Document:

<PAGE>   1
                                                                    EXHIBIT 10.3

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                          AMERICAN HOMESTAR CORPORATION

                           2000-A AMENDMENT AGREEMENT

                           dated as of April 28, 2000

                                       to

  Amended and Restated Note Purchase Agreements dated as of September 15, 1998

         Re:              $61,000,000 8.32% Senior Notes
                                Due July 10, 2007

                                       and

             Note Purchase Agreements dated as of September 15, 1998

         Re:       $46,000,000 7.25% Senior Notes, Series A
                             Due September 15, 2008

                                       and

                     $5,000,000 7.14% Senior Notes, Series B
                             Due September 15, 2008

================================================================================

<PAGE>   2

                                TABLE OF CONTENTS

                          (Not a part of the Agreement)

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
SECTION                              HEADING                                PAGE
<S>              <C>                                                        <C>
SECTION 1.       WAIVERS AND AMENDMENTS TO EXISTING NOTE
                 PURCHASE AGREEMENTS AND OUTSTANDING NOTES..................   2

SECTION 2.       CONDITIONS PRECEDENT.......................................  10

SECTION 3.       REPRESENTATIONS AND WARRANTIES.............................  11

SECTION 4.       MISCELLANEOUS..............................................  11

Signature Pages.............................................................  13
</TABLE>

                                      -i-
<PAGE>   3

                          AMERICAN HOMESTAR CORPORATION

                           2000-A AMENDMENT AGREEMENT

          Re: Amended and Restated Note Purchase Agreements dated as of
                             September 15, 1998 and
             Note Purchase Agreements dated as of September 15, 1998

                                                                     Dated as of
                                                                  April 28, 2000

To Each of the Noteholders
listed in Schedule I
to this 2000-A Amendment Agreement

Ladies and Gentlemen:

         Reference is made to (i) the separate Amended and Restated Note
Purchase Agreements each dated as of September 15, 1998, as previously amended
and/or restated (the "Existing Amended and Restated Note Purchase Agreements")
between American Homestar Corporation, a Texas corporation (the "Company"), and
the Purchasers named on Schedule A attached thereto, respectively, under and
pursuant to which the Company issued, and there are currently outstanding
$61,000,000 aggregate principal amount of 8.32% Senior Notes due July 10, 2007
(the "Outstanding Amended and Restated Notes") and to (ii) the separate Note
Purchase Agreements each dated as of September 15, 1998, as previously amended
(the "Existing 1998 Note Purchase Agreements") between the Company and
Purchasers named on Schedule A attached thereto, respectively, under and
pursuant to which the Company issued, and there are currently outstanding
$46,000,000 aggregate principal amount of 7.25% Senior Notes, Series A, due
September 15, 2008 (the "Outstanding Series A 1998 Notes") and $5,000,000
aggregate principal amount of 7.14% Senior Notes, Series B, due September 15,
2008 (the "Outstanding Series B 1998 Notes" and together with the Outstanding
Series A 1998 Notes, the "Outstanding 1998 Notes"). The Outstanding Amended and
Restated Notes and the Outstanding 1998 Notes are sometimes hereinafter referred
to collectively as the "Outstanding Notes" and the Existing Amended and Restated
Note Purchase Agreements and Existing 1998 Note Purchase Agreements are
sometimes hereinafter referred to collectively as the "Existing Note Purchase
Agreements."

         For good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Company requests the amendment of certain
provisions of the Existing Note Purchase Agreements and Outstanding Notes as
hereinafter provided.

         Upon your acceptance hereof in the manner hereinafter provided and upon
satisfaction of all conditions to the effectiveness hereof and receipt by the
Company of similar acceptances from all of the holders of the Outstanding Notes,
this 2000-A Amendment Agreement shall constitute a contract between us amending
the Existing Note Purchase Agreements and Outstanding Notes in the respects, but
only in the respects, hereinafter set forth:

<PAGE>   4

SECTION 1.     WAIVERS AND AMENDMENTS TO EXISTING NOTE PURCHASE AGREEMENTS
               AND OUTSTANDING NOTES.

         Section 1.1. Upon satisfaction of the conditions set forth in Section 2
hereof, the Noteholders hereby waive compliance (from and after March 31, 2000
to and including September 29, 2000), and the effects of non-compliance (from
and after March 31, 2000 to and including September 29, 2000), by the Company
with Section 10.5 of the Existing Note Purchase Agreements to the extent that
the Fixed Charges Coverage Ratio is less than 1.25x. For the avoidance of doubt,
the Company specifically understands and acknowledges that the waiver set forth
above does not extend to any Default or Event of Default for the quarter ended
September 30, 2000.

         The Noteholders hereby acknowledge and confirm the waiver set forth in
that certain waiver letter dated January 18, 2000 in respect of compliance from
and after December 31, 1999 to March 31, 2000 and the waiver set forth in that
certain waiver letter dated as of March 31, 2000 in respect of compliance from
and after March 31, 2000, and the effects of non-compliance from and after
December 31, 1999 to the 2000-A Amendment Effective Date, by the Company with
Section 10.5 of the Existing Note Purchase Agreements to the extent that the
Fixed Charge Coverage Ratio is less than 1.25x.

         The Company understands and agrees that the waivers contained in this
Section 1.1 pertain only to the Defaults and Events of Default herein described
and only to the extent so described and not to any other Default or Event of
Default which may exist under, or any other matters arising in connection with,
the Existing Note Purchase Agreements or to any rights which the Noteholders
have arising by virtue of any such other actions or matters.

         Section 1.2. Section 1.2 of each of the Existing Amended and Restated
Note Purchase Agreements shall be and is hereby amended and restated in its
entirety as follows:

                  "Section 1.2 Additional Interest. (a) Fixed Charges Coverage
         Ratio. In addition to, and not in limitation or reduction of, any other
         amounts paid or payable by the Company in respect of the Notes, in the
         event the Fixed Charges Coverage Ratio determined in accordance with
         Section 10.5 was less than 2.25 to 1.00 as of the end of any fiscal
         quarter ending on or after September 30, 1999, the stated interest rate
         payable on the Notes in respect of the next succeeding fiscal quarter
         shall be increased in accordance with the following table and such
         additional amounts arising therefrom shall be payable, with respect to
         each Note, as additional interest on the Notes (and without limiting
         the requirement of Section 10.5) on the scheduled interest payment date
         at the end of said next succeeding fiscal quarter.

                                      -2-
<PAGE>   5

<TABLE>
<CAPTION>
                       ACTUAL FIXED CHARGE         AMOUNT OF INTEREST
                          COVERAGE RATIO             RATE INCREASE
                       -------------------         ------------------
<S>                   <C>                          <C>
                      Between 2.00x and 2.24x        .20% per annum

                      Between 1.99x and 1.65x        .35% per annum

                      Between 1.64x and 1.35x        .50% per annum

                          Less than 1.35x            .60% per annum
</TABLE>

         No additional interest shall be payable in the event that the actual
         Fixed Charges Coverage Ratio contemplated under Section 10.5 as of the
         fiscal quarter ending immediately preceding an interest payment date
         was greater than or equal to 2.25 to 1.00. In the event the Company
         shall enter into an amendment hereto (reasonably satisfactory in form
         and substance to the Required Holders) and at the expense of the
         Company requiring that the Fixed Charges Coverage Ratio required under
         Section 10.5 shall be at least 2.25 to 1.00, no additional interest
         shall be payable under this paragraph with respect to any interest
         payment date occurring subsequent to the first fiscal quarter end for
         which such amendment is effective.

                  (b) Change in Reserve Requirement. If under applicable law or
         regulation, the holder of any Note is required to post reserves at any
         time and from time to time with respect to such Notes (the "Reserve
         Requirement") greater than one percent (1%) of the outstanding
         principal amounts of such Notes held by said holder (an "Increased
         Requirement") other than solely by reason of a change in law or
         regulation or a change in the interpretation or administration thereof
         relating to the requirements to post such reserves, then the interest
         rate on such Notes shall be increased by 1.25% per annum minus the
         amount, if any, that the interest rate on such Notes has been increased
         pursuant to Section 1.2(a). If during any time following an increase in
         the interest rate on the Notes pursuant to this Section 1.2(b), the
         Reserve Requirement is reduced to one percent (1%) or less of the
         outstanding principal balance of the Notes (a "Decreased Requirement"),
         the interest rate on the Notes shall be readjusted (but without
         prejudice to any adjustment required by Section 1.2(a)) to the rate per
         annum which would have been in effect had no adjustment been made
         pursuant to this Section 1.2(b). Any upward or downward adjustment
         required by this Section 1.2(b) in the rate of interest borne by the
         Notes shall become effective concurrently with the effectiveness of any
         Increased Requirement or Decreased Requirement, as the case may be. In
         no event may the expressed interest rate on the Notes be increased by
         more than 1.25% per annum pursuant to clauses (a) and (b) during any
         period in which no Event of Default exists.

                  (c) Amendment Interest. Notwithstanding the foregoing clauses
         (a) and (b) of this Section 1.2, the stated interest rate payable on
         the Notes from April 1, 2000 to and including September 29, 2000 shall
         be increased by 1.25% to an aggregate interest rate of 9.57% per annum
         plus applicable interest payable upon an Event of Default and shall

                                      -3-
<PAGE>   6

         continue to bear interest after September 29, 2000 at such rate for any
         and all periods during which (i) the Fixed Charges Coverage Ratio
         determined in accordance with Section 10.5 is less than 2.25 to 1.00 or
         (ii) any Event of Default shall exist and such additional amount shall
         be payable, with respect to each Note, as additional interest on the
         Notes on the next scheduled interest payment date. Such additional
         interest is in replacement of the interest payable pursuant to clauses
         (a) and (b) of this Section 1.2."

         Section 1.3. Section 1.2 of each of the Existing 1998 Note Purchase
Agreements shall be and is hereby amended and restated in its entirety as
follows:

                  "Section 1.2 Additional Interest. (a) Fixed Charges Coverage
         Ratio. In addition to, and not in limitation or reduction of, any other
         amounts paid or payable by the Company in respect of the Notes, in the
         event the Fixed Charges Coverage Ratio determined in accordance with
         Section 10.5 was less than 2.25 to 1.00 as of the end of any fiscal
         quarter ending on or after September 30, 1999, the stated interest rate
         payable on the Notes in respect of the next succeeding fiscal quarter
         shall be increased in accordance with the following table and such
         additional amounts arising therefrom shall be payable, with respect to
         each Note, as additional interest on the Notes (and without limiting
         the requirement of Section 10.5) on the scheduled interest payment date
         at the end of said next succeeding fiscal quarter.

<TABLE>
<CAPTION>
                       ACTUAL FIXED CHARGE               AMOUNT OF INTEREST
                          COVERAGE RATIO                    RATE INCREASE
                       -------------------               ------------------
<S>                                                      <C>
                     Between 2.00x and 2.24x               .20% per annum

                     Between 1.99x and 1.65x               .35% per annum

                     Between 1.64x and 1.35x               .50% per annum

                     Less than 1.35x                       .60% per annum
</TABLE>

         No additional interest shall be payable in the event that the actual
         Fixed Charges Coverage Ratio contemplated under Section 10.5 as of the
         fiscal quarter ending immediately preceding an interest payment date
         was greater than or equal to 2.25 to 1.00. In the event the Company
         shall enter into an amendment hereto (reasonably satisfactory in form
         and substance to the Required Holders) and at the expense of the
         Company requiring that the Fixed Charges Coverage Ratio required under
         Section 10.5 shall be at least 2.25 to 1.00, no additional interest
         shall be payable under this paragraph with respect to any interest
         payment date occurring subsequent to the first fiscal quarter end for
         which such amendment is effective.

                  (b) Change in Reserve Requirement. If under applicable law or
         regulation, the holder of any Note is required to post reserves at any
         time and from time to time with respect to such Notes (the "Reserve
         Requirement") greater than one percent (1%) of the outstanding
         principal amounts of such Notes held by said holder (an "Increased

                                      -4-
<PAGE>   7

         Requirement") other than solely by reason of a change in law or
         regulation or a change in the interpretation or administration thereof
         relating to the requirements to post such reserves, then the interest
         rate on such Notes shall be increased by 1.25% per annum minus the
         amount, if any, that the interest rate on such Notes has been increased
         pursuant to Section 1.2(a). If during any time following an increase in
         the interest rate on the Notes pursuant to this Section 1.2(b), the
         Reserve Requirement is reduced to one percent (1%) or less of the
         outstanding principal balance of the Notes (a "Decreased Requirement"),
         the interest rate on the Notes shall be readjusted (but without
         prejudice to any adjustment required by Section 1.2(a)) to the rate per
         annum which would have been in effect had no adjustment been made
         pursuant to this Section 1.2(b). Any upward or downward adjustment
         required by this Section 1.2(b) in the rate of interest borne by the
         Notes shall become effective concurrently with the effectiveness of any
         Increased Requirement or Decreased Requirement, as the case may be. In
         no event may the expressed interest rate on the Notes be increased by
         more than 1.25% per annum pursuant to clauses (a) and (b) during any
         period in which no Event of Default exists.

                  (c) Amendment Interest. Notwithstanding the foregoing clauses
         (a) and (b) of this Section 1.2, the stated interest rate payable on
         the Notes from April 1, 2000 to and including September 29, 2000 shall
         be increased by 1.25% to an aggregate amount of 8.5% per annum in
         respect of the Series A Notes, and 8.39% per annum in respect of the
         Series B Notes, plus applicable interest payable upon an Event of
         Default and shall continue to bear interest after September 29, 2000 at
         such rate for any and all periods during which (i) the Fixed Charges
         Coverage Ratio determined in accordance with Section 10.5 is less than
         2.25 to 1.00 or (ii) any Event of Default shall exist and such
         additional amount shall be payable, with respect to each Note, as
         additional interest on the Notes on the next scheduled interest payment
         date. Such additional interest is in replacement of the interest
         payable pursuant to clauses (a) and (b) of this Section 1.2."

         Section 1.4. Section 7.1 of each of the Existing Note Purchase
Agreements shall be and is hereby amended to (i) delete "and" at the end of
clause (f) thereof, (ii) delete "." at the end of clause (g) thereof and replace
it with "; and" and (iii) add a new clause (h) thereto to read as follows:

                  "(h) Ordinary Course Transfers -- promptly, and in any event
         within 15 days after the end of each monthly period, a monthly
         statement setting forth Transfers made in the ordinary course of
         business (and the consideration received) permitted pursuant to Section
         10.3 (excluding sales of inventory held for sale made in the ordinary
         course of business and such other Transfers to the extent that such
         Transfers during such monthly period do not aggregate in excess of
         $10,000)."

         Section 1.5. Section 10.3 of each of the Existing Note Purchase
Agreements shall be and is hereby amended by adding at the end of such section
the following sentence:

         "In addition to and not in limitation of the foregoing, (i) the Company
         shall obtain (a) the written consent of the holders of at least 75% in
         aggregate principal amount of the Notes then outstanding under the
         Existing Note Purchase Agreements prior to the consummation

                                      -5-
<PAGE>   8

         of a Debt Offered Prepayment Application or (b) the written consent of
         the holders of 100% in aggregate principal amount of the Notes
         outstanding under the Existing Note Purchase Agreements prior to a
         Property Reinvestment Application, in each case to which the Net
         Proceeds Amount for any Asset Disposition is applied and (ii) if the
         Company (x) Transfers (other than pursuant to an operating lease under
         GAAP of idle plant facilities and underperforming company stores as
         determined in good faith by Resolutions of the Board of Directors of
         the Company) fixed assets or any business or division (including,
         without limitation, 21st Century, provided that up to 50% of the net
         cash proceeds thereof may be invested in 21st Century or in a joint
         venture in respect of 21st Century by way of loans, participations or
         otherwise) or (y) issues any debt securities for cash consideration
         (excluding in all cases from this clause (y) debt securities issued by
         the Company in the ordinary course of business), the Company shall
         deposit 100% of the net cash proceeds of such Transfer or issuance with
         the Collateral Agent and grant a security interest therein as
         collateral to secure the Notes pursuant to the Security Agreement;
         provided that this clause (ii) shall not apply to equipment, fixtures,
         supplies or materials no longer required in the operation of the
         business of the Company or obsolete or otherwise Transferred in the
         ordinary course of business. To the extent that the net cash proceeds
         from any Transfer or issuance set forth in clause (ii) of the previous
         sentence are deposited in the Account, then, to the extent of such
         deposit, such Transfer or issuance shall be excluded from any
         calculation set forth in clause (c) above. `Net cash proceeds' shall be
         the cash proceeds of a Transfer as aforesaid net of all ordinary and
         reasonable out-of-pocket costs and expenses actually incurred by the
         Company in connection with such Transfer and all indebtedness secured
         by the property being so transferred and required by its terms to be
         paid in connection with the consummation of such Transfer, and, in the
         case of the disposition of 21st Century, any cash expenditures made in
         connection with, or to facilitate, such disposition and, in the case of
         any taxable gains that arise from such dispositions, tax on such
         gains."

         Section 1.6. Sections 10.4(a) and (b) of each of the Existing Note
Purchase Agreements shall be and are hereby amended as follows:

                  "(a) Total Senior Debt minus the amount of the Collateral
         subject to the Security Agreement is less than (i) in the case of any
         determination prior to or on September 29, 2000, the lesser of (A)
         $200,000,000 and (B) 70% of Total Capitalization, (ii) in the case of
         any determination after September 29, 2000 to and including June 29,
         2001, 58% of Total Capitalization and (iii) in the case of any
         determination on or after June 30, 2001, 56% of Total Capitalization,

                  (b) the sum of Total Senior Debt plus Total Subordinated Debt
         minus the amount of the Collateral subject to the Security Agreement is
         less than (i) in the case of any determination prior to or on September
         29, 2000, the lesser of (A) $200,000,000 and (B) 70% of Total
         Capitalization and (ii) in the case of any determination after
         September 29, 2000, 65% of Total Capitalization,"

         Section 1.7. Section 10.7 of each of the Existing Note Purchase
Agreements shall be and is hereby amended to add at the end of such section the
following sentence:

                                      -6-
<PAGE>   9

         "Notwithstanding the foregoing, the Company shall not be in default
         under this Section 10.7 if the Company maintains Consolidated Net Worth
         at not less than $90,000,000 in connection with any determination prior
         to or on September 29, 2000."

         Section 1.8. Section 10.9(f) of each of the Existing Note Purchase
Agreements shall be and is hereby amended and restated as follows:

                           "(f) Liens on property or assets of the Company or
                  any of its Restricted Subsidiaries securing Debt owing to the
                  Company or to another Restricted Subsidiary and Liens created
                  by the Security Agreement on the collateral provided for
                  therein and securing the obligations provided for therein;"

         Section 1.9. Section 10 of each of the Existing Note Purchase
Agreements shall be and is hereby amended to add a new Section 10.11 as follows:

                  "Section 10.11. Earnings Before Interest and Taxes. The
         Company will maintain positive Earnings Before Interest and Taxes for
         the fiscal quarter ended as of June 30, 2000."

         Section 1.10. Section 11 of each of the Existing Note Purchase
Agreements shall be and is hereby amended to (i) add "or in the Security
Agreement" after the term "herein" in the second line of clause (d) thereof,
(ii) delete "." at the end of clause (j) thereof and replace it with "; or" and
(iii) add a new clause (k) thereto to read as follows:

                  "(k) the Security Agreement or any Lien created thereby shall
         cease to be in full force and effect (other than in accordance with the
         Security Agreement), or such Lien shall cease to be a valid, first
         priority perfected Lien on the Collateral, in each case for any reason,
         including, without limitation, a determination of any Governmental
         Authority that such agreement is invalid, void or unenforceable, or the
         Company shall contest or deny in writing the validity, enforceability
         or priority of any of its obligations thereunder or any Lien created
         thereby on any of the Collateral."

         Section 1.11. Section 12.2 of each of the Existing Note Purchase
Agreements shall be and is hereby amended to add "(including, without
limitation, the rights and remedies of such holder provided in the Security
Agreement)" before the "."

         Section 1.12. Schedule B of each of the Existing Note Purchase
Agreements shall be amended to add the following new defined terms in the
appropriate alphabetical locations:

                           "'Account' is defined in the Security Agreement."

                           "'Collateral' is defined in the Security Agreement."

                                      -7-
<PAGE>   10

                           "'Collateral Agent' means LaSalle Bank National
                  Association, or any successor thereof permitted by the
                  Security Agreement."

                           "'Earnings Before Interest and Taxes' means, with
                  respect to any period, Consolidated Net Income of the Company
                  and its Restricted Subsidiaries for such period plus all
                  amounts deducted in the computation thereof on account of (a)
                  Interest Charges for such period and (b) taxes imposed on or
                  measured by income or excess profits of the Company and its
                  Restricted Subsidiaries for such period."

                           "'Security Agreement' means the Security Agreement
                  between the Company and the Collateral Agent, substantially in
                  the form attached hereto as Exhibit 10.3."

         Section 1.13. Schedule B of each of the Existing Amended and Restated
Note Purchase Agreements shall be amended to add the following new defined term
in the appropriate alphabetical location:

                           "'Existing Note Purchase Agreements' means this
                  Agreement, the Other Agreements and the separate Note Purchase
                  Agreements each dated as of September 15, 1998 between the
                  Company and the Purchasers named on Schedule A thereto,
                  respectively, in each case, as amended or modified."

         Section 1.14. Schedule B of each of the Existing 1998 Note Purchase
Agreements shall be amended to add the following new defined term in the
appropriate alphabetical location:

                           "'Existing Note Purchase Agreements' means this
                  Agreement, the Other Agreements and the separate Amended and
                  Restated Note Purchase Agreements each dated as of September
                  15, 1998 between the Company and the Holders named on Schedule
                  A thereto, respectively, in each case, as amended or
                  modified."

         Section 1.15. The following definitions contained in Schedule B of each
of the Existing Note Purchase Agreements shall be and are hereby amended and
restated in its entirety to read as follows:

                           "'Default Rate' means the rate of interest that is
                  the greater of (i) 2.0% per annum above the rate of interest
                  stated in clause (a) of the first paragraph of the Notes, as
                  adjusted pursuant to Section 1.2, or (ii) 2.0% over the rate
                  of interest publicly announced by Citibank, N.A. in New York,
                  New York, or any successor thereof, from time to time as its
                  "base" or "prime" rate."

                                      -8-
<PAGE>   11

                           "'Debt Offered Prepayment Application' means, with
                  respect to any Asset Disposition, the offering, in writing, by
                  the Company of cash in an amount not exceeding the Net
                  Proceeds Amount with respect to such Asset Disposition to pay
                  the Notes under the Existing Note Purchase Agreements and any
                  interest and premium in respect thereof, provided that in
                  connection with any such Asset Disposition and payment of the
                  Notes, the Company shall have offered to prepay the Ratable
                  Portion in respect of each outstanding Note under the Existing
                  Note Purchase Agreements and shall have prepaid each holder of
                  each such Note that shall have accepted such offer of
                  prepayment in accordance with said Section 8.4 in a principal
                  amount which, when added to any accrued and unpaid interest
                  thereon and the Modified Make-Whole Amount, equals the Ratable
                  Portion for such Note. As used in this definition, "Ratable
                  Portion" for any Note means an amount equal to the product of
                  (x) the Net Proceeds Amount being so applied to the payment of
                  the Notes multiplied by (y) a fraction the numerator of which
                  is the outstanding principal amount of such Note and the
                  denominator of which is the aggregate principal amount of all
                  the Notes of the Company with respect to which such offer of
                  prepayment is made. For purposes of Section 10.3, a Net
                  Proceeds Amount shall be deemed applied to a Debt Offered
                  Prepayment Application upon the extension of the offer in
                  respect of such Debt Offered Prepayment Application, provided
                  that if the actual prepayments in respect thereof, if any, are
                  not made in accordance with the requirements of such offer or,
                  in any case, are not made within 365 days after the applicable
                  Asset Disposition, such application of such Net Proceeds
                  Amount will be deemed not to have been made."

         Section 1.16. Clause (j) of the definition of the term "Restricted
Investments" contained in Schedule B of each of the Existing Note Purchase
Agreements shall be and is hereby amended and restated in its entirety as
follows:

                  "(x) Investments in 21st Century, or in a joint venture in
         respect of 21st Century, in connection with the Transfer thereof, and

                   (y) such other Investments in 21st Century, provided that (i)
         with respect to any such Investment made after the date of the Closing,
         the aggregate amount of such Investment and all other Investments in
         21st Century made after the date of Closing (valued as set forth below)
         shall not, at the time of the making of each Investment, exceed 10% of
         Consolidated Net Worth, determined at such time, and (ii) the proceeds
         of such Investments are used by 21st Century to assist it in the
         securitization of receivables generated from the sale of Manufactured
         Homes by the Company, any Restricted Subsidiary or any franchise of the
         Company or any Restricted Subsidiary."

                                      -9-
<PAGE>   12

        Section 1.17. Each of the Existing Note Purchase Agreements shall be
amended to add Exhibit 10.3 which is attached hereto as Exhibit D.

         Section 1.18. The Noteholders hereby appoint LaSalle Bank National
Association to act as Collateral Agent for the exclusive benefit of the holders
of the Notes.

SECTION 2.  CONDITIONS PRECEDENT.

         Section 2.1. Conditions Precedent. This 2000-A Amendment Agreement
shall be effective as of April 28, 2000 (the "2000-A Amendment Effective Date")
when each of the following conditions shall have been satisfied:

                  (a) Each Noteholder and the Collateral Agent shall have
         received this 2000-A Amendment Agreement, duly executed by the Company.

                  (b) The Required Holders in respect of each of the Existing
         Note Purchase Agreements shall have consented to this 2000-A Amendment
         Agreement as evidenced by their execution thereof; provided that the
         amendments contained in Sections 1.2 and 1.3 of this 2000-A Amendment
         Agreement shall be effective only as to each holder of Notes which has
         consented hereto.

                  (c) The representations and warranties of the Company set
         forth in Section 3 hereof are true and correct as of the date of the
         execution and delivery of this 2000-A Amendment Agreement.

                  (d) Each Noteholder and the Collateral Agent shall have
         received the Security Agreement substantially in the form attached
         hereto as Exhibit D duly executed by the Company.

                  (e) Any consents or approvals from any holder or holders of
         any outstanding Security of the Company or any Subsidiary and any
         amendments of agreements pursuant to which any Securities may have been
         issued which shall be necessary to permit the consummation of the
         transactions contemplated hereby shall have been obtained and all such
         consents or amendments shall be reasonably satisfactory in form and
         substance to the Noteholders and their special counsel.

                  (f) The Company shall have paid, or have provided a
         satisfactory retainer for, the fees and disbursements of the
         Noteholders' special counsel, Chapman and Cutler, incurred in
         connection with the negotiation, preparation, execution and delivery of
         this 2000-A Amendment Agreement, as required by Section 15.1 of the
         Existing Note Purchase Agreements.

                  (g) Counsel for the Company shall have delivered such legal
         opinions to the Noteholders as the Noteholders may reasonably request
         in respect of the due organization and the good standing of the Company
         and the legality, validity and enforceability of this

                                      -10-
<PAGE>   13

         2000-A Amendment Agreement and the Outstanding Notes as amended hereby
         and the Security Agreement.

SECTION 3.   REPRESENTATIONS AND WARRANTIES.

         Section 3.1. Representations and Warranties. The Company hereby
represents and warrants that as of the date hereof and as of the date of
execution and delivery of this 2000-A Amendment Agreement:

                  (a) This 2000-A Amendment Agreement, the Existing Note
         Purchase Agreements and Outstanding Notes (as amended hereby) and the
         Security Agreement are within the corporate powers of the Company, have
         been duly authorized by all necessary corporate action on the part of
         the Company, have been duly executed and delivered by the Company and
         constitute legal, valid and binding obligations of the Company
         enforceable in accordance with their respective terms.

                  (b) The Security Agreement (or financing statements or similar
         notices thereof to the extent permitted or required by applicable law)
         have been filed for record or recorded in all public offices wherein
         such filing or recordation is necessary to perfect the security
         interest granted by such Security Agreement in the collateral therein
         described as against creditors of and purchasers from the Company and
         the Security Agreement creates a valid and perfected first security
         interest in such collateral effective as against creditors of and
         purchasers from the Company subject only to encumbrances expressly
         permitted by the terms of such Security Agreement.

                  (c) The Outstanding Amended and Restated Notes and the
         Outstanding 1998 Notes held by the Noteholders are amended hereby as
         set forth herein without regard to any exchange of Outstanding Notes
         for New Notes.

                  (d) After giving effect to this 2000-A Amendment Agreement, no
         Default or Event of Default has occurred and is continuing.

                  (e) The execution, delivery and performance of this 2000-A
         Amendment Agreement and the Security Agreement by the Company does not
         and will not result in a violation of or default under (A) the articles
         of incorporation or bylaws of the Company, (B) any material agreement
         to which the Company is a party or by which it is bound or to which the
         Company or any of its properties is subject, (C) any order, writ,
         injunction or decree binding on the Company, or (D) any statute,
         regulation, rule or other law applicable to the Company.

SECTION 4.   MISCELLANEOUS.

         Section 4.1. Except as amended herein, all terms and provisions of the
Existing Note Purchase Agreements and the Outstanding Notes are hereby ratified,
confirmed and approved in all respects.

                                      -11-
<PAGE>   14

         Section 4.2. Any and all notices, requests, certificates and other
instruments, including the Outstanding Notes as amended hereby, may refer to the
"Note Purchase Agreements" without making specific reference to this 2000-A
Amendment Agreement, but nevertheless all such references shall be deemed to
include this 2000-A Amendment Agreement unless the context shall otherwise
require.

         Section 4.3. This 2000-A Amendment Agreement and all covenants herein
contained shall be binding upon and inure to the benefit of the respective
successors and assigns of the parties hereunder. All covenants made by the
Company herein shall survive the closing and the delivery of this 2000-A
Amendment Agreement.

         Section 4.4. This 2000-A Amendment Agreement shall be governed by and
construed in accordance with Illinois law.

         Section 4.5. The capitalized terms used in this 2000-A Amendment
Agreement shall have the respective meanings specified in the related Existing
Note Purchase Agreements unless otherwise herein defined or the context hereof
shall otherwise require.

                                      -12-
<PAGE>   15

         The execution hereof by the respective Noteholders shall constitute a
contract among the Company and the Noteholders for the uses and purposes
hereinabove set forth. This 2000-A Amendment Agreement may be executed in any
number of counterparts, each executed counterpart constituting an original but
all together only one agreement. Counterpart signature pages are deemed to be
evidence of agreement to deliver original executed counterparts of such
signature pages as promptly as practicable thereafter.

                                        AMERICAN HOMESTAR CORPORATION

                                        By:   /s/ Craig A. Reynolds
                                              -----------------------------
                                        Its:  Executive Vice President, CFO

                                      -13-
<PAGE>   16

         This foregoing 2000-A Amendment Agreement is hereby accepted and agreed
to as of the date aforesaid.

                                        MASSACHUSETTS MUTUAL LIFE INSURANCE
                                          COMPANY

                                        By: David L. Babson and Company
                                            Incorporated, as Investment Adviser

                                        By:     /s/ Richard C. Morrison
                                                -----------------------
                                        Name:   Richard C. Morrison
                                        Title:  Managing Director

                                      -14-
<PAGE>   17

         This foregoing 2000-A Amendment Agreement is hereby accepted and agreed
to as of the date aforesaid.

                                        ALLSTATE LIFE INSURANCE COMPANY

                                        By:   /s/ Patricia A. Wilson
                                              ----------------------
                                        Its:  Authorized Signatory

                                        By :  /s/ Daniel C. Leimbach
                                              ----------------------
                                        Its:  Authorized Signatory

                                      -15-
<PAGE>   18

         This foregoing 2000-A Amendment Agreement is hereby accepted and agreed
to as of the date aforesaid.

                                        ALLSTATE INSURANCE COMPANY

                                        By:   /s/ Patricia A. Wilson
                                              ----------------------
                                        Its:  Authorized Signatory

                                        By:   /s/ Daniel C. Leimbach
                                              ----------------------
                                        Its:  Authorized Signatory

                                      -16-
<PAGE>   19

         This foregoing 2000-A Amendment Agreement is hereby accepted and agreed
to as of the date aforesaid.

                                        THE NORTHWESTERN MUTUAL LIFE
                                          INSURANCE COMPANY

                                        By:   /s/ Richard A. Strait
                                              -------------------------
                                        Its:  Authorized Representative

                                      -17-
<PAGE>   20

         This foregoing 2000-A Amendment Agreement is hereby accepted and agreed
to as of the date aforesaid.

                                                NORTHERN LIFE INSURANCE COMPANY

                                                By:   /s/ James V. Wittach
                                                      --------------------
                                                Its:   Assistant Treasurer

                                      -18-
<PAGE>   21

         This foregoing 2000-A Amendment Agreement is hereby accepted and agreed
to as of the date aforesaid.

                                             WASHINGTON SQUARE ADVISERS PRIVATE
                                                PLACEMENT TRUST FUND

                                             By:   /s/ Frank P. Pintens
                                                   ---------------------
                                             Its:  Senior Vice President

                                      -19-
<PAGE>   22

         This foregoing 2000-A Amendment Agreement is hereby accepted and agreed
to as of the date aforesaid.

                                        RELIASTAR LIFE INSURANCE COMPANY OF
                                          NEW YORK (FORMERLY RELIASTAR
                                          BANKERS SECURITY LIFE INSURANCE
                                          COMPANY)

                                         By:   /s/ James V. Wittach
                                               ---------------------------
                                         Its:  Vice President, Investments

                                      -20-
<PAGE>   23

         This foregoing 2000-A Amendment Agreement is hereby accepted and agreed
to as of the date aforesaid.

                                        GENERAL ELECTRIC CAPITAL ASSURANCE
                                          COMPANY (FORMERLY GREAT NORTHERN
                                          INSURED ANNUITY CORPORATION)

                                        By:    /s/ Morion C. Mooers
                                               --------------------
                                        Its:   Investment Officer

                                      -21-
<PAGE>   24

         This foregoing 2000-A Amendment Agreement is hereby accepted and agreed
to as of the date aforesaid.

                                        KEMPER INVESTORS LIFE INSURANCE COMPANY

                                        By:    /s/ Gary W. Fridley
                                               ------------------------
                                        Its:   Chief Investment Officer

                                        By:    /s/ David S. Jorgensen
                                               ------------------------
                                        Its:   Controller and Treasurer

                                      -22-
<PAGE>   25

         This foregoing 2000-A Amendment Agreement is hereby accepted and agreed
to as of the date aforesaid.

                                        FEDERAL KEMPER LIFE ASSURANCE COMPANY

                                        By:    /s/ Gary W. Fridley
                                               ------------------------
                                        Its:   Chief Investment Officer

                                        By:    /s/ David S. Jorgensen
                                               ------------------------
                                        Its:   Controller and Treasurer

                                      -23-
<PAGE>   26

         This foregoing 2000-A Amendment Agreement is hereby accepted and agreed
to as of the date aforesaid.

                                        ZURICH LIFE INSURANCE COMPANY OF AMERICA

                                        By:    /s/ Gary W. Fridley
                                               ------------------------
                                        Its:   Chief Investment Officer

                                        By:    /s/ David S. Jorgensen
                                               ------------------------
                                        Its:   Controller and Treasurer

                                      -24-
<PAGE>   27

         This foregoing 2000-A Amendment Agreement is hereby accepted and agreed
to as of the date aforesaid.

                                        FIDELITY LIFE ASSOCIATION

                                        By:    /s/ Gary W. Fridley
                                               ------------------------
                                        Its:   Chief Investment Officer

                                        By:    /s/ David S. Jorgensen
                                               ------------------------
                                        Its:   Controller and Treasurer

                                      -25-
<PAGE>   28

         This foregoing 2000-A Amendment Agreement is hereby accepted and agreed
to as of the date aforesaid.

                                        AMERICAN BANKERS LIFE ASSURANCE
                                          COMPANY OF FLORIDA

                                        By:    /s/ Gustavo C. Rodriguiz
                                               ------------------------
                                        Its:   Director of Investments

                                      -26-
<PAGE>   29

         This foregoing 2000-A Amendment Agreement is hereby accepted and agreed
to as of the date aforesaid.

                                        AMERICAN BANKERS LIFE INSURANCE
                                          COMPANY INC. OF FLORIDA

                                        By:    /s/ Gustavo C. Rodriguiz
                                               ------------------------
                                        Its:   Director of Investments

                                      -27-
<PAGE>   30

         This foregoing 2000-A Amendment Agreement is hereby accepted and agreed
to as of the date aforesaid.

                                   BAYSTATE HEALTH SYSTEM, INC.
                                   By: David L. Babson and Company Incorporated,
                                       as Investment Sub-Adviser

                                   By:     /s/ Richard C. Morrison
                                           -----------------------
                                   Name:   Richard C. Morrison
                                   Title:  Managing Director

                                      -28-
<PAGE>   31

         This foregoing 2000-A Amendment Agreement is hereby accepted and agreed
to as of the date aforesaid.

                                   C.M. LIFE INSURANCE COMPANY
                                   By: David L. Babson and Company Incorporated,
                                       as Investment Sub-Adviser

                                   By:     /s/ Richard C. Morrison
                                           ------------------------
                                   Name:   Richard C. Morrison
                                   Title:  Managing Director

                                      -29-
<PAGE>   32

         This foregoing 2000-A Amendment Agreement is hereby accepted and agreed
to as of the date aforesaid.

                                        RELIASTAR LIFE INSURANCE COMPANY

                                        By:    /s/ James V. Wittach
                                               -------------------------
                                        Its:   Authorized Representative

                                      -30-
<PAGE>   33

         This foregoing 2000-A Amendment Agreement is hereby accepted and agreed
to as of the date aforesaid.

                                        SECURITY CONNECTICUT LIFE INSURANCE
                                          COMPANY

                                        By:   /s/ James V. Wittach
                                              --------------------
                                        Its:  Assistant Treasurer

                                      -31-
<PAGE>   34

         This foregoing 2000-A Amendment Agreement is hereby accepted and agreed
to as of the date aforesaid.

                                        PROVIDENT MUTUAL LIFE INSURANCE
                                          COMPANY

                                        By:    /s/ James Kestner
                                               -----------------
                                        Its:   Vice President

                                      -32-
<PAGE>   35

<TABLE>
<CAPTION>
                                                         OUTSTANDING PRINCIPAL
                                                               AMOUNT OF           OUTSTANDING PRINCIPAL
                                                          OUTSTANDING AMENDED            AMOUNT OF
                                                           AND RESTATED NOTES        OUTSTANDING 1998
     NAME OF HOLDER                                           HELD AS OF             NOTES HELD AS OF
        OF NOTES                                             APRIL 28, 2000           APRIL 28, 2000

<S>                                                       <C>                     <C>
MASSACHUSETTS MUTUAL LIFE INSURANCE                            $ 9,800,000             $ 7,750,000
     COMPANY                                                   $ 4,200,000             $ 2,000,000
                                                                                       $ 1,500,000

BAYSTATE HEALTH SYSTEM, INC                                                            $   500,000

CM LIFE INSURANCE COMPANY                                                              $   250,000

ALLSTATE LIFE INSURANCE COMPANY                                $ 1,000,000
                                                               $ 3,000,000
                                                               $ 1,500,000
                                                               $ 3,000,000
                                                               $ 1,500,000

ALLSTATE INSURANCE COMPANY                                                             $ 5,000,000

THE NORTHWESTERN MUTUAL LIFE INSURANCE                         $10,000,000             $10,000,000
     COMPANY
NORTHERN LIFE INSURANCE COMPANY                                $ 4,500,000             $ 2,000,000

WASHINGTON SQUARE ADVISERS PRIVATE                             $ 2,500,000
     PLACEMENT TRUST FUND

RELIASTAR LIFE INSURANCE COMPANY OF NEW                        $ 1,000,000
     YORK (FORMERLY RELIASTAR BANKERS
     SECURITY LIFE INSURANCE COMPANY)

RELIASTAR LIFE INSURANCE COMPANY                               $ 1,000,000             $ 4,000,000

SECURITY CONNECTICUT LIFE INSURANCE                                                    $ 2,000,000
     COMPANY

GENERAL ELECTRIC CAPITAL ASSURANCE                             $ 6,000,000
     COMPANY (FORMERLY GREAT NORTHERN
     INSURED ANNUITY CORPORATION)

KEMPER INVESTORS LIFE INSURANCE COMPANY                        $ 2,900,000             $ 6,900,000

FEDERAL KEMPER LIFE ASSURANCE COMPANY                          $ 1,400,000             $ 3,400,000

ZURICH LIFE INSURANCE COMPANY OF                               $   200,000             $   500,000
     AMERICA

FIDELITY LIFE ASSOCIATION                                      $   175,000             $ 1,200,000
                                                               $   175,000
                                                               $   150,000

AMERICAN BANKERS LIFE ASSURANCE                                $ 4,000,000
     COMPANY OF FLORIDA

AMERICAN BANKERS LIFE INSURANCE                                                        $ 1,000,000
     COMPANY INC. OF FLORIDA

PROVIDENT MUTUAL LIFE INSURANCE                                $ 3,000,000             $ 3,000,000
     COMPANY
</TABLE>

                                   Schedule I
                        (to 2000-A Amendment Agreement)

                                      I-1
<PAGE>   36

                                    EXHIBIT A

                          [FORM OF SECURITY AGREEMENT]

                                  EXHIBIT 10.3
                          (to Note Purchase Agreement)<PAGE>   1
                                                                   EXHIBIT 10.1

                              EMPLOYMENT AGREEMENT

WASTE MANAGEMENT, INC. (the "Company"), and LAWRENCE O'DONNELL, III (the
"Executive") hereby enter into this EMPLOYMENT AGREEMENT ("Agreement") dated as
of January 21, 2000, as follows:

1.       EMPLOYMENT.

The Company shall employ Executive, and Executive shall be employed by the
Company upon the terms and subject to the conditions set forth in this
Agreement.

2.       TERM OF EMPLOYMENT.

The period of Executive's employment under this Agreement shall commence on
February 14, 2000, or sooner at the option of the Executive, and be for a
continuously renewing (on a daily basis) five (5) year term, without any further
action by either the Company or Executive, unless Executive's employment is
terminated in accordance with Section 5 below. The date on which Executive
commences employment with the Company shall be referred to as the "Commencement
Date" and the period during which Executive is employed hereunder shall be
referred to as the "Employment Period".

3.       DUTIES AND RESPONSIBILITIES.

(a)      Executive shall serve as Senior Vice President and General Counsel, and
         shall serve as Secretary to the Board of Directors of the Company (the
         "Board"). In such capacities, Executive shall perform such duties and
         have the power, authority and functions commensurate with such
         positions in similarly sized public companies and such other authority
         and functions consistent with such positions as may be assigned to
         Executive from time to time by the Board.

(b)      Executive shall devote substantially all of his working time, attention
         and energies to the business of the Company, and affiliated entities.
         Executive may make and manage his personal investments (provided such
         investments in other activities do not violate, in any material
         respect, the provisions of Section 8 of this Agreement), be involved in
         charitable and professional activities and, with the consent of the
         Board (which shall not unreasonably be withheld or delayed) serve on
         boards of other for profit entities, provided such activities do not
         materially interfere with the performance of his duties hereunder.
         Service on the for profit boards that Executive is currently serving on
         are hereby approved.

4.       COMPENSATION AND BENEFITS.

(a)      BASE SALARY. During the Employment Period, the Company shall pay
         Executive a base salary at the annual rate of four hundred seventy
         thousand ($470,000) dollars per year or such higher rate as may be
         determined from time to time by the Company ("Base Salary"). Such Base
         Salary shall be paid in accordance with the Company's standard payroll
         practice for its executive officers. Once increased, Base Salary shall
         not be reduced.

<PAGE>   2

(b)      ANNUAL BONUS. During the Employment Period, Executive will be entitled
         to participate in an annual incentive compensation plan of the Company.
         The Executive's target annual bonus will be sixty percent (60%) of his
         Base Salary as in effect for such year (the "Target Bonus"), and his
         actual annual bonus may range from 0% to 120% (two times target), and
         will be determined based upon achievement of performance goals (seventy
         percent [70%] financial [return on capital investments and EBITDA] and
         thirty percent [30%] personal) as approved by the Compensation
         Committee of the Board.

(c)      SIGN-ON BONUS. Within thirty (30) days after the Commencement Date, the
         Company will pay Executive a two hundred thousand ($200,000) dollar
         sign-on bonus.

(d)      FIRST BONUS GUARANTEED. The Company will pay to Executive a minimum
         guaranteed bonus in the amount of one hundred eighty-eight thousand
         ($188,000) dollars, to be paid in 2001.

(e)      STOCK OPTIONS.

         (i)      Effective as of the date of this Agreement, Executive will be
                  granted a ten-year stock option award under the Stock
                  Incentive Plan to purchase three hundred fifty thousand
                  (350,000) shares of Stock. The exercise price shall be the
                  fair market value on such date, and the options shall vest in
                  equal installments in each of the first four (4) anniversaries
                  of the date of this Agreement.

         (ii)     Following the February/March, 2001 meeting of the Compensation
                  Committee of the Board of Directors, Executive will be granted
                  a ten (10) year stock option award under the Stock Incentive
                  Plan to purchase one hundred seventy-five thousand (175,000)
                  shares of Stock. The exercise price shall be the fair market
                  value on the date the Compensation Committee meets to award
                  the options, and the options shall vest in equal installments
                  over five (5) years. Thereafter, Executive shall participate
                  in the Company's annual stock option award program as
                  administered by, and at the discretion of, the Compensation
                  Committee of the Board of Directors.

(f)      REPLACEMENT AWARDS. In order to address certain forfeitures that
         Executive will face upon termination of his employment with his prior
         employer, Executive shall be awarded or receive the following:

              Restricted Stock Award. Effective as of the Commencement Date, the
              Company will grant Executive an award of restricted shares of the
              Company's common stock (the "Stock") (valued at three hundred
              thousand [$300,000] dollars on the date of grant) under the Waste
              Management, Inc. 1993 Stock Incentive Plan (the "Stock Incentive
              Plan") that will vest in equal installments on each of the first
              four (4) anniversaries of the Commencement Date, subject (except
              as otherwise provided herein) to Executive's continuous employment
              with the Company through the applicable vesting date (the
              "Restricted Stock Grant"). The Restricted Stock Grant shall be
              deemed outstanding shares for all purposes and Executive shall be
              fully vested in any cash dividends paid therein (and non cash
              dividends being subject to the same forfeiture provisions as the
              underlying Restricted Stock Grant shares).

                                  Page 2 of 19

<PAGE>   3

(g)      OTHER COMPENSATION. Executive shall be entitled to participate in the
         Company's "Executive Deferral Plan" and any incentive or supplemental
         compensation plan, or arrangement maintained or instituted by the
         Company, and covering its principal executive officers, at a level
         commensurate with his positions and to receive additional compensation
         from the Company in such form, and to such extent, if any, as the
         Compensation Committee may in its sole discretion from time to time
         specify.

(h)      BENEFIT PLANS AND VACATION. Executive shall be eligible to participate
         in or receive benefits under any pension plan, profit sharing plan,
         medical and dental benefits plan, life insurance plan, short-term and
         long-term disability plans, or any other health, welfare or fringe
         benefit plan, generally made available by the Company to its executive
         officers at a level commensurate with his positions. All waiting
         periods for welfare plans shall be waived, and pre-existing medical
         conditions for Executive and Executive's family members will not be a
         basis for withholding medical insurance benefits. During the Employment
         Period, Executive shall be entitled to vacation each year in accordance
         with the Company's policies in effect from time to time, but in no
         event less than four (4) weeks paid vacation per calendar year. The
         Executive shall also be entitled to such periods of sick leave as is
         customarily provided by the Company for its senior executive employees.
         Executive shall be eligible to participate in the Company's 401(k) Plan
         after 90 days of employment.

(i)      OTHER PERQUISITES. Executive shall be entitled to the following
         benefits:

         1.       Auto Allowance in the amount of one thousand ($1,000) dollars
                  per month;

         2.       Financial Planning Services at actual cost, and not to exceed
                  fifteen thousand ($15,000) dollars annually;

         3.       Club Dues and Assessments at actual cost, and not to exceed
                  twelve thousand ($12,000) dollars annually; and

         4.       An Annual Physical Examination on a program designated by the
                  Company.

(j)      EXPENSE REIMBURSEMENT. The Company shall promptly reimburse Executive
         for the ordinary and necessary business expenses incurred by Executive
         in the performance of the duties hereunder in accordance with the
         Company's customary practices applicable to its executive officers. In
         addition the Company shall (i) pay for the reasonable costs, fees and
         expenses incurred by Executive, his consultants or legal advisors in
         connection with the negotiation and execution of this Agreement in an
         amount not to exceed ten thousand ($10,000) dollars.

                                  Page 3 of 19

<PAGE>   4

5.       TERMINATION OF EMPLOYMENT.

Executive's employment hereunder may be terminated under the following
circumstances:

(a)      DEATH. Executive's employment hereunder shall terminate upon
         Executive's death.

(b)      TOTAL DISABILITY. The Company may terminate Executive's employment
         hereunder upon Executive becoming "Totally Disabled". For purposes of
         this Agreement, Executive shall be "Totally Disabled" if Executive has
         been physically or mentally incapacitated so as to render Executive
         incapable of performing Executive's material usual and customary duties
         under this Agreement for six (6) consecutive months (such consecutive
         absence not being deemed interrupted by Executive's return to service
         for less than 10 consecutive business days if absent thereafter for the
         same illness or disability). Any such termination shall be upon thirty
         (30) days written notice given at any time thereafter while Executive
         remains Totally Disabled, provided that a termination for Total
         Disability hereunder shall not be effective if Executive returns to
         full performance of his duties within such thirty (30) day period.

(c)      TERMINATION BY THE COMPANY FOR CAUSE. The Company may terminate
         Executive's employment hereunder for "Cause" at any time within ninety
         (90) days after the Chairman of the Audit or Governance Committee of
         the Board has knowledge thereof.

         (i)      For purposes of this Agreement, the term "Cause" shall be
                  limited to (1) willful misconduct by Executive with regard to
                  the Company which has a material adverse effect on the
                  Company; (2) the willful refusal of Executive to attempt to
                  follow the proper written direction of the Board, provided
                  that the foregoing refusal shall not be "Cause" if Executive
                  in good faith believes that such direction is illegal,
                  unethical or immoral and promptly so notifies the Board; (3)
                  substantial and continuing willful refusal by the Executive to
                  attempt to perform the duties required of him hereunder (other
                  than any such failure resulting from incapacity due to
                  physical or mental illness) after a written demand for
                  substantial performance is delivered to the Executive by the
                  Board which specifically identifies the manner in which it is
                  believed that the Executive has substantially and continually
                  refused to attempt to perform his duties hereunder; or (4) the
                  Executive being convicted of a felony (other than a felony
                  involving a traffic violation or as a result of vicarious
                  liability). For purposes of this paragraph, no act, or failure
                  to act, on Executive's part shall be considered "willful"
                  unless done or omitted to be done, by him not in good faith
                  and without reasonable belief that his action or omission was
                  in the best interests of the Company.

         (ii)     A Notice of Termination for Cause shall mean a notice that
                  shall indicate the specific termination provision in Section
                  5(c)(i) relied upon and shall set forth in reasonable detail
                  the facts and circumstances which provide for a basis for
                  termination for Cause. Further, a Notification for Cause shall
                  be required to

                                  Page 4 of 19

<PAGE>   5

                  include a copy of a resolution duly adopted by at least
                  two-thirds (2/3rds) of the entire membership of the Board at a
                  meeting of the Board which was called for the purpose of
                  considering such termination and which Executive and his
                  representative had the right to attend and address the Board,
                  finding that, in the good faith of the Board, Executive
                  engaged in conduct set forth in the definition of Cause herein
                  and specifying the particulars thereof in reasonable detail.
                  The date of termination for a termination for Cause shall be
                  the date indicated in the Notice of Termination. Any purported
                  termination for Cause which is held by a court or arbitrator
                  not to have been based on the grounds set forth in this
                  Agreement or not to have followed the procedures set forth in
                  this Agreement shall be deemed a termination by the Company
                  without Cause.

(d)      VOLUNTARY TERMINATION BY EXECUTIVE. Executive may terminate employment
         hereunder with or without Good Reason at any time upon written notice
         to the Company.

         (i)      A Termination for Good Reason means a termination by Executive
                  by written notice given within ninety (90) days after the
                  occurrence of the Good Reason event, unless such circumstances
                  are fully corrected prior to the date of termination specified
                  in the Notice of Termination for Good Reason. For purposes of
                  this Agreement, "Good Reason" shall mean the occurrence or
                  failure to cause the occurrence, as the case may be, without
                  Executive's express written consent, of any of the following
                  circumstances: (1) any material diminution of Executive's
                  positions, duties or responsibilities hereunder (except in
                  each case in connection with the termination of Executive's
                  employment for Cause or Total Disability or as a result of
                  Executive's death, or temporarily as a result of Executive's
                  illness or other absence), or, the assignment to Executive of
                  duties or responsibilities that are inconsistent with
                  Executive's then position; provided that if the Company
                  becomes a fifty percent or more subsidiary of any other
                  entity, Executive shall be deemed to have a material
                  diminution of his position unless he is also Senior Vice
                  President and General Counsel, and Secretary to the Board of
                  the ultimate parent entity; (2) removal of, or the
                  non-re-election of, the Executive from officer positions with
                  the Company specified herein or removal of the Executive from
                  any of his then officer positions; (3) requiring Executive's
                  principal place of business to be located other than in the
                  Houston, Texas greater Metropolitan region; (4) a failure by
                  the Company (I) to continue any bonus plan, program or
                  arrangement in which Executive is entitled to participate (the
                  "Bonus Plans"), provided that any such Bonus Plans may be
                  modified at the Company's discretion from time to time but
                  shall be deemed terminated if (x) any such plan does not
                  remain substantially in the form in effect prior to such
                  modification and (y) if plans providing Executive with
                  substantially similar benefits are not substituted therefor
                  ("Substitute Plans"), or (II) to continue Executive as a
                  participant in the Bonus Plans and Substitute Plans on at
                  least the same basis as to potential amount of the bonus as
                  Executive participated in prior to any change in such plans or
                  awards, in accordance with the Bonus Plans and the Substitute
                  Plans; (5) any material breach by the Company of any provision
                  of this Agreement, including without limitation Section 10
                  hereof; or (6) failure of any

                                  Page 5 of 19

<PAGE>   6

                  successor to the Company (whether direct or indirect and
                  whether by merger, acquisition, consolidation or otherwise) to
                  assume in a writing delivered to Executive upon the assignee
                  becoming such, the obligations of the Company hereunder.

         (ii)     A Notice of Termination for Good Reason shall mean a notice
                  that shall indicate the specific termination provision relied
                  upon and shall set forth in reasonable detail the facts and
                  circumstances claimed to provide a basis for Termination for
                  Good Reason. The failure by Executive to set forth in the
                  Notice of Termination for Good Reason any facts or
                  circumstances which contribute to the showing of Good Reason
                  shall not waive any right of Executive hereunder or preclude
                  Executive from asserting such fact or circumstance in
                  enforcing his rights hereunder. The Notice of Termination for
                  Good Reason shall provide for a date of termination not less
                  than ten (10) nor more than sixty (60) days after the date
                  such Notice of Termination for Good Reason is given, provided
                  that in the case of the events set forth in Sections (i)(1) or
                  (2) the date may be five (5) days after the giving of such
                  notice.

(e)      TERMINATION BY THE COMPANY WITHOUT CAUSE. The Company may terminate
         Executive's employment hereunder without Cause at any time upon written
         notice to Executive.

(f)      EFFECT OF TERMINATION. Upon any termination of employment, Executive
         shall immediately resign from all Board memberships and other positions
         with the Company or any of its subsidiaries held by him at such time.

6.       COMPENSATION FOLLOWING TERMINATION OF EMPLOYMENT.

In the event that Executive's employment hereunder is terminated, Executive
shall be entitled to the following compensation and benefits upon such
termination:

(a)      TERMINATION BY REASON OF DEATH. In the event that Executive's
         employment is terminated by reason of Executive's death, the Company
         shall pay the following amounts to Executive's beneficiary or estate:

         (i)      Any accrued but unpaid Base Salary for services rendered to
                  the date of death, any accrued but unpaid expenses required to
                  be reimbursed under this Agreement, any vacation accrued to
                  the date of termination, any earned but unpaid bonuses for any
                  prior period, a pro-rata "bonus" or incentive compensation
                  payment to the extent payments are awarded senior executives
                  and paid at the same time as senior executives are paid, and
                  any vacation accrued to the date of death.

         (ii)     Any benefits to which Executive may be entitled pursuant to
                  the plans, policies and arrangements (including those referred
                  to in Sections 4(g)-(i) hereof), as determined and paid in
                  accordance with the terms of such plans, policies and
                  arrangements.

                                  Page 6 of 19

<PAGE>   7

         (iii)    An amount equal to the Base Salary (at the rate in effect as
                  of the date of Executive's death) which would have been
                  payable to Executive if Executive had continued in employment
                  for two additional years. Said payments will be paid to
                  Executive's estate or beneficiary at the same time and in the
                  same manner as such compensation would have been paid if
                  Executive had remained in active employment.

         (iv)     As of the date of termination by reason of Executive's death,
                  stock options awarded to Executive and the Restricted Stock
                  Grant shall be fully vested and Executive's estate or
                  beneficiary shall have up to one (1) year from the date of
                  death to exercise all such options.

         (v)      As otherwise specifically provided herein.

(b)      TERMINATION BY REASON OF TOTAL DISABILITY. In the event that
         Executive's employment is terminated by reason of Executive's Total
         Disability as determined in accordance with Section 5(b), the Company
         shall pay the following amounts to Executive:

         (i)      Any accrued but unpaid Base Salary for services rendered to
                  the date of termination, any accrued but unpaid expenses
                  required to be reimbursed under this Agreement, any vacation
                  accrued to the date of termination and any earned but unpaid
                  bonuses for any prior period. Executive shall also be eligible
                  for a pro-rata bonus or incentive compensation payment to the
                  extent such awards are made to senior executives for the year
                  in which Executive is terminated.

         (ii)     Any benefits to which Executive may be entitled pursuant to
                  the plans, policies and arrangements (including those referred
                  to in Sections 4(g)-(i) hereof) shall be determined and paid
                  in accordance with the terms of such plans, policies and
                  arrangements.

         (iii)    An amount equal to the Base Salary (at the rate in effect as
                  of the date of Executive's Total Disability) which would have
                  been payable to Executive if Executive had continued in active
                  employment for two years following termination of employment,
                  less any payments under any long-term disability plan or
                  arrangement paid for by the Company. Payment shall be made at
                  the same time and in the same manner as such compensation
                  would have been paid if Executive had remained in active
                  employment until the end of such period.

         (iv)     As of the date of termination by reason of Executive's Total
                  Disability, Executive shall be fully vested in all stock
                  option awards and the Restricted Stock Grant and Executive
                  shall have up to one (1) year from the date of termination by
                  reason of Total Disability to exercise all such options.

         (v)      As otherwise specifically provided herein.

                                  Page 7 of 19

<PAGE>   8

(c)      TERMINATION FOR CAUSE. In the event that Executive's employment is
         terminated by the Company for Cause, the Company shall pay the
         following amounts to Executive:

         (i)      Any accrued but unpaid Base Salary for services rendered to
                  the date of termination, any accrued but unpaid expenses
                  required to be reimbursed under this Agreement, any vacation
                  accrued to the date of termination and any earned but unpaid
                  bonuses for any prior period.

         (ii)     Any benefits to which Executive may be entitled pursuant to
                  the plans, policies and arrangements (including those referred
                  to in Sections 4(g)-(i) hereof) shall be determined and paid
                  in accordance with the terms of such plans, policies and
                  arrangements.

         (iii)    As otherwise specifically provided herein.

         Any options, restricted stock or other awards that have not vested
         prior to the date of such termination of employment shall be cancelled
         and any options held by Executive shall be cancelled, whether or not
         then vested.

(d)      VOLUNTARY TERMINATION BY EXECUTIVE. In the event that Executive
         voluntarily terminates employment other than for Good Reason, the
         Company shall pay the following amounts to Executive:

         (i)      Any accrued but unpaid Base Salary for services rendered to
                  the date of termination, any accrued but unpaid expenses
                  required to be reimbursed under this Agreement, any vacation
                  accrued to the date of termination and any earned but unpaid
                  bonuses for any prior period.

         (ii)     Any benefits to which Executive may be entitled pursuant to
                  the plans, policies and arrangements (including those referred
                  to in Sections 4(g)-(i) hereof) shall be determined and paid
                  in accordance with the terms of such plans, policies and
                  arrangements.

         (iii)    As otherwise specifically provided herein.

         Any options, restricted stock or other awards that have not vested
         prior to the date of such termination of employment shall be cancelled
         and Executive shall have 90 days following termination of employment to
         exercise any previously vested options (or, if earlier, until the
         stated expiration thereof).

(e)      TERMINATION BY THE COMPANY WITHOUT CAUSE; TERMINATION BY EXECUTIVE FOR
         GOOD REASON. In the event that Executive's employment is terminated by
         the Company for reasons other than death, Total Disability or Cause, or
         Executive terminates his employment for Good Reason, the Company shall
         pay the following amounts to Executive:

                                  Page 8 of 19

<PAGE>   9

         (i)      Any accrued but unpaid Base Salary for services rendered to
                  the date of termination, any accrued but unpaid expenses
                  required to be reimbursed under this Agreement, any vacation
                  accrued to the date of termination and any earned but unpaid
                  bonuses for any prior period.

         (ii)     Any benefits to which Executive may be entitled pursuant to
                  the plans, policies and arrangements referred to in Sections
                  4(g)-(i) hereof shall be determined and paid in accordance
                  with the terms of such plans, policies and arrangements.

         (iii)    An amount equal to two times the sum of Executive's Base
                  Salary plus his Target Annual Bonus (in each case as then in
                  effect), of which one-half shall be paid in a lump sum within
                  ten (10) days after such termination and one-half shall be
                  paid during the two (2) year period beginning on the date of
                  Executive's termination and shall be paid at the same time and
                  in the same manner as Base Salary would have been paid if
                  Executive had remained in active employment until the end of
                  such period.

         (iv)     The Company at its expense will continue for Executive and
                  Executive's spouse and dependents, all health benefit plans,
                  programs or arrangements, whether group or individual, and
                  also including deferred compensation, disability, automobile,
                  and other benefit plans, in which Executive was entitled to
                  participate at any time during the twelve-month period prior
                  to the date of termination, until the earliest to occur of (A)
                  two years after the date of termination; (B) Executive's death
                  (provided that benefits payable to Executive's beneficiaries
                  shall not terminate upon Executive's death); or (C) with
                  respect to any particular plan, program or arrangement, the
                  date Executive becomes covered by a comparable benefit by a
                  subsequent employer. In the event that Executive's continued
                  participation in any such plan, program, or arrangement of the
                  Company is prohibited, the Company will arrange to provide
                  Executive with benefits substantially similar to those which
                  Executive would have been entitled to receive under such plan,
                  program, or arrangement, for such period on a basis which
                  provides Executive with no additional after tax cost.

         (v)      Except to the extent prohibited by law, and except as
                  otherwise provided herein, Executive will be 100% vested in
                  all benefits, awards, and grants accrued but unpaid as of the
                  date of termination under any pension plan, profit sharing
                  plan, supplemental and/or incentive compensation plans in
                  which Executive was a participant as of the date of
                  termination. Executive shall also be eligible for a bonus or
                  incentive compensation payment, at the same time, on the same
                  basis, and to the same extent payments are made to senior
                  executives, pro-rated for the fiscal year in which the
                  Executive is terminated.

         (vi)     As of the date of such termination of employment, the stock
                  options awarded to Executive pursuant to Section 4(e)(i)
                  hereof and the Restricted Stock Grant shall be fully vested.
                  Executive shall continue to vest in all other stock option
                  awards or restricted stock awards over the two (2) year period
                  commencing on the date of such termination. Executive shall
                  have two (2) years and six (6) months after the date of
                  termination to exercise all options, unless by virtue of the
                  particular stock option award, the option grant expires on an
                  earlier date.

         (vii)    As otherwise specifically provided herein.

                                  Page 9 of 19

<PAGE>   10

(f)      NO OTHER BENEFITS OR COMPENSATION. Except as may be provided under this
         Agreement, under the terms of any incentive compensation, employee
         benefit, or fringe benefit plan applicable to Executive at the time of
         Executive's termination or resignation of employment, Executive shall
         have no right to receive any other compensation, or to participate in
         any other plan, arrangement or benefit, with respect to future periods
         after such termination or resignation.

(g)      NO MITIGATION; NO SET-OFF. In the event of any termination of
         employment hereunder, Executive shall be under no obligation to seek
         other employment and there shall be no offset against any amounts due
         Executive under this Agreement on account of any remuneration
         attributable to any subsequent employment that Executive may obtain.
         The amounts payable hereunder shall not be subject to setoff,
         counterclaim, recoupment, defense or other right which the Company may
         have against the Executive or others, except upon obtaining by the
         Company of a final unappealable judgment against Executive.

7.    RESIGNATION BY EXECUTIVE FOR GOOD REASON AND COMPENSATION PAYABLE
      FOLLOWING CHANGE IN CONTROL.

(a)      RESIGNATION FOR GOOD REASON FOLLOWING CHANGE IN CONTROL. In the event a
         "Change in Control" occurs and Executive terminates his employment for
         Good Reason thereafter, or the Company terminates Executive's
         employment other than for Cause or such termination for Good Reason or
         without Cause occurs in contemplation of such Change in Control (any
         termination within six (6) months prior to such Change in Control being
         presumed to be in contemplation unless rebutted by clear and
         demonstrable evidence to the contrary), the Company shall pay the
         following amounts to Executive:

         (i)      The payments and benefits provided for in Section 6(e), except
                  that (A) the period with respect to which severance is
                  calculated pursuant to Section 6(e)(iii) will be three (3)
                  years and the amount shall be paid in a lump-sum and (B) the
                  benefit continuation period in Section 6(e)(iv) shall be three
                  years.

         (ii)     Executive will be 100% vested in all benefits, awards, and
                  grants (including stock option grants and stock awards, all of
                  such stock options exercisable for three (3) years following
                  Termination) accrued but unpaid as of the date of termination
                  under any non-qualified pension plan, supplemental and/or
                  incentive compensation or bonus plans, in which Executive was
                  a participant as of the date of termination. Executive shall
                  also receive a bonus or incentive compensation payment (the
                  "bonus payment"), payable at 100% of the maximum bonus
                  available to Executive, pro-rated as of the effective date of
                  the termination. The

                                 Page 10 of 19

<PAGE>   11

                  bonus payment shall be payable within five (5) days after the
                  effective date of Employee's termination. Except as may be
                  provided under this Section 7 or under the terms of any
                  incentive compensation, employee benefit, or fringe benefit
                  plan applicable to Executive at the time of Executive's
                  resignation from employment, Executive shall have no right to
                  receive any other compensation, or to participate in any other
                  plan, arrangement or benefit, with respect to future periods
                  after such resignation or termination.

(b)      CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.

         (i)      In the event that the Executive shall become entitled to
                  payments and/or benefits provided by this Agreement or any
                  other amounts in the "nature of compensation" (whether
                  pursuant to the terms of this Agreement or any other plan,
                  arrangement or agreement with the Company, any person whose
                  actions result in a change of ownership or effective control
                  covered by Section 280G(b)(2) of the Code or any person
                  affiliated with the Company or such person) as a result of
                  such change in ownership or effective control (collectively
                  the "Company Payments"), and such Company Payments will be
                  subject to the tax (the "Excise Tax") imposed by Section 4999
                  of the Code (and any similar tax that may hereafter be imposed
                  by any taxing authority) the Company shall pay to the
                  Executive at the time specified in subsection (iv) below an
                  additional amount (the "Gross-up Payment") such that the net
                  amount retained by the Executive, after deduction of any
                  Excise Tax on the Company Payments and any U.S. federal,
                  state, and for local income or payroll tax upon the Gross-up
                  Payment provided for by this Section 7(b), but before
                  deduction for any U.S. federal, state, and local income or
                  payroll tax on the Company Payments, shall be equal to the
                  Company Payments.

         (ii)     For purposes of determining whether any of the Company
                  Payments and Gross-up Payments (collectively the "Total
                  Payments") will be subject to the Excise Tax and the amount of
                  such Excise Tax, (x) the Total Payments shall be treated as
                  "parachute payments" within the meaning of Section 280G(b)(2)
                  of the Code, and all "parachute payments" in excess of the
                  "base amount" (as defined under Code Section 280G[b][3] of the
                  Code) shall be treated as subject to the Excise Tax, unless
                  and except to the extent that, in the opinion of the Company's
                  independent certified public accountants appointed prior to
                  any change in ownership (as defined under Code Section
                  280G[b][2]) or tax counsel selected by such accountants (the
                  "Accountants") such Total Payments (in whole or in part)
                  either do not constitute "parachute payments," represent
                  reasonable compensation for services actually rendered within
                  the meaning of Section 280G(b)(4) of the Code in excess of the
                  "base amount" or are otherwise not subject to the Excise Tax,
                  and (y) the value of any non-cash benefits or any deferred
                  payment or benefit shall be determined by the Accountants in
                  accordance with the principles of Section 280G of the Code.

         (iii)    For purposes of determining the amount of the Gross-up
                  Payment, the Executive shall be deemed to pay U.S. federal
                  income taxes at the highest marginal rate of

                                 Page 11 of 19

<PAGE>   12

                  U.S. federal income taxation in the calendar year in which the
                  Gross-up Payment is to be made and state and local income
                  taxes at the highest marginal rate of taxation in the state
                  and locality of the Executive's residence for the calendar
                  year in which the Company Payment is to be made, net of the
                  maximum reduction in U.S. federal income taxes which could be
                  obtained from deduction of such state and local taxes if paid
                  in such year. In the event that the Excise Tax is subsequently
                  determined by the Accountants to be less than the amount taken
                  into account hereunder at the time the Gross-up Payment is
                  made, the Executive shall repay to the Company, at the time
                  that the amount of such reduction in Excise Tax is finally
                  determined, the portion of the prior Gross-up Payment
                  attributable to such reduction (plus the portion of the
                  Gross-up Payment attributable to the Excise Tax and U.S.
                  federal, state and local income tax imposed on the portion of
                  the Gross-up Payment being repaid by the Executive if such
                  repayment results in a reduction in Excise Tax or a U.S.
                  federal, state and local income tax deduction), plus interest
                  on the amount of such repayment at the rate provided in
                  Section 1274(b)(2)(B) of the Code. Notwithstanding the
                  foregoing, in the event any portion of the Gross-up Payment to
                  be refunded to the Company has been paid to any U.S. federal,
                  state and local tax authority, repayment thereof (and related
                  amounts) shall not be required until actual refund or credit
                  of such portion has been made to the Executive, and interest
                  payable to the Company shall not exceed the interest received
                  or credited to the Executive by such tax authority for the
                  period it held such portion. The Executive and the Company
                  shall mutually agree upon the course of action to be pursued
                  (and the method of allocating the expense thereof) if the
                  Executive's claim for refund or credit is denied.

                  In the event that the Excise Tax is later determined by the
                  Accountant or the Internal Revenue Service to exceed the
                  amount taken into account hereunder at the time the Gross-up
                  Payment is made (including by reason of any payment the
                  existence or amount of which cannot be determined at the time
                  of the Gross-up Payment), the Company shall make an additional
                  Gross-up Payment in respect of such excess (plus any interest
                  or penalties payable with respect to such excess) at the time
                  that the amount of such excess is finally determined.

         (iv)     The Gross-up Payment or portion thereof provided for in
                  subsection (iii) above shall be paid not later than the
                  thirtieth (30th) day following an event occurring which
                  subjects the Executive to the Excise Tax; provided, however,
                  that if the amount of such Gross-up Payment or portion thereof
                  cannot be finally determined on or before such day, the
                  Company shall pay to the Executive on such day an estimate, as
                  determined in good faith by the Accountant, of the minimum
                  amount of such payments and shall pay the remainder of such
                  payments (together with interest at the rate provided in
                  Section 1274(b)(2)(B) of the Code), subject to further
                  payments pursuant to subsection (iii) hereof, as soon as the
                  amount thereof can reasonably be determined, but in no event
                  later than the ninetieth day after the occurrence of the event
                  subjecting the Executive to the Excise Tax. In the event that
                  the amount of the estimated payments exceeds the amount
                  subsequently determined to have been due, such excess shall
                  constitute a loan by the Company

                                 Page 12 of 19

<PAGE>   13

                  to the Executive, payable on the fifth day after demand by the
                  Company (together with interest at the rate provided in
                  Section 1274(b)(2)(B) of the Code).

         (v)      In the event of any controversy with the Internal Revenue
                  Service (or other taxing authority) with regard to the Excise
                  Tax, the Executive shall permit the Company to control issues
                  related to the Excise Tax (at its expense), provided that such
                  issues do not potentially materially adversely affect the
                  Executive, but the Executive shall control any other issues.
                  In the event the issues are interrelated, the Executive and
                  the Company shall in good faith cooperate so as not to
                  jeopardize resolution of either issue, but if the parties
                  cannot agree the Executive shall make the final determination
                  with regard to the issues. In the event of any conference with
                  any taxing authority as to the Excise Tax or associated income
                  taxes, the Executive shall permit the representative of the
                  Company to accompany the Executive, and the Executive and the
                  Executive's representative shall cooperate with the Company
                  and its representative.

         (vi)     The Company shall be responsible for all charges of the
                  Accountant.

         (vii)    The Company and the Executive shall promptly deliver to each
                  other copies of any written communications, and summaries of
                  any verbal communications, with any taxing authority regarding
                  the Excise Tax covered by this Section 7(b).

(c)      CHANGE IN CONTROL. For purposes of this Agreement, "Change in Control"
         means the occurrence of any of the following events:

         (i)      any Person is or becomes the Beneficial Owner, directly or
                  indirectly, of securities of the Company (not including in the
                  securities beneficially owned by such person any securities
                  acquired directly from the Company or its Affiliates)
                  representing twenty-five percent (25%) or more of the combined
                  voting power of the Company's then outstanding voting
                  securities;

         (ii)     the following individuals cease for any reason to constitute a
                  majority of the number of directors then serving: individuals
                  who, on the Commencement Date, constitute the Board and any
                  new director (other than a director whose initial assumption
                  of office is in connection with an actual or threatened
                  election contest, including but not limited to a consent
                  solicitation, relating to the election of directors of the
                  Company) whose appointment or election by the Board or
                  nomination for election by the Company's stockholders was
                  approved or recommended by a vote of the at least two-thirds
                  (2/3rds) of the directors then still in office who either were
                  directors on the Commencement Date or whose appointment,
                  election or nomination for election was previously so approved
                  or recommended;

         (iii)    there is a consummated merger or consolidation of the Company
                  or any direct or indirect subsidiary of the Company with any
                  other corporation, other than (A) a merger or consolidation
                  which would result in the voting securities of the

                                 Page 13 of 19

<PAGE>   14

                  Company outstanding immediately prior thereto continuing to
                  represent (either by remaining outstanding or by being
                  converted into voting securities of the surviving or parent
                  entity) more than fifty percent (50%) of the combined voting
                  power of the voting securities of the Company or such
                  surviving or parent equity outstanding immediately after such
                  merger or consolidation or (B) a merger or consolidation
                  effected to implement a recapitalization of the Company (or
                  similar transaction) in which no Person, directly or
                  indirectly, acquired twenty-five percent (25%) or more of the
                  combined voting power of the Company's then outstanding
                  securities (not including in the securities beneficially owned
                  by such person any securities acquired directly from the
                  Company or its Affiliates); or

         (iv)     the stock holders of the Company approve a plan of complete
                  liquidation of the Company or there is consummated an
                  agreement for the sale or disposition by the Company of all or
                  substantially all of the Company's assets (or any transaction
                  having a similar effect), other than a sale or disposition by
                  the Company of all or substantially all of the Company's
                  assets to an entity, at least fifty percent (50%) of the
                  combined voting power of the voting securities of which are
                  owned by stockholders of the Company in substantially the same
                  proportions as their ownership of the Company immediately
                  prior to such sale.

         For purposes of this Section 7(c), the following terms shall have the
         following meanings:

                  (i) "Affiliate" shall mean an affiliate of the Company, as
                  defined in Rule 12b-2 promulgated under Section 12 of the
                  Securities Exchange Act of 1934, as amended from time to time
                  (the "Exchange Act");

                  (ii) "Beneficial Owner" shall have the meaning set forth in
                  Rule 13d-3 under the Exchange Act;

                  (iii) "Person" shall have the meaning set forth in Section
                  3(a)(9) of the Exchange Act, as modified and used in Sections
                  13(d) and 14(d) thereof, except that such term shall not
                  include (1) the Company, (2) a trustee or other fiduciary
                  holding securities under an employee benefit plan of the
                  Company, (3) an underwriter temporarily holding securities
                  pursuant to an offering of such securities or (4) a
                  corporation owned, directly or indirectly, by the stockholders
                  of the Company in substantially the same proportions as their
                  ownership of shares of Common Stock of the Company.

8.       RESTRICTIVE COVENANTS.

(a)      COMPETITIVE ACTIVITY. Executive covenants and agrees that at all times
         during Executive's period of employment with the Company, and for two
         (2) years thereafter, Executive will not engage in, assist, or have any
         active interest or involvement, whether as an employee, agent,
         consultant, creditor, advisor, officer, director, stockholder
         (excluding holding of less than 3% of the stock of a public company),
         partner, proprietor or any type of principal whatsoever in any person,
         firm, or business entity which, directly

                                 Page 14 of 19

<PAGE>   15

         or indirectly, is materially engaged in the waste management business
         competitive with that conducted and carried on by the Company, without
         the Company's specific written consent to do so. "Material" shall mean
         more than five (5%) percent of their revenue is generated from the
         waste management business; provided that the revenues within
         Executive's area of responsibility or authority are more than 10%
         composed of revenues from the waste disposal business. Notwithstanding
         the foregoing, Executive may be employed by or provide services to, an
         investment banking firm, law firm or consulting firm that provides
         services to entities described in the previous sentence, provided that
         Executive does not personally represent or provide services to such
         entities.

(b)      NON-SOLICITATION. Executive covenants and agrees that at all times
         during Executive's period of employment with the Company, and for a
         period of two (2) years after the Termination thereof, whether such
         termination is voluntary or involuntary by wrongful discharge, or
         otherwise, Executive will not directly and personally knowingly (i)
         induce any customers of the Company or corporations affiliated with the
         Company to patronize any similar business which competes with any
         material business of the Company; (ii) after his termination of
         employment, request or advise any customers of the Company or
         corporations affiliated with the Company to withdraw, curtail or cancel
         such customer's business with the Company; or (iii) after his
         termination of employment, individually or through any person, firm,
         association or corporation with which he is now, or may hereafter
         become associated, solicit, entice or induce any then employee of the
         Company, or any subsidiary of the Company, to leave the employ of the
         Company, or such other corporation, to accept employment with, or
         compensation from the Executive, or any person, firm, association or
         corporation with which Executive is affiliated without prior written
         consent of the Company. The foregoing shall not prevent Executive from
         serving as a reference for employees.

(c)      PROTECTED INFORMATION. Executive recognizes and acknowledges that
         Executive has had and will continue to have access to various
         confidential or proprietary information concerning the Company and
         corporations affiliated with the Company of a special and unique value
         which may include, without limitation, (i) books and records relating
         to operation, finance, accounting, sales, personnel and management,
         (ii) policies and matters relating particularly to operations such as
         customer service requirements, costs of providing service and
         equipment, operating costs and pricing matters, and (iii) various trade
         or business secrets, including customer lists, route sheets, business
         opportunities, marketing or business diversification plans, business
         development and bidding techniques, methods and processes, financial
         data and the like, to the extent not generally known in the industry
         (collectively, the "Protected Information"). Executive therefore
         covenants and agrees that Executive will not at any time, either while
         employed by the Company or afterwards, knowingly make any independent
         use of, or knowingly disclose to any other person or organization
         (except as authorized by the Company) any of the Protected Information,
         provided that (i) while employed by the Company, Executive may in good
         faith make disclosures he believes desirable, and (ii) Executive may
         comply with legal process.

                                 Page 15 of 19

<PAGE>   16

9.       ENFORCEMENT OF COVENANTS.

(a)      RIGHT TO INJUNCTION. Executive acknowledges that a breach of the
         covenants set forth in Section 8 hereof will cause irreparable damage
         to the Company with respect to which the Company's remedy at law for
         damages may be inadequate. Therefore, in the event of breach or
         threatened breach of the covenants set forth in this section by
         Executive, Executive and the Company agree that the Company shall be
         entitled to the following particular forms of relief, in addition to
         remedies otherwise available to it at law or equity; injunctions, both
         preliminary and permanent, enjoining or restraining such breach or
         threatened breach and Executive hereby consents to the issuance thereof
         forthwith and without bond by any court of competent jurisdiction.

(b)      SEPARABILITY OF COVENANTS. The covenants contained in Section 8 hereof
         constitute a series of separate covenants, one for each applicable
         State in the United States and the District of Columbia, and one for
         each applicable foreign country. If in any judicial proceeding, a court
         shall hold that any of the covenants set forth in Section 8 exceed the
         time, geographic, or occupational limitations permitted by applicable
         laws, Executive and the Company agree that such provisions shall and
         are hereby reformed to the maximum time, geographic, or occupational
         limitations permitted by such laws. Further, in the event a court shall
         hold unenforceable any of the separate covenants deemed included
         herein, then such unenforceable covenant or covenants shall be deemed
         eliminated from the provisions of this Agreement for the purpose of
         such proceeding to the extent necessary to permit the remaining
         separate covenants to be enforced in such proceeding.

         Executive and the Company further agree that the covenants in Section 8
         shall each be construed as a separate agreement independent of any
         other provisions of this Agreement, and the existence of any claim or
         cause of action by Executive against the Company whether predicated on
         this Agreement or otherwise, shall not constitute a defense to the
         enforcement by the Company of any of the covenants of Section 8.

10.      INDEMNIFICATION.

The Company shall indemnify and hold harmless Executive to the fullest extent
permitted by law for any action or inaction of Executive while serving as an
officer and director of the Company or, at the Company's request, as an officer
or director of any other entity or as a fiduciary of any benefit plan. The
Company shall cover the Executive under directors and officers liability
insurance both during and, while potential liability exists, after the
Employment Term in the same amount and to the same extent as the Company covers
its other officers and directors.

11.      DISPUTES AND PAYMENT OF ATTORNEY'S FEES.

If at any time during the term of this Agreement or afterwards there should
arise any dispute as to the validity, interpretation or application of any term
or condition of this Agreement, the Company agrees, upon written demand by
Executive (and Executive shall be entitled upon application to any court of
competent jurisdiction, to the entry of a mandatory injunction, without the
necessity of posting any bond with respect thereto, compelling the Company) to
promptly

                                 Page 16 of 19

<PAGE>   17

provide sums sufficient to pay on a current basis (either directly or by
reimbursing Executive) Executive's costs and reasonable attorney's fees
(including expenses of investigation and disbursements for the fees and expenses
of experts, etc.) incurred by Executive in connection with any such dispute or
any litigation, provided that Executive shall repay any such amounts paid or
advanced if Executive is not the prevailing party with respect to at least one
material claim or issue in such dispute or litigation. The provisions of this
Section 11, without implication as to any other section hereof, shall survive
the expiration or termination of this Agreement and of Executive's employment
hereunder.

12.      WITHHOLDING OF TAXES.

The Company may withhold from any compensation and benefits payable under this
Agreement all applicable federal, state, local, or other taxes.

13.      SOURCE OF PAYMENTS.

All payments provided under this Agreement, other than payments made pursuant to
a plan which provides otherwise, shall be paid from the general funds of the
Company, and no special or separate fund shall be established, and no other
segregation of assets made, to assure payment. Executive shall have no right,
title or interest whatever in or to any investments which the Company may make
to aid the Company in meeting its obligations hereunder. To the extent that any
person acquires a right to receive payments from the Company hereunder, such
right shall be no greater than the right of an unsecured creditor of the
Company.

14.      ASSIGNMENT.

Except as otherwise provided in this Agreement, this Agreement shall inure to
the benefit of and be binding upon the parties hereto and their respective
heirs, representatives, successors and assigns. This Agreement shall not be
assignable by Executive (but any payments due hereunder which would be payable
at a time after Executive's death shall be paid to Executive's designated
beneficiary or, if none, his estate) and shall be assignable by the Company only
to any financially solvent corporation or other entity resulting from the
reorganization, merger or consolidation of the Company with any other
corporation or entity or any corporation or entity to or with which the
Company's business or substantially all of its business or assets may be sold,
exchanged or transferred, and it must be so assigned by the Company to, and
accepted as binding upon it by, such other corporation or entity in connection
with any such reorganization, merger, consolidation, sale, exchange or transfer
in a writing delivered to Executive in a form reasonably acceptable to Executive
(the provisions of this sentence also being applicable to any successive such
transaction).

15.      ENTIRE AGREEMENT; AMENDMENT.

This Agreement shall supersede any and all existing oral or written agreements,
representations, or warranties between Executive and the Company or any of its
subsidiaries or affiliated entities relating to the terms of Executive's
employment by the Company. It may not be amended except by a written agreement
signed by both parties.

                                 Page 17 of 19

<PAGE>   18

16.      GOVERNING LAW.

This Agreement shall be governed by and construed in accordance with the laws of
the State of Texas applicable to agreements made and to be performed in that
State, without regard to its conflict of laws provisions.

17.      REQUIREMENT OF TIMELY PAYMENTS.

If any amounts which are required, or determined to be paid or payable, or
reimbursed or reimbursable, to Executive under this Agreement (or any other
plan, agreement, policy or arrangement with the Company) are not so paid
promptly at the times provided herein or therein, such amounts shall accrue
interest, compounded daily, at an 8% annual percentage rate, from the date such
amounts were required or determined to have been paid or payable, reimbursed or
reimbursable to Executive, until such amounts and any interest accrued thereon
are finally and fully paid, provided, however, that in no event shall the amount
of interest contracted for, charged or received hereunder, exceed the maximum
non-usurious amount of interest allowed by applicable law.

18.      NOTICES.

Any notice, consent, request or other communication made or given in connection
with this Agreement shall be in writing and shall be deemed to have been duly
given when delivered or mailed by registered or certified mail, return receipt
requested, or by facsimile or by hand delivery, to those listed below at their
following respective addresses or at such other address as each may specify by
notice to the others:

             To the Company:    Waste Management, Inc.
                                1001 Fannin, Suite 4000
                                Houston, Texas 77002
                                Attention: Corporate Secretary

             To Executive:      At the address for Executive set forth below.

19.      MISCELLANEOUS.

(a)      WAIVER. The failure of a party to insist upon strict adherence to any
         term of this Agreement on any occasion shall not be considered a waiver
         thereof or deprive that party of the right thereafter to insist upon
         strict adherence to that term or any other term of this Agreement.

(b)      SEPARABILITY. Subject to Section 9 hereof, if any term or provision of
         this Agreement is declared illegal or unenforceable by any court of
         competent jurisdiction and cannot be modified to be enforceable, such
         term or provision shall immediately become null and void, leaving the
         remainder of this Agreement in full force and effect.

                                 Page 18 of 19

<PAGE>   19

(c)      HEADINGS. Section headings are used herein for convenience of reference
         only and shall not affect the meaning of any provision of this
         Agreement.

(d)      RULES OF CONSTRUCTION. Whenever the context so requires, the use of the
         singular shall be deemed to include the plural and vice versa.

(e)      COUNTERPARTS. This Agreement may be executed in any number of
         counterparts, each of which so executed shall be deemed to be an
         original, and such counterparts will together constitute but one
         Agreement.

IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the day and year first above written.

WASTE MANAGEMENT, INC.

By:    /s/ A. Maurice Myers
  --------------------------------------------------------
Name:  A. Maurice Myers
Title: Chairman, Chief Executive Officer and President

Date:                   January 21, 2000
    ------------------------------------------------------

EXECUTIVE

/s/ Lawrence O'Donnell, III
----------------------------------------------------------
Lawrence O'Donnell, III

Date:      January 21, 2000
    ------------------------------------------------------

Social Security Number:

Address:

                                 Page 19 of 19

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