Document:

<PAGE>   1
                                                                     EXHIBIT 4.7

                               INPUT/OUTPUT, INC.
                          2000 LONG-TERM INCENTIVE PLAN

                                   SECTION 1.

                           GENERAL PROVISIONS RELATING
                    TO PLAN GOVERNANCE, COVERAGE AND BENEFITS

1.1  PURPOSE

     The purpose of the Plan is to foster and promote the long-term financial
success of Input/Output, Inc. (the "COMPANY") and its Subsidiaries and to
increase stockholder value by: (a) encouraging the commitment of selected key
Employees and Consultants, (b) motivating superior performance of key Employees
and Consultants by means of long-term performance related incentives, (e)
encouraging and providing key Employees and Consultants with a program for
obtaining ownership interests in the Company which link and align their personal
interests to those of the Company's stockholders, (d) attracting and retaining
key Employees and Consultants by providing competitive incentive compensation
opportunities, and (e) enabling key Employees and Consultants to share in the
long- term growth and success of the Company.

     The Plan provides for payment of various forms of incentive compensation.
It is not intended to be a plan that is subject to the Employee Retirement
Income Security Act of 1974, as amended (ERISA). The Plan will be interpreted,
construed and administered consistent with its status as a plan that is not
subject to ERISA.

     Subject to approval by the Company's stockholders pursuant to Section 6.1,
the Plan will become effective as of July 1, 2000 (the "EFFECTIVE DATE"). The
Plan will commence on the Effective Date, and will remain in effect, subject to
the right of the Board to amend or terminate the Plan at any time pursuant to
Section 6.7, until all Shares subject to the Plan have been purchased or
acquired according to its provisions. However, in no event may an Incentive
Award that is an Incentive Stock Option be granted under the Plan after the
expiration of ten (10) years from the Effective Date.

1.2  DEFINITIONS

     The following terms shall have the meanings set forth below:

          (a) APPRECIATION. The difference between the Fair Market Value of a
     share of Common Stock on the date of exercise of a Tandem SAR and the
     option exercise price per share of the Nonstatutory Stock Option to which
     the Tandem SAR relates.

          (b) AUTHORIZED OFFICER. The Chairman of the Board, the CEO or any
     other senior officer of the Company to whom either of them delegate the
     authority to execute any Incentive Agreement for and on behalf of the
     Company. No officer or director shall be an Authorized Officer with respect
     to any Incentive Agreement for himself.

          (c) BOARD. The Board of Directors of the Company.

          (d) CAUSE. When used in connection with the termination of a Grantee's
     Employment, shall mean the termination of the Grantee's Employment or
     Grantee's services as a Consultant by the Company or any Subsidiary by
     reason of (i) the conviction of the Grantee by a court of competent
     jurisdiction as to which no further appeal can be taken of a crime
     involving moral turpitude or a felony; (ii) the proven commission by the
     Grantee of a material act of fraud upon the Company or any Subsidiary, or
     any customer or supplier thereof; (iii) the willful and proven
     misappropriation of any funds or property of the Company or any Subsidiary,
     or any customer or supplier thereof; (iv) the willful, continued and
     unreasonable failure by the Grantee to perform the material duties assigned
     to him which is not cured to the reasonable satisfaction of the Company
     within 30 days after written notice of such failure is provided to Grantee
     by the Board or by a designated officer of the Company or a Subsidiary; (v)
     the knowing engagement by the Grantee in any direct and material conflict
     of interest with the Company or any Subsidiary without compliance with the
     Company's or Subsidiary's conflict of interest policy, if any, then in
     effect; or (vi) the knowing engagement by the Grantee, without the written
     approval of the Board, in any material activity which competes with the
     business of the Company or any Subsidiary or which would result in a
     material injury to the business, reputation or goodwill of the Company or
     any Subsidiary; or (vii) the material breach by a Consultant of such
     Grantee's contract with the Company.

<PAGE>   2
          (e) CEO. The Chief Executive Officer of the Company.

          (f) CHANGE IN CONTROL. Any of the events described in and subject to
     Section 5.7.

          (g) CODE. The Internal Revenue Code of 1986, as amended, and the
     regulations and other authority promulgated thereunder by the appropriate
     governmental authority. References herein to any provision of the Code
     shall refer to any successor provision thereto.

          (h) COMMITTEE. A committee appointed by the Board consisting of at
     least two directors, who fulfill the "outside directors" requirements of
     Section 162(m) of the Code, to administer the Plan. The Committee may be
     the Compensation Committee of the Board, or any subcommittee of the
     Compensation Committee.

       The Board shall have the power to fill vacancies on the Committee
     arising by resignation, death, removal or otherwise. The Board, in its sole
     discretion, may bifurcate the powers and duties of the Committee among one
     or more separate committees, or retain all powers and duties of the
     Committee in a single Committee. The members of the Committee shall serve
     at the discretion of the Board.

          (i) COMMON STOCK. The common stock of the Company, $.01 per value per
     share, and any class of common stock into which such common shares may
     hereafter be converted, reclassified, re-capitalized, or exchanged.

          (j) COMPANY. Input/Output, Inc., Inc., a corporation organized under
     the laws of the State of Delaware, and any successor in interest thereto.

          (k) CONSULTANT. An independent agent, consultant, attorney, an
     individual who has agreed to become an Employee within the next six months,
     or any other individual who is not a Director or employee of the Company
     (or any Parent or Subsidiary) and who, in the opinion of the Committee, is
     in a position to contribute to the growth or financial success of the
     Company (or any Parent or Subsidiary), (ii), is a natural person and (iii)
     provides bona fide services to the Company (or any Parent or Subsidiary),
     which services are not in connection with the offer or sale of securities
     in a capital raising transaction, and do not directly or indirectly promote
     or maintain a market for the Company's securities.

          (l) COVERED EMPLOYEE. A named executive officer who is one of the
      group of covered employees, as defined in Section 162(m) of the Code and
      Treasury Regulation ss. 1.162-27(c) (or its successor), during any such
      period that the Company is a Publicly Held Corporation.

          (m) DEFERRED STOCK. Shares of Common Stock to be issued or transferred
     to a Grantee under an Other Stock-Based Award granted pursuant to Section
     4. at the end of a specified deferral period, as set forth in the Incentive
     Agreement pertaining thereto.

          (n) DISABILITY. As determined by the Committee in its discretion
     exercised in good faith, a physical or mental condition of the Employee
     that would entitle him to disability income payments under the Company's
     long term disability insurance policy or plan for employees, as then
     effective, if any; or in the event that the Grantee is not covered, for
     whatever reason, under the Company's long-term disability insurance policy
     or plan, "Disability" means a permanent and total disability as defined in
     Section 22(e)(3) of the Code. A determination of Disability may be made by
     a physician selected or approved by the Committee and, in this respect, the
     Grantee shall submit to any reasonable examination by such physician upon
     request.

          (o) EMPLOYEE. Any employee of the Company (or any Parent or
     Subsidiary) within the meaning of Section 3401(c) of the Code who, in the
     opinion of the Committee, is in a position to contribute to the growth,
     development or financial success of the Company (or any Parent or
     Subsidiary), including, without limitation, officers who are members of the
     Board.

          (p) EMPLOYMENT. Employment by the Company (or any Parent or
     Subsidiary), or by any corporation issuing or assuming an Incentive Award
     in any transaction described in Section 424(a) of the Code, or by a parent
     corporation or a subsidiary corporation of such corporation issuing or
     assuming such Incentive Award, as the parent-subsidiary relationship shall
     be determined at the time of the corporate action described in Section
     424(a) of the Code. In this regard, neither the transfer of a Grantee from
     Employment by the Company to Employment by any Parent or Subsidiary, nor
     the transfer of a Grantee from Employment by any Parent or Subsidiary to
     Employment by the Company, shall be deemed to be a termination of
     Employment of the Grantee. Moreover, the Employment of a Grantee shall not
     be deemed to have been terminated because of an approved leave of absence
     from active Employment on account of temporary illness, authorized vacation
     or granted for reasons of
<PAGE>   3
     professional advancement, education, health, government service or military
     leave, or during any period required to be treated as a leave of absence by
     virtue of any applicable statute, Company personnel policy or agreement.
     Whether an authorized leave of absence shall constitute termination of
     Employment hereunder shall be determined by the Committee in its
     discretion.

          Unless otherwise provided in the Incentive Agreement, the term
     "Employment" for purposes of the Plan is also defined to include
     compensatory or advisory services performed by a Consultant for the Company
     (or any Parent or Subsidiary).

          (q) EXCHANGE ACT. The Securities Exchange Act of 1934, as amended.

          (r) FAIR MARKET VALUE. While the Company is a Publicly Held
     Corporation, the Fair Market Value of one share of Common Stock on the date
     in question is deemed to be the closing sales price on the immediately
     preceding business day of a share of Common Stock as reported on the New
     York Stock Exchange or other principal securities exchange on which Shares
     are then listed or admitted to trading, or as quoted on any national
     interdealer quotation system, if such shares are not so listed.

          (s) GRANTEE. Any Employee or Consultant who is granted an Incentive
     Award under the Plan.

          (t) IMMEDIATE FAMILY. With respect to a Grantee, the Grantee's child,
     stepchild, grandchild, parent, stepparent, grandparent, spouse, former
     spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law,
     brother-in-law, or sister- in-law, including adoptive relationships.

          (u) INCENTIVE AWARD. A grant of an award under the Plan to a Grantee,
     including any Nonstatutory Stock Option, Incentive Stock Option, Reload
     Option, Stock Appreciation Right, Performance Share, or Other Stock-Based
     Award, as well as any Supplemental Payment.

          (v) INCENTIVE AGREEMENT. The written agreement entered into between
     the Company and the Grantee setting forth the terms and conditions pursuant
     to which an Incentive Award is granted under the Plan, as such agreement is
     further defined in Section 5. 1 (a).

          (w) INCENTIVE STOCK OPTION OR ISO. A Stock Option granted by the
     Committee to an Employee under Section 2 which is designated by the
     Committee as an Incentive Stock Option and intended to qualify as an
     Incentive Stock Option under Section 422 of the Code.

          (x) INDEPENDENT SAR. A Stock Appreciation Right described in
     Section 2.5.

          (y) INSIDER. While the Company is a Publicly Held Corporation, an
     individual who is, on the relevant date, an officer, director or ten
     percent (10%) beneficial owner of any class of the Company's equity
     securities that is registered pursuant to Section 12 of the Exchange Act,
     all as defined under Section 16 of the Exchange Act.

          (z) NONSTATUTORY STOCK OPTION. A Stock Option granted by the Committee
     to a Grantee under Section 2 that is not designated by the Committee as an
     Incentive Stock Option or to which Section 421 of the Code does not apply.

          (aa) OPTION PRICE. The exercise price at which a Share may be
     purchased by the Grantee of a Stock Option.

          (bb) OTHER STOCK-BASED AWARD. An award granted by the Committee to a
     Grantee under Section 2 that is valued in whole or in part by reference to,
     or is otherwise based upon, Common Stock.

          (cc) PARENT. Any corporation (whether now or hereafter existing) which
     constitutes a "Parent" of the Company, as defined in Section 424(e) of the
     Code.

          (dd) PERFORMANCE-BASED EXCEPTION. The performance-based exception from
     the tax deductibility limitations of Section 162(m) of the Code, as
     prescribed in Code ss. 162(m) and Treasury Regulation ss. 1.162-27(e) (or
     its successor), which is applicable during such period that the Company is
     a Publicly Held Corporation.

          (ee) PERFORMANCE PERIOD. A period of time determined by the Committee
     over which performance is measured for the purpose of determining a
     Grantee's right to and the payment value of any Performance Share or Other
     Stock-Based Award.
<PAGE>   4
          (ff) PERFORMANCE SHARE. An Incentive Award representing a contingent
     right to receive shares of Common Stock at the end of a Performance Period.

          (gg) PLAN. Input/Output, Inc. 2000 Long-Term Incentive Plan, as set
     forth herein and as it may be amended from time to time.

          (hh) PUBLICLY HELD CORPORATION. A corporation issuing any class of
     common equity securities required to be registered under Section 12 of the
     Exchange Act.

          (ii) RETIREMENT. The voluntary termination of Employment from the
     Company or any Parent or Subsidiary constituting retirement for age on any
     date after the Employee attains the normal retirement age of 65 years, or
     such other age as may be designated by the Committee in the Employee's
     Incentive Agreement.

          (jj) SHARE. A share of Common Stock of the Company.

          (kk) SHARE POOL. The number of shares authorized for issuance under
     Section 1.4 as adjusted for awards and payouts under Section 1.5 and as
     adjusted for changes in corporate capitalization under Section 5.5.

          (ll) SPREAD. The difference between the exercise price per Share
     specified in any SAR grant and the Fair Market Value of a Share on the date
     of exercise of the SAR.

          (mm) STOCK APPRECIATION RIGHT OR SAR. A Tandem SAR described in
     Section 2.4 or an Independent SAR described in Section 2.5.

          (nn) STOCK OPTION OR OPTION. Pursuant to Section 2, (i) an Incentive
     Stock Option granted to an Employee, or (ii) a Nonstatutory Stock Option
     granted to an Employee or Consultant, whereunder such option the Grantee
     has the right to purchase Shares of Common Stock. In accordance with
     Section 422 of the Code, only an Employee of the Company, Parent or
     Subsidiary may be granted an Incentive Stock Option.

          (oo) SUBSIDIARY. Any corporation (whether now or hereafter existing)
     which constitutes a "subsidiary" of the Company, as defined in Section
     424(f) of the Code.

          (pp) SUPPLEMENTAL PAYMENT. Any amount, as described in Sections 2.7,
     and/or 3.2, that is dedicated to payment of income taxes which are payable
     by the Grantee resulting from an Incentive Award.

          (qq) TANDEM SAR. A Stock Appreciation Right that is granted in
     connection with a related Stock Option pursuant to Section 2.4, the
     exercise of which shall require forfeiture of the right to purchase a Share
     under the related Stock Option (and when a Share is purchased under the
     Stock Option, the Tandem SAR with respect thereto, shall similarly be
     canceled).

1.3  PLAN ADMINISTRATION

     (a) AUTHORITY OF THE COMMITTEE. Except as may be limited by law and subject
to the provisions herein, the Committee shall have full power to (i) select
Grantees who shall participate in the Plan; (ii) determine the sizes, duration
and types of Incentive Awards; (iii) determine the terms and conditions of
Incentive Awards and Incentive Agreements; (iv) determine whether any Shares
subject to Incentive Awards will be subject to any restrictions on transfer; (v)
construe and interpret the Plan and any Incentive Agreement or other agreement
entered into under the Plan; and (vi) establish, amend, or waive rules for the
Plan's administration. Further, the Committee shall make all other
determinations which may be necessary or advisable for the administration of the
Plan.

     (b) MEETINGS. The Committee shall designate a chairman from among its
members who shall preside at all of its meetings, and shall designate a
secretary, without regard to whether that person is a member of the Committee,
who shall keep the minutes of the proceedings and all records, documents, and
data pertaining to its administration of the Plan. Meetings shall be held at
such times and places as shall be determined by the Committee and the Committee
may hold telephonic meetings.

     (c) DECISIONS BINDING. All determinations and decisions made by the
Committee shall be made in its discretion pursuant to the provisions of the
Plan, and shall be final, conclusive and binding on all persons including the
Company, Employees, Grantees, and their estates and beneficiaries. The
Committee's decisions and determinations with respect to any
<PAGE>   5
Incentive Award need not be uniform and may be made selectively among Incentive
Awards and Grantees, whether or not such Incentive Awards are similar or such
Grantees are similarly situated.

     (d) MODIFICATION OF OUTSTANDING INCENTIVE AWARDS. Subject to the
stockholder approval requirements of Section 6.7 if applicable, the Committee
may, in its discretion, provide for the extension of the exercisability of an
Incentive Award, accelerate the vesting or exercisability of an Incentive Award,
eliminate or make less restrictive any restrictions contained in an Incentive
Award, waive any restriction or other provisions of an Incentive Award, or
otherwise amend or modify an Incentive Award in any manner that is either (i)
not adverse to the Grantee to whom such Incentive Award was granted or (ii)
consented to by such Grantee. With respect to an Incentive Award that is an
incentive stock option (as described in Section 422 of the Code), no adjustment
to such option shall be made to the extent constituting a "modification" within
the meaning of Section 424(h)(3) of the Code unless otherwise agreed to by the
optionee in writing.

     (e) DELEGATION OF AUTHORITY. The Committee may delegate to designated
officers or other employees of the Company any of its duties and authority under
the Plan pursuant to such conditions or limitations as the Committee may
establish from time to time; provided, however, the Committee may not delegate
to any person the authority to (i) grant Incentive Awards, or (ii) take any
action which would contravene the requirements of Rule 16b-3 under the Exchange
Act or the Performance-Based Exception under Section 162(m) of the Code.

     (f) EXPENSES OF COMMITTEE. The Committee may employ legal counsel,
including, without limitation, independent legal counsel and counsel regularly
employed by the Company, and other agents, as the Committee may deem appropriate
for the administration of the Plan. The Committee may rely upon any opinion or
computation received from any such counsel or agent. All expenses incurred by
the Committee in interpreting and administering the Plan, including, without
limitation, meeting expenses and professional fees, shall be paid by the
Company.

     (g) INDEMNIFICATION. Each person who is or was a member of the Committee,
or of the Board, shall be indemnified by the Company against and from any
damage, loss, liability, cost and expense that may be imposed upon or reasonably
incurred by him in connection with or resulting from any claim, action, suit, or
proceeding to which he may be a party or in which he may be involved by reason
of any action taken or failure to act under the Plan, except for any such act or
omission constituting willful misconduct or gross negligence. Such person shall
be indemnified by the Company for all amounts paid by him in settlement thereof,
with the Company's approval, or paid by him in satisfaction of any judgment in
any such action, suit, or proceeding against him, provided he shall give the
Company an opportunity, at its own expense, to handle and defend the same before
he undertakes to handle and defend it on his own behalf. The foregoing right of
indemnification shall not be exclusive of any other rights of indemnification to
which such persons may be entitled under the Company's Articles or Certificate
of Incorporation or Bylaws, by contract, as a matter of law, or otherwise, or
any power that the Company may have to indemnify them or hold them harmless.

     (h) AWARDS IN FOREIGN COUNTRIES. The Board shall have the authority to
adopt modifications, procedures, sub-plans, and other similar plan documents as
may be necessary or desirable to comply with provisions of the laws of foreign
countries in which the Company or its subsidiaries may operate to assure the
viability of the benefits of Incentive Awards made to individuals employed in
such countries and to meet the objectives of the Plan.

1.4  SHARES OF COMMON STOCK AVAILABLE FOR INCENTIVE AWARDS

     Subject to adjustment under Section 5.5, there shall be available for
Incentive Awards that are granted wholly or partly in Common Stock (including
rights or Options that may be exercised or settled in Common Stock) 1,200,000
Shares of Common Stock. In addition to the 1,200,000 Shares reserved pursuant to
the previous sentence, there also be available for grants of Incentive Awards
under the Plan, an additional 909,275 Shares which represents the number of
Shares that were reserved under the Company's now terminated Amended and
Restated 1990 Stock Option Plan (but not covered by exercised or outstanding
options thereunder) and have been assumed under this Plan as of the Effective
Date.

     The number of Shares of Common Stock that are the subject of Incentive
Awards under this Plan, that are forfeited or terminated, expire unexercised,
are settled in cash in lieu of Common Stock or in a manner such that all or some
of the Shares covered by an Incentive Award are not issued to a Grantee or are
exchanged for Incentive Awards that do not involve Common Stock, shall again
immediately become available for Incentive Awards hereunder; provided, however,
the aggregate number of Shares which may be issued upon exercise of ISOs shall
in no event exceed 1,200,000 Shares (subject to adjustment pursuant to Section
5.5). The Committee may from time to time adopt and observe such procedures
concerning the counting of Shares against the Plan maximum as it may deem
appropriate.
<PAGE>   6
     While the Company is a Publicly Held Corporation, then unless and until the
Committee determines that a particular Incentive Award granted to a Covered
Employee is not intended to comply with the Performance-Based Exception which
shall be done in accordance with the time periods in Code Section 162(m) and the
regulations thereunder, the following rules shall apply to grants of Incentive
Awards to Covered Employees:

          (a) Subject to adjustment as provided in Section 5.5, the maximum
     aggregate number of Shares of Common Stock (including Stock Options, SARS,
     Performance Shares paid out in Shares, or Other Stock-Based Awards paid out
     in Shares) that may be granted or that may vest, as applicable, in any
     consecutive four year period pursuant to any Incentive Awards held by any
     individual Covered Employee shall be 1,200,000 Shares.

          (b) The maximum aggregate cash payout (including SARS and Performance
     Shares paid out in cash, or Other Stock- Based Awards paid out in cash)
     with respect to Incentive Awards granted in any calendar year which may be
     made to any Covered Employee shall be Twenty Million dollars ($20,000,000).

          (c) With respect to any Stock Option or Stock Appreciation Right
     granted to a Covered Employee that is canceled, the number of Shares
     subject to such Stock Option or Stock Appreciation Right shall continue to
     count against the maximum number of Shares that may be the subject of Stock
     Options or Stock Appreciation Rights granted to such Covered Employee
     hereunder and, in this regard, such maximum number shall be determined in
     accordance with Section 162(m) of the Code.

1.5  SHARE POOL ADJUSTMENTS FOR AWARDS AND PAYOUTS.

     The following Incentive Awards and payouts shall reduce, on a one Share for
one Share basis, the number of Shares authorized for issuance under the Share
Pool:

          (a) Stock Option;

          (b) SAR (except a Tandem SAR);

          (c) A payout of a Performance Share in Shares;

          (d) A payout of an Other Stock-Based Award in Shares.

     The following transactions shall restore, on a one Share for one Share
basis, the number of Shares authorized for issuance under the Share Pool:

          (a) A payout of an SAR or Other Stock-Based Award in the form of cash;

          (b) A cancellation, termination, expiration, forfeiture, or lapse for
     any reason (with the exception of the termination of a Tandem SAR upon
     exercise of the related Stock Option, or the termination of a related Stock
     Option upon exercise of the corresponding Tandem SAR) of any Shares subject
     to an Incentive Award; and

          (c) Payment of an Option Price with previously acquired Shares or by
     withholding Shares which otherwise would be acquired on exercise (i.e., the
     Share Pool shall be increased by the number of Shares turned in or withheld
     as payment of the Option Price plus any Shares withheld to pay withholding
     taxes).

1.6  COMMON STOCK AVAILABLE.

     The Common Stock available for issuance or transfer under the Plan shall be
made available from Shares now or hereafter (a) held in the treasury of the
Company, (b) authorized but unissued shares, or (c) shares to be purchased or
acquired by the Company. No fractional shares shall be issued under the Plan;
payment for fractional shares shall be made in cash.

1.7  PARTICIPATION

          (a) ELIGIBILITY. The Committee shall from time to time designate those
     Employees or Consultants, if any, to be granted Incentive Awards under the
     Plan, the type of Incentive Awards granted, the number of Shares, Stock
     Options, rights, as the case may be, which shall be granted to each such
     person, and any other terms or conditions relating to the Incentive Awards
     as it
<PAGE>   7
     may deem appropriate to the extent consistent with the provisions of the
     Plan. A Grantee, who has been granted an Incentive Award may, if otherwise
     eligible, be granted additional Incentive Awards at any time.

          (b) INCENTIVE STOCK OPTION ELIGIBILITY. No Consultant shall be
     eligible for the grant of any Incentive Stock Option. In addition, no
     Employee shall be eligible for the grant of any Incentive Stock Option who
     owns or would own immediately before the grant of such Incentive Stock
     Option, directly or indirectly, stock possessing more than ten percent
     (10%) of the total combined voting power of all classes of stock of the
     Company, or any Parent or Subsidiary. This restriction does not apply if,
     at the time such Incentive Stock Option is granted, the Incentive Stock
     Option exercise price is at least one hundred and ten percent (110%) of the
     Fair Market Value on the date of grant and the Incentive Stock Option by
     its terms is not exercisable after the expiration of five (5) years from
     the date of grant. For the purpose of the immediately preceding sentence,
     the attribution rules of Section 424(d) of the Code shall apply for the
     purpose of determining an Employee's percentage ownership in the Company or
     any Parent or Subsidiary. This paragraph shall be construed consistent with
     the requirements of Section 422 of the Code.

1.8  TYPES OF INCENTIVE AWARDS

     The types of Incentive Awards under the Plan are Stock Options, Stock
Appreciation Rights and Supplemental Payments as described in Section 2,
Performance Shares and Supplemental Payments as described in Section 3, Other
Stock-Based Awards and Supplemental Payments as described in Section 5, and any
combination of the foregoing.

                                   SECTION 2.

                   STOCK OPTIONS AND STOCK APPRECIATION RIGHTS

2.1  GRANT OF STOCK OPTIONS

     The Committee is authorized to grant (a) Nonstatutory Stock Options to
Employees or Consultants and (b) Incentive Stock Options to Employees only, in
accordance with the terms and conditions of the Plan, and with such additional
terms and conditions, not inconsistent with the Plan, as the Committee shall
determine in its discretion. Successive grants may be made to the same Grantee
whether or not any Stock Option previously granted to such person remains
unexercised.

2.2  STOCK OPTION TERMS

          (a) WRITTEN AGREEMENT. Each grant of a Stock Option shall be evidenced
     by a written Incentive Agreement. Among its other provisions, each
     Incentive Agreement shall set forth, subject to Section 422 of the Code,
     the extent to which the Grantee shall have the right to exercise the Stock
     Option following termination of the Grantee's Employment. Such provisions
     shall be determined in the discretion of the Committee, shall be included
     in the Grantee's Incentive Agreement, and need not be uniform among all
     Stock Options issued pursuant to the Plan.

          (b) NUMBER OF SHARES. Each Stock Option shall specify the number of
     Shares of Common Stock to which it pertains.

          (c) EXERCISE PRICE. The exercise price per Share of Common Stock under
     each Stock Option shall be determined by the Committee; provided, however,
     that in the case of an Incentive Stock Option, such exercise price shall
     not be less than 100% of the Fair Market Value per Share on the date the
     Incentive Stock Option is granted (110% for 10% or greater shareholders
     pursuant to Section 1.7(b)). To the extent that the Company is a Publicly
     Held Corporation and the Stock Option is intended to qualify for the
     Performance-Based Exception, the exercise price shall not be less than 100%
     of the Fair Market Value per Share on the date the Stock Option is granted.
     Each Stock Option shall specify the method of exercise which shall be
     consistent with the requirements of Section 2.3(a).

          (d) TERM. In the Incentive Agreement, the Committee shall fix the term
     of each Stock Option which shall be not more than ten (10) years from the
     date of grant (five years for ISO grants to 10% or greater shareholders
     pursuant to Section 1.7(b)). In the event no term is fixed, such term shall
     be ten (10) years from the date of grant.

          (e) EXERCISE. The Committee shall determine the time or times at which
     a Stock Option may be exercised in whole or in part. Each Stock Option may
     specify the required period of continuous Employment and/or the performance
     objectives to be achieved before the Stock Option or portion thereof will
     become exercisable. Each Stock Option, the exercise of which, or the timing
     of the exercise of which, is dependent, in whole or in part, on the
     achievement of designated performance objectives,
<PAGE>   8
     may specify a minimum level of achievement in respect of the specified
     performance objectives below which no Stock Options will be exercisable and
     a method for determining the number of Stock Options that will be
     exercisable if performance is at or above such minimum but short of full
     achievement of the performance objectives. All such terms and conditions
     shall be set forth in the Incentive Agreement.

          (f) $100,000 ANNUAL LIMIT ON INCENTIVE STOCK OPTIONS. Notwithstanding
     any contrary provision in the Plan, to the extent that the aggregate Fair
     Market Value (determined as of the time the Incentive Stock Option is
     granted) of the Shares of Common Stock with respect to which Incentive
     Stock Options are exercisable for the first time by any Grantee during any
     single calendar year (under the Plan and any other stock option plans of
     the Company and its Subsidiaries or Parent) exceeds the sum of $100,000,
     such Incentive Stock Option shall be treated as a Nonstatutory Stock Option
     to the extent in excess of the $ 100,000 limit, and not an Incentive Stock
     Option, but all other terms and provisions of such Stock Option shall
     remain unchanged. This paragraph shall be applied by taking Incentive Stock
     Options into account in the order in which they were granted and shall be
     construed in accordance with Section 422(d) of the Code. In the absence of
     such regulations or other authority, or if such regulations or other
     authority require or permit a designation of the Options which shall cease
     to constitute Incentive Stock Options, then such Incentive Stock Options,
     only to the extent of such excess, shall automatically be deemed to be
     Nonstatutory Stock Options but all other terms and conditions of such
     Incentive Stock Options, and the corresponding Incentive Agreement, shall
     remain unchanged.

2.3  STOCK OPTION EXERCISES

          (a) METHOD OF EXERCISE AND PAYMENT. Stock Options shall be exercised
     by the delivery of a signed written notice of exercise to the Company as of
     a date set by the Company in advance of the effective date of the proposed
     exercise. The notice shall set forth the number of Shares with respect to
     which the Option is to be exercised.

          The Option Price upon exercise of any Stock Option shall be payable to
     the Company in full either: (i) in cash or its equivalent, or (ii) by
     tendering previously acquired Shares having an aggregate Fair Market Value
     at the time of exercise equal to the Option Price, or (iii) by withholding
     Shares which otherwise would be acquired on exercise having an aggregate
     Fair Market Value at the time of exercise equal to the total Option Price,
     or (iv) by any combination of (i), (ii), and (iii) above. Any payment in
     Shares shall be effected by surrender of such Shares to the Company in good
     form for transfer and shall be valued at their Fair Market Value on the
     date when the Stock Option is exercised. The Company shall not withhold
     shares, and the Grantee shall not surrender, or attest to the ownership of,
     Shares in payment of the Option Price if such action would cause the
     Company to recognize compensation expense (or additional compensation
     expense) with respect to the Stock Option for financial reporting purposes.

          While the Company is a Publicly Held Corporation, the Committee may
     also allow the Option Price to be paid with such other consideration as
     shall constitute lawful consideration for the issuance of Shares
     (including, without limitation, effecting a "cashless exercise" with a
     broker or dealer), subject to applicable securities law restrictions and
     tax withholdings, or by any other means which the Committee determines to
     be consistent with the Plan's purpose and applicable law.

          As soon as practicable after receipt of a written notification of
     exercise and full payment, the Company shall deliver, or cause to be
     delivered, to or on behalf of the Grantee, in the name of the Grantee or
     other appropriate recipient, Share certificates for the number of Shares
     purchased under the Stock Option. Such delivery shall be effected for all
     purposes when the Company or a stock transfer agent of the Company shall
     have deposited such certificates in the United States mail, addressed to
     Grantee or other appropriate recipient.

          Subject to Section 5.2 during the lifetime of a Grantee, each Option
     granted to him shall be exercisable only by the Grantee (or his legal
     guardian or personal representative in the event of his Disability) or by a
     broker or dealer acting on his behalf pursuant to a cashless exercise under
     the foregoing provisions of this Section 2.3(a).

          (b) RESTRICTIONS ON SHARE TRANSFERABILITY. The Committee may impose
     such restrictions on any Shares acquired pursuant to the exercise of a
     Stock Option as it may deem advisable, including, without limitation,
     restrictions under (i) any stockholders' agreement, buy/sell agreement,
     right of first refusal, non-competition, and any other agreement between
     the Company and any of its securities holders or employees, (ii) any
     applicable federal securities laws, (iii) the requirements of any stock
     exchange or market upon which such Shares are then listed and/or quoted, or
     (iv) any blue sky or state securities law applicable to such Shares. Any
     certificate issued to evidence Shares issued upon the exercise of an
     Incentive Award may bear such legends and statements as the Committee shall
     deem advisable to assure compliance with federal and state laws and
     regulations.
<PAGE>   9
          Any Grantee or other person exercising an Incentive Award may be
     required by the Committee to give a written representation that the
     Incentive Award and the Shares subject to the Incentive Award will be
     acquired for investment and not with a view to public distribution;
     provided, however, that the Committee, in its sole discretion, may release
     any person receiving an Incentive Award from any such representations
     either prior to or subsequent to the exercise of the Incentive Award.

          (c) NOTIFICATION OF DISQUALIFYING DISPOSITION OF SHARES FROM INCENTIVE
     STOCK OPTIONS. Notwithstanding any other provision of the Plan, a Grantee
     who disposes of Shares of Common Stock acquired upon the exercise of an
     Incentive Stock Option by a sale or exchange either (i) within two (2)
     years after the date of the grant of the Incentive Stock Option under which
     the Shares were acquired or (ii) within one (1) year after the transfer of
     such Shares to him pursuant to exercise, shall promptly notify the Company
     of such disposition, the amount realized and his adjusted basis in such
     Shares.

          (d) PROCEEDS OF OPTION EXERCISE. The proceeds received by the Company
     from the sale of Shares pursuant to Stock Options exercised under the Plan
     shall be used for general corporate purposes.

          (e) INFORMATION REQUIRED IN CONNECTION WITH EXERCISE OF INCENTIVE
     STOCK OPTION. The Company shall provide the Grantee with a written
     statement required by Code Section 6039 no later than January 31 of the
     year following the calendar year during which the Grantee exercises an
     Option that is intended to be an Incentive Stock Option.

2.4  STOCK APPRECIATION RIGHTS IN TANDEM WITH NONSTATUTORY STOCK OPTIONS

          (a) GRANT. The Committee may, at the time of grant of a Nonstatutory
     Stock Option, or at any time thereafter during the term of the Nonstatutory
     Stock Option, grant Stock Appreciation Rights with respect to all or any
     portion of the Shares of Common Stock covered by such Nonstatutory Stock
     Option. A Stock Appreciation Right in tandem with a Nonstatutory Stock
     Option is referred to herein as a "Tandem SAR."

          (b) GENERAL PROVISIONS. The terms and conditions of each Tandem SAR
     shall be evidenced by an Incentive Agreement. The Option Price per Share of
     a Tandem SAR shall be fixed in the Incentive Agreement and shall not be
     less than one hundred percent (100%) of the Fair Market Value of a Share on
     the grant date of the Nonstatutory Stock Option to which it relates.

          (c) EXERCISE. A Tandem SAR may be exercised at any time the
     Nonstatutory Stock Option to which it relates is then exercisable, but only
     to the extent such Nonstatutory Stock Option is exercisable, and shall
     otherwise be subject to the conditions applicable to such Nonstatutory
     Stock Option. When a Tandem SAR is exercised, the Nonstatutory Stock Option
     to which it relates shall terminate to the extent of the number of Shares
     with respect to which the Tandem SAR is exercised. Similarly, when a
     Nonstatutory Stock Option is exercised, the Tandem SARs relating to the
     Shares covered by such Nonstatutory Stock Option exercise shall terminate.

          (d) SETTLEMENT. Upon exercise of a Tandem SAR, the holder shall
     receive, for each Share specified in the Tandem SAR grant, an amount equal
     to the Spread. The Spread shall be payable in cash, Common Stock, or a
     combination of both, as specified in the Incentive Agreement. The
     Appreciation shall be paid within 30 calendar days of the exercise of the
     Tandem SAR. If the Appreciation is to be paid in Common Stock or cash only,
     the resulting shares or cash shall be determined dividing (1) by (2), where
     (1) is the number of Shares as to which the Tandem SAR is exercised
     multiplied by the Appreciation in such shares and (2) is the Fair Market
     Value of a Share on the exercise date. If a portion of the Appreciation is
     to be paid in Shares, the Share amount shall be determined by calculating
     the amount of cash payable pursuant to the preceding sentence then by
     dividing (1) as defined herein, minus the amount of cash payable, by (2) as
     defined herein.

2.5  STOCK APPRECIATION RIGHTS INDEPENDENT OF NONSTATUTORY STOCK OPTIONS

          (a) GRANT. The Committee may grant Stock Appreciation Rights
     independent of Nonstatutory Stock Options ("Independent SARs").

          (b) GENERAL PROVISIONS. The terms and conditions of each Independent
     SAR shall be evidenced by an Incentive Agreement. The exercise price per
     share of Common Stock shall be not less than one hundred percent (100%) of
     the Fair Market Value of a Share of Common Stock on the date of grant of
     the Independent SAR. The term of an Independent SAR shall be determined by
     the Committee.
<PAGE>   10
          (c) EXERCISE. Independent SARs shall be exercisable at such time and
     subject to such terms and conditions as the Committee shall specify in the
     Incentive Agreement for the Independent SAR grant.

          (d) SETTLEMENT. Upon exercise of an Independent SAR, the holder shall
     receive, for each Share specified in the Independent SAR grant, an amount
     equal to the Spread. The Spread shall be payable in cash, Common Stock, or
     a combination of both, as specified in the Incentive Agreement. The Spread
     shall be paid within 30 calendar days of the exercise of the Independent
     SAR. If the Appreciation is to be paid in Common Stock or cash only, the
     resulting shares or cash shall be determined by dividing (1) by (2), where
     (1) is the number of Shares as to which the Independent SAR is exercised
     multiplied by the Spread in such Shares and (2) is the Fair Market Value of
     a Share on the exercise date. If a portion of the Appreciation is to be
     paid in Shares, the Share amount shall be determined by calculating the
     amount of cash payable pursuant to the preceding sentence then by dividing
     (1) as defined herein, minus the amount of cash payable, by (2) as defined
     herein.

2.6  RELOAD OPTIONS

     At the discretion of the Committee, the Grantee may be granted under an
Incentive Agreement, Stock Options under the Plan that permit the Grantee to
purchase an additional number of Shares equal to the number of previously owned
Shares surrendered by the Grantee to pay for all or a portion of the Option
Price or taxes upon exercise of his Stock Options. The terms and conditions of
such Stock Options shall be set forth in the Incentive Agreement.

2.7 SUPPLEMENTAL PAYMENT ON EXERCISE OF NONSTATUTORY STOCK OPTIONS OR STOCK
    APPRECIATION RIGHTS

     The Committee, either at the time of grant or as of the time of exercise of
any Nonstatutory Stock Option or Stock Appreciation Right, may provide in the
Incentive Agreement for a Supplemental Payment by the Company to the Grantee
with respect to the exercise of any Nonstatutory Stock Option or Stock
Appreciation Right. The Supplemental Payment shall be in the amount specified by
the Committee, which amount shall not exceed the amount necessary to pay the
federal and state income tax payable with respect to both the exercise of the
Nonstatutory Stock Option and/or Stock Appreciation Right and the receipt of the
Supplemental Payment, assuming the holder is taxed at either the maximum
effective income tax rate applicable thereto or at a lower tax rate as deemed
appropriate by the Committee. The Committee shall have the discretion to grant
Supplemental Payments that are payable solely in cash or Supplemental Payments
that are payable in cash, Common Stock, or a combination of both, as determined
by the Committee at the time of payment.

                                   SECTION 3.

                               PERFORMANCE SHARES

3.1  PERFORMANCE BASED AWARDS

          (a) GRANT. The Committee is authorized to grant Performance Shares to
     selected Grantees who are Employees or Consultants. Each grant of
     Performance Shares shall be evidenced by an Incentive Agreement in such
     amounts and upon such terms as shall be determined by the Committee. The
     Committee may make grants of Performance Shares in such a manner that more
     than one Performance Period is in progress concurrently. For each
     Performance Period, the Committee shall establish the number of Performance
     Shares and their contingent values which may vary depending on the degree
     to which performance criteria established by the Committee are met.

          (b) PERFORMANCE CRITERIA. The Committee may establish performance
     goals applicable to Performance Shares based upon criteria in one or more
     of the following categories: (i) performance of the Company as a whole,
     (ii) performance of a segment of the Company's business, and (iii)
     individual performance. Performance criteria for the Company shall relate
     to the achievement of predetermined financial objectives for the Company
     and its Subsidiaries on a consolidated basis. Performance criteria for a
     segment of the Company's business shall relate to the achievement of
     financial and operating objectives of the segment for which the participant
     is accountable. Examples of performance criteria shall include (but are not
     limited to) pre-tax or after-tax profit levels, including: earnings per
     share, earnings before interest and taxes, earnings before interest, taxes,
     depreciation and amortization, net operating profits after tax, and net
     income; total shareholder return; return on assets, equity, capital or
     investment; cash flow and cash flow return on investment; economic value
     added and economic profit; growth in earnings per share; levels of
     operating expense and maintenance expense or measures of customer
     satisfaction and customer service as determined from time to time including
     the relative improvement therein. Individual performance criteria shall
     relate to a participant's overall performance, taking into account, among
     other measures of performance, the attainment of individual goals and
     objectives. The performance goals may differ among participants.
<PAGE>   11
          (c) MODIFICATION. If the Committee determines, in its discretion
     exercised in good faith, that the established performance measures or
     objectives are no longer suitable to the Company's objectives because of a
     change in the Company's business, operations, corporate structure, capital
     structure, or other conditions the Committee deems to be appropriate, the
     Committee may modify the performance measures and objectives to the extent
     it considers to be necessary. The Committee shall not permit any such
     modification that would cause the Performance Shares to fail to qualify for
     the Performance-Based Exception, if applicable.

          (d) PAYMENT. The basis for payment of Performance Shares for a given
     Performance Period shall be the achievement of those performance objectives
     determined by the Committee at the beginning of the Performance Period as
     specified in the Grantee's Incentive Agreement. If minimum performance is
     not achieved for a Performance Period, no payment shall be made and all
     contingent rights shall cease. If minimum performance is achieved or
     exceeded, the number of Performance Shares may be based on the degree to
     which actual performance exceeded the pre-established minimum performance
     standards. The amount of payment shall be determined by multiplying the
     number of Performance Shares granted at the beginning of the Performance
     Period times the final Performance Share value. Payments shall be made, in
     the discretion of the Committee as specified in the Incentive Agreement,
     solely in Common Stock.

          (e) SPECIAL RULE FOR COVERED EMPLOYEES. No later than the ninetieth
     (90th) day following the beginning of a Performance Period (or twenty-five
     percent (25%) of the Performance Period) the Committee shall establish
     performance goals as described in Section 3.1(b) applicable to Performance
     Shares awarded to Covered Employees in such a manner as shall permit
     payments with respect thereto to qualify for the Performance-Based
     Exception, if applicable. If a Performance Share granted to a Covered
     Employee is intended to comply with the Performance-Based Exception, the
     Committee in establishing performance goals shall comply with Treasury
     Regulation ss. 1.162-27(e)(2) (or its successor). As soon as practicable
     following the Company's determination of the Company's financial results
     for any Performance Period, the Committee shall certify in writing: (i)
     whether the Company achieved its minimum performance for the objectives for
     the Performance Period, (ii) the extent to which the Company achieved its
     performance objectives for the Performance Period, (iii) any other terms
     that are material to the grant of Performance Shares, and (iv) the
     calculation of the payments, if any, to be paid to each Grantee for the
     Performance Period.

3.2  SUPPLEMENTAL PAYMENT ON VESTING OF PERFORMANCE SHARES

     The Committee, either at the time of grant or at the time of vesting of
Performance Shares, may provide for a Supplemental Payment by the Company to the
Grantee in an amount specified by the Committee, which amount shall not exceed
the amount necessary to pay the federal and state income tax payable with
respect to both the vesting of such Performance Shares and receipt of the
Supplemental Payment, assuming the Grantee is taxed at either the maximum
effective income tax rate applicable thereto or at a lower tax rate as seemed
appropriate by the Committee. The Committee shall have the discretion to grant
Supplemental Payments that are payable in Common Stock.

                                   SECTION 4.

                            OTHER STOCK-BASED AWARDS

4.1  GRANT OF OTHER STOCK-BASED AWARDS

     Other Stock-Based Awards may be awarded by the Committee to selected
Grantees that are denominated or payable in, valued in whole or in part by
reference to, or otherwise related to, Shares of Common Stock, as deemed by the
Committee to be consistent with the purposes of the Plan and the goals of the
Company. Other types of Stock-Based Awards include, without limitation, Deferred
Stock, purchase rights, Shares of Common Stock awarded which are not subject to
any restrictions or conditions, convertible or exchangeable debentures, other
rights convertible into Shares, Incentive Awards valued by reference to the
value of securities of or the performance of a specified Subsidiary, division or
department, and settlement in cancellation of rights of any person with a vested
interest in any other plan, fund, program or arrangement that is or was
sponsored, maintained or participated in by the Company or any Parent or
Subsidiary. As is the case with other Incentive Awards, Other Stock-Based Awards
may be awarded either alone or in addition to or in tandem with any other
Incentive Awards.
<PAGE>   12
4.2  OTHER STOCK-BASED AWARD TERMS

          (a) WRITTEN AGREEMENT. The terms and conditions of each grant of an
     Other Stock-Based Award shall be evidenced by an Incentive Agreement.

          (b) PURCHASE PRICE. Except to the extent that an Other Stock-Based
     Award is granted in substitution for an outstanding Incentive Award or is
     delivered upon exercise of a Stock Option, the amount of consideration
     required to be received by the Company shall be either (i) no consideration
     other than services actually rendered (in the case of authorized and
     unissued shares) or to be rendered, or (ii) in the case of an Other
     Stock-Based Award in the nature of a purchase right, consideration (other
     than services rendered or to be rendered) at least equal to 50% of the Fair
     Market Value of the Shares covered by such grant on the date of grant (or
     such percentage higher than 50% that is required by any applicable tax or
     securities law).

          (c) PERFORMANCE CRITERIA AND OTHER TERMS. In its discretion, the
     Committee may specify such criteria, periods or goals for vesting in Other
     Stock-Based Awards and payment thereof to the Grantee as it shall
     determine; and the extent to which such criteria, periods or goals have
     been met shall be determined by the Committee. All terms and conditions of
     Other Stock- Based Awards shall be determined by the Committee and set
     forth in the Incentive Agreement. The Committee may also provide for a
     Supplemental Payment similar to such payment as described in Section 3.2.

          (d) PAYMENT. Other Stock-Based Awards may be paid in Shares of Common
     Stock or other consideration related to such Shares, in a single payment or
     in installments on such dates as determined by the Committee, all as
     specified in the Incentive Agreement.

          (e) DIVIDENDS. The Grantee of an Other Stock-Based Award may be
     entitled to receive, currently or on a deferred basis, dividends or
     dividend equivalents with respect to the number of Shares covered by the
     Other Stock-Based Award, as determined by the Committee and set forth in
     the Incentive Agreement. The Committee may also provide in the Incentive
     Agreement that such amounts (if any) shall be deemed to have been
     reinvested in additional Shares of Common Stock.

                                   SECTION 5.

                    PROVISIONS RELATING TO PLAN PARTICIPATION

5.1  PLAN CONDITIONS

          (a) INCENTIVE AGREEMENT. Each Grantee to whom an Incentive Award is
     granted shall be required to enter into an Incentive Agreement with the
     Company, in such a form as is provided by the Committee. The Incentive
     Agreement shall contain specific terms as determined by the Committee, in
     its discretion, with respect to the Grantee's particular Incentive Award.
     Such terms need not be uniform among all Grantees or any similarly-situated
     Grantees. The Incentive Agreement may include, without limitation, vesting,
     forfeiture and other provisions particular to the particular Grantee's
     Incentive Award, as well as, for example, provisions to the effect that the
     Grantee (i) shall not disclose any confidential information acquired during
     Employment with the Company, (ii) shall abide by all the terms and
     conditions of the Plan and such other terms and conditions as may be
     imposed by the Committee, (iii) shall not interfere with the employment or
     other service of any employee, (iv) shall not compete with the Company or
     become involved in a conflict of interest with the interests of the
     Company, (v) shall forfeit an Incentive Award as determined by the
     Committee (including if terminated for Cause), (vi) shall not be permitted
     to make an election under Section 83(b) of the Code when applicable, and
     (vii) shall be subject to any other agreement between the Grantee and the
     Company regarding Shares that may be acquired under an Incentive Award
     including, without limitation, a stockholders' agreement or other agreement
     restricting the transferability of Shares by Grantee. An Incentive
     Agreement shall include such terms and conditions as are determined by the
     Committee, in its discretion, to be appropriate with respect to any
     individual Grantee. The Incentive Agreement shall be signed by the Grantee
     to whom the Incentive Award is made and by an Authorized Officer.

          (b) NO RIGHT TO EMPLOYMENT. Nothing in the Plan or any instrument
     executed pursuant to the Plan shall create any Employment rights (including
     without limitation, rights to continued Employment or to continue to
     provide services as a Consultant) by any Grantee or affect the right of the
     Company to terminate the Employment or services of any Grantee at any time
     without regard to the existence of the Plan.

          (c) SECURITIES REQUIREMENTS. The Company shall be under no obligation
     to effect the registration pursuant to the Securities Act of 1933 of any
     Shares of Common Stock to be issued hereunder or to effect similar
     compliance under any state laws. Notwithstanding anything herein to the
     contrary, the Company shall not be obligated to cause to be issued or
     delivered any certificates evidencing Shares pursuant to the Plan unless
     and until the Company is advised by its counsel that the issuance
<PAGE>   13
     and delivery of such certificates is in compliance with all applicable
     laws, regulations of governmental authorities, and the requirements of any
     securities exchange or national quotation system on which Shares are traded
     or quoted. The Committee may require, as a condition of the issuance and
     delivery of certificates evidencing Shares of Common Stock pursuant to the
     terms hereof, that the recipient of such Shares make such covenants,
     agreements and representations, and that such certificates bear such
     legends, as the Committee, in its discretion, deems necessary or desirable.

          If the Shares issuable on exercise of an Incentive Award are not
     registered under the Securities Act of 1933, the Company may imprint on the
     certificate for such Shares the following legend or any other legend which
     counsel for the Company considers necessary or advisable to comply with the
     Securities Act of 1933:

          THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
          REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER THE SECURITIES
          LAWS OF ANY STATE AND MAY NOT BE SOLD OR TRANSFERRED EXCEPT UPON SUCH
          REGISTRATION OR UPON RECEIPT BY THE CORPORATION OF AN OPINION OF
          COUNSEL SATISFACTORY TO THE CORPORATION, IN FORM AND SUBSTANCE
          SATISFACTORY TO THE CORPORATION, THAT REGISTRATION IS NOT REQUIRED FOR
          SUCH SALE OR TRANSFER.

5.2  TRANSFERABILITY

     Incentive Awards granted under the Plan shall not be transferable or
assignable, pledged, or otherwise encumbered other than by will or the laws of
descent and distribution. However, only with respect to Incentive Awards that
are not Incentive Stock Options, the Committee may, in its discretion, authorize
all or a portion of the Nonstatutory Stock Options to be granted on terms which
permit transfer by the Grantee to (i) the members of the Grantee's Immediate
Family, (ii) a trust or trusts for the exclusive benefit of Immediate Family
members, (iii) a partnership in which Immediate Family members are the only
partners, (iv) any other entity owned solely by Immediate Family members, or (v)
pursuant to a domestic relations order that would qualify under Code Section
414(p); provided that (A) the Incentive Agreement pursuant to which such
Nonstatutory Stock Options are granted must expressly provide for
transferability in a manner consistent with this Section 5.2, (B) the actual
transfer must be approved in advance by the committee, and (C) subsequent
transfers of transferred Nonstatutory Stock Options shall be prohibited except
in accordance with the first sentence of this section. Following any permitted
transfer, the Nonstatutory Stock Option shall continue to be subject to the same
terms and conditions as were applicable immediately prior to transfer, provided
that the term "Grantee" (subject to the immediately succeeding paragraph) shall
be deemed to refer to the transferee. The events of termination of employment,
as set out in Section 5.6 and in the Incentive Agreement, shall continue to be
applied with respect to the original Grantee, and the Incentive Award shall be
exercisable by the transferee only to the extent, and for the periods, specified
in the Incentive Agreement.

     Except as may otherwise be permitted under the Code, in the event of a
permitted transfer of a Nonstatutory Stock Option hereunder, the original
Grantee shall remain subject to withholding taxes upon exercise. In addition,
the Company and the Committee shall have no obligation to provide any notices to
any Grantee or transferee thereof, including, for example, notice of the
expiration of an Incentive Award following the original Grantee's termination of
employment.

     The designation by a Grantee of a beneficiary of an Incentive Award shall
not constitute a transfer of the Incentive Award. No transfer by will or by the
laws of descent and distribution shall be effective to bind the Company unless
the Committee has been furnished with a copy of the deceased Grantee's
enforceable will or such other evidence as the Committee deems necessary to
establish the validity of the transfer. Any attempted transfer in violation of
this Section 5.2 shall be void and ineffective. The Committee in its discretion
shall make all determinations under this Section 5.2.

5.3  RIGHTS AS A STOCKHOLDER

          (a) NO STOCKHOLDER RIGHTS. A Grantee of an Incentive Award (or a
     permitted transferee of such Grantee) shall have no rights as a stockholder
     with respect to any Shares of Common Stock until the issuance of a stock
     certificate for such Shares.

          (b) REPRESENTATION OF OWNERSHIP. In the case of the exercise of an
     Incentive Award by a person or estate acquiring the right to exercise such
     Incentive Award by reason of the death or Disability of a Grantee, the
     Committee may require reasonable evidence as to the ownership of such
     Incentive Award or the authority of such person and may require such
     consents and releases of taxing authorities as the Committee may deem
     advisable.
<PAGE>   14
5.4  LISTING AND REGISTRATION OF SHARES OF COMMON STOCK

     The exercise of any Incentive Award granted hereunder shall only be
effective at such time as counsel to the Company shall have determined that the
issuance and delivery of Shares of Common Stock pursuant to such exercise is in
compliance with all applicable laws, regulations of governmental authorities and
the requirements of any securities exchange or quotation system on which Shares
of Common Stock are traded or quoted. The Committee may, in its discretion,
defer the effectiveness of any exercise of an Incentive Award in order to allow
the issuance of Shares of Common Stock to be made pursuant to registration or an
exemption from registration or other methods for compliance available under
federal or state securities laws. The Committee shall inform the Grantee in
writing of its decision to defer the effectiveness of the exercise of an
Incentive Award.

5.5  CHANGE IN STOCK AND ADJUSTMENTS

          (a) CHANGES IN LAW. Subject to Section 5.7 (which only applies in the
     event of a Change of Control), in the event of any change in applicable law
     which warrants equitable adjustment because it interferes with the intended
     operation of the Plan, then, if the Committee should determine, in its
     absolute discretion, that such change equitably requires an adjustment in
     the number or kind of shares of stock or other securities or property
     theretofore subject, or which may become subject, to issuance or transfer
     under the Plan or in the terms and conditions of outstanding Incentive
     Awards, such adjustment shall be made in accordance with such
     determination. Such adjustments may include changes with respect to (i) the
     aggregate number of Shares that may be issued under the Plan, (ii) the
     number of Shares subject to Incentive Awards, and (iii) the price per Share
     for outstanding Incentive Awards. Any adjustment under this paragraph of an
     outstanding Incentive Stock Option shall be made only to the extent not
     constituting a "modification" within the meaning of Section 424(h)(3) of
     the Code unless otherwise agreed to by the Grantee in writing. The
     Committee shall give notice to each applicable Grantee of such adjustment
     which shall be effective and binding.

          (b) EXERCISE OF CORPORATE POWERS. The existence of the Plan or
     outstanding Incentive Awards hereunder shall not affect in any way the
     right or power of the Company or its stockholders to make or authorize any
     or all adjustments, recapitalizations, reorganizations or other changes in
     the Company's capital structure or its business or any merger or
     consolidation of the Company, or any issue of bonds, debentures, preferred
     or prior preference stocks ahead of or affecting the Common Stock or the
     rights thereof, or the dissolution or liquidation of the Company, or any
     sale or transfer of all or any part of its assets or business, or any other
     corporate act or proceeding whether of a similar character or otherwise.

          (c) RECAPITALIZATION OF THE COMPANY. Subject to Section 5.7 (which
     only applies in the event of a Change in Control), in the event that the
     Committee shall determine that any dividend or other distribution (whether
     in the form of cash, Common Stock, other securities, or other property),
     re-capitalization, stock split, reverse stock split, rights offering,
     reorganization, merger, consolidation, split-up, spin-off, split-off,
     combination, subdivision, repurchase, or exchange of Common Stock or other
     securities of the Company, issuance of warrants or other rights to purchase
     Common Stock or other securities of the Company, or other similar corporate
     transaction or event affects the Common Stock such that an adjustment is
     determined by the Committee to be appropriate to prevent the dilution or
     enlargement of the benefits or potential benefits intended to be made
     available under the Plan, then the Committee shall, in such manner as it
     deems equitable, adjust any or all of (i) the number of shares and type of
     Common Stock (or the securities or property) which thereafter may be made
     the subject of Incentive Awards, (ii) the number of shares and type of
     Common Stock (or other securities or property) subject to outstanding
     Incentive Awards, (iii) the number of shares and type of Common Stock (or
     other securities or property) subject to the annual per-individual
     limitation under Section 1.4 (a) of the Plan, (iv) the Option Price of each
     outstanding Incentive Award, and (v) the number of or Option Price of
     shares of Common Stock then subject to outstanding SARs previously granted
     and unexercised under the Plan to the end that the same proportion of the
     Company's issued and outstanding shares of Common Stock in each instance
     shall remain subject to exercise at the same aggregate Option Price;
     provided however, that the number of shares of Common Stock (or other
     securities or property) subject to any Incentive Award shall always be a
     whole number. In lieu of the forgoing, if deemed appropriate, the Committee
     may make provision for a cash payment to the holder of an outstanding
     Incentive Award. Notwithstanding the foregoing, no such adjustment or cash
     payment shall be made or authorized to the extent that such adjustment or
     cash payment would cause the Plan or any Stock Option to violate Code
     Section 422. Such adjustments shall be made in accordance with the rules of
     any securities exchange, stock market, or stock quotation system to which
     the Company is subject.

     Upon the occurrence of any such adjustment or cash payment, the Company
     shall provide notice to each affected Grantee of its computation of such
     adjustment or cash payment, which shall be conclusive and shall be binding
     upon each such Grantee.

          (d) ISSUE OF COMMON STOCK BY THE COMPANY. Except as herein above
     expressly provided in this Section 5.5 and subject to Section 5.7 in the
     event of a Change in Control, the issue by the Company of shares of stock
     of any class, or securities convertible into shares of stock of any class,
     for cash or property, or for labor or services, either upon direct sale or
     upon the
<PAGE>   15
     exercise of rights or warrants to subscribe therefor, or upon any
     conversion of shares or obligations of the Company convertible into such
     shares or other securities, shall not affect, and no adjustment by reason
     thereof shall be made with respect to, the number of, or Fair Market Value
     of, any Incentive Awards then outstanding under previously granted
     Incentive Awards.

          (e) ASSUMPTION UNDER THE PLAN OF OUTSTANDING STOCK OPTIONS.
     Notwithstanding any other provision of the Plan, the Committee, in its
     absolute discretion, may authorize the assumption and continuation under
     the Plan of outstanding and unexercised stock options or other types of
     stock-based incentive awards that were granted under a stock option plan
     (or other type of stock incentive plan or agreement) that is or was
     maintained by a corporation or other entity that was merged into,
     consolidated with, or whose stock or assets were acquired by, the Company
     as the surviving corporation. Any such action shall be upon such terms and
     conditions as the Committee, in its discretion, may deem appropriate,
     including provisions to preserve the holder's rights under the previously
     granted and unexercised stock option or other stock-based incentive award,
     such as, for example, retaining an existing exercise price under an
     outstanding stock option. Any such assumption and continuation of any such
     previously granted and unexercised incentive award shall be treated as an
     outstanding Incentive Award under the Plan and shall thus count against the
     number of Shares reserved for issuance pursuant to Section 1.4. In
     addition, any Shares issued by the Company through the assumption or
     substitution of outstanding grants from an acquired company shall reduce
     the Shares available for grants under Section 1.4.

          (f) ASSUMPTION OF INCENTIVE AWARDS BY A SUCCESSOR. Unless otherwise
     determined by the Committee in its discretion pursuant to the next
     paragraph, but subject to the accelerated vesting and other provisions of
     Section 5.7 that apply in the event of a Change in Control, in the event of
     a Corporate Event (defined below), each Grantee shall be entitled to
     receive, in lieu of the number of Shares subject to Incentive Awards, such
     shares of capital stock (or other securities or property) as may be
     issuable or payable with respect to or in exchange for the number of Shares
     which Grantee would have received had he exercised the Incentive Award
     immediately prior to such Corporate Event, together with any adjustments
     (including, without limitation, adjustments to the Option Price and the
     number of Shares issuable on exercise of outstanding Stock Options). A
     "Corporate Event" means any of the following: (i) a dissolution or
     liquidation of the Company, (ii) a sale of all or substantially all of the
     Company's assets, or (iii) a merger, consolidation or combination involving
     the Company (other than a merger, consolidation or combination (A) in which
     the Company is the continuing or surviving corporation and (B) which does
     not result in the outstanding Shares being converted into or exchanged for
     different securities, cash or other property, or any combination thereof).
     The Committee shall take whatever other action it deems appropriate to
     preserve the rights of Grantees holding outstanding Incentive Awards.

     Subject to the accelerated vesting and other provisions of Section 5.7 that
     apply in the event of a Change in Control, in the event of a Corporate
     Event, the Committee in its discretion shall have the right and power to:

               i) cancel, effective immediately prior to the occurrence of the
          Corporate Event, each outstanding Incentive Award (whether or not then
          exercisable) and, in full consideration of such cancellation, pay to
          the Grantee an amount in cash equal to the excess of (A) the value, as
          determined by the Committee, of the property (including cash) received
          by the holders of Common Stock as a result of such Corporate Event
          over (B) the exercise price of such Incentive Award, if any; or

               ii) provide for the exchange or substitution of each Incentive
          Award outstanding immediately prior to such Corporate Event (whether
          or not then exercisable) for another award with respect to the Common
          Stock or other property for which such Incentive Award is exchangeable
          and, incident thereto, make an equitable adjustment as determined by
          the Committee, in its discretion, in the exercise price of the
          Incentive Award, if any, or in the number of Shares or amount of
          property (including cash) subject to the Incentive Award; or

               iii) provide for the assumption of the Plan and such outstanding
          Incentive Awards by the surviving entity or its parent.

          The Committee, in its discretion, shall have the authority to take
          whatever action it deems to be necessary or appropriate to effectuate
          the provisions of this subsection (f).

5.6  TERMINATION OF EMPLOYMENT, DEATH, DISABILITY AND RETIREMENT

          (a) TERMINATION OF EMPLOYMENT. Unless otherwise expressly provided in
     the Grantee's Incentive Agreement, if the Grantee's Employment or services
     as a Consultant is terminated for any reason other than due to his death,
     Disability, Retirement, or for Cause, any non-vested portion of any Stock
     Option or other applicable Incentive Award at the time of such
<PAGE>   16
     termination shall automatically expire and terminate and no further vesting
     shall occur after the termination date. In such event, except as otherwise
     expressly provided in his Incentive Agreement, the Grantee shall be
     entitled to exercise his rights only with respect to the portion of the
     Incentive Award that was vested as of his termination of Employment date
     for a period that shall end on the earlier of (i) the expiration date set
     forth in the Incentive Agreement or (ii) one hundred eighty (180) days
     after the date of his termination, except with respect to Incentive Stock
     Options, in which case such period shall be three (3) months.

          (b) TERMINATION OF EMPLOYMENT FOR CAUSE. Unless otherwise expressly
     provided in the Grantee's Incentive Agreement, in the event of the
     termination of a Grantee's Employment for Cause, all vested and non-vested
     Stock Options and other Incentive Awards granted to such Grantee shall
     immediately expire, and shall not be exercisable to any extent, as of 12:01
     a.m., Houston, Texas time, on the date of such termination of Employment
     for cause.

          (c) RETIREMENT. Unless otherwise expressly provided in the Grantee's
     Incentive Agreement, upon the termination of Employment due to the
     Retirement of any Employee who is a Grantee:

               i) any non-vested portion of any outstanding Option or other
          Incentive Award shall thereupon automatically be accelerated and
          become fully vested; and

               ii) any vested Option or other Incentive Award shall expire on
          the earlier of (A) the expiration date set forth in the Incentive
          Agreement for such Incentive Award; or (B) the expiration of (1)
          twelve months after the date of his termination of Employment due to
          Retirement in the case of any Incentive Award other than an Incentive
          Stock Option or (2) three months after his termination date in the
          case of an Incentive Stock Option.

          (d) DISABILITY OR DEATH. Unless otherwise expressly provided in the
     Grantee's Incentive Agreement, upon termination of employment as a result
     of the Grantee's Disability or death:

               i) any non-vested portion of any outstanding Option or other
          applicable incentive Award shall immediately terminate upon
          termination of Employment and no further vesting shall occur; and

               ii) any vested Incentive Award shall expire on the earlier of
          either (A) the expiration date set forth in the Incentive Agreement or
          (B) the one year anniversary date of the Grantee's termination of
          Employment date.

          In the case of any vested Incentive Stock Option held by an Employee
     following termination of Employment, notwithstanding the definition of
     "Disability" in Section 1.2, whether the Employee has incurred a
     "Disability" for purposes of determining the length of the Option exercise
     period following termination of Employment under this paragraph (d) shall
     be determined by reference to Section 22(e)(3) of the Code to the extent
     required by Section 422(c)(6) of the Code. The Committee shall determine
     whether a Disability for purposes of this subsection (d) has occurred.

          (d) CONTINUATION. Subject to the conditions and limitations of the
     Plan and applicable law and regulation in the event that a Grantee ceases
     to be an Employee or Consultant, as applicable, for whatever reason, the
     Committee and Grantee may mutually agree with respect to any outstanding
     Option or other Incentive Award then held by the Grantee (i) for an
     acceleration or other adjustment in any vesting schedule applicable to the
     Incentive Award, (ii) for a continuation of the exercise period following
     termination for a longer period than is otherwise provided under such
     Incentive Award, or (iii) to any other change in the terms and conditions
     of the Incentive Award. In the event of any such change to an outstanding
     Incentive Award, a written amendment to the Grantee's Incentive Agreement
     shall be required.

5.7  CHANGE IN CONTROL

     In the event of a Change in Control (as defined below), the following
actions shall automatically occur as of the day immediately preceding the Change
in Control date unless expressly provided otherwise in the Grantee's Incentive
Agreement:

          (a) all of the Stock Options and Stock Appreciation Rights then
     outstanding shall become 100% vested and immediately and fully exercisable;

          (b) all of the restrictions and conditions of any Other Stock-Based
     Awards then outstanding shall be deemed satisfied, and the Restriction
     Period with respect thereto shall be deemed to have expired, and thus each
     such Incentive Award shall become free of all restrictions and fully
     vested; and
<PAGE>   17
          (c) all of the Performance Shares and any Other Stock-Based Awards
     shall become fully vested, deemed earned in full, and promptly paid within
     thirty (30) days to the affected Grantees without regard to payment
     schedules and notwithstanding that the applicable performance cycle,
     retention cycle or other restrictions and conditions have not been
     completed or satisfied.

     Notwithstanding any other provision of this Plan, unless otherwise
expressly provided in the Grantee's Incentive Agreement, the provisions of this
Section 5.7 may not be terminated, amended, or modified to adversely affect any
Incentive Award theretofore granted under the Plan without the prior written
consent of the Grantee with respect to his outstanding Incentive Awards,
subject, however, to the last paragraph of this Section 5.7.

     For all purposes of this Plan, a "Change in Control" of the Company means
the occurrence of any one or more of the following events:

          (a) The acquisition by any individual, entity or group (within the
     meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act (a "Person"))
     of beneficial ownership(within the meaning of Rule 13d-3 promulgated under
     the Exchange Act) of forty percent (40%) or more of either (i) the then
     outstanding shares of common stock of the Company (the "Outstanding Company
     Stock") or (ii) 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 the following acquisitions shall not constitute a Change in Control:
     (i) any acquisition directly from the Company or any Subsidiary, (ii) any
     acquisition by the Company or any Subsidiary or by any employee benefit
     plan (or related trust) sponsored or maintained by the Company or any
     Subsidiary, or (iii) any acquisition by any corporation pursuant to a
     reorganization, merger, consolidation or similar business combination
     involving the Company (a "Merger"), if, following such Merger, the
     conditions described in clauses (i) and (ii) of Section 5.7(c) (below) are
     satisfied;

          (b) Individuals who, as of the Effective Date, constitute the Board of
     Directors of the Company (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 Effective Date whose
     election, or nomination for election by the Company's shareholders, 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 either
     an actual or threatened election contest (a solicitation by any person or
     group of persons for the purpose of opposing a solicitation of proxies or
     consents by the Board with respect to the election or removal of Directors
     at any annual or special meeting of stockholders) or other actual or
     threatened solicitation of proxies or consents by or on behalf of a Person
     other than the Board;

          (c) Approval by the stockholders of the Company of a Merger, unless
     immediately following such Merger, (i) substantially all of the holders of
     the Outstanding Company Voting Securities immediately prior to Merger
     beneficially own, directly or indirectly, more than 50% of the common stock
     of the corporation resulting from such Merger (or its parent corporation)
     in substantially the same proportions as their ownership of Outstanding
     Company Voting Securities immediately prior to such Merger and (ii) at
     least a majority of the members of the board of directors of the
     corporation resulting from such Merger (or its parent corporation) were
     members of the Incumbent Board at the time of the execution of the initial
     agreement providing for such Merger;

          (d) The sale or other disposition of all or substantially all of the
     assets of the Company.

5.8  EXCHANGE OF INCENTIVE AWARDS

     The Committee may, in its discretion, permit any Grantee to surrender
outstanding Incentive Awards in order to exercise or realize his rights under
other Incentive Awards or in exchange for the grant of new Incentive Awards, or
require holders of Incentive Awards to surrender outstanding Incentive Awards
(or comparable rights under other plans or arrangements) as a condition
precedent to the grant of new Incentive Awards.
<PAGE>   18
                                   SECTION 6.

                                     GENERAL

6.1  EFFECTIVE DATE AND GRANT PERIOD

     This Plan is adopted by the Board effective as of July 1, 2000 (the
"EFFECTIVE DATE") subject to the approval of the stockholders of the Company
within one year from the Effective Date. Incentive Awards may be granted under
the Plan at any time prior to receipt of such stockholder approval; provided,
however, if the requisite stockholder approval is not obtained then any
Incentive Awards granted hereunder shall automatically become null and void and
of no force or effect. No Incentive Award that is an Incentive Stock Option
shall be granted under the Plan after ten (10) years from the Effective Date.

6.2  FUNDING AND LIABILITY OF COMPANY

     No provision of the Plan shall require the Company, for the purpose of
satisfying any obligations under the Plan, to purchase assets or place any
assets in a trust or other entity to which contributions are made, or otherwise
to segregate any assets. In addition, the Company shall not be required to
maintain separate bank accounts, books, records or other evidence of the
existence of a segregated or separately maintained or administered fund for
purposes of the Plan. Although bookkeeping accounts may be established with
respect to Grantees who are entitled to cash, Common Stock or rights thereto
under the Plan, any such accounts shall be used merely as a bookkeeping
convenience. The Company shall not be required to segregate any assets that may
at any time be represented by cash, Common Stock or rights thereto. The Plan
shall not be construed as providing for such segregation, nor shall the Company,
the Board or the Committee be deemed to be a trustee of any cash, Common Stock
or rights thereto. Any liability or obligation of the Company to any Grantee
with respect to an Incentive Award shall be based solely upon any contractual
obligations that may be created by this Plan and any Incentive Agreement, and no
such liability or obligation of the Company shall be deemed to be secured by any
pledge or other encumbrance on any property of the Company. Neither the Company,
the Board nor the Committee shall be required to give any security or bond for
the performance of any obligation that may be created by the Plan.

6.3  WITHHOLDING TAXES

          (a) TAX WITHHOLDING. The Company shall have the power and the right to
     deduct or withhold, or require a Grantee to remit to the Company, an amount
     sufficient to satisfy federal, state, and local taxes, domestic or foreign,
     required by law or regulation to be withheld with respect to any taxable
     event arising as a result of the Plan or an Incentive Award hereunder.

          (b) SHARE WITHHOLDING. With respect to tax withholding required upon
     the exercise of Stock Options or SARs, or upon any other taxable event
     arising as a result of any Incentive Awards, Grantees may elect, subject to
     the approval of the Committee in its discretion, to satisfy the withholding
     requirement, in whole or in part, by having the Company withhold Shares
     having a Fair Market Value on the date the tax is to be determined equal to
     the minimum withholding tax which could be imposed on the transaction. All
     such elections shall be made in writing, signed by the Grantee, and shall
     be subject to any restrictions or limitations that the Committee, in its
     discretion, deems appropriate.

          (c) INCENTIVE STOCK OPTIONS. With respect to Shares received by a
     Grantee pursuant to the exercise of an Incentive Stock Option, if such
     Grantee disposes of any such Shares within (i) two years from the date of
     grant of such Option or (ii) one year after the transfer of such shares to
     the Grantee, the Company shall have the right to withhold from any salary,
     wages or other compensation payable by the Company to the Grantee an amount
     sufficient to satisfy federal, state and local tax withholding requirements
     attributable to such disqualifying disposition.

6.4  NO GUARANTEE OF TAX CONSEQUENCES

     Neither the Company nor the Committee makes any commitment or guarantee
that any federal, state or local tax treatment will apply or be available to any
person participating or eligible to participate hereunder.

6.5  DESIGNATION OF BENEFICIARY BY PARTICIPANT

     Each Grantee may, from time to time, name any beneficiary or beneficiaries
(who may be named contingently or successively) to whom any benefit under the
Plan is to be paid in case of his death before he receives any or all of such
benefit. Each such designation shall revoke all prior designations by the same
Grantee, shall be in a form prescribed by the Committee, and will be effective
only when filed by the Grantee in writing with the Committee during the
Grantee's lifetime. In the absence of any such designation, benefits remaining
unpaid at the Grantee's death shall be paid to the Grantee's estate.

<PAGE>   19
6.6  DEFERRALS

     The Committee may authorize and establish deferred compensation agreements
and arrangements in connection with Incentive Awards under the Plan and may
establish trusts and other arrangements including "rabbi trusts", with respect
to such agreements and appoint one or more trustees for such trusts.

     The Committee may permit a Grantee to defer such Grantee's receipt of the
payment of cash or the delivery of Shares that would, otherwise be due to such
Grantee by virtue of the satisfaction of any requirements or goals with respect
to Performance Shares or Other Stock-Based Awards. If any deferral election is
permitted hereunder, the Committee may, in its discretion, establish rules and
procedures for such payment deferrals to the extent required for tax deferral of
compensation under applicable sections of the Code.

6.7  AMENDMENT AND TERMINATION

     The Board shall have the power and authority to terminate or amend the Plan
at any time. No termination, amendment, or modification of the Plan shall
adversely affect in any material way any outstanding Incentive Award previously
granted to a Grantee under the Plan, without the written consent of such Grantee
or other designated holder of such Incentive Award.

     In addition, to the extent that the Committee determines that (a) the
listing or qualification requirements of any national securities exchange or
quotation system on which the Company's Common Stock is then listed or quoted,
if applicable, or (b) the Code (or regulations promulgated thereunder), require
stockholder approval in order to maintain compliance with such listing or
quotation system requirements or to maintain any favorable tax advantages or
qualifications, then the Plan shall not be amended in such respect without
approval of the Company's stockholders.

6.8  GOVERNMENTAL ENTITIES AND SECURITIES EXCHANGES

     The granting of Incentive Awards and the issuance of Shares under the Plan
shall be subject to all applicable laws, rules, and regulations, and to such
approvals by any governmental agencies or national securities exchanges as may
be required. Certificates evidencing shares of Common Stock delivered under this
Plan (to the extent that such shares are so evidenced) may be subject to such
stop transfer orders and other restrictions as the Committee may deem advisable
under the rules and regulations of the Securities and Exchange Commission, any
securities exchange or transaction reporting system upon which the Common Stock
is then listed or to which it is admitted for quotation, and any applicable
federal or state securities law, if applicable. The Committee may cause a legend
or legends to be placed upon such certificates (if any) to make appropriate
reference to such restrictions.

6.9  SUCCESSORS TO COMPANY

     All obligations of the Company under the Plan with respect to Incentive
Awards granted hereunder shall be binding on any successor to the Company,
whether the existence of such successor is the result of a direct or indirect
purchase, merger, consolidation, or otherwise, of all or substantially all of
the business and/or assets of the Company.

6.10  MISCELLANEOUS PROVISIONS

          (a) No Employee or Consultant, or other person shall have any claim or
     right to be granted an Incentive Award under the Plan. Neither the Plan,
     nor any action taken hereunder, shall be construed as giving any Employee
     or Consultant, any right to be retained in the Employment or other service
     of the Company or any Parent or Subsidiary.

          (b) By accepting any Incentive Award, each Grantee and each person
     claiming by or through him shall be deemed to have indicated his acceptance
     of the Plan.

6.11  SEVERABILITY

     In the event that any provision of this Plan shall be held illegal, invalid
or unenforceable for any reason, such provision shall be fully severable, but
shall not affect the remaining provisions of the Plan, and the Plan shall be
construed and enforced as if the illegal, invalid, or unenforceable provision
was not included herein.

<PAGE>   20
6.12  GENDER, TENSE AND HEADINGS

     Whenever the context so requires, words of the masculine gender used herein
shall include the feminine and neuter, and words used in the singular shall
include the plural. Section headings as used herein are inserted solely for
convenience and reference and constitute no part of the interpretation or
construction of the Plan.

6.13  GOVERNING LAW

     The Plan shall be interpreted, construed and constructed in accordance with
the laws of the State of Texas without regard to its conflicts of law
provisions, except as may be superseded by applicable laws of the United States
or applicable provisions of the Delaware General Corporation Law.<PAGE>

                                                                   EXHIBIT 10.11

                              EMPLOYMENT AGREEMENT

         THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of this
1st day of August, 2000 by and among JOHN M. LARSON ("Larson"), CAREER EDUCATION
CORPORATION, a Delaware corporation (the "Company") and CEC EMPLOYEE GROUP, LLC
("Employee Group").

                                    RECITALS

         WHEREAS, Larson has experience and expertise in the acquisition and
management of private post-secondary vocational schools, and has served as the
Company's President and Chief Executive Officer since its founding and as its
Chairman of the Board since January, 2000;

         WHEREAS, Larson is an employee of Employee Group;

         WHEREAS, the Company is engaged primarily in the ownership, management,
operation and acquisition of post-secondary vocational schools (collectively,
the "Schools"); and

         WHEREAS, Larson has agreed to continue to act as Chairman of the Board,
President and Chief Executive Officer of the Company and as an employee of
Employee Group and not to engage in certain activities competitive with the
Company or its subsidiaries or to disclose certain confidential or proprietary
information, on the terms and subject to the conditions set forth below.

         NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, it is hereby agreed that:

         1. Employment. The Company hereby employs Larson, and Larson hereby
accepts employment with the Company, as Chairman of the Board, President and
Chief Executive Officer, with authority over the day to day operations of the
Company and its operating subsidiaries, and employment with Employee Group.
Larson shall be the highest ranking executive of the Company and Employee Group
and shall be subject to the direction and control of the Board of Directors of
the Company (the "Board"). Larson shall devote all of his business time and
services to the business and affairs of the Company and Employee Group. Larson
shall also perform such other executive-level duties consistent with his
position as Chairman of the Board, President and Chief Executive Officer as may
be assigned to him from time to time by the Board, including, without
limitation, serving as a member of any Board Committee if the Board shall elect
Larson to such positions, and serving as an officer and/or director of the
Company's operating subsidiaries. To the extent that such activities do not
inhibit Larson from performing his duties to the Company and Employee Group,
nothing in this Agreement shall preclude Larson from (i) service as a director
of any other entity, (ii) service to any civic, religious, charitable or similar
type organization, (iii) public speaking engagements, and (iv) management of
personal and family investments. The duties and services to be performed by
Larson hereunder shall be substantially rendered at the Company's principal
offices as determined by the Board, except for reasonable travel on the
Company's and Employee Group's business incident to the performance of Larson's
duties.
<PAGE>

         2. Compensation. As compensation for Larson's services provided
hereunder, the Company agrees to provide the following compensation:

         2.1. Base Salary. During the term of this Agreement, the Company agrees
to pay to Larson a base salary at the rate of $450,000 per annum commencing on
the date hereof ("Base Salary"). The Base Salary shall be subject to annual
review by the Board and may be increased by the Board in their sole and absolute
discretion but may not be decreased. Such salary shall be payable to Larson in
such equal periodic payments as the Company generally pays its employees, but in
no event less frequently than monthly. In addition to the foregoing, the Company
agrees that Larson's base salary under the terms and conditions of his prior
employment arrangements with the Company shall be deemed increased to $450,000
per annum effective June 1, 2000, and the Company shall promptly pay to Larson
all past due amounts resulting from such increase.

         2.2. Cash Bonus. Larson shall be eligible for an annual achievement
based cash bonus based upon annual quantitative and qualitative performance
targets as established by the Board ("Cash Bonus"); provided, that there will be
no guaranteed minimum Cash Bonus, and that the bonus plan will permit Larson to
earn a Cash Bonus based on an increasing scale of targets with a maximum bonus
of up to seventy-five percent (75%) of the Base Salary. In addition, Larson
shall be eligible for an additional cash bonus consistent with the
overachievement bonus in effect on the date hereof (the "Overachievement
Bonus"). Bonuses shall be payable, if at all, after the date of the delivery of
the audited financial statements for the applicable fiscal year. The Board shall
establish a bonus plan for the each fiscal year of the Company.

         2.3. Fringe Benefits. The Company shall, during the term of Larson's
employment under this Agreement: (i) provide Larson with health and
hospitalization, dental and disability insurance under the Company's or its
subsidiaries group policy on terms comparable to those provided to other
executive officers of the Company ("Insurance"); (ii) provide Larson with such
pension, profit sharing, paid vacations, non-contributory term life insurance
and other fringe benefits as the Company provides to its executive officers in
accordance with the usual and ordinary practices of the Company (provided, that
notwithstanding and in lieu of Company policy with respect to provision of life
insurance to executive officers, during the term of this Agreement the Company
shall provide Larson, at the Company's expense, and Larson shall designate the
beneficiaries of, a $5,000,000 term life insurance policy and such policy shall
be deemed included in Insurance for the purposes of Section 2.4 below); (iii)
pay, upon submission of appropriate vouchers and supporting documentation, all
ordinary and necessary expenses of Larson incurred in the performance of his
duties, including, without limitation, travel, lodging and entertainment
expenses; and (iv) provide such other benefits, including but not limited to
equity incentive plans, policies and programs, as are generally made available
to executive officers of the Company.

         2.4. Severance Benefits.

                  (a) Death. If Larson's employment under this Agreement is
terminated by reason of his death, the Company shall pay or cause to be paid,
within thirty (30) days of the Date of

                                       -2-
<PAGE>

Termination, to such person or persons as Larson shall have designated for that
purpose in a notice filed with the Company, or, if no such person shall have
been so designated, to his estate, the amount of Larson's Accrued Obligations
(as defined below). Any amounts payable under this Section 2.4(a) shall be
exclusive of and in addition to any payments or benefits which Larson's widow,
beneficiaries or estate may be entitled to receive pursuant to any pension plan,
profit sharing plan, any employee benefit plan, equity incentive plan or life
insurance policy maintained by the Company ("Benefit Plan"). For purposes of
this Agreement, Larson's "Accrued Obligations" means, as of the Date of
Termination, any accrued but unpaid Base Salary, accrued Cash Bonus and
Overachievement Bonus (including (1) any accrued but unpaid Cash Bonus and
Overachievement Bonus (if any) with respect to the fiscal year prior to the year
in which the Date of Termination occurs, and (2) the amount of Larson's Accrued
Current Year Bonus multiplied by a fraction, the numerator of which is the
number of days from the first day of the fiscal year of the Company in which
such termination occurs through and including the Date of Termination and the
denominator of which is 365 (the "Pro Rata Bonus")). The "Accrued Current Year
Bonus" shall be that amount of Cash Bonus and Overachievement Bonus that was
earned by Larson from the beginning of the fiscal year through the date of the
most recently completed fiscal quarter.

                  (b) Disability. If Larson's employment under this Agreement is
terminated by reason of his Disability (as defined in Section 3.6), the Company
shall pay or cause to be paid, within thirty (30) days of the Date of
Termination, to Larson the amount of Larson's Accrued Obligations. Any amounts
payable under this Section 2.4(b) shall be exclusive of and in addition to any
payments or benefits which Larson may be entitled to receive pursuant to any
Benefit Plan, including but not limited to any long-term or short-term
disability plan or program.

                  (c) By the Company for Cause or Larson Without Good Reason. If
Larson's employment is terminated by the Company for Cause, or if Larson
terminates his employment other than for Good Reason, the Company shall pay or
cause to be paid to Larson the amount of any accrued but unpaid Base Salary
within thirty (30) days of the Date of Termination and the Company thereafter
shall have no further obligation to Larson under this Agreement, other than for
payment of any amounts or benefits accrued and vested under any Benefit Plan.

                  (d) By Larson for Good Reason, the Company other than for
Cause, or upon non-extension of Agreement.

                           (i) Termination Prior to a Change in Control.

                                    (A) Severance Benefits. Subject to the
provisions of Section 2.4(e), if, prior to (and not in anticipation of) or more
than one year after a Change in Control (as defined in Section 3.3), the Company
terminates Larson's employment without Cause, or Larson terminates his
employment for Good Reason, or this Agreement is not extended beyond December
31, 2003, then the Company shall pay, cause to be paid or provide to Larson the
following benefits (the "Severance Benefits"):

                                       -3-
<PAGE>

                                             (1) the amount of his Accrued
Obligations, that amount being payable in a single lump sum cash payment within
thirty (30) days of the Date of Termination and any payments or benefits which
Larson may be entitled to receive pursuant to any Benefit Plan;

                                             (2) a cash amount equal to
twenty-four (24) times the sum of (i) one-twelfth (1/12) of Larson's Base Salary
at the highest rate in effect at any time during the twelve (12)-month period
prior to the Date of Termination, (ii) one-twelfth (1/12) of Larson's Average
Bonus, and (iii) one-twelfth (1/12) of an amount equal to the amount the Company
contributed on Larson's behalf for the prior fiscal year ending before the Date
of Termination under any qualified or unqualified (under Section 401(a) of the
Internal Revenue Code of 1986, as amended) defined contribution plans maintained
by the Company as of the Date of Termination, that total amount being payable in
each of the twenty-four (24) months following the month in which the Date of
Termination occurs; and

                                             (3) all welfare benefits, including
(to the extent applicable) medical, dental, vision, life and disability benefits
pursuant to plans maintained by the Company under which Larson and/or Larson's
family is eligible to receive benefits and/or coverage, shall be continued for
the twenty-four (24) month period following the Date of Termination, with such
benefits provided to Larson at no less than the same coverage level as in effect
as of the Date of Termination and Larson shall pay any portion of such cost as
was required to be borne by key executives of the Company generally on the Date
of Termination; provided, however, that, notwithstanding the foregoing, the
benefits described in this Section may be discontinued prior to the end of the
period provided in this Subsection (3) to the extent, but only to the extent,
that Larson receives substantially similar benefits from a subsequent employer.
For purposes of this Section 2.4, "Average Bonus" shall mean an amount equal to
Larson's average annual Cash Bonus and Overachievement Bonus paid pursuant to
Section 2.2 (including without limitation years prior to the date hereof during
which Larson was employed by the Company) with respect to the most recent two
(2) fiscal years or, if greater, the most recently completed fiscal year.

                           (ii) Termination in Anticipation of or After a Change
in Control.

                                    (A) Change in Control Severance Benefits.
Subject to the provisions of Section 2.4(e), if, in anticipation of (as defined
below) or within a one year period following the occurrence of a Change in
Control, the Company terminates Larson's employment without Cause, or Larson
terminates his employment for Good Reason, then the Company shall pay, cause to
be paid or provide to Larson the following benefits (the "Change in Control
Severance Benefits"):

                                             (1) the sum of his Accrued
Obligations, that amount being payable in a single lump sum cash payment within
thirty (30) days of the Date of Termination and any payments or benefits which
Larson may be entitled to receive pursuant to any Benefit Plan;

                                             (2) a cash amount equal to
thirty-six (36) times the sum of (i) one-twelfth (1/12) of Larson's Base Salary
at the highest rate in effect at any time during the twelve

                                      -4-
<PAGE>

(12)-month period prior to the Date of Termination, (ii) one-twelfth (1/12) of
Larson's Average Bonus and (iii) one-twelfth (1/12) of an amount equal to the
amount the Company contributed on Larson's behalf for the prior fiscal year
ending before the Date of Termination under any qualified or unqualified (under
Section 401(a) of the Internal Revenue Code of 1986, as amended) defined
contribution plans maintained by the Company as of the Date of Termination, that
total amount being payable in each of the thirty-six (36) months following the
month in which the Date of Termination occurs; and

                                             (3) all welfare benefits, including
(to the extent applicable) medical, dental, vision, life and disability benefits
pursuant to plans maintained by the Company under which Larson and/or Larson's
family is eligible to receive benefits and/or coverage, shall be continued for
the thirty-six (36) month period following the Date of Termination, with such
benefits provided to Larson at no less than the same coverage level as in effect
as of the Date of Termination and Larson shall pay any portion of such cost as
was required to be borne by key executives of the Company generally on the Date
of Termination; provided, however, that, notwithstanding the foregoing, the
benefits described in this Section may be discontinued prior to the end of the
period provided in this Subsection (3) to the extent, but only to the extent,
that Larson receives substantially similar benefits from a subsequent employer.

                           (iii) Definition of In Anticipation Of. For purposes
of this Section 2.4(d), the termination of Larson's employment shall be deemed
to have been "in anticipation of" a Change in Control if such termination (A)
was at the request of an unrelated third party who has taken steps reasonably
calculated to effect a Change in Control, or (b) otherwise arose in connection
with a Change in Control.

                   (e) Conditions to Receipt of Severance Benefits under Section
2.4(d). As a condition to receiving any Severance Benefits (other than any
Accrued Obligations) to which Larson may otherwise be entitled under Section
2.4(d) only, the Company and/or Employee Group may reasonably request Larson to
execute a release (the "Release"), in a form and substance reasonably
satisfactory to the Company and/or Employee Group and consented to by Larson
whose consent shall not be unreasonably withheld of any claims, whether arising
under Federal, state or local statute, common law or otherwise, against Employee
Group, the Company and its direct or indirect subsidiaries which arise or may
have arisen on or before the date of the Release, other than any claims under
this Agreement, any rights to indemnification from the Company and its direct or
indirect subsidiaries pursuant to any provisions of the Company's (or any of its
subsidiaries') articles of incorporation or by-laws or any directors and
officers liability insurance policies maintained by the Company or any payment,
provision of benefit or other claim under any Benefit Plan. If Larson
unreasonably fails or otherwise refuses to execute a Release within 60 days or
other reasonable time after the Company's request to do so, Larson will not be
entitled to any Severance Benefits or any other benefits provided under this
Agreement and the Company shall have no further obligations with respect to the
payment of the Severance Benefits; provided, however, that notwithstanding
anything in this Section 2.4(e) to the contrary, Larson shall not be required,
nor shall he forfeit entitlement to Severance Benefits nor will the Company be
relieved of its obligation with respect to

                                       -5-
<PAGE>

the Severance Benefits, to execute a release unless the Company and Employee
Group concurrently execute a mutual release of Larson ("Mutual Release"), in a
form and substance reasonably satisfactory to Larson and consented to by the
Company and Employee Group whose consent shall not be unreasonably withheld, of
any claims, whether arising under Federal, state or local statute, common law or
otherwise, against Larson which arise or may have arisen on or before the date
of the Mutual Release, other than any claims under this Agreement or any
payment, provision of benefit or other claim under any Benefit Plan. In
addition, if, following a termination of employment that gives Larson a right to
the payment of Severance Benefits under Section 2.4(d), Larson engages in any
activities that violate any of the covenants in Sections 4 and 5, Larson shall
have no further right or claim to any Severance Benefits (other than any Accrued
Obligations) to which Larson may otherwise be entitled under Section 2.4(d) from
and after the date on which Larson engages in such activities and the Company
shall have no further obligations with respect to the payment of the Severance
Benefits.

         3. Term; Termination.

         3.1. Term. Unless this Agreement is terminated earlier pursuant to the
provisions of this Section 3, the Company, its successors and assigns, shall
employ Larson, and Larson shall remain employed by the Company, for a period
ending on December 31, 2003 (the "Term"). Notwithstanding the foregoing, the
Term shall be extended automatically without further action by either party by
one additional year (added to the end of the Term) first on January 1, 2002
(extending the Term to December 31, 2004) and on each succeeding January 1st
thereafter, unless either party shall have served written notice upon the other
party prior to one year preceding the date upon which such extension would
become effective electing not to extend the Term further, in which case
employment shall terminate at the end of the Term as extended, subject to
earlier termination in accordance with this Section 3. "Date of Termination"
shall mean the earlier of (a) the end of the Term and (b) if Larson's employment
is terminated (i) by his death, the date of his death, or (ii) pursuant to the
provisions of Sections 3.2, 3.3, 3.4, 3.5 or 3.6, as the case may be, the date
on which Larson's employment with the Company actually terminates.

         3.2. Termination by the Company for Cause. The Company may terminate
Larson's employment under this Agreement at any time for Cause (as hereinafter
defined). The termination shall be evidenced by written notice thereof to
Larson, which shall specify the cause for termination. For purposes of this
Section 3.2, the term "Cause" shall be limited to the following: (i) commission
of any material act of fraud by Larson with respect to which there is an
admission of guilt or a conviction or final, unappealable civil judgment; (ii)
misappropriation of funds or embezzlement by Larson with respect to which there
is an admission of guilt or a conviction; (iii) Larson's conviction on any
felony criminal charges (excluding vehicular crimes unless a prison term of
thirty (30) days or more is actually imposed); (iv) willful misconduct or
malfeasance in the performance of Larson's duties in any material respect; (v)
any willful misrepresentation or willful series of misrepresentations made by
Larson to the Company or the Board in connection with the performance of his
duties hereunder which individually or in the aggregate are material; (vi) any
material breach by Larson of any of the provisions of Sections 4 or 5 of this
Agreement; or (vii) any other material breach by Larson of this Agreement
(including, without limitation, any willful failure to adhere to

                                       -6-
<PAGE>

good faith, lawful instructions given by the Board) which is not cured by Larson
within thirty (30) days after his receipt of written notice thereof; provided,
that if such failure is curable but is incapable of cure within thirty (30) days
after such written notice, Larson shall have ninety (90) days after such notice
to cure the failure, so long as Larson commences action to cure such failure
within such thirty (30) day period and thereafter diligently and continuously
takes action to cure such failure during the remainder of such ninety (90) days.
Larson shall not be deemed to have been terminated for Cause unless and until
the occurrence of the following two events:

                  (i) Larson is given a notice from the Board that identifies
the grounds for the proposed termination of Larson's employment and notifies
Larson that he, along with his legal counsel, shall have an opportunity to
address the Board with respect to the alleged grounds for termination at a
meeting of the Board called and held for the purpose of determining whether
Larson engaged in conduct described in this Section 3.2; and

                  (ii) Larson is given a copy of resolutions, duly adopted by
the affirmative vote of not less than a majority of the entire membership of the
Board (excluding Larson) at a meeting of the Board called and held (either
according to 3.2(i) or after such meeting) for the purpose of finding that, in
the opinion of a majority of the Board, Larson was guilty of conduct set forth
in Section 3.2, which specify the grounds and evidence for termination and
indicate that the grounds for termination have not been cured within the time
limits, if applicable, specified in the notice referred to in this Section 3.2.

         3.3. Termination by Larson for Good Reason. Larson may terminate his
employment for Good Reason (as hereinafter defined) at any time, by written
notice to the Company. As used herein, the term "Good Reason" shall mean any of
the following: (a) any material breach by the Company or Employee Group of the
terms of this Agreement, including the failure to pay salary or bonus when due
(b) any material change by the Company or Employee Group in Larson's duties or
responsibilities inconsistent with the terms hereof or the assignment to Larson
by the Company or Employee Group of duties or responsibilities inconsistent with
Larson's position as Chairman, President and Chief Executive Officer of the
Company, (c) a relocation of the principal offices of the Company which requires
Larson to relocate his current residence to an area more than seventy-five (75)
miles from Hoffman Estates, Illinois, or (d) a Change in Control; provided, that
Larson's termination right following a Change in Control event may only be
exercised during a period commencing thirty (30) days following such Change in
Control event and terminating 365 days following such Change in Control event.
For purposes of this Agreement, "Change in Control" shall mean:

                  (i) The acquisition by any individual, entity or group (within
         the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange
         Act of 1934, as amended (the "Exchange Act") of beneficial ownership
         (within the meaning of Rule 13d-3 promulgated under the Exchange Act)
         of twenty-five percent (25%) 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

                                       -7-
<PAGE>

         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 in Control; (A) any acquisition by an individual,
         entity or group who immediately prior to such acquisition beneficially
         owned twenty-five percent (25%) or more of the Outstanding Common Stock
         or twenty-five percent (25%) or more of the Outstanding Company Voting
         Securities, as the case may be, (B) any acquisition by (1) Baron
         Capital Group, Inc. or any of its Affiliates, (B) any acquisition by
         the Company, (C) any acquisition by any employee benefit plan (or
         related trust) sponsored or maintained by the Company or any
         corporation controlled by the Company, or (D) any acquisition by any
         corporation pursuant to a transaction which complies with clauses (A),
         (B) and (C) of subsection (iii) of this Section 3.3;

                  (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 appointment or
         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 (as such
         terms are used in Rule 14a-11 or Regulation 14A under the Exchange Act,
         including any successor to such Rule) with respect to the election or
         removal of directors or other actual or threatened solicitation of
         proxies or consents by or on behalf of an individual, entity or group
         other than the Board;

                  (iii) Consummation of a reorganization, merger, consolidation,
         sale or other disposition of all or substantially all of the assets of
         the Company, or similar corporate transaction (a "Business
         Combination"), in each case, unless, following such Business
         Combination, (A) all or 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 fifty percent (50%) 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 individual, entity or group (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, twenty-five percent (25%) or more of, respectively, the
         then outstanding shares of common stock of the corporation resulting
         from such Business

                                       -8-
<PAGE>

         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.

                  (v) Any good faith, reasonable determination by Larson that
         any of the events specified in Section 3.3 (a) through (d) has occurred
         and constitutes Good Reason after a Change in Control shall be
         conclusive and binding for all purposes, unless the Company establishes
         that Larson did not have any reasonable basis for such determination.

         3.4. Termination by the Company Without Cause. Immediately upon
delivery of written notice to Larson, the Company shall be entitled to terminate
Larson's employment without Cause, as defined in Section 3.2 hereof, in which
event Larson shall be entitled to severance benefits under Section 2.4 hereof.

         3.5. Termination by Larson Without Good Reason. Upon sixty (60) days
prior written notice to the Company, Larson shall be entitled to terminate his
employment without Good Reason, as defined in Section 3.3 hereof.

         3.6. Death or Disability. The employment of Larson may be terminated by
the Company upon Larson's death or Disability (as defined herein). For purposes
hereof, "Disability" shall mean the substantial inability of Larson, by reason
of physical or mental illness or accident, to perform his regular
responsibilities hereunder indefinitely or for a period of one hundred eighty
(180) days. The determination that a Disability exists shall be made by a
physician, such physician reasonably selected by the Board and consented to by
Larson, whose consent shall not be unreasonably withheld, whose determination
shall be binding on the parties hereto.

         3.7. Certain Additional Payments by the Company; Excise Tax Gross-up.

                  (a) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any economic benefit,
payment or distribution by the Company to or for the benefit of Larson, whether
paid, payable, distributed or distributable pursuant to the terms of this
Agreement or otherwise (a "Payment"), would be subject to the excise tax imposed
by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"),
or any interest or penalties with respect to such excise tax (such excise tax
and any applicable interest and penalties, collectively referred to in this
Agreement as the "Excise Tax"), then Larson shall be entitled to receive an
additional payment (a "Gross-Up-Payment") in an amount such that after payment
by Larson of all applicable taxes (including any federal, state or local income,
employment or other taxes, and any

                                       -9-
<PAGE>

interest or penalties imposed with respect to such taxes, but excluding any
foreign income taxes ("Taxes")), Larson retains an amount equal to the amount he
would have retained had no Excise Tax been imposed upon the Payment.
Notwithstanding the foregoing, if at the Company's request, Larson resides
outside of the United States on the Date of Termination and Larson is subject to
foreign income taxes, the definition of "Taxes" for purposes of this Section 3.7
shall be deemed to include foreign income taxes.

                  (b) Subject to the provisions of Section 3.7(c), all
determinations required to be made under this Section 3.7, including whether a
Gross-Up Payment is required and the amount of such Gross-Up Payment, shall be
made by the Company's regular outside independent public accounting firm (the
"Accounting Firm") which shall provide detailed supporting calculations both to
the Company and Larson within fifteen (15) business days of the date of
termination of Larson's employment by the Company (the "Date of Termination"),
if applicable, or such earlier time as is requested by the Company. The initial
Gross-Up Payment, if any, as determined pursuant to this Section 3.7, shall be
paid to Larson within five (5) business days of the receipt of the Accounting
Firm's determination. If the Accounting Firm determines that no Excise Tax is
payable by Larson, it shall furnish Larson with an opinion that he has
substantial authority not to report any Excise Tax on his federal income tax
return. Any determination by the Accounting Firm shall be binding upon the
Company and Larson. As a result of the uncertainty in the application of Section
4999 of the Code at the time of the initial determination by the Accounting
Firm, it is possible that Gross-Up Payments that have not been made by the
Company should have been made ("Underpayment"), consistent with the calculations
required to be made under this Section 3.7(b). In the event that the Company
exhausts its remedies pursuant to Section 3.7(c) and Larson thereafter is
required to make a payment of any Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of
Larson.

                  (c) Larson shall notify the Company of any claim by the
Internal Revenue Service that, if successful, would require the payment by the
Company of the Gross-Up Payment under the terms of this Section 3.7. This notice
shall be given as soon as practicable but no later than fifteen business days
after the later of either (i) the date Larson has actual knowledge of the claim,
or (ii) ten (10) days after the Internal Revenue Service issues to Larson either
a written report proposing imposition of the Excise Tax or a statutory notice of
deficiency with respect to the Excise Tax, and such notice shall apprize the
Company of the nature of the claim and the date on which the claim is requested
to be paid. Larson shall not pay the claim prior to the expiration of the thirty
(30) day period following the date on which he gives such notice to the Company
(or such shorter period ending on the date that any payment of taxes with
respect to the claim is due). If the Company notifies Larson prior to the
expiration of the above period that it desires to contest the claim, Larson
shall: (A) give the Company any information reasonably requested by the Company
relating to the claim, (B) take such action in connection with contesting the
claim as the Company shall reasonably request in writing from time to time,
including accepting legal representation with respect to the claim by an
attorney reasonably selected by the Company, (C) cooperate with the Company in
good faith in order to effectively contest the claim, (D) permit the Company to
participate in any

                                      -10-
<PAGE>

proceedings relating to the claim; provided, however, that the Company shall
bear and pay directly all costs and expenses (including but not limited to all
additional interest and penalties and legal fees, costs and expenses) incurred
in connection with such contest and shall indemnify and hold Larson harmless, on
an after-tax basis, for any Excise Tax or income tax, including interest and
penalties with respect thereto, imposed as a result of such representation and
payment of costs and expenses. Without limitation of the foregoing provisions of
this Section 3.7(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forego any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of the claim and may, at its sole option, either
direct Larson to request or accede to a request for an extension of the statute
of limitations with respect only to the tax claimed, or pay the tax claimed and
sue for a refund or contest the claim in any legally permissible manner, and
Larson agrees to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Company shall determine; provided, however, that if the
Company directs Larson to pay the claim and sue for a refund, the Company shall
bear and pay directly all costs and expenses (including but not limited to legal
fees, costs and expenses) and advance the amount of the required payment to
Larson, on an interest-free basis and shall indemnify and hold Larson harmless,
on an after-tax basis, from any Excise Tax or Taxes, including interest or
penalties with respect thereto, imposed with respect to any advance or with
respect to any imputed income in relation to any advance; and further provided
that any extension of the statute of limitations requested or acceded to by
Larson at the Company's request and relating to payment of taxes for the taxable
year of Larson with respect to which the contested amount is claimed to be due
is limited solely to the contested amount. Furthermore, the Company's control of
the contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable under the Agreement and Larson shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.

                  (d) If, after the receipt by Larson of an amount advanced by
the Company pursuant to Section 3.7(c), Larson becomes entitled to receive any
refund with respect to the claim, Larson shall (subject to the Company's
complying with the requirements of Section 3.7(c)) promptly pay to the Company
the amount of that refund (together with any interest paid or credited thereon
after taxes applicable thereto) equal to the amount advanced under Section
3.7(c). If, after the receipt by Larson of an amount advanced by the Company
pursuant to Section 3.7(c), a determination is made that Larson shall not be
entitled to any refund with respect to the claim and the Company does not notify
Larson of its intent to contest such denial of refund prior to the expiration of
thirty (30) days after the determination, then the advance shall be forgiven and
shall not be required to be repaid and the amount of the advance shall offset,
to the extent thereof, the amount of Gross- Up Payment required to be paid.

                  (e) In the event that any state or municipality or subdivision
thereof shall subject any Payment to any special tax which shall be in addition
to the generally applicable income tax imposed by the state, municipality, or
subdivision with respect to receipt of the Payment, the foregoing provisions of
this Section 3.7 shall apply, mutatis mutandis, with respect to such special
tax.

                                      -11-
<PAGE>

         3.8. Severance Benefits Includable for Employee Benefits Purposes.
Subject to all applicable federal and state laws and regulations, income
recognized by Larson pursuant to the provisions of this Section 3 (other than
income accrued but unpaid as of the Date of Termination) shall be included in
the determination of benefits under any employee benefit plan (as that term is
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended) or any other Benefit Plans applicable to Larson that are maintained
by the Company or any of its direct or indirect subsidiaries only to the extent
so explicitly provided in such plan, policy or program as in effect from time to
time, and the Company shall be under no obligation to continue to offer or
provide such benefits to Larson after the Date of Termination other than as
provided under this Section 3, to the extent so explicitly provided in such
plan, policy or program, or to the extent to which any benefit under a pertinent
plan, policy or program has accrued as of the Date of Termination.

         3.9. Exclusive Benefits. The Severance Benefits payable under Section
2.4(d)(i) and the Change in Control Severance Benefits payable under Section
2.4(d)(ii), if either benefits become applicable under the terms of this
Agreement, shall be mutually exclusive and shall be in lieu of any other
severance or similar benefits that would otherwise be payable under any other
agreement, plan, program or policy of the Company. Notwithstanding anything in
the prior sentence to the contrary, Larson shall be entitled to benefits and
incentives under all Benefit Plans and equity incentive plans, policies and
programs, according to the terms of such Benefit Plans and equity incentive
plans, policies and programs as in effect from time to time, including any
acceleration of vesting provisions in the Company's option plans.

         4. Inventions and Creations. Larson agrees that all inventions,
discoveries, improvements, ideas and other contributions (herein called
collectively "Inventions") whether or not copyrighted or copyrightable, patented
or patentable, or otherwise protectable in law, which are conceived, made,
developed or acquired by Larson, either individually or jointly, during his
employment with the Company or any of its subsidiaries, and which relate in any
manner to the business of the Company or any of its subsidiaries, shall belong
to the Company and Larson does hereby assign and transfer to the Company his
entire right, title and interest in the Inventions. Larson agrees to promptly
and fully disclose the Inventions to the Company, in writing if requested by the
Company, and to execute and deliver any and all lawful application, assignment
and other documents which the Company requests for protecting the Inventions in
the United States or any other country. The Company shall have the full and sole
power to prosecute such applications and to take all other action concerning the
Inventions, and Larson will cooperate fully within a lawful manner, at the
expense of the Company, in the preparation and prosecution of all such
applications and in any legal actions and proceedings concerning the Inventions.
The provisions of this Section 4 shall survive the termination of this
Agreement.

         5. Non-Competition; Non-Solicitation; Confidential Information.

         5.1. Non-Competition Agreement. Larson agrees that during the
Non-Competition Period (as defined below), he shall not own or engage in, either
directly or indirectly, as an officer,

                                      -12-
<PAGE>

manager, employee, independent contractor, consultant, director, partner, sole
proprietor or stockholder, any business operating any post-secondary, private
trade or vocational schools, that offers classes, courses or instruction in or
is otherwise engaged in any curriculum or field of study offered by any of the
Schools or any other curriculum or field of study which the Company has
expressed an interest in offering, during Larson's employment by the Company or
Employee Group, whether through the Schools or through a potential acquisition
(the "Competitive Activities"). Larson hereby acknowledges that the Company
intends to promote the Schools on an international basis and that the
geographical scope of this Agreement is intended to encompass all Competitive
Activities engaged in anywhere in the United States, its possessions and
territories and any other country where the Company and its subsidiaries are
promoting the Schools at the time of Larson's termination of employment or
resignation or removal of Larson as a director, as applicable. Nothing herein
shall prevent Larson from owning less than 2% of the capital stock of a company
whose stock is publicly traded and which is engaged in Competitive Activities.
For purposes hereof, "Non-Competition period" shall mean the period commencing
on the date hereof and ending two (2) years after the later of the termination
of Larson's employment hereunder (including the expiration of the term of this
Agreement) or Larson's submission of his resignation, or removal of Larson as a
director of the Company and the Company's payment and provision of the Severance
Benefit pursuant to Section 2.4(d)(i); provided, (a) that if Larson's employment
is terminated and the Company pays and provides the Change in Control Severance
Benefits pursuant to Section 2.4(d)(ii) the Non-Competition Period shall expire
three (3) years after the termination of his employment.

         5.2. Non-Solicitation Agreement. During the term of this Agreement and
for three (3) years thereafter, Larson shall not, directly or indirectly,
individually or on behalf of any Person (as defined below) solicit, aid or
induce (a) any then current employee of Employee Group or the Company or its
Affiliates (as defined below) to leave Employee Group or the Company or its
Affiliates in order to accept employment with or render services for Larson or
such Person or (b) any student, customer, client, vendor, lender, supplier or
sales representative of the Company or its Affiliates or similar persons engaged
in business with the Company or its Affiliates to discontinue the relationship
or reduce the amount of business done with the Company or its Affiliates.
"Person" means any individual, a partnership, a corporation, an association, a
limited liability company, a joint stock company, a trust, a joint venture, an
unincorporated organization, a governmental entity, or any department, agency or
political subdivision thereof, or an accrediting body. "Affiliate" means with
respect to any Person, any individual related by blood or marriage to such
Person or any Person controlling, controlled by or under common control with
such Person.

         5.3. Confidential Information. Larson acknowledges and agrees that he
is in possession of and will be exposed to during the course of, and incident
to, his employment by and affiliations with the Company, Confidential
Information (as defined herein) relating to the Company, its Affiliates and each
School. For purposes hereof, "Confidential Information" shall mean all
proprietary or confidential information concerning the business, finances,
financial statements, curricula, properties and operations of the Company, its
Affiliates and each School, including, without limitation, all student and
prospective student and supplier lists, know-how, trade secrets, business and
marketing plans, techniques, forecasts, projections, budgets, unpublished
financial

                                      -13-
<PAGE>

statements, price lists, costs, computer programs, source and object codes,
algorithms, data, and other original works of authorship, along with all
information received from third parties and held in confidence by the Company,
its Affiliates and each School (including, without limitation, personnel files
and student records). During the Non-Competition Period and at all times
thereafter, Larson will hold the Confidential Information in the strictest
confidence and will not disclose or make use of (directly or indirectly) the
Confidential Information or any portion thereof to or on behalf of himself or
any third party except (a) as required in the performance of his duties as an
employee, director or stockholder of the Company, (b) as required by the order
of any court or similar tribunal or any other governmental body or agency of
appropriate jurisdiction; provided, that Larson shall, to the extent
practicable, give the Company prior written notice of any such disclosure and
shall cooperate with the Company in obtaining a protective order or such similar
protection as the Company may deem appropriate to preserve the confidential
nature of such information. The foregoing obligations to maintain the
Confidential Information shall not apply to any Confidential Information which
is or, without any action by Larson, becomes generally available to the public.
Upon termination of any employment or consulting relationship between the
Company and Larson (including any Affiliate of Larson), Larson shall promptly
return to the Company all physical embodiments of the Confidential Information
(regardless of form or medium) in the possession of or under the control of
Larson.

         5.4. Scope of Restriction. The parties have attempted to limit the
scope of the covenants set forth in Section 5 to the extent necessary to provide
the Company with the benefit of its purchase of each School. The parties
recognize, however, that reasonable people may differ in making such
determination. Consequently, the parties hereby agree that if the scope and
duration of such covenants would, but for this provision, be deemed by a court
of competent authority to be unreasonable or otherwise unenforceable, such court
may modify such covenants to the extent that such court determines to be
necessary in order to grant enforcement thereof as so modified.

         5.5. Remedies. The parties hereto recognize that the Company will
suffer irreparable injury in the event of a breach of the terms of Section 5 by
Larson. In the event of a breach of the terms of Section 5, the Company shall be
entitled, in addition to any other remedies and damages available and without
proof of monetary or immediate damage, to a temporary and/or permanent
injunction, without bond, to restrain the violation of Section 5 by Larson or
any Persons acting for or in concert with him. Such remedy, however, shall be
cumulative and nonexclusive and shall be in addition to any other remedy which
the parties may have.

         5.6. Common Law of Torts or Trade Secrets. The parties agree that
nothing in this Agreement shall be construed to limit or negate the common law
of torts or trade secrets where it provides the Company with broader protection
than that provided herein.

         5.7. Survival of Section 5. The provisions of Section 5 shall survive
the termination of Larson's employment and the termination of this Agreement.

                                      -14-
<PAGE>

         6. General Provisions.

         6.1. Notices. All notices, demands or other communications to be given
or delivered under or by reason of the provisions of this Agreement shall be in
writing and shall be deemed to have been given when delivered personally to the
recipient, sent to the recipient by reputable express courier service(charges
prepaid), sent by facsimile or mailed to the recipient by certified or
registered mail, return receipt requested and postage prepaid. Such notices,
demands and other communications shall be sent to the Company and to Larson at
the addresses indicated below:

         If to the Company
           or Employee Group:              Career Education Corporation
                                           2895 Greenspoint Parkway
                                           Suite 600
                                           Hoffman Estates, Illinois 60195
                                           Attention: Chief Financial Officer
                                           Facsimile: (847) 781-3600.

         With copies to:                   Katten Muchin Zavis
                                           525 West Monroe Street
                                           Suite 1600
                                           Chicago, Illinois 60661
                                           Attention: Lawrence D. Levin, Esq.
                                           Facsimile: (312) 902-1061

         If to Larson:                     John M. Larson
                                           36 Lakeside Drive South
                                           Barrington, Illinois 60010

         With copies to:                   Sonnenschein Nath & Rosenthal
                                           Suite 8000 Sears Tower
                                           233 South Wacker Drive
                                           Chicago, Illinois 60606
                                           Attention: Linda Chaplik Harris and
                                                      Michelle Anne Potts
                                           Facsimile: (312) 876-7934

or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.

         6.2. Entire Agreement. Except as otherwise expressly set forth herein,
this Agreement and the other agreements executed in connection here embody the
complete agreement and understanding among the parties and supersede and preempt
any prior understandings, agreements

                                      -15-
<PAGE>

or representations by or among the parties, written or oral, which may have
related to the subject matter hereof in any way.

         6.3. Successors and Assigns. All covenants and agreements contained in
this Agreement by or on behalf of either party hereto shall bind such party and
its heirs, legal representatives, successors and assigns and inure to the
benefit of the other party hereto and their heirs, legal representatives,
successors and assigns.

         6.4. Governing Law. This Agreement shall be construed and enforced in
accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Agreement shall be governed by the laws
of the State of Illinois without giving effect to the provisions thereof
regarding conflict of laws.

         6.5. Consent to Jurisdiction and Service of Process. EACH PARTY HERETO
HEREBY CONSENTS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN
THE COUNTY OF COOK, STATE OF ILLINOIS AND IRREVOCABLY AGREES THAT SUBJECT TO
COMPANY'S ELECTION, ALL ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE OTHER RELATED DOCUMENTS SHALL BE LITIGATED IN SUCH COURTS.
EACH PARTY HERETO ACCEPTS FOR ITSELF AND HIMSELF, GENERALLY AND UNCONDITIONALLY,
THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF
FORUM NON CONVENIENS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT
RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT. LARSON DESIGNATES AND
APPOINTS CT CORPORATION SYSTEM AND SUCH OTHER PERSONS AS MAY HEREINAFTER BE
SELECTED BY THE COMPANY WHO IRREVOCABLY AGREE IN WRITING TO SO SERVE AS AGENT TO
RECEIVE ON LARSON'S BEHALF SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDINGS IN ANY
SUCH COURT, SUCH SERVICE BEING HEREBY ACKNOWLEDGED BY LARSON TO BE EFFECTIVE AND
BINDING SERVICE IN EVERY RESPECT. A COPY OF ANY SUCH PROCESS SO SERVED SHALL BE
MAILED BY REGISTERED MAIL TO EACH PARTY AS PROVIDED HEREIN. IF ANY AGENT
APPOINTED BY A PARTY REFUSES TO ACCEPT SERVICE, SUCH PARTY HEREBY AGREES THAT
SERVICE UPON IT OR HIM BY MAIL SHALL CONSTITUTE SUFFICIENT NOTICE. NOTHING
HEREIN SHALL AFFECT THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY
LAW OR SHALL LIMIT THE RIGHT OF THE COMPANY TO BRING PROCEEDINGS AGAINST LARSON
IN ANY OTHER COURT HAVING JURISDICTION OVER LARSON.

         6.6. Waiver of Jury Trial. EACH PARTY HERETO HEREBY WAIVES ITS
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS AGREEMENT OR ANY DEALINGS BETWEEN THEM RELATING TO THE
SUBJECT MATTER OF THIS TRANSACTION AND THE RELATIONSHIP THAT IS BEING
ESTABLISHED. EACH PARTY HERETO ALSO WAIVES ANY BOND OR SURETY OR SECURITY UPON
SUCH BOND WHICH MIGHT, BUT FOR

                                      -16-
<PAGE>

THIS WAIVER, BE REQUIRED OF THE OTHER PARTY. THE SCOPE OF THIS WAIVER IS
INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY
COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS AGREEMENT, INCLUDING WITHOUT
LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER
COMMON LAW AND STATUTORY CLAIMS. EACH PARTY HERETO ACKNOWLEDGES THAT THIS WAIVER
IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS
ALREADY RELIED ON THE WAIVER IN ENTERING INTO THIS AGREEMENT AND THAT EACH WILL
CONTINUE TO RELY ON THE WAIVER IN THEIR RELATED FUTURE DEALINGS. EACH PARTY
HERETO FURTHER WARRANTS AND REPRESENTS THAT EACH HAS REVIEWED THIS WAIVER WITH
ITS LEGAL COUNSEL, AND THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS OR HIS
JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS
IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING,
AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS
OR MODIFICATIONS TO THIS AGREEMENT OR TO ANY OTHER DOCUMENTS OR AGREEMENTS
RELATING TO THE TRANSACTIONS CONTEMPLATED HEREBY. IN THE EVENT OF LITIGATION,
THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.

         6.7. Representations of Larson. Larson hereby represents and warrants
to the Company that his execution, delivery and performance of this agreement
will not violate or result in any breach of any agreement, contract,
understanding or written policy to which Larson is subject as a result of any
prior employment, any investment or otherwise. Larson is not subject to any
agreement, contract or understanding which in any way restricts or limits his
ability to accept employment with the Company or perform services with respect
to Schools of any type.

         6.8. Descriptive Headings; Interpretation. The descriptive headings of
this Agreement are inserted for convenience only and do not constitute a part of
this Agreement.

         6.9. Counterparts. This Agreement may be executed simultaneously in two
or more counterparts, any one of which need not contain the signatures of more
than one party, but all such counterparts taken together shall constitute one
and the same Agreement.

         6.10. Amendments and Waivers. No modification, amendment or waiver of
any provisions of this Agreement shall be effective unless approved in writing
by each of the parties hereto. The Company's failure at any time to enforce any
of the provisions of this Agreement shall in no way be construed asa waiver of
such provisions and will not affect the right of the Company to enforce each and
every provision hereof in accordance with its terms.

         6.11. Non-Assignment. This Agreement shall not be assigned by Larson
without the prior written consent of the Company.

                                      -17-
<PAGE>

         6.12. No Obligation to Mitigate. Larson shall not be required to seek
other employment or otherwise to mitigate damages upon any termination of
employment and the Severance Benefits and Change in Control Severance Benefits,
except to the extent provided herein, shall not be reduced on account of such
subsequent employment.

         6.13. Reimbursement of Expenses in Enforcing Rights. All reasonable
costs and expenses (including fees and disbursements of counsel) incurred by
Larson in seeking to enforce rights pursuant to this Agreement shall be
reimbursed to Larson on behalf of Company, but only to the extent that Larson is
successful in asserting such rights. All reasonable costs and expenses
(including fees and disbursements of counsel) incurred by Larson in connection
with negotiating and drafting this Agreement shall be reimbursed to Larson on
behalf of the Company.

         6.14. Interest. If the Company does not pay any amount due to Larson
under this Agreement within ten (10) business days after such amount first
became due and owing, interest shall accrue on such amount from the date it
became due and owing until the date of payment at an annual rate equal to the
highest rate of interest charged by the Company's principal lender on its
revolving credit agreements or, in the absence of such lender, 200 basis points
above the base commercial lending rate published in The Wall Street Journal in
effect from time to time during the period of such nonpayment.

         6.15. Joint and Several Liability. The obligations of the Company and
Employee Group to Larson under this Agreement shall be joint and several.

                                      -18-
<PAGE>

         IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.

                                          CAREER EDUCATION CORPORATION

                                          By:/s/ Patrick K. Pesch
                                             -----------------------------------
                                                 Patrick K. Pesch
                                                 Senior Vice-President and
                                                 Chief Financial Officer

                                          CEC EMPLOYEE GROUP, LLC

                                          By:/s/ Patrick K. Pesch
                                             -----------------------------------
                                                 Patrick K. Pesch
                                                 Authorized Signatory

                                          /s/ John M. Larson
                                          --------------------------------------
                                                 John M. Larson

                                      -19-

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00016-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00016-of-00352.parquet"}]]