Exhibit 10.17


 


TERMINATION AND RELEASE AGREEMENT


 


THIS TERMINATION AND RELEASE AGREEMENT (this
“Agreement”) is entered into by and
between John B. Simmons (“Employee”), a
resident of Houston, Texas and Stewart & Stevenson Services, Inc., a Texas corporation, having its
principal place of business in Houston, Texas (the “Company,”
and together with its subsidiary and affiliated companies, “S&S”).


 


WITNESSETH:


 


WHEREAS, Employee
has been an employee and an officer of S&S, serving most recently as Senior
Vice President, Chief Financial Officer and Treasurer of the Company and as an
officer of various of the Company’s affiliates; and


 


WHEREAS, the Company
has entered into certain Asset Purchase Agreements dated October 24, 2005 and
September 27, 2005 (the “APAs”), with
Hushang Ansary (“Ansary”) to sell the assets and
business of the Company’s Power Products and Engineered Products Divisions (the
“Divisions”) to Ansary upon the terms set
forth therein, and the Company has agreed with Ansary that the sale of the Divisions
shall close prior to January 31, 2006 (the “Closing Date”);
and


 


WHEREAS, Employee is
expected to become the chief executive officer of the entity formed by Ansary
to succeed to the business of the Divisions; and


 


WHEREAS, Employee
has agreed to remain an employee of the Company through March 31, 2006, to
continue to perform certain financial related activities for the Company,
including helping the Company to carryout its financial reporting obligations
in respect of its fiscal year ending January 31, 2006 (the period of time
from the date hereof through March 31, 2006, being herein referred to as
the “Transition Period”); and


 


WHEREAS, Employee
has, on behalf of S&S, contributed significantly to the transactions
contemplated by the APAs as well as having contributed significantly to the overall
performance of the Company in recent periods; and


 


WHEREAS, Employee’s
position and employment as an employee of S&S shall, under the foregoing
circumstances, be terminated at the close of business on March 31, 2006
(the “Separation Date”); and


 


WHEREAS, Employee’s
position and employment as an officer of S&S shall be terminated as of the
closing of the sale of the Divisions; and


 


WHEREAS, Employee is
a participant in the Company’s Management Incentive Compensation Plan (the “MICP”) and shall be paid compensation under the MICP for his
performance during the Company’s fiscal year that will end on January 31,
2006 in accordance with the terms of the MICP; and


 

















 


WHEREAS, Employee
shall not participate in the MICP during the Company’s fiscal year that will
end on January 31, 2007; and


 


WHEREAS, the Company
and Employee have agreed with respect to certain future obligations of Employee
to the Company, including his activities during the Transition Period, confidentiality,
non-competition and cooperation; and


 


WHEREAS, Employee
and S&S desire to avoid the expense, delay, and uncertainty attendant to
any claims that may arise from Employee’s service with and termination
from his positions and employment with S&S; and


 


WHEREAS, Employee
desires to release S&S, its predecessors and successors in interest, and
its employees, officers, directors, shareholders, agents and representatives,
past and present, and, except to the extent specifically provided herein, all
employee benefit plans sponsored by S&S (collectively, the “S&S Parties” and each individually, an “S&S Party”), individually and collectively, from all
claims and causes of action and damages, if any, he has or may have
against S&S and/or any of the S&S Parties; and


 


WHEREAS, S&S
desires to release Employee from all claims or causes of action, if any, it may have
against Employee; and


 


WHEREAS, Employee
and S&S therefore desire to establish their respective rights and
obligations for the future.


 


NOW, THEREFORE, in
consideration of the following mutual covenants and promises, and for other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Employee and S&S hereby agree as follows:


 


1.                                      RESIGNATION:  Employee hereby resigns from his
positions as Senior Vice President, Chief Financial Officer and Treasurer of
the Company. Employee and S&S agree, however, that he shall continue to be
an employee of the Company at his current salary rate to and through the
Separation Date at which time his employment shall automatically terminate. Employee
acknowledges and agrees that he has no authority to and will not act for any of
the S&S Parties in any capacity on or after the Separation Date and will no
longer be in charge of the Company’s financial affairs after the date hereof. Employee
further acknowledges and agrees that S&S has to date fully paid his regular
salary as it has become payable to date, less customary withholding for taxes
and applicable deductions, and that such payment is in full satisfaction of all
wages (other than vacation pay) owed him by S&S as of the date hereof.


 


2.                                      CONSIDERATION:  In consideration for Employee’s termination
pursuant to this Agreement and his other promises made herein and in full
satisfaction of all (i) all amounts applicable to payment for the non-competition
agreements of Employee contained in Section 6 of this Agreement, and (ii) all
amounts owed and earned by reason of Employee’s contribution to the Company in
the management of the affairs of the Company and in the Company’s successful efforts
leading to the pending sale of the Divisions to Ansary, the Company agrees to
pay Employee the aggregate amount of $974,000 (the “Additional
Compensation”).


 


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The payment of the Additional Compensation is
subject to the following conditions having been met and the Additional
Compensation will not be made unless such conditions are satisfied:


 


a.                                       the
closing of the sale of the Divisions (the “Closing”) shall
have occurred prior to January 31, 2006; and


 


b.                                      Employee
shall have carried out his duties and responsibilities during the Transition
Period in good faith and with appropriate care and attention as reasonably
directed by the Company’s President and Chief Executive Officer;


 


c.                                       Employee
shall have satisfied his cooperation obligations specified in Section 13;
and


 


d.                                      a
Change in Control shall have occurred by December 31, 2006.


 


The Additional Compensation shall be paid to
Employee on the later of (1) the day following the date that is six months
from the date of his separation from service from the Company (within the
meaning of Section 409A of the Internal Revenue Code of 1986, as amended (the
“Code”)) or (2) the date of the
Change in Control.


 


The payment of the Additional Compensation
shall be net of customary withholding for taxes and applicable deductions
imposed by law or permissible elections made by Employee.


 


For purposes of this Section 2, the term
“Change in Control” means:


 


(I)                                    The acquisition by
any Person of beneficial ownership within the meaning of Rule 13d-3
promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange  Act”) of 35% or
more of either (A) the then-outstanding shares of common stock of the
Company (the “Outstanding Company Common Stock”)
or (B) the combined voting power of the then-outstanding voting securities
of the Company entitled to vote generally in the election of director (the “Outstanding
Company Voting Securities”); provided, however, that, for purposes of this Section 2,
the following acquisitions shall not constitute a Change in Control:  (i) any acquisition directly from the
Company, (ii) any acquisition by the Company, (iii) any acquisition
by any employee benefit plan (or related trust) sponsored or maintained by the
Company or any of its Affiliates or (iv) any acquisition by any
corporation pursuant to a transaction that complies with clauses (III)(A),
(III)(B) and (III)(C);


 


(II)                                The individuals who, as
of the date hereof, constitute the Board of Directors of the Company (the “Incumbent Board”) cease for any reason to constitute at
least a majority of the Board of Directors of the Company; provided, however,
that any individual becoming a director subsequent to the date hereof whose
election, or nomination for election by the Company’s stockholders, was
approved by a vote of at lease two thirds (2/3) of the directors then
comprising the Incumbent Board shall be considered as though such individual
were a member of the Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result of an actual
or threatened election contest with respect to the election or removal of
directors or other actual or threatened solicitation of proxies or consents by
or on behalf of Person other than the Board of Directors of the Company; or


 


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(III)                            The consummation of a
reorganization, merger, statutory share exchange or consolidation or similar
corporate transaction involving the Company or any of its subsidiaries, a sale
or other disposition of all or substantially all of the assets of the Company,
or the acquisition of assets or stock of another entity by the Company or any
of its subsidiaries (each, a “Business Combination”),
in each case unless, following such Business Combination, (A) all or
substantially all of the individuals and entities that were the beneficial
owners of the Outstanding Company Stock and the Outstanding Company Voting
Securities immediately prior to such Business Combination beneficially own,
directly or indirectly, more than 50% of the then-outstanding shares of common
stock and the combined voting power of the then-outstanding voting securities
entitled to vote generally in the election of directors, as the case may be,
of the corporation resulting from such Business Combination (including, without
limitation, a corporation that, as a result of such transaction, owns the
Company or all or substantially all of the Company’s assets either directly or
through one or more subsidiaries) in substantially the same proportions as
their ownership immediately prior to such Business Combination of the
Outstanding Company Common Stock and the Outstanding Company Voting Securities,
as the case may be, (B) no Person (excluding any corporation
resulting from such Business Combination or any employee benefit plan (or
related trust of the Company or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, 35% or more of,
respectively, the then-outstanding shares of common stock of the corporation
resulting from such Business Combination or the combined voting power of the
then-outstanding voting securities of such corporation, except to the extent
that such ownership existed prior to the Business Combination, and (C) at
least a majority of the members of the board of directors of the corporation
resulting from such Business Combination were members of the Incumbent Board at
the time of the execution of the initial agreement or of the action of the
Board of Directors of the Company providing for such Business Combination; or


 


(IV)                            The approval by the
stockholders of a complete liquidation or dissolution of the Company.


 


For purposes of this Section 2, the term “Person”
shall have the meaning given 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 or any of its subsidiaries, (ii) a
trustee or other fiduciary holding securities under an employee benefit plan of
the Company or any of its Affiliates, (iii) an underwriter temporarily
holding securities pursuant to an offering of such securities, or (iv) a
corporation owned, directly or indirectly, by the stockholders of the Company
in substantially the same proportions as their ownership of stock of the
Company; and “Affiliate” shall have the meaning
set forth in Rule 12-b-2 promulgated under Section 12 of the Exchange
Act;


 


3.                                      ACCRUED
SALARY AND VACATION PAY:  In addition,
S&S agrees to pay to Employee, within 30 days of the Separation Date, any
accrued but unpaid salary (at the rate currently in effect) through the
Separation Date and the accrued unpaid vacation due him under the S&S
vacation policy through the Separation Date.


 


4.                                      STOCK
OPTIONS:  Any stock options in the
name of Employee held on the Separation Date (the “Stock
Options”) shall be governed by the terms of the applicable stock


 


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option agreement and stock option plan; provided, however, that it is
specifically acknowledged that the Stewart & Stevenson Services, Inc.
1988 Nonstatutory Stock Option Plan permits, at the Compensation Committee’s
discretion, (i) the acceleration of the vesting of the Stock Options, to
the extent not previously vested, immediately upon the occurrence of the
Separation Date and (ii) the exercise by Employee thereof at any time
after the Separation Date and prior to 3:00 p.m. December 31, 2006. All
agreements with respect to the Stock Options shall be amended as of the date
hereof to provide to Employee the full benefits of such provisions of such
Stock Option Plan and such discretionary action by the Compensation Committee upon,
and subject to, the occurrence of the Closing. Said stock options and all
rights or entitlement thereto are not released or waived by this Agreement.


 


5.                                      NON-DISCLOSURE: S&S and Employee agree as follows:


 


a.                                       Employee
acknowledges that he has held a position of trust and confidence with S&S and that S&S has provided him with
Confidential Information, as defined in this section, through the Closing Date.


 


b.                                      Employee
agrees that he shall not directly or indirectly disclose any Confidential
Information unless such disclosure is (i) to an employee of S&S; or (ii) authorized in
writing by S&S; or (iii) required
by any court or administrative entity or (iv) to Ansary or his
representatives or permitees after the Closing Date and which relates solely to
the Divisions.


 


c.                                       Employee
acknowledges and agrees that these non-disclosure agreements shall survive any
termination of this Agreement or the completion of payments under this
Agreement and shall be fully enforceable by S&S or its successor or assignee subsequent to the
termination of Employee’s employment.


 


d.                                      For
purposes of this Agreement, the term “Confidential Information” shall be
defined as information in the possession of, prepared by, obtained by, or
compiled by S&S that is not
generally available to the public. “Confidential Information” as so
defined shall include information pertaining to, but not limited to:  (i) financial information of S&S, including but not limited to
information pertaining to product and asset cost data and projections, actual
and expected revenues and expenses, asset valuations and liabilities, budgetary
data, profit and expense margin data, existing and projected manufacturing and
inventory capacities, company and personnel strengths and weaknesses, and other
confidential and proprietary information related to the products or services of
S&S, and the rights and
obligations of S&S, and said
information includes, but is not limited to, S&S’s proposals, plans, budgets and strategies with respect
to its contracts with the U.S. Army
as to the family of medium tactical vehicles and related matters; (ii) the
identity of S&S’s suppliers,
vendors, customers, clients, and prospects; (iii) the business, finances
and special needs of S&S, their
customers, clients, and prospects; (iv) S&S’s policies and procedures; (v) S&S’s personnel and compensation
plans and employee benefits; (vi) confidential market studies; (vii) pricing
studies, information and analyses; (viii) current and prospective business
projections; (ix) business plans and strategies; (x) financial
statements and information; (xi) special processes, procedures and
services of S&S; and (xii) the
trade secrets of S&S.


 


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e.                                       Employee
acknowledges and agrees that this Confidential Information, if disclosed, would
place S&S at a competitive
disadvantage. Employee further agrees that S&S takes reasonable steps to maintain the confidentiality
of this Confidential Information, and that the Confidential Information is in
fact secret or substantially secret.


 


6.                                      NON-COMPETITION:


 


a.                                       Business
Relationships, Goodwill and Confidential Information. Employee
acknowledges and agrees that as an officer and representative of S&S, Employee is and has been
responsible for building and maintaining business relationships and goodwill
with current and future customers, clients and prospects on a personal level. Employee
acknowledges and agrees that this responsibility has created a special
relationship of trust and confidence between Employee and S&S and between Employee and the
customers, clients and prospects of S&S.
In addition, Employee acknowledges and agrees that S&S has disclosed to him on a
regular basis the Confidential Information of S&S. As a result, there is a high risk and opportunity for Employee
to misappropriate these relationships, the goodwill existing between S&S and such persons and entities
and the Confidential Information of S&S.
Employee acknowledges and agrees that it is fair and reasonable for S&S to take steps to protect
itself from the risk of such misappropriation.


 


b.                                      Consideration.
Employee acknowledges and agrees that S&S is hereby providing him with substantial, valuable
consideration for the agreements set forth in this section, including
compensation and benefits as described in this Agreement. Employee acknowledges
and agrees that this constitutes fair, adequate and sufficient consideration
for the agreements set forth in this section.


 


c.                                       Exclusion of Activities as to Divisions Business
from Non-Competition Obligations. Notwithstanding any other
provision hereof, Employee’s activities in respect of (i) Ansary after the
Closing Date and (ii) his continued employment by Ansary or any successor
thereof after the Separation Date, solely in both cases in respect of the
business of the Divisions as they existed on the Closing Date, and solely in
the case of clause (ii) to the extent he remains in the employ of Ansary
or any successor thereof as to the Divisions, shall be excluded from the
operation of the obligations otherwise applicable to Employee under this Section 6
of this Agreement.


 


d.                                      Scope of
Non-Competition Obligation. In consideration for the valuable
consideration described above and subject to the exclusion described above:


 


(i)                                     Employee
acknowledges and agrees that during the Transition Period and for two years following
the Separation Date, Employee will not solicit, contact, or communicate with
any person, company, or business that was a client, customer, or prospect of S&S, and that S&S personally
solicited, contacted, communicated with or
accepted business from while he was an officer or employee of S&S, for the purpose of engaging
in the Same or a Similar Business as S&S
in the Market Area, as defined herein;


 


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(ii)                                  Employee
further acknowledges and agrees that during the Transition Period and for two
years following the Separation Date, Employee will not engage in the Same or a
Similar Business as S&S in
the Market Area, including working for any company or business as an agent,
consultant, partner, employee, officer, shareholder or independent contractor;
and


 


(iii)                               nothing
herein shall prohibit Employee from owning up to (but not more than) one percent
(1%) of any class of securities of any enterprise (but without otherwise
participating in the activities of such enterprise) if such securities are
listed on any national or regional securities exchange or have been registered
under Section 12(g) of the Exchange Act.


 


e.                                       Definitions.
For purposes of this section, the following definitions shall
apply:


 


(i)                                     The
term “Same or a Similar Business as the Company”
shall be defined to include (A) the assembly, manufacture, design,
engineering, service or maintenance of military vehicles or the training of
military personnel with respect to military vehicles; (B) the
distribution, manufacture, service or rental of diesel and gas engines and engine driven equipment, including
without limitation pump packages, generator sets, power units or related parts
and equipment; (C) the distribution or manufacture of parts for
over-the-road trucking and inter-city commercial trucking applications and the
service of such trucks, including transport refrigeration equipment; (D) the
distribution or manufacture or service of industrial generator sets for prime
and back-up power, air compressors, snow blowers, railcar movers, forklifts and
cable extractors; and (E) the design or supply of custom marine propulsion
systems or standard or custom marine auxiliary engines.


 


(ii)                                  The
term “Market Area” shall be defined as the
United States of America and any
other countries in which S&S does business as of the date of this Agreement
or during the term hereof.


 


f.                                         Enforcement. Employee acknowledges
and agrees that the non-competition agreements set forth above are ancillary to
an otherwise enforceable agreement, including the provisions of this Agreement
other than this Section 6, and supported by independent, valuable and
sufficient consideration as required by TEX.
BUS. & COM. CODE ANN. §15.50. Employee agrees and acknowledges
that it is reasonable and appropriate for Employee and S&S to agree to
restrict Employee from working in a Same or a Similar Business as the Company
within the Market Area because the Confidential information of S&S provided
by S&S to Employee previously would place S&S at a competitive disadvantage
and would harm S&S economically if used by any entity in the Same or a
Similar Business as the Company within the Market Area. Employee agrees that
the business activities of S&S are national and the markets for the
products and services of S&S are very competitive national and
international markets. Accordingly, Employee acknowledges and agrees that the
limitations as to time, geographical area, and scope of activity to be
restrained are reasonable, appropriate and acceptable to Employee


 


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and do not impose any greater restraint than
is reasonably necessary to protect the goodwill and other business interests of
S&S. Employee further agrees that if, at some later date, a court of
competent jurisdiction determines that these agreements do not meet the
criteria set forth in Tex. Bus. & Com. Code Ann. §15.50, these
agreements shall be reformed by the court, pursuant to TEX. BUS. &
COM. CODE ANN. §15.51(c), and enforced to the maximum extent permitted under
Texas law.


 


g.                                      Damages. In
addition to any other remedies that may be available to S&S under the terms of this
Agreement or applicable law, Employee
agrees that, if he violates any of the obligations owed by him to S&S as stated in paragraphs 5 or 6
of this Agreement, S&S shall be entitled to all damages to which it may be
entitled for breach of contract.


 


7.                                      NON-INTERFERENCE:  Employee agrees that during the Transition
Period and for two years following the Separation Date, Employee shall not
solicit or recruit, directly or indirectly or by assisting others, any other
employees of S&S, nor shall Employee contact or communicate with any other
employees of S&S for the purpose of inducing other employees to terminate
their employment with S&S or to begin employment by any other entity. For
purposes of this covenant, “other employees” shall refer to employees who are
actively employed by, or doing business with, S&S at the time of the
attempted recruiting or hiring except for employees who were employed solely
and directly in connection with activities of the Divisions as of the Closing
Date. Employee acknowledges and agrees that these non-interference agreements
shall survive the termination of this Agreement and shall be fully enforceable
by S&S.


 


8.                                      EMPLOYEE
BENEFIT PLANS:  After the Separation Date,
except as specifically contemplated hereby in respect of the Stock Options,
except as provided under S&S’s 401(k) Plan and except as required under the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, Employee
shall not be entitled to any coverage or benefit under the Stewart &
Stevenson Medical Plan and Dental Plan or under any other benefit or welfare
plan of the Company or under any severance agreement or policy of any kind with
the Company or applicable to Employee.


 


9.                                      PRIOR
RIGHT AND OBLIGATIONS:  This
Agreement extinguishes, and constitutes a complete accord and satisfaction of,
all rights, if any, which Employee may have, and obligations, if any,
which S&S may have, contractual or otherwise, relating to the
employment, or resignation from employment, of Employee with S&S, including
any right to severance benefits different from those set forth above.


 


10.                               EXPENSES: Employee shall, after the Closing Date,
submit to the Company all actual past expenses incurred by him in the course of
his employment and activities as to the Divisions incurred before the Closing
Date. The Company shall reimburse Employee for such expenses in accordance with
the Company’s expense reimbursement policy. Employee acknowledges and agrees
that S&S shall not have any obligation to reimburse expenses incurred by
him with respect to the business of the Divisions incurred after the Closing
Date.


 


11.                               S&S
ASSETS:  Employee hereby represents
and warrants that he has no claim or right, title or interest in any property
designated on any of S&S’s books as property or assets of


 


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S&S. Employee shall deliver to S&S any and all S&S property
in his possession or control and execute and deliver any and all assignments or
other documents necessary to convey such property to S&S on the Separation Date
other than property or assets being sold to Ansary under the APAs.


 


12.                               DOCUMENTS: Employee agrees, except to the extent
they relate solely to the business of the Divisions, to deliver to S&S on
the Separation Date all correspondence, memoranda, notes, records, data or
information, analyses, customer lists or other documents and all copies thereof
(including any computer diskettes), made, composed or received by Employee,
solely or jointly with others, which are in Employee’s possession, custody, or
control and which are related in any manner to the past, present, or
anticipated business of S&S.


 


13.                               COOPERATION: Employee shall cooperate with S&S to
the extent reasonably required in all matters relating to the winding up of his
pending work (including his assignments during the Transition Period) on behalf
of S&S and the orderly transfer of any such pending work as reasonably
designated by S&S. Employee shall cooperate with S&S to the extent
reasonably required to respond to questions concerning matters with respect to
which he has unique knowledge or information relating to his prior
responsibilities with S&S. Employee further agrees, upon request by any
S&S Party, to cooperate fully in preparation for, or, giving depositions or
testifying in the defense of, any litigation arising from events, acts or
omissions alleged, or that may be alleged in the future, to have occurred
during the term of his employment with S&S. Employee shall be reimbursed
for any reasonable out of pocket expenses incurred in connection with such
cooperation. Employee and S&S shall take such further action and execute
any such further documents as may be reasonably necessary or appropriate
in order to carry out the provisions and purposes of this Agreement.


 


14.                               PARTIES’
REPRESENTATIONS:  Employee and
S&S represent, warrant, and agree that:


 


a.                                       They
have not filed any claims, appeals, complaints, charges or lawsuits against the
other with any governmental agency or court and that they will not file or
permit to be filed or accept benefits from any claim, complaint or petition
filed with any court by either of them or on their behalf against the other at
any time hereafter; provided, however, this
provision shall not limit either Employee or S&S from filing an action for
the sole purpose of enforcing their rights under this Agreement; and


 


b.                                      no
other person or entity has any interest or assignment of any claims or causes
of action, if any, that either Employee or S&S may have against the
other, and that they have not sold, assigned, transferred, conveyed or
otherwise disposed of any of the claims, demands, obligations or causes of
action referred to in this Agreement, and that Employee and S&S have the
sole right and exclusive authority to execute this Agreement and receive the
consideration provided for herein; and


 


c.                                       neither
Employee nor S&S is aware of any facts or circumstances that would
constitute a violation of any law by Employee, S&S, or any S&S Party,
including specifically without limitation, any false statements or omissions
that would be a


 


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violation of the False Claims Act or any
other similar law or law of similar tenor, the Securities Act of 1933 as
amended, the Exchange Act or the Sarbanes-Oxley Act of 2002.


 


15.                               RELEASE:


 


a.                                       Employee
agrees to release, acquit and discharge, and does hereby release, acquit, and
discharge, S&S and all S&S Parties from any and all claims, costs,
damages, or attorney’s fees, and from any and all causes of action (arising as
of or prior to the Closing Date) against S&S and each S&S Party
existing of any kind or character, whether now known or not known, that he has
or may have against S&S and any S&S Party, including, but not
limited to, (i) any claim based on tort, contract, common law, regulation,
statute or any other legal or equitable basis or for salary, benefits,
expenses, costs, damages, compensation, remuneration or wages; (ii) all
claims or causes of action arising from his employment, or resignation from
employment, or any alleged discriminatory employment practices, (iii) any
and all claims or causes of action arising under the Age Discrimination in
Employment Act, as amended, (“ADEA”), the
Equal Pay Act of 1963, the Vocational Rehabilitation Act of 1973, the Older
Workers’ Benefit Protection Act, the Americans with Disabilities Act of 1990,
the Civil Rights Acts of 1866, 1964 and 1991, the Employee Retirement Income Security
Act, the Texas Commission on Human Rights Act, the Texas Pay Day Law, the Texas
Workers’ Compensation Act, and the Family and Medical Leave Act, (iv) any
and all claims or causes of action arising under any other federal, state, or
local laws pertaining to discrimination in employment or equal employment
opportunity, and (v) any claims for breach of contract, infliction of
emotional distress or any other claims arising under the common law. This
Release also applies to any claims brought by any person or agency or class action
under which Employee may have a right or benefit, provided, however, by
entering into this Agreement Employee is not releasing any claims under this
Agreement, with respect to the Stock Options as provided for herein or by the terms
thereof or in respect of his rights, if any, under S&S’s 401(k) Plan.


 


b.                                      S&S
agrees to release, acquit, and discharge and does hereby release, acquit, and
discharge Employee, his heirs, executors, and spouse from any and all claims,
costs, damages or attorney’s fees, and from any and all causes of action
(arising as of or prior to the Closing Date) against Employee of any kind or
character, whether now known or not known, S&S may have against Employee
including, but not limited to, any claim based on tort, contract, common law,
regulation, statute or any other legal or equitable basis; provided, however, by
entering into this Agreement, S&S is
not releasing any claims under this Agreement.


 


16.                               NO
ADMISSIONS:  The parties to the
Agreement expressly understand and agree that the terms of this Agreement are
contractual and not merely recitals and that the agreements contained herein
and consideration paid is to compromise doubtful and disputed claims, avoid
litigation and buy peace and that no statement or consideration given shall be
construed as an admission of liability or wrongdoing by either party, any such
liability and wrongdoing being expressly denied. This Agreement does not
constitute evidence of unlawful conduct or wrongdoing by either party hereto.


 


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17.                               REMEDIES: Each of the parties to this Agreement
agrees that, because damages at law for any breach or nonperformance of this
Agreement by the other party, while recoverable, will be inadequate, this
Agreement may be enforced in equity by specific performance, injunction,
accounting, or otherwise.


 


18.                               WAIVERS: No waiver or non-action with respect to
any breach by the other party of any provision of this Agreement, nor the
waiver or non-action with respect to any breach of the provisions of similar
agreements with other employees shall be construed to be a waiver of any
succeeding breach of such provision or as a waiver of the provision itself.


 


19.                               SEVERABILITY: If any section, sentence, term or
provision of this Agreement is determined to be illegal, invalid or wholly or
partially unenforceable, by a court of competent jurisdiction or by any state
or federal regulatory authority having jurisdiction thereof, such section,
sentence, term or provision shall be revised and reduced in scope to be valid
and enforceable. In the event such section, sentence, term or provision cannot
be so revised or reduced in scope, the determination of illegality, invalidity
or unenforceability of such section, sentence, term or provision shall have no
effect upon the validity of any other section, sentence, term or provision of
this Agreement, all of which shall remain in full force in effect.


 


20.                               CHOICE
OF LAW:  This Agreement shall be
governed by and construed and enforced, in all respects, in accordance with the
laws of the State of Texas except as preempted by federal law and provided that
no effect shall be given to any provision or policy that would direct the
application of the laws of another jurisdiction. The parties agree that Harris
County, Texas, along with the courts thereof, is the proper and convenient and
sole venue to resolve any disputes arising under or relating to this Agreement.


 


21.                               AMENDMENT: This Agreement may not be changed
or terminated orally, and no change, termination or waiver of this Agreement or
any of the provisions herein contained shall be binding unless made in writing
and signed by all parties, and in the case of S&S, by an authorized officer.


 


22.                               NO
DEROGATORY COMMENTS:  Except as
required by judicial, legislative, or administrative process or governmental rule or
regulation, each of the parties to this Agreement agrees to refrain from making
public or private comments relating to the other party that are derogatory or that
may tend to injure any such party in its business, public or private
affairs.


 


23.                               CONFIDENTIALITY: Employee agrees that he will not
disclose the terms of this Agreement or the consideration received from S&S
to any other person, except his attorneys or their tax or financial advisors,
and his immediate family and only on the condition that they keep such
information strictly confidential; provided, however,
that the foregoing obligation of confidentiality shall not apply to information
that is required to be disclosed by any applicable law, rule or regulation
of any governmental authority.


 


24.                               ADEA
RIGHTS:  Employee and S&S
acknowledge and agree that:


 


a.                                       The
Company has given Employee at least twenty-one (21) days to review this
Agreement, although he may choose to accept it in less than that time; and


 


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b.                                      Employee
has been advised to consult with an attorney, of his own choosing, regarding
the terms of the Agreement prior to executing this Agreement; and


 


c.                                       if
Employee executes this Agreement, he has seven (7) days following the
execution of this Agreement to revoke this Agreement (the “Revocation Period”),
which Revocation Period shall begin on the date Employee signs and dates this
Agreement in the space provided below; and


 


d.                                      this
Agreement shall become effective and enforceable (the “Effective Date”)
immediately following the expiration of the Revocation Period; and


 


e.                                       Employee
does not, by the terms of this Agreement, waive claims or rights that may accrue
subsequent to the Effective Date; and


 


f.                                         the
parties are each receiving, pursuant to this Agreement, consideration in
addition to anything of value to which each is already entitled.


 


25.                               GROSS-UP
POSSIBILITY:


 


a.                                       Anything
in this Agreement to the contrary notwithstanding and except as set forth
below, in the event it shall be determined that a Payment or any part thereof
would be subject to the Excise Tax, then Employee shall be entitled to receive
an additional payment (the “Gross-Up Payment”)
in an amount such that, after payment by Employee of all taxes (and any
interest or penalties imposed with respect to such taxes), including, without
limitation, any income taxes (and any interest and penalties imposed with
respect thereto) and Excise Tax imposed upon the Gross-Up Payment, Employee
retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon
the Payment.


 


b.                                      Subject
to the provisions of Section 25.c, all determinations required to be made
under this Section 25, including whether and when a Gross-Up Payment is
required, the amount of such Gross-Up Payment and the assumptions to be
utilized in arriving at such determination, shall be made by the Auditor, or
such other nationally recognized certified public accounting firm as may be
designated by Employee (the “Accounting Firm”).
The Accounting Firm shall provide detailed supporting calculations both to the
Company and Employee within 15 business days of the receipt of notice from Employee
that there has been a Payment or such earlier time as is requested by the
Company. In the event that the Accounting Firm is serving as accountant or
auditor for the individual, entity or group effecting the change of control, Employee
may appoint another nationally recognized accounting firm to make the
determinations required hereunder (which accounting firm shall then be referred
to as the Accounting Firm hereunder). All fees and expenses of the Accounting
Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined
pursuant to this Section 25, shall be paid by the Company to Employee
within 5 days of the receipt of the Accounting Firm’s determination; provided, however, that no Gross-Up Payment shall be paid to
Employee prior to six months following the date of Employee’s separation from
service from the Company (within the meaning of Section 409A of the Code).
Any determination by the


 


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Accounting Firm shall be binding upon the
Company and Employee. As a result of the uncertainty in the application of section 4999
of the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Gross-Up Payments that will not have been made
by the Company should have been made (the “Underpayment”),
consistent with the calculations required to be made hereunder. In the event
the Company exhausts its remedies pursuant to Section 25.c and Employee
thereafter is required to make a payment of any Excise Tax, the Accounting Firm
shall determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of Employee.


 


c.                                       Employee
shall notify the Company in writing of any claim by the Internal Revenue
Service that, if successful, would required the payment by the Company of the
Gross-Up Payment. Such notification shall be given as soon as practicable, but
no later than 10 business days after Employee is informed in writing of such
claim. Employee shall apprise the Company of the nature of such claim and the
date on which such claim is requested to be paid. Employee shall not pay such
claim prior to the expiration of the 30-day period following the date on which Employee
gives such notice to the Company (or such shorter period ending on the date that
any payment of taxes with respect to such claim is due). If the Company
notifies Employee in writing prior to the expiration of such period that the
Company desires to contest such claim, Employee shall:


 


(i)                                     give
the Company any information reasonably requested by the Company relating to
such claim,


 


(ii)                                  take
such action in connection with contesting such claim as the Company shall
reasonably request in writing from time to time, including, without limitation,
accepting legal representation with respect to such claim by an attorney
reasonably selected by the Company,


 


(iii)                               cooperate with the
Company in good faith in order effectively to contest such claim, and


 


(iv)                              permit
the Company to participate in any proceedings relating to such claim;


 


provided, however, that
the Company shall bear and pay directly all costs and expenses (including
additional interest and penalties) incurred in connection with such contest,
and shall indemnify and hold Employee harmless, on an after-tax basis, for any
Excise Tax or income tax (including interest and penalties) imposed as a result
of such representation and payment of costs and expenses. Without limitation on
the foregoing provisions of this Section 25.c, the Company shall control
all proceedings taken in connection with such contest, and, at its sole
discretion, may pursue or forgo any and all administrative appeals,
proceedings, hearings and conferences with the applicable taxing authority in
respect of such claim and may, at its sole discretion, either pay the tax
claimed to the appropriate taxing authority on behalf of Employee and direct Employee
to sue for a refund or contest the claim in any permissible manner, and Employee
agrees to prosecute such contest to a determination before any administrative
tribunal, in a court of initial


 


13

















 


jurisdiction and in one
or more appellate courts, as the Company shall determine; provided,
however, that, if the Company pays such claim and directs Employee
to sue for a refund, the Company shall indemnify and hold Employee harmless, on
an after-tax basis, from any Excise Tax or income tax (including interest or
penalties) imposed with respect to such payment or with respect to any imputed
income in connection with such payment; and provided, further, that
any extension of the statute of limitations relating to payment of taxes for
the taxable year of Employee with respect to which such contested amount is
claimed to be due is limited solely to such contested amount. Furthermore, the
Company’s control of the contest shall be limited to issues with respect to
which the Gross-Up Payment would be payable hereunder, and Employee shall be
entitled to settle or contest, as the case may be, any other issue raised
by the Internal Revenue Service or any other taxing authority.


 


d.                                      If,
after the receipt by Employee of a Gross-Up Payment or payment by the Company
of an amount on Employee’s behalf pursuant to Section 25.c, Employee
becomes entitled to receive any refund with respect to the Excise Tax to which
such Gross-Up Payment relates or with respect to such claim, Employee shall
(subject to the Company’s complying with the requirements of Section 25.c,
if applicable) promptly pay to the Company the amount of such refund (together
with any interest paid or credited thereon after taxes applicable thereto). If,
after payment by the Company of an amount on Employee’s behalf pursuant to Section 25.c,
a determination is made that Employee shall not be entitled to any refund with
respect to such claim and the Company does not notify Employee in writing of
its intent to contest such denial of refund prior to the expiration of 30 days
after such determination, then the amount of such payment shall offset, to the
extent thereof, the amount of Gross-Up Payment required to be paid.


 


e.                                       Notwithstanding
any other provision of this Section 25, the Company may, in its sole
discretion, withhold and pay over to the Internal Revenue Service or any other
applicable taxing authority, for the benefit of Employee, all or any portion of
any Gross-Up Payment, and Employee hereby consents to such withholding.


 


f.                                         For
purposes of this Section 25 of this Agreement, “Excise Tax”
shall mean the excise tax imposed by section 4999 of the Code, together
with interest or penalties imposed with respect to such excise tax;  “Auditor” shall
mean the accounting firm which was, immediately prior to the change of control,
the Company’s independent auditor; and “Payment” shall
mean any payment or distribution in the nature of compensation (within the
meaning of Section 280G(b)(2) of the Code) to or for the benefit of
Employee, whether paid or payable pursuant to this Agreement or otherwise.


 


26.                               AGREEMENT
VOLUNTARY:  Employee and S&S each
acknowledge and agree that they have carefully read this Agreement and
understand that, except as expressly reserved herein, it is a release of all
claims, known and unknown, past or present, including all claims under the ADEA.
The parties further agree that they have entered into this Agreement for the
above stated consideration. The parties each warrant to the other that they are
fully competent and authorized to execute this Agreement, which they understand
to be contractual. They further each acknowledge that they execute this
Agreement of their own free will, after having a reasonable period of time to review, study, and
deliberate regarding its meaning and


 


14

















 


effect, and after being advised to consult an attorney, and without
reliance on any representation of any kind or character not expressly set forth
herein. Finally, they execute this Agreement fully knowing its effect and
voluntarily for the consideration stated above.


 


27.                               NOTICES:  Any notices required or permitted
to be given under this Agreement shall be properly made if delivered in the
case of S&S to:


 


Stewart & Stevenson Services, Inc.
P.O. Box 1637

Houston, Texas 77251

Attention:  Stephen A. Hines

Vice President of Human Resources


 


and in the case of Employee to:


 


John B.
Simmons; at the last address on the books and records of the Company.


 


28.                               ENTIRE
AGREEMENT. This Agreement sets
forth the entire agreement of the parties hereto in respect of the subject
matter contained herein and supersedes all prior agreements, promises,
covenants, arrangements, communications, representations or warranties, whether
oral or written, by any officer, employee or representative of any party
hereto, including but not limited to the Severance Agreement dated July 19,
2004 between Employee and the Company.


 


29.                               BINDING
EFFECT. This Agreement shall be binding upon, and inure to the benefit of,
any successor of the Company.


 


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IN WITNESS WHEREOF,
the parties have caused this Agreement to be executed in multiple counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument, in Houston, Harris County, Texas as of
the last date entered below.


 


 


	
  /s/ John B.
  Simmons

  	
   

  	
  1/20/06

  
	
  John B.
  Simmons

  	
   

  	
  Date

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  STEWART & STEVENSON SERVICES, INC.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Carl B.
  King

  	
   

  	
  1/25/06

  
	
   

  	
  Carl B. King

  	
   

  	
  Date

  
	
   

  	
  Senior Vice
  President

  	
   

  	
   

  



 


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