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                                                                     EXHIBIT 4.1







                               STEWART & STEVENSON

                             ELECTIVE DEFERRAL PLAN












                             Effective June 1, 2001

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                                TABLE OF CONTENTS

                                                                           PAGE


I.      DEFINITIONS AND CONSTRUCTION.........................................1
        1.1   DEFINITIONS....................................................1
            (1)   ACCOUNTS...................................................1
            (2)   AFFILIATE..................................................1
            (3)   ANNUAL DIRECTOR CASH COMPENSATION..........................1
            (4)   BASE SALARY................................................1
            (5)   BOARD......................................................1
            (6)   BONUS......................................................1
            (7)   CODE.......................................................1
            (8)   COMMITTEE..................................................1
            (9)   COMPANY....................................................1
            (10)  COMPENSATION...............................................1
            (11)  DEFERRAL ACCOUNT...........................................2
            (12)  DIRECTOR...................................................2
            (13)  DISABILITY.................................................2
            (14)  EFFECTIVE DATE.............................................2
            (15)  ELECTION DATE..............................................2
            (16)  EMPLOYER...................................................2
            (17)  EMPLOYER ACCOUNT...........................................2
            (18)  EMPLOYER DEFERRALS.........................................2
            (19)  FIXED DATE.................................................2
            (20)  FIXED DATE BENEFITS........................................2
            (21)  FUNDS......................................................2
            (22)  PARTICIPANT................................................2
            (23)  PLAN.......................................................2
            (24)  PLAN YEAR..................................................2
            (25)  RETIRE OR RETIREMENT.......................................3
            (26)  RETIREMENT BENEFITS........................................3
            (27)  RETIREMENT DATE............................................3
            (28)  SELECTED PARTICIPANT.......................................3
            (29)  TRUST......................................................3
            (30)  TRUST AGREEMENT............................................3
            (31)  TRUST FUND.................................................3
            (32)  TRUSTEE....................................................3
            (33)  UNFORESEEABLE FINANCIAL EMERGENCY..........................3
            (34)  VESTED INTEREST............................................3
            (35)  VESTING SERVICE............................................3
        1.2   NUMBER AND GENDER..............................................4
        1.3   HEADINGS.......................................................4

II.     SELECTED PARTICIPANTS................................................4
        2.1   PARTICIPATION..................................................4



                                      (i)
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        2.2   CESSATION OF ACTIVE PARTICIPATION..............................4

III.    ACCOUNT CREDITS AND ALLOCATIONS OF INCOME OR LOSS....................4
        3.1   PARTICIPANT DEFERRALS..........................................4
        3.2   EMPLOYER DEFERRALS.............................................5
        3.3   VALUATION OF ACCOUNTS..........................................5

IV.     DEEMED INVESTMENT OF FUNDS...........................................6

V.      DETERMINATION OF VESTED INTEREST AND FORFEITURES.....................6
        5.1   DEFERRAL ACCOUNT...............................................6
        5.2   EMPLOYER ACCOUNT...............................................6
        5.3   FORFEITURES....................................................6

VI.     WITHDRAWALS..........................................................7
        6.1   EMERGENCY BENEFIT..............................................7
        6.2   ELECTIVE WITHDRAWAL............................................7

VII.    TERMINATION BENEFITS.................................................7
        7.1   AMOUNT OF BENEFIT..............................................7
        7.2   TIME OF PAYMENT................................................8
        7.3   ALTERNATIVE FORMS OF BENEFIT PAYMENTS..........................8
        7.4   DESIGNATION OF BENEFICIARIES...................................9
        7.5   PAYMENT OF BENEFITS............................................9
        7.6   UNCLAIMED BENEFITS............................................10
        7.7   EMPLOYMENT RELATIONSHIP.......................................10

VIII.   ADMINISTRATION OF THE PLAN..........................................10
        8.1   APPOINTMENT OF COMMITTEE......................................10
        8.2   COMMITTEE POWERS AND DUTIES...................................10
        8.3   CLAIMS REVIEW.................................................11
        8.4   EMPLOYER TO SUPPLY INFORMATION................................12
        8.5   INDEMNITY.....................................................12

IX.     ADMINISTRATION OF FUNDS.............................................12
        9.1   PAYMENT OF EXPENSES...........................................12
        9.2   TRUST FUND PROPERTY...........................................12

X.      NATURE OF THE PLAN..................................................12

XI.     MISCELLANEOUS.......................................................13
        11.1  NOT CONTRACT OF EMPLOYMENT....................................13
        11.2  ALIENATION OF INTEREST FORBIDDEN..............................14
        11.3  WITHHOLDING...................................................14
        11.4  AMENDMENT AND TERMINATION.....................................14
        11.5  SEVERABILITY..................................................14
        11.6  GOVERNING LAWS................................................14
        11.7  GUARANTY......................................................14



                                      (ii)
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                               STEWART & STEVENSON

                             ELECTIVE DEFERRAL PLAN


                              W I T N E S S E T H :


      WHEREAS, STEWART & STEVENSON SERVICES, INC. desiring to aid certain of its
employees and its directors in making more adequate provision for their
retirement has decided to adopt the Stewart & Stevenson Elective Deferral Plan
(the "Plan");

      NOW THEREFORE, the Plan is hereby adopted as follows, effective June 1,
2001:



                                     (iii)

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                                       I.


                          DEFINITIONS AND CONSTRUCTION

1.1 DEFINITIONS. Where the following words and phrases appear in the Plan, they
shall have the respective meanings set forth below, unless their context clearly
indicates to the contrary.

            (1) ACCOUNTS: A Participant's Employer Account and/or Deferral
      Account, including the amounts credited thereto.

            (2) AFFILIATE: Each corporation or unincorporated entity, directly
      or indirectly, through one or more intermediaries, controlling, controlled
      by, or under common control with the Company. For this purpose, control
      shall be determined by a more than 50% ownership standard.

            (3) ANNUAL DIRECTOR CASH COMPENSATION: A Director's annual retainer
      payable in cash and any annual fee payable in cash for acting as chairman
      of a committee of the Board.

            (4) BASE SALARY: The base rate of pay paid in cash by the Employer
      to or for the benefit of a Participant for services rendered or labor
      performed while a Participant, including base pay a Participant could have
      received in cash in lieu of (i) Compensation deferrals pursuant to Section
      3.1 and (ii) contributions made on his behalf by the Employer to the
      Stewart & Stevenson 401(k) Savings Plan or a plan maintained pursuant to
      section 125 of the Code.

            (5) BOARD: The Board of Directors of the Company.

            (6) BONUS: The amount awarded to a Participant under a bonus plan
      maintained by the Employer including bonus amounts a Participant could
      have received in cash in lieu of (i) Compensation deferrals pursuant to
      Section 3.1 and (ii) contributions made on his behalf by the Employer to
      the Stewart & Stevenson 401(k) Savings Plan or a plan maintained pursuant
      to section 125 of the Code.

            (7) CODE: The Internal Revenue Code of 1986, as amended.

            (8) COMMITTEE: The committee appointed by the Board to administer
      this Plan, or, if no such committee is appointed, the committee appointed
      by the Board to administer the Stewart & Stevenson Pension Plan.

            (9) COMPANY: Stewart & Stevenson Services, Inc.

            (10) COMPENSATION: Base Salary, Bonuses, and Annual Director Cash
      Compensation.


                                      -1-
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            (11) DEFERRAL ACCOUNT: An individual account for each Participant to
      which is credited his Compensation deferrals pursuant to Section 3.1 and
      which reflects such account's changes in value as provided in Section 3.3.

            (12) DIRECTOR: A member of the Board.

            (13) DISABILITY: A Participant's disability qualifying him to
      receive benefits under the Employer's long-term disability plan.

            (14) EFFECTIVE DATE: June 1, 2001 except that the initial deferral
      elections for Compensation other than Annual Director Cash Compensation
      shall be effective July 1, 2001.

            (15) ELECTION DATE: The first day of each Plan Year and, with
      respect to an individual who becomes a Participant on other than the first
      day of a Plan Year, the date such individual becomes a Participant except
      that the initial Election Date for Compensation other than Annual Director
      Cash Compensation shall be July 1, 2001.

            (16) EMPLOYER: The Company and each Affiliate which employs a
      Participant.

            (17) EMPLOYER ACCOUNT: An individual account for each Participant to
      which is credited the Employer Deferrals, if any, made on his behalf
      pursuant to Section 3.2 and which reflects such account's changes in value
      as provided in Section 3.3.

            (18) EMPLOYER DEFERRALS: Deferrals made by the Employer on a
      Participant's behalf pursuant to Section 3.2.

            (19) FIXED DATE: An Election Date selected by a Participant pursuant
      to Section 3.1(e) and clause (i) of Section 7.2 as of which all or part of
      such Participant's Plan benefits are to be paid.

            (20) FIXED DATE BENEFITS: Plan benefits that are to be paid as of a
      Fixed Date.

            (21) FUNDS: The investment funds designated from time to time for
      the deemed investment of Accounts pursuant to Article IV.

            (22) PARTICIPANT: The President of Stewart & Stevenson Services,
      Inc. and each of his direct reports, each officer of the Company, each
      Selected Participant, and each Director.

            (23) PLAN: The Stewart & Stevenson Elective Deferral Plan, as
      amended from time to time.

            (24) PLAN YEAR: The twelve-consecutive month period commencing
      January 1 of each year, except that the initial Plan Year shall commence
      June 1, 2001, and end December 31, 2001.


                                      -2-
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            (25) RETIRE OR RETIREMENT: Termination of employment by a
      Participant on or after such Participant's Retirement Date other than by
      reason of death or Disability.

            (26) RETIREMENT BENEFITS: Plan benefits that are paid or commence at
      a Participant's Retirement.

            (27) RETIREMENT DATE: The earlier of (i) the first date upon which a
      Participant has both completed ten or more years of Vesting Service and
      attained fifty-five years of age or (ii) the date upon which such
      Participant has attained sixty-two years of age.

            (28) SELECTED PARTICIPANT: A management or highly compensated
      employee of the Company and its Affiliates selected to participate in the
      Plan pursuant to the provisions of Article II.

            (29) TRUST: The trust, if any, established under the Trust
      Agreement.

            (30) TRUST AGREEMENT: The agreement, if any, entered into between
      the Company and the Trustee pursuant to Article X.

            (31) TRUST FUND: The funds and properties, if any, held pursuant to
      the provisions of the Trust Agreement, together with all income, profits
      and increments thereto.

            (32) TRUSTEE: The trustee or trustees qualified and acting under the
      Trust Agreement at any time.

            (33) UNFORESEEABLE FINANCIAL EMERGENCY: An unexpected need of a
      Participant for cash that (i) arises from a sudden and unexpected illness
      or accident of the Participant or of a dependent of a Participant, loss of
      the Participant's property due to casualty, or similar extraordinary and
      unforeseeable circumstances arising as a result of events beyond the
      control of such Participant and (ii) would result in severe financial
      hardship to such Participant if his Compensation deferral election was not
      canceled pursuant to Section 3.1(d) and/or if a benefit payment pursuant
      to Section 6.1 was not permitted. Cash needs arising from foreseeable
      events, such as the purchase of a house or education expenses for
      children, shall not be considered to be the result of an Unforeseeable
      Financial Emergency. Further, cash needs which may be relieved (a) through
      reimbursement or compensation by insurance or otherwise, or (b) by
      liquidation of the Participant's assets, to the extent the liquidation of
      such assets would not itself cause severe financial hardship, or (c) by
      cessation of deferrals under the Plan shall not be considered to be
      Unforeseeable Financial Emergencies.

            (34) VESTED INTEREST: The portion of a Participant's Accounts which,
      pursuant to the Plan, is nonforfeitable.

            (35) VESTING SERVICE: A Participant's aggregate period of employment
      with the Employer (or service on the Board in the case of a Participant
      who is a Director) from the Participant's most recent date of hire (or
      commencement of service on the Board in the case of a Participant who is a
      Director).



                                      -3-
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      1.2 NUMBER AND GENDER. Wherever appropriate herein, words used in the
singular shall be considered to include the plural and words used in the plural
shall be considered to include the singular. The masculine gender, where
appearing in the Plan, shall be deemed to include the feminine gender.

      1.3 HEADINGS. The headings of Articles and Sections herein are included
solely for convenience, and if there is any conflict between such headings and
the text of the Plan, the text shall control.


                                       II.

                              SELECTED PARTICIPANTS

      2.1 PARTICIPATION. The Board, in its sole discretion, may select
management and highly compensated employees of the Company and its Affiliates,
other than those specifically named in Section 1.1(22), to become Participants.
The Board shall notify such Selected Participants of their selection and the
Election Date as of which such selection shall become effective. Subject to the
provisions of Section 2.2, a Selected Participant shall remain eligible to defer
Compensation hereunder and receive an allocation of Employer Deferrals for each
Plan Year following his initial selection.

      2.2 CESSATION OF ACTIVE PARTICIPATION. Notwithstanding any provision
herein to the contrary, a Selected Participant shall cease to be entitled to
defer Compensation hereunder or receive an allocation of Employer Deferrals
effective as of any date designated by the Board. Any such Board action shall be
communicated to the affected individual prior to the effective date of such
action. Such an individual may again become entitled to defer Compensation
hereunder and receive an allocation of Employer Deferrals beginning on any
subsequent Election Date selected by the Board in its sole discretion.

                                      III.

                ACCOUNT CREDITS AND ALLOCATIONS OF INCOME OR LOSS

      3.1 PARTICIPANT DEFERRALS.

            (a) A Participant may elect to defer up to 75% of his Base Salary to
be paid in a Plan Year and/or up to 90% of his Bonus to be paid in a Plan Year;
provided, however, that no Participant may elect to defer less than $5,000 of
Base Salary and/or Bonus for a Plan Year. A Participant who is a Director may
elect to defer up to 100% of his Annual Director Cash Compensation to be paid in
a Plan Year. With respect to an individual who becomes a Participant on other
than the first day of a Plan Year, any such deferral election shall apply only
for the portion of such Plan Year commencing with the date such individual first
becomes a Participant. Compensation for a Plan Year not so deferred by such
election shall be received by such Participant in cash.

            (b) A Participant's election to defer an amount of his Compensation
pursuant to this Section shall be made by executing a Compensation deferral
election pursuant to which the Participant authorizes the Employer to reduce his
Compensation in the elected amount and


                                      -4-
<PAGE>

the Employer, in consideration thereof, agrees to credit an equal amount to such
Participant's Deferral Account maintained under the Plan. Deferral elections may
be made either in percentages, dollar amounts, or a combination of percentages
and dollar amounts, as determined by the Committee. Compensation deferrals made
by a Participant shall be credited to such Participant's Deferral Account as of
a date determined in accordance with procedures established from time to time by
the Committee; provided, however, that such deferrals shall be credited to the
Participant's Deferral Account no later than 30 days after the date upon which
the Compensation deferred would have been received by such Participant in cash
if he had not elected to defer such amount pursuant to this Section 3.1.

            (c) A Participant's Compensation deferral election shall become
effective as of the Election Date which is on or after the election is executed
by the Participant and filed with the Employer. A Participant's Compensation
deferral election shall remain in force and effect for the entire Plan Year to
which such election relates except that a Participant's Compensation deferral
election shall be automatically suspended during an unpaid leave of absence or
upon the Participant's Disability.

            (d) In the event that the Committee, upon written petition of a
Participant, determines in its sole discretion that such Participant has
suffered an Unforeseeable Financial Emergency or that such Participant will,
absent termination of such Participant's Compensation deferral election then in
effect, suffer an Unforeseeable Financial Emergency, then such Participant's
Compensation deferral then in effect, if any, shall be terminated as soon as
administratively practicable after such determination. A Participant whose
Compensation deferral election has been so terminated may again elect to defer a
portion of his Compensation, effective as of any subsequent Election Date that
is at least twelve months after the effective date of such termination, by
executing and delivering to the Employer a new Compensation deferral election
prior to such Election Date.

            (e) A Participant's Compensation deferral election shall indicate
the applicable time and form of payment, as provided in Sections 7.2 and 7.3,
for the Compensation deferred thereunder for such Plan Year and any valuation
adjustments thereto pursuant to Section 3.3. A Participant may make different
time and form of payment elections with respect to deferrals of Base Salary,
Bonuses, and Annual Director Cash Compensation for any Plan Year. Each
Participant's Account shall be divided into subaccounts to reflect such
Participant's various elections respecting time and form of payment.

      3.2 EMPLOYER DEFERRALS. As of any date selected by the Employer, the
Employer may credit a Participant's Employer Account with such amount, if any,
as the Employer shall determine in its sole discretion. Such credits may be made
on behalf of some Participants but not others, and such credits may vary in
amount among individual Participants.

      3.3 VALUATION OF ACCOUNTS. All amounts allocated to a Participant's
Accounts shall be deemed invested among the Funds as provided in Article IV at
such time or times determined in accordance with procedures established form
time to time by the Committee. The balances of such Accounts shall reflect the
daily pricing of the assets in which such Accounts are deemed invested until the
time of distribution.


                                      -5-
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                                       IV.

                           DEEMED INVESTMENT OF FUNDS

      Each Participant shall designate, in accordance with the procedures
established from time to time by the Committee, the manner in which the amounts
allocated to his Accounts shall be deemed to be invested from among the Funds
made available from time to time for such purpose by the Committee. Such
Participant may designate one of such Funds for the deemed investment of all the
amounts allocated to his Accounts or he may split the deemed investment of the
amounts allocated to his Accounts between such Funds in such increments as the
Committee may prescribe. If a Participant fails to make a proper designation,
then his Accounts shall be deemed to be invested in the Fund or Funds designated
by the Committee from time to time in a uniform and nondiscriminatory manner.

      A Participant may change his deemed investment designation for future
amounts to be allocated to his Accounts. Any such change shall be made in
accordance with the procedures established by the Committee, and the frequency
of such changes may be limited by the Committee.

      A Participant may elect to convert his deemed investment designation with
respect to the amounts already allocated to his Accounts. Any such conversion
shall be made in accordance with the procedures established by the Committee,
and the frequency of such conversions may be limited by the Committee.

                                       V.

                DETERMINATION OF VESTED INTEREST AND FORFEITURES

      5.1 DEFERRAL ACCOUNT. A Participant shall have a 100% Vested Interest in
his Deferral Account at all times.

      5.2 EMPLOYER ACCOUNT. A Participant's Vested Interest in his Employer
Account shall be determined in accordance with a vesting schedule established by
the Committee, which schedule shall be based on the Participant's Vesting
Service. Such vesting schedule may be uniform for all amounts in all Employer
Accounts or different vesting schedules may be established for different
Employer Deferrals or for different Participants. Each Participant's Employer
Account shall be divided into subaccounts as necessary to reflect such
Participant's various vesting schedules. Participants shall be advised of the
vesting schedule applicable to any Employer Deferral.

      5.3 FORFEITURES. A Participant who terminates employment with the Employer
with a Vested Interest in his Employer Account that is less than 100% shall
forfeit to the Employer the nonvested portion of such Account as of the date of
such termination.


                                      -6-
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                                       VI.

                                   WITHDRAWALS

      6.1 EMERGENCY BENEFIT. In the event that the Committee, upon written
petition of a Participant, determines in its sole discretion that such
Participant has suffered an Unforeseeable Financial Emergency, such Participant
shall be entitled to a benefit in an amount not to exceed the lesser of (i) the
amount determined by the Committee as necessary to meet such Participant's needs
created by the Unforeseeable Financial Emergency, or (ii) the then value of such
Participant's Vested Interest in his Accounts. Such benefit shall be paid in a
single lump sum payment as soon as administratively practicable after the
Committee has made its determinations with respect to the availability and
amount of such benefit. If a Participant's Accounts are deemed to be invested in
more than one Fund, such benefit shall be distributed pro rata from each Fund in
which such Accounts are deemed to be invested. If a Participant's Deferral
Account contains one or more subaccounts based on elected time of payment, such
benefit shall be considered to have been distributed, first, from the subaccount
with respect to which the earliest distribution would be made, then, from the
subaccount with respect to which the next earliest distribution would be made,
and continuing in such manner until all of such subaccounts have been exhausted.
The deferrals of a Participant receiving a payment pursuant to this Section
shall be suspended in accordance with the provisions of Section 3.1(d).

      6.2 ELECTIVE WITHDRAWAL. A Participant may elect at any time, by following
the election procedure prescribed by the Committee, to withdraw as a benefit all
or a portion of his Vested Interest in his Accounts, subject to a withdrawal
penalty of 10% of the amount of any such withdrawal (15% of the amount of the
withdrawal if the withdrawal occurs after the Participant has terminated
employment with the Employer). Upon any such withdrawal, the withdrawal penalty
shall be forfeited to the Employer. Further, upon any such withdrawal, such
Participant's participation in the Plan shall terminate and no further
Compensation deferrals or Employer Deferrals shall be made under the Plan on
behalf of such Participant until the Election Date that is at least three years
after the date of such withdrawal. If a Participant's Accounts are deemed to be
invested in more than one Fund, such withdrawal shall be distributed pro rata
from each Fund in which such Accounts are deemed to be invested. If a
Participant's Accounts contains one or more subaccounts based on elected time of
payment, such withdrawal shall be considered to have been distributed, first,
from the subaccount with respect to which the earliest distribution would be
made, then, from the subaccount with respect to which the next earliest
distribution would be made, and continuing in such manner until all of such
subaccounts have been exhausted.

                                      VII.

                              TERMINATION BENEFITS

      7.1 AMOUNT OF BENEFIT. A Participant or, in the event of the death of the
Participant, the Participant's designated beneficiary, shall be entitled to a
benefit equal in value to the Participant's Vested Interest in the balance in
his Accounts as of the date the payment of such benefit is to be made or to
commence pursuant to Section 7.2.


                                      -7-
<PAGE>


      7.2 TIME OF PAYMENT. Payment of a Participant's benefit under Section 7.1
shall be made or commence, with respect to such Participant's Accounts, or with
respect to such Participant's subaccounts established pursuant to Section 3.1(e)
separately and respectively, as soon as administratively practicable after the
date irrevocably elected by such Participant pursuant to Section 3.1(e). A
Participant may, pursuant to Section 3.1(e), elect distribution with respect to
his deferrals for any Plan Year, and any valuation adjustments thereto pursuant
to Section 3.3, (i) to be made as of a selected Election Date which is at least
three years following the Election Date for the Plan Year of the deferral or
(ii) to be made or commenced as of the Election Date next following his
Retirement, or as a combination of (i) and (ii). Notwithstanding the foregoing,
payment of a Participant's benefit under Section 7.1, including any Fixed Date
Benefits that have not yet been paid, shall be paid as soon as administratively
practicable after the first day of the month following the date the Participant
terminates his employment with the Employer for any reason other than
Retirement, including Disability or death. For this purpose, a Participant on
Disability for a period of two years shall be deemed to have terminated his
employment with the Employer as of the end of such two-year period. In the case
of a Participant who Retires, payment of such Participant's benefit under
Section 7.1, including any Fixed Date Benefits that have not yet been paid,
shall be made or commence as of the Election Date next following such
Participant's Retirement.

      7.3 ALTERNATIVE FORMS OF BENEFIT PAYMENTS.

            (a) A Participant's benefit under Section 7.1 shall be paid in the
form of a single lump sum payment if payable as a result of such Participant's
termination of employment with the Employer prior to his Retirement Date, if
payable as a result of the Participant's death prior to the commencement of
installment payments pursuant to Section 7.3(b)(2), if payable as a result of a
Participant's termination of employment due to Disability, or if payable prior
to a Participant's termination of employment as a Fixed Date Benefit.

            (b) With respect to a Participant whose termination of employment
with the Employer occurs on or after his Retirement Date, such Participant shall
receive his benefit payments, including any Fixed Date Benefits that have not
yet been paid, in one of the following forms elected by such Participant
pursuant to Section 3.1(e):

                  (1) A single lump sum payment; or

                  (2) Annual installment payments for a term certain of either 5
            or 10 years payable to the Participant or, in the event of such
            Participant's death prior to the end of such term certain, to his
            designated beneficiary as provided in Section 7.4, provided that if
            such Participant's designated beneficiary is other than his spouse,
            the balance of such Participant's Accounts following his death shall
            be paid to his designated beneficiary in a single lump sum payment.

In the event such Participant fails to timely elect the form in which his
benefit payments are to be made, such benefit payments shall be in the form of a
single lump sum payment. If all or part of a Participant's benefit is to be paid
in installments, each installment payment shall be determined by multiplying the
Participant's Vested Interest in the balance in his Accounts subject to such
installment election by a fraction, the numerator of which is one and the
denominator of which is


                                      -8-
<PAGE>


the number of remaining installment payments to be made to the Participant,
provided that if, on the Participant's Retirement Date, the value of the
Participant's Vested Interest in the balance in his Accounts subject to such
installment election is less than $50,000, the Committee may, in its sole
discretion, cause the Participant's entire benefit to be paid in a single lump
sum payment.

            (c) A Participant may revise his election made pursuant to Section
3.1(e) regarding the form of payment of his benefit, but such revised election
shall not be effective until one year from the date of the revised election and
shall be effective only if such Participant has not Retired prior to the
expiration of such one-year period. Any revised election shall apply to all
amounts in a Participant's Accounts.

      7.4 DESIGNATION OF BENEFICIARIES.

            (a) Each Participant shall have the right to designate the
beneficiary or beneficiaries to receive payment of his benefit in the event of
his death. Each such designation shall be made by executing the beneficiary
designation form prescribed by the Committee and filing same with the Committee.
Any such designation may be changed at any time by execution of a new
designation in accordance with this Section. Notwithstanding the foregoing, if a
Participant who is married on the date of his death has designated an individual
or entity other than his surviving spouse as his beneficiary, such designation
shall not be effective unless such surviving spouse has consented thereto in
writing. Any such consent by such surviving spouse shall be irrevocable.

            (b) If no such designation is on file with the Committee at the time
of the death of the Participant or such designation is not effective for any
reason as determined by the Committee, then the designated beneficiary or
beneficiaries to receive such benefit shall be as follows:

                  (1) If a Participant leaves a surviving spouse, his benefit
            shall be paid to such surviving spouse;

                  (2) If a Participant leaves no surviving spouse, his benefit
            shall be paid to such Participant's executor or administrator, or to
            his heirs at law if there is no administration of such Participant's
            estate.

            (c) Notwithstanding the preceding provisions of this Section and to
the extent not prohibited by state or federal law, if a Participant is divorced
from his spouse and at the time of his death is not remarried to the person from
whom he was divorced, any designation of such divorced spouse as his beneficiary
under the Plan filed prior to the divorce shall be null and void unless the
contrary is expressly stated in writing filed with the Committee by the
Participant. The interest of such divorced spouse failing hereunder shall vest
in the persons specified in Paragraph (b) above as if such divorced spouse did
not survive the Participant.

      7.5 PAYMENT OF BENEFITS. To the extent the Trust Fund has sufficient
assets, the Trustee shall pay benefits to Participants or their beneficiaries,
except to the extent the Employer pays the benefits directly and provides
adequate evidence of such payment to the Trustee. To the extent the Trustee does
not or cannot pay benefits out of the Trust Fund, the benefits shall be paid by
the Employer. Any benefit payments made to a Participant or for his benefit
pursuant to


                                      -9-
<PAGE>


any provision of the Plan shall be debited to such Participant's Accounts. All
benefit payments shall be made in cash.

      7.6 UNCLAIMED BENEFITS. In the case of a benefit payable on behalf of a
Participant, if the Committee is unable to locate the Participant or beneficiary
to whom such benefit is payable, upon the Committee's determination thereof,
such benefit shall be forfeited to the Employer. Notwithstanding the foregoing,
if subsequent to any such forfeiture the Participant or beneficiary to whom such
benefit is payable makes a valid claim for such benefit, such forfeited benefit
shall be restored to the Plan by the Employer.

      7.7 EMPLOYMENT RELATIONSHIP. For purposes of this Article VII and Section
1.1(35), a Participant (other than a Participant who is a Director) shall be
considered to be in the employment of the Employer as long as such Participant
remains an employee of either the Company or an Affiliate, and transfers among
Employers shall not be considered a termination of employment. Notwithstanding
the preceding sentence, it is expressly provided that a Participant shall be
considered to have terminated employment with the Employer at the time of the
termination of the "Affiliate" status under the Plan of the entity or other
organization that employs such Participant. A Director shall be considered to
have terminated employment with the Employer at the time he ceases to be a
Director. Any question as to whether and when there has been a termination of
employment, and the cause of such termination, shall be determined by the
Committee and its determination shall be final.


                                      VIII.

                           ADMINISTRATION OF THE PLAN

      8.1 APPOINTMENT OF COMMITTEE. The general administration of the Plan shall
be vested in the Committee.

      8.2 COMMITTEE POWERS AND DUTIES. The Committee shall supervise the
administration and enforcement of the Plan according to the terms and provisions
hereof and shall have all powers necessary to accomplish these purposes,
including, but not by way of limitation, the right, power, authority, and duty:

            (a) To make rules, regulations, and bylaws for the administration of
the Plan that are not inconsistent with the terms and provisions hereof, and to
enforce the terms of the Plan and the rules and regulations promulgated
thereunder by the Committee;

            (b) To construe in its discretion all terms, provisions, conditions,
and limitations of the Plan;

            (c) To correct any defect or to supply any omission or to reconcile
any inconsistency that may appear in the Plan in such manner and to such extent
as it shall deem in its discretion expedient to effectuate the purposes of the
Plan;

            (d) To employ and compensate such accountants, attorneys, investment
advisors, and other agents, employees, and independent contractors as the
Committee may deem necessary or advisable for the proper and efficient
administration of the Plan;


                                      -10-
<PAGE>


            (e) To determine in its discretion all questions relating to
eligibility;

            (f) To determine whether and when there has been a termination of a
Participant's employment with the Employer, and the reason for such termination;

            (g) To make a determination in its discretion as to the right of any
person to a benefit under the Plan and to prescribe procedures to be followed by
distributees in obtaining benefits hereunder;

            (h) To receive and review reports from the Trustee as to the
financial condition of the Trust Fund, including its receipts and disbursements;
and

            (i) To establish or designate Funds as investment options as
provided in Article IV.


      8.3 CLAIMS REVIEW. In any case in which a claim for Plan benefits of a
Participant or beneficiary is denied or modified, the Committee shall furnish
written notice to the claimant within ninety days (or within 180 days if
additional information requested by the Committee necessitates an extension of
the ninety-day period), which notice shall:

            (a) State the specific reason or reasons for the denial or
modification;

            (b) Provide specific reference to pertinent Plan provisions on which
the denial or modification is based;

            (c) Provide a description of any additional material or information
necessary for the Participant, his beneficiary, or representative to perfect the
claim and an explanation of why such material or information is necessary; and

            (d) Explain the Plan's claim review procedure as contained herein.

In the event a claim for Plan benefits is denied or modified, if the
Participant, his beneficiary, or a representative of such Participant or
beneficiary desires to have such denial or modification reviewed, he must,
within sixty days following receipt of the notice of such denial or
modification, submit a written request for review by the Committee of its
initial decision. In connection with such request, the Participant, his
beneficiary, or the representative of such Participant or beneficiary may review
any pertinent documents upon which such denial or modification was based and may
submit issues and comments in writing. Within sixty days following such request
for review the Committee shall, after providing a full and fair review, render
its final decision in writing to the Participant, his beneficiary or the
representative of such Participant or beneficiary stating specific reasons for
such decision and making specific references to pertinent Plan provisions upon
which the decision is based. If special circumstances require an extension of
such sixty-day period, the Committee's decision shall be rendered as soon as
possible, but not later than 120 days after receipt of the request for review.
If an extension of time for review is required, written notice of the extension
shall be furnished to the Participant, beneficiary, or the representative of
such Participant or beneficiary prior to the commencement of the extension
period.


                                      -11-
<PAGE>


      8.4 EMPLOYER TO SUPPLY INFORMATION. The Employer shall supply full and
timely information to the Committee, including, but not limited to, information
relating to each Participant's Compensation, age, retirement, death, or other
cause of termination of employment and such other pertinent facts as the
Committee may require. The Employer shall advise the Trustee of such of the
foregoing facts as are deemed necessary for the Trustee to carry out the
Trustee's duties under the Plan and the Trust Agreement. When making a
determination in connection with the Plan, the Committee shall be entitled to
rely upon the aforesaid information furnished by the Employer.

      8.5 INDEMNITY. The Company shall indemnify and hold harmless each member
of the Committee and each employee of the Employer who is a delegate of the
Committee against any and all expenses and liabilities arising out of his
administrative functions or fiduciary responsibilities with respect to the Plan,
including any expenses and liabilities that are caused by or result from an act
or omission constituting the negligence of such individual in the performance of
such functions or responsibilities, but excluding expenses and liabilities that
are caused by or result from such individual's own gross negligence or willful
misconduct. Expenses against which such individual shall be indemnified
hereunder shall include, without limitation, the amounts of any settlement or
judgment, costs, counsel fees, and related charges reasonably incurred in
connection with a claim asserted or a proceeding brought or settlement thereof.


                                       IX.

                             ADMINISTRATION OF FUNDS

      9.1 PAYMENT OF EXPENSES. All expenses incident to the administration of
the Plan and Trust, including but not limited to, legal, accounting, Trustee
fees, and expenses of the Committee, may be paid by the Employer and, if not
paid by the Employer, shall be paid by the Trustee from the Trust Fund, if any,
and reflected in the daily pricing of the Funds pursuant to Section 3.3.

      9.2 TRUST FUND PROPERTY. All income, profits, recoveries, contributions,
forfeitures and any and all moneys, securities and properties of any kind at any
time received or held by the Trustee shall be held for investment purposes as a
commingled Trust Fund pursuant to the terms of the Trust Agreement. The
Committee shall maintain one or more Accounts in the name of each Participant,
but the maintenance of an Account designated as the Account of a Participant
shall not mean that such Participant shall have a greater or lesser interest
than that due him by operation of the Plan and shall not be considered as
segregating any funds or property from any other funds or property contained in
the commingled fund. No Participant shall have any title to any specific asset
in the Trust Fund, if any.

                                       X.

                               NATURE OF THE PLAN

      The Company intends and desires by the adoption of the Plan to recognize
the value to the Company and its Affiliates of the past and present services of
employees covered by the Plan


                                      -12-
<PAGE>

and to encourage and assure their continued service by making more adequate
provision for their future retirement security. The provisions of the Plan and
the Trust Agreement shall apply separately and equally to the Company and each
other Employer. It shall not be necessary for Employers other than the Company
to execute the Plan and Trust Agreement. Each such Employer shall be
conclusively presumed to have consented to its participation under the Plan and
Trust Agreement, including any and all amendments thereto, upon its submission
of information to the Committee required by the terms of or with respect to the
Plan or upon making a contribution to the Trust Fund pursuant to the terms of
the Plan.

      The Plan is intended to constitute an unfunded, unsecured plan of deferred
compensation for a select group of management or highly compensated employees of
the Employer. Plan benefits herein provided are to be paid out of each
Employer's general assets. Nevertheless, subject to the terms hereof and of the
Trust Agreement, each Employer may transfer money or other property to the
Trustee, and the Trustee shall pay Plan benefits to Participants and their
beneficiaries out of the Trust Fund.

      The Company, in its sole discretion, may establish the Trust and enter
into the Trust Agreement. In such event, subtrusts shall be established under
the Trust Agreement for the Company and each other Employer. Each Employer shall
remain the owner of all assets in the Trust Fund attributable to its
contributions and such assets shall be subject to the claims of such Employer's
creditors if such Employer ever becomes insolvent. For purposes hereof, an
Employer shall be considered "insolvent" if (a) the Employer is unable to pay
its debts as they become due, or (b) the Employer is subject to a pending
proceeding as a debtor under the United Sates Bankruptcy Code (or any successor
federal statute). The chief executive officer of the Company and the Board shall
have the duty to inform the Trustee in writing if an Employer becomes insolvent.
Such notice given under the preceding sentence by any party shall satisfy all of
the parties' duty to give notice. When so informed, the Trustee shall suspend
payments to the Participants employed by such Employer and hold the assets for
the benefit of such Employer's general creditors. If the Trustee receives a
written allegation that an Employer is insolvent, the Trustee shall suspend
payments to the Participants employed by such Employer and hold the Trust Fund
for the benefit of such Employer's general creditors, and shall determine within
the period specified in the Trust Agreement whether such Employer is insolvent.
If the Trustee determines that such Employer is not insolvent, the Trustee shall
resume payments to such Participants. No Participant or beneficiary shall have
any preferred claim to, or any beneficial ownership interest in, any assets of
the Trust Fund.

                                       XI.

                                  MISCELLANEOUS

      11.1 NOT CONTRACT OF EMPLOYMENT. The adoption and maintenance of the Plan
shall not be deemed to be a contract between the Employer and any person or to
be consideration for the employment of any person. Nothing herein contained
shall be deemed to give any person the right to be retained in the employ of the
Employer or to restrict the right of the Employer to discharge any person at any
time nor shall the Plan be deemed to give the Employer the right to require any
person to remain in the employ of the Employer or to restrict any person's right
to terminate his employment at any time.



                                      -13-
<PAGE>


      11.2 ALIENATION OF INTEREST FORBIDDEN. The interest of a Participant or
his beneficiary or beneficiaries hereunder may not be sold, transferred,
assigned, or encumbered in any manner, either voluntarily or involuntarily, and
any attempt so to anticipate, alienate, sell, transfer, assign, pledge,
encumber, or charge the same shall be null and void; neither shall the benefits
hereunder be liable for or subject to the debts, contracts, liabilities,
engagements or torts of any person to whom such benefits or funds are payable,
nor shall they be an asset in bankruptcy or subject to garnishment, attachment
or other legal or equitable proceedings. Plan provisions to the contrary
notwithstanding, the Committee shall comply with the terms and provisions of an
order that satisfies the requirements for a "qualified domestic relations order"
as such term is defined in section 206(d)(3)(B) of the Employee Retirement
Income Security Act of 1974, as amended, including an order that requires
distributions to an alternate payee prior to a Participant's "earliest
retirement age" as such term is defined in section 206(d)(3)(E)(ii) of such Act.

      11.3 WITHHOLDING. All Compensation deferrals and payments provided for
hereunder shall be subject to applicable withholding and other deductions as
shall be required of the Employer under any applicable local, state or federal
law.

      11.4 AMENDMENT AND TERMINATION. The Committee may from time to time, in
its discretion, amend, in whole or in part, any or all of the provisions of the
Plan; provided, however, that no amendment may be made that would impair the
rights of a Participant with respect to amounts already allocated to his
Accounts. The Committee may terminate the Plan at any time. In the event that
the Plan is terminated, each Participant's Vested Interest in his Accounts shall
become 100%, and the balance in such Accounts shall be paid to such Participant
or his designated beneficiary in the manner specified by the Committee, which
may include the payment of a single lump sum payment in full satisfaction of all
of such Participant's or beneficiary's benefits hereunder.

      11.5 SEVERABILITY. If any provision of this Plan shall be held illegal or
invalid for any reason, said illegality or invalidity shall not affect the
remaining provisions hereof; instead, each provision shall be fully severable
and the Plan shall be construed and enforced as if said illegal or invalid
provision had never been included herein.

      11.6 GOVERNING LAWS. ALL PROVISIONS OF THE PLAN SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF TEXAS EXCEPT TO THE EXTENT PREEMPTED BY FEDERAL LAW.

      11.7 GUARANTY. Notwithstanding any provisions of the Plan to the contrary,
in the event any Employer fails to make payment of the benefits due under the
Plan on behalf of Participants in its employ, whether directly or through the
Trust, the Company shall be liable for and shall make payment of such benefits
due as a guarantor of such entity's obligations hereunder. The guaranty
obligations provided herein shall be satisfied directly and not through the
Trust.


                                      -14-
<PAGE>


      EXECUTED this 1st day of June, 2001.



                                          STEWART & STEVENSON
                                          SERVICES, INC.



                                             By:  /s/ Michael L. Grimes
                                                    --------------------------
                                             Name:   Michael L. Grimes
                                                    --------------------------
                                             Title:  President and CEO
                                                    --------------------------


                                      -15-