c), and that the Executive has
complied with all his obligations under this Agreement, the Company authorizes
the Executive to retain counsel of his choice, at the expense of the Company as
provided in this Section, to represent him in connection with the initiation or
defense of any pre-suit settlement negotiations, arbitration, litigation, or
other legal action, whether such action is by or against the Company or any
Director, officer, shareholder, or other person affiliated with the Company, in
any jurisdiction. Notwithstanding any existing or prior attorney-client
relationship between the Company and such counsel, the Company consents to the
Executive entering into an attorney-client relationship with such counsel, and
in that connection the Company and the Executive agree that a confidential
relationship shall exist between the Executive and such counsel, except with
respect to any fee and expense invoices generated by such counsel. The
reasonable fees and expenses of counsel selected by the Executive as hereinabove
provided shall be paid or reimbursed to the Executive by the Company on a
regular, periodic basis upon presentation by the Executive of a statement or
statements prepared by such counsel in accordance with its customary practices,
up to a maximum of 25% of the amount due to the Executive under Section 5(c).
Any legal expenses incurred by the Company by reason of any dispute between the
parties as to enforceability of Section 5(c) or the terms contained in Section
5(c), notwithstanding the outcome of any such dispute, shall be the sole
responsibility of the Company, and the Company shall not take any action to seek
reimbursement from the Executive for such expenses.

         9. NOTICES. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed in the
case of the Executive, to:

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

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

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

and in the case of the Company, to the principal executive offices of the
Company, provided that all notices to the Company shall be directed to the
attention of the Company's Chief Executive Officer with copies to the Secretary
of the Company, or to such other addresses as either party may have furnished to
the other in writing in accordance herewith, except that notices of change of
address shall be effective only upon receipt.

         10. NO WAIVER. No provisions of this Agreement may be modified, waived,
or discharged unless such waiver, modification or discharge is agreed to in
writing signed by the executive and a duly authorized officer of the Company. No
waiver by either party hereto at any time of any breach by the 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

<PAGE>   10

         11. SAVING. If any provision of this Agreement is later found to be
completely or partially unenforceable, the remaining part of that provision of
any other provision of this Agreement shall still be valid and shall not in any
way be affected by the finding. Moreover, if any provision is for any reason
held to be unreasonably broad as to time, duration, geographical scope, activity
or subject, such provision shall be interpreted and enforced by limiting and
reducing it to preserve enforceability to the maximum extent permitted by law.

         12. GOVERNING LAW. This Agreement shall be interpreted and enforced in
accordance with the laws of the State of Ohio without reference to its choice of
law rules.

         13. FINAL AGREEMENT. This Agreement replaces any existing agreement
between the Executive and the Company relating to the same subject matter and
may be modified only by an agreement in writing signed by the parties.

                                       MAX & ERMA'S RESTAURANTS, INC.

                                       By:
                                          --------------------------------------

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

                                       Its:
                                           ------------------------------------

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

                                       EXECUTIVE

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

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

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