<PAGE>   1
                                                                   EXHIBIT 10.17
                            SEPARATION AGREEMENT AND
                    GENERAL RELEASE AND CONSULTING AGREEMENT

    This Separation Agreement and General Release and Consulting Agreement
("Agreement") is made and entered into this 1st day of October, 1996, by and
between CARL B. FRANCIS ("Francis") and TUFCO TECHNOLOGIES, INC. ("Tufco");

    WHEREAS, Francis has been employed by Tufco as President and Chief
Executive Officer; and

    WHEREAS, Francis and Tufco mutually desire to conclude Francis' employment
on an amicable basis; and

    WHEREAS, Francis and Tufco mutually desire to enter into a Consulting
Agreement pursuant to which Francis will provide consulting services;

    IT IS HEREBY AGREED by and between Francis and Tufco as follows:

    1.   Francis' employment with Tufco and all of its affiliated companies
(collectively, "the Tufco Companies"), is terminated effective September 19,
1996 and, upon execution of this Agreement, and Francis will resign from any
and all related positions with any Tufco Companies, including, without
limitation, as a member of the Board of Directors of any Tufco Companies. The
press release attached hereto as Exhibit "A" will announce Francis' departure.

    2.   In full consideration of Francis' execution of this Agreement and his
agreement to be legally bound by its terms, Tufco will:
<PAGE>   2
         a.  Pay Francis $200,000.00, less applicable deductions, as a bonus
for performance in 1996;

         b.  Enter into a consulting agreement with Francis whereby Francis
shall perform consulting services for Tufco beginning on September 20, 1996 and
ending on April 20, 1998 (the "Consulting Term");

         c.  During the Consulting Term, Francis shall perform such consulting
services as the Board or the then President of Tufco reasonably requests, at
the times and on the occasions requested by Tufco. Tufco shall also reimburse
Francis for any reasonable business expenses incurred on Tufco's behalf in
connection with the performance of his services under this Paragraph. Francis
shall perform such services as an independent contractor, not as an employee of
Tufco and shall not have any authority to bind Tufco to any contracts or other
obligations during the Consulting Tenn.  During the Consulting Term, Francis
shall at all times comply with all reasonable policies and procedures adopted
by Tufco, including, without limitation, the procedures and policies adopted by
Tufco regarding conflicts of interest and confidentiality of Tufco's business
information;

         d.  For all services rendered by Francis as a consultant to Tufco
during the Consulting Term, Tufco shall pay Francis on the 19th of each month
beginning October 19, 1996, the monthly compensation of $16,666.66, and $850
per month as a car allowance;

         e.  During the Consulting Term, Francis shall be solely responsible
for the payment of all federal, state and local taxes or contributions imposed
or required by law that pertain to the compensation paid to Francis for the
performance of consulting services. To the extent there are any tax
consequences arising from the payments made by Tufco pursuant to this





                                      -2-
<PAGE>   3
Paragraph, Francis shall be exclusively responsible for any payment of federal,
state and local taxes. Francis will indemnify and hold harmless and defend
Tufco against any and all claims or liabilities that may be asserted by any
governmental taxing authority, including payment of attorney's fees, charges,
assessments, interest, penalties or liabilities arising out of or with respect
to any tax liabilities relating to payment to Francis pursuant to this
Paragraph.

         f.  Nothing in this Agreement shall be construed to prevent the
termination of the Consulting Term by Tufco prior to April 20, 1998. In the
event of such a termination, Tufco shall pay to Francis all of the compensation
set forth in Paragraph 2.d for the remainder of the Consulting Term, in
installments as set out in Paragraph 2.d and thereafter Tufco shall have no
further liability or obligation to Francis for compensation hereunder. Such
termination shall be effective by notice thereof delivered by Tufco to Francis
and provided in Paragraph 19.b.

    3.   Francis, for and in consideration of the undertakings set forth in
herein, and intending to be legally bound, does hereby REMISE, RELEASE AND
FOREVER DISCHARGE Tufco and any and all other Tufco Companies individually and
collectively, its and their respective officers, directors, employees and
agents, and its and their predecessors, successors and assigns, heirs,
executors and administrators, of and from any and all manner of actions and
causes of actions, suits, debts, claims and demands whatsoever in law or in
equity, which Francis ever had, now has, or hereafter may have, or which his
heirs, executors or administrators hereafter may have by reason of any matter,
cause or thing whatsoever from the beginning of the world to the date of this
Agreement and, particularly, but without limitation of the foregoing terms, any
claims concerning or relating in any way to Francis' employment





                                      -3-
<PAGE>   4
relationship and/or the termination of his employment relationship with Tufco
and/or its component and/or affiliated corporate entities including, but not
limited to, any claims which have been or could have been asserted, or could be
asserted now or in the future against Tufco and/or its officers, directors,
employees and agents including any claims arising under any and all federal,
state or local statutory or common laws including, but not limited to, any
claims arising under the Title VII of the Civil Rights Act of 1964, 42 U.S.C.
Section 2000e, Age Discrimination in Employment Act 29 U.S.C. Section 621 et
seq., the Americans with Disabilities Act, 42 U.S.C. Section 12101, et seq.,
the Employee Retirement Income Security Act ("ERISA") and any and all other
claims arising out of Francis' employment at Tufco, including any claims
relating in any way to the Employment Agreement dated April 21, 1995 that was
entered into between Francis and Tufco, and any claims for counsel fees and
costs. Except as provided herein, it is expressly understood and agreed that
this Agreement shall operate as a clear and unequivocal waiver by Francis of
any claim for accrued or future wages, benefits or any other type of payment.

    4.   Francis hereby acknowledges the following:

         a.  That his position with Tufco placed him in a position of
confidence and trust with the prospective customers, customers and employees of
Tufco and allowed him access to confidential or proprietary information of
Tufco;

         b.  That the type and periods of restrictions imposed by the covenants
by this Separation Agreement and General Release are fair and reasonable and
such restrictions will not prevent him from earning a livelihood;

         c.  That the business of Tufco is, in general, a highly competitive
business; and





                                      -4-
<PAGE>   5
         d.  Having acknowledged the foregoing matters,

             (1) Francis, from the date this Agreement is executed until April
20, 2001, (the "Non-Competition Period"), shall not within the United States of
America, Canada and Mexico, directly or indirectly, in any capacity, render his
services, engage or have a financial interest in, any business that is
competitive with any of those business activities in which Tufco shall have
been engaged during his employment by it, including paper converting, mill roll
converting, paper sheeting, slitting and rewinding paper rolls, facsimile
rolls, and buying and reselling paper products, nor shall Francis assist any
person or entity that is engaged in such business, including by making Tufco
Information (defined below in Paragraph 3 d.(4)) available to any such person
or entity. In addition, during the Non-Competition Period, Francis shall not
directly or indirectly solicit or otherwise encourage any of Tufco's employees
to terminate their employment with Tufco or Tufco Companies. If a court
determines that the foregoing restrictions are too broad or otherwise
unreasonable under applicable law, including with respect to time or space, the
court is hereby requested and authorized by the parties hereto to review the
foregoing restrictions to include the maximum restrictions allowable under
applicable law.

             (2) The terms of this Section shall apply to Francis and any
persons or entities controlled by Francis, including any relative of Francis,
corporation or other entity of which he is an officer, director or shareholder,
or any other affiliate of Francis, to the same extent as if they were parties
hereto, and Francis shall take whatever actions may be necessary to cause any
such persons or entities to adhere to the terms of this Section.

             (3) All inventions, innovations, designs, ideas and product
developments (collectively, the "Developments"), developed or conceived by
Francis, solely or





                                      -5-
<PAGE>   6
jointly with others, whether or not patentable or copyright table, at any time
during his employment at Tufco or Tufco Companies, either as an employee or
consultant, and that relate to the actual or planned business activities of
Tufco or the Tufco Companies and all of Francis' right, title and interest
therein, are, shall be, and shall remain, the exclusive property of Tufco or
the Tufco Companies, as the case may be. Francis hereby assigns, transfers and
conveys to Tufco all of his right, title and interest in and to any and all
such Developments. As requested from time to time by the Board, Francis shall
disclose fully, as soon as practicable and in writing, all Developments to the
Board. At any time and from time to time, upon the request of any of the Board,
Francis shall execute and deliver to Tufco any and all instruments, documents
and papers, give evidence and do any and all other acts that, in the opinion of
counsel for Tufco, are or may be necessary or desirable to document such
transfer or to enable Tufco to file and prosecute applications for and to
acquire, maintain and enforce any and all patents, trademark registrations or
copyrights under United States or foreign law with respect to any such
Developments or to obtain any extension, validation, reissue, continuance or
renewal of any such patent, trademark or copyright. Tufco will be responsible
for the preparation of any such instruments, documents and papers and for the
prosecution of any such proceedings and will reimburse Francis for all
reasonable expenses incurred by him in compliance with the provisions of this
Section.

             (4) Francis has had and may have possession of or access to
confidential information relating to the business of Tufco or the Tufco
Companies, including writings, equipment, processes, drawings, reports,
manuals, invention records, financial information, business plans, customer
lists, the identity of or other facts relating to prospective





                                      -6-
<PAGE>   7
customers, inventory lists, arrangements with suppliers and customers, computer
programs, or other material embodying trade secrets, customer or product
information or technical or business information of Tufco or the Tufco
Companies. All such information, other than any information that is in the
public domain through no act or omission of Francis or which he is authorized
to disclose, is referred to collectively as the "Tufco Information." During and
after the Non- Competition Period, Francis shall not (i) use or exploit in any
manner the Tufco Information for himself or any person, partnership,
association, corporation or other entity other than Tufco, (ii) remove any
Tufco Information, or any reproduction thereof, from the possession or control
of Tufco or (iii) treat Tufco Information otherwise than in a confidential
manner.

             (5) All Tufco Information developed, created or maintained by
Francis, alone or with others while employed by Tufco or the Tufco Companies,
and all Tufco Information maintained by Francis hereafter, shall remain at all
times the exclusive property of Tufco. Francis shall return to Tufco all Tufco
Information, and reproductions thereof, whether prepared by him or others, that
are in his possession upon execution of this Agreement.

             (6) If Francis is requested or required by law or judicial order
to disclose any confidential or proprietary information, he shall provide Tufco
with prompt notice of any such request for such information or requirement so
that Tufco may seek an appropriate protective order or waiver of his compliance
with the provisions of this clause. Francis will not oppose action by, and will
cooperate with Tufco to obtain an appropriate protective order or other
reliable assurance that confidential treatment will be accorded the
confidential or proprietary information.





                                      -7-
<PAGE>   8
             (7) Francis expressly acknowledges that the remedy at law for any
breach of this Section will be inadequate and that upon any such breach or
threatened breach, Tufco shall be entitled as a matter of right to injunctive
relief in any court of competent jurisdiction, in equity or otherwise, and to
enforce the specific performance of Francis' obligations under these provisions
without the necessity of proving the actual damage to Tufco or the inadequacy
of a legal remedy. The rights conferred upon Tufco by the preceding sentence
shall not be exclusive of, but shall be in addition to, any other rights or
remedies which Tufco may have at law, in equity or otherwise.

    5.   This Agreement does not affect, alter, amend or modify the terms of
the Option Agreement dated June 1, 1995, between Tufco and Oasis Holding Trust;

    6.   None of the payments to be made under this Agreement will become due
until after the expiration of the seven (7) day revocation period set forth in
Paragraph 18 of this Agreement and will never become due should Francis
exercise his right to revoke this Agreement.

    7.   Francis shall vacate his office in Tufco's Dallas location upon
execution of this Agreement. Francis' office furniture will be stored in a
vacant office in Tufco's Dallas location until November 22, 1996. Francis 
acknowledges and agrees that Tufco will be held harmless for any damage or
loss to the furniture during this storage period.

    8.   Upon execution of this Agreement, Tufco will permit Francis to remove
his personal property items listed on Exhibit "B" attached hereto that are
located in Tufco's Dallas office. Furthermore, Tufco will permit Francis to
remove his personal papers contained in





                                      -8-
<PAGE>   9
the file cabinet of his former Dallas office after a Tufco representative
confirms that these are not Tufco-related items.

    9.   Upon execution of this Agreement, Tufco shall sell to Francis at book
value, those items listed on Exhibit "C" attached hereto.

    10.  Within ten (10) business days of the execution of this Agreement
Francis will either return to Tufco all of the items listed in Exhibit "D" to
this Agreement or will remit to Tufco the original purchase price for these
items, as indicated on Exhibit "D".

    11.  Neither Tufco nor any of the Tufco Companies has, or will have, any
obligation to provide Francis at any time in the future with any payments,
benefits or considerations other than those recited in Paragraph 2 above, and
the Employment Agreement between the parties, entered into April 21, 1995, is
null and void.

    12.  Neither Francis, nor any person, organization or other entity on his
behalf, will file, charge, claim, sue or cause or permit to be filed, charged
or claimed any action for legal or equitable relief (including damages,
injunctive, declaratory, monetary or other relief) involving any matter related
in any way whatsoever to his employment relationship or the termination of his
employment relationship with Tufco or the Tufco Companies, or involving any
continuing effects of any acts or practices which may have arisen or occurred
during Francis' employment relationship or thereafter in connection with the
termination of his employment relationship with Tufco or the Tufco Companies.

    13.  Francis recognizes that his employment relationship with Tufco and the
Tufco Companies has been permanently and irrevocably severed, and that neither
Tufco nor the





                                      -9-
<PAGE>   10
Tufco Companies has any obligation, contractual or otherwise, to hire, rehire,
or reemploy him in the future.

    14.  The parties' professional and personal reputations are important and
should not be impaired by any party after this Agreement is executed. Francis
will not publish any communications to any other person or entity that comments
negatively on the professional reputation of Tufco or the Tufco Companies, or
the professional or personal reputation of its officers, directors or
management, and Tufco will not publish any communication to any person or
entity outside of Tufco that comments negatively upon Francis' professional or
personal reputation.

    15.  Francis hereby certifies that he has read the terms of this Separation
Agreement and General Release and Consulting Agreement, that he has discussed
it with his attorney, and that he understands its terms and effects. Francis
further acknowledges that he is executing this Separation Agreement and General
Release and Consulting Agreement of his own volition, with a full understanding
of its terms and effects, and with the intention of releasing all claims
recited herein and complying with the terms of Paragraph 3, in exchange for the
consideration described herein, which he acknowledges is adequate and
satisfactory to him. Neither Tufco nor its agents, representatives, employees
or attorneys have made any representations to Francis concerning the terms or
effects of this Separation Agreement and General Release and Consulting
Agreement other than those contained herein.

    16.  Francis will not communicate or disclose the terms of this Separation
Agreement and General Release and Consulting Agreement or the circumstances
leading up to





                                      -10-
<PAGE>   11
this Agreement as described herein, to any persons other than members of his
immediate family, his attorney, accountant and/or tax consultant, state and
federal tax authorities or other persons as may be required by law.

    17.  If Francis dies during the term of this Agreement, Tufco shall
continue to pay his executors, legal representatives or administrators the
unpaid installments of his compensation set forth in Paragraph 2.d hereof,
payable to the appropriate legal representatives. The provision of Paragraph 4
shall expressly survive in the event of Francis' death.

    18.  Francis acknowledges that he has been informed that he has the right
to consider this Agreement for a period of at least twenty-one (21) days prior
to entering the Agreement. He also understands that he has the right to revoke
this Agreement for a period of seven (7) days following his execution of the
Agreement by giving written notice to Tufco.  Such notice shall be effective
upon receipt by Tufco.

    19.  General provisions.

         a.  Governing Law. The terms of this Agreement shall be governed by
the laws of the State of Texas;

         b.  Notices. All notices required to be given under this Agreement
shall be in writing and shall be deemed to have been given when personally
delivered or when mailed by registered or certified mail, postage prepaid,
return receipt requested, or when sent by Federal Express or other overnight
delivery service, addressed as follows:





                                      -11-
<PAGE>   12
    TO EMPLOYEE:

         Mr. Carl B. Francis
         c/o Roy J. True, Esquire
         True & Sewell, LLP 
         88 Central, Ninth Floor 
         Dallas, TX 75206

    TO TUFCO:

         Tufco Technologies, Inc.
         c/o Mr. Greg Wilemon, Chief Financial Officer
         4800 Simonton Road
         Dallas, TX 75244

                 and

         Tufco Technologies, Inc.
         c/o Mr. Robert J. Simon, Chairman
         Bradford Ventures, Ltd.
         1212 Avenue of the Americas 
         Suite 1802
         New York, NY 10036

         c.  Entire Agreement; Modification. This Agreement constitutes the
entire agreement of the parties hereto with respect to the subject matter
hereof. This Agreement may not be modified or amended in any way except in
writing by the parties hereto.

         d.  Waiver. No waiver of any breach of this Agreement shall be
construed to be a waiver as to succeeding breaches.

         e.  Severability. If any provision of this Agreement or application
thereof to anyone under any circumstances is adjudicated to be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
not affect any other provisions or applications of this Agreement which can be
given effect without the invalid or unenforceable





                                      -12-
<PAGE>   13
provision or application and shall not invalidate or render unenforceable such
provision in any other jurisdiction.

    IN WITNESS WHEREOF, the parties hereto, intending to be legally bound, have
hereunto duly executed this Agreement the date and year first written above.

ATTEST:                                          TUFCO TECHNOLOGIES, INC.

/s/ KATHY MANOS                                  By: /s/ [ILLEGIBLE]
---------------                                      --------------------------
                                                 TITLE CEO/Corporate Secretary

WITNESS:


/s/ [ILLEGIBLE]                                  /s/ CARL B. FRANCIS
---------------                                  --------------------------
                                                 CARL B. FRANCIS





                                      -13-
<PAGE>   14
                                  EXHIBIT "A"

NEWS RELEASE

Contact:         Greg Wilemon, CFO/COO
                 Tufco Technologies, Inc.
                 4800 Simonton Road 
                 Dallas,Texas 75244
                 (214)-789-1079
                 (214)-789-1586 (Fax)

                                                          FOR IMMEDIATE RELEASE


                   TUFCO TECHNOLOGIES, INC. LEADERSHIP CHANGES

DALLAS, TX (September 30, 1996)--Tufco Technologies,Inc.(NASDAQ:TFCO),one of
the largest competitors in the $5 billion converting and specialty printing
industry, announced major changes in its leadership team today. The Dallas,
Texas based company announced that Carl Francis, President and CEO, has chosen
to retire effective September 19, 1996, the date of Tufco Technologies, Inc.
Third Quarter Board Meeting. The Tufco Board of Directors has named Louis
LeCalsey, III as Francis' successor. Mr. LeCalsey, a 22 year veteran of Scott
Paper, joined Tufco April 1, l996 as President of the Tufco Industries
Division, with operations in Green Bay, WI and Manning, SC. Mr. LeCalsey was
Vice President-Worldwide Logistics with Scott during the 1994-1995 leadership
tenure of Al Dunlap, which culminated in the merger of Scott Paper with
Kimberly-Clark.

Mr. LeCalsey stated "I am most pleased with this opportunity to captain the
'New Tufco' leadership team to deliver significantly higher levels of market
position and shareholder value. Under Carl Francis, Tufco recorded significant
growth and he recruited the management team now in place to lead Tufco
Technologies. The new team is experienced in all facets of the paper industry,
and our first order of business will be the development of a Strategic Business
Plan to
<PAGE>   15
guide Tufco's growth and maximize shareholder value in 1997 and beyond." 
Mr. LeCalsey further profiled the members of the Tufco Technologies executive 
leadership group:

         "Greg Wilemon will assume the new responsibilities of Chairman of
         Operations in addition to his existing position as Chief Financial
         Officer for Tufco Technologies. Greg has been a Tufco employee for 3
         years.

         Mike Schilling will continue as Vice-President Human Resources. Mike
         has been am employee of Tufco Technologies for 7 years including his
         prior service as Human Resources-Manager for Tufco-Green Bay prior to
         its acquisition in 1992.

         Steve Heimerman has been promoted to President-Tufco Industries
         Division (Green Bay, WI and Manning SC).  Prior to joining Tufco,
         Steve was Director of Business Systems for Scott Paper and had over 25
         years with that firm in various manufacturing leadership roles.

         John Bonander will continue to lead the Hamco Division (Newton, NC) as
         its President. John has been with Tufco for one year. He founded and
         was President of a paper distribution company that was later sold to
         International Paper. John was instrumental in Tufco's acquisition of
         Hamco.

         David Parker remains President of Executive Converting Corporation
         Division (Dallas, TX). David has been an ECC/Tufco employee for 10 
         years and worked through various increasingly responsible roles at 
         ECC."

Tufco Technologies, Inc. is a leading specialty printer and converter of custom
paper and nonwoven materials with headquarters in Dallas, Texas. The Company
was organized in 1992 with the objective of acquiring and operating paper
converting companies.
                                      End
<PAGE>   16
         ECC Photograph
         Crystal "Swirl" Paperweight
         Crystal "Golf Ball" Desk Clock
         Golf Ball Display
         (4) Boise Cascade Coffee Cups
         Brown Waste Container
         Miscellaneous Files and Supplies

Miscellaneous:

         (2) Four-drawer File Cabinets
         Murata F-30 Fax Machine
         Glass Table with Black Trim
         Three-Hole Punch
         Two-Hole Punch
<PAGE>   17
                                   EXHIBIT C

<TABLE>
<CAPTION>
         Lybbie Hall's Office                      Book Value
         --------------------                      ----------
                 <S>                               <C>     
                 Westons                           $1,549.19
                 Computer                             221.80
                 Shredder                                  0
                 Typewriter                                0
                 Nec 6300                                  0
                 Wall Hangings                             0
                 Files, lateral                            0
                                                   ---------
                 Total                             $1,770.99
</TABLE>

<TABLE>
<CAPTION>
         Carl Francis' Office
         --------------------
         <S>                                      <C>
                 Entertainment center
                 Executive Desk
                 Executive Chair
                 Executive Credenza
                 Lamp
                 2 chairs--guest
                 Conference table
                 4 chairs
                 Total                             $1,806.85

         Total Book Value of Hall's and Francis' Offices:  $3,577.84
</TABLE>
<PAGE>   18
                                   EXHIBIT D

<TABLE>
<CAPTION>
         Palm Springs Office                                                      Purchase Price  
         -------------------                                                      --------------  
                 <S>      <C>                                                        <C>
                 1.       Compaq Pendium PC, monitor, keyboard,                      3231.05
                          modem and peripherals.

                 2.       Laser jet printer.                                         1011.06

                 3.       Fax machine                                                1184.19

                 4.       Copier.                                                     887.81

         Dallas Office
         -------------
                 1.       Portable lap top computer.                                 4045.29

                 2.       Printer                                                    2347.28
                                                                                  ----------
                                                                      TOTAL       $12,706.68
</TABLE>