Document:

Exhibit 10.2

 

TERMINATION AND RELEASE AGREEMENT

 

THIS TERMINATION AND RELEASE AGREEMENT
(this “Agreement”) is entered into by and between Mark L. Whitman
(“Employee”), a resident of Round Rock, 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 chief executive
officer of one of its divisions, the Engineered Products Division (the “Division”);
and

 

WHEREAS, the Company has entered
into that certain Asset Purchase Agreement dated September 27, 2005 (the “APA”),
with Hushang Ansary (“Ansary”) to sell the assets and business of the Division
to Ansary upon the terms set forth therein, and the Company has agreed with
Ansary that the sale of the Division shall close no later than January 31,
2006 (the “Closing Date”), but in any event after the closing of the Company’s
books for the period ended December 31, 2005 and the completion of Ansary’s
arrangements to succeed to the business of the Division as of that date and with
the effective date thereof to be as of December 31, 2005; and

 

WHEREAS, Employee has, on behalf
of S&S, contributed significantly to the transaction contemplated by the
APA as well as having contributed significantly to the performance of the
Division in recent periods which facilitated the transaction contemplated by
the APA on the terms thereof; and

 

WHEREAS, Employee’s position and
employment as an employee and an officer of S&S shall, under the foregoing
circumstances, be terminated on the Closing Date; and

 

WHEREAS, Employee is a
participant in the Company’s Management Incentive Compensation Plan (the “MICP”)
and is at present fully entitled to compensation under the MICP for his
performance during the Company’s fiscal year that will end on January 31,
2006; and

 

WHEREAS, the Company and
Employee have agreed with respect to certain future obligations of Employee to
the Company, including 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 their 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
position and employment as an employee and officer with S&S on and as of the
Closing Date.  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 Closing Date.  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 owed Employee under the MICP, (ii) all
amounts applicable to payment for the 
non-competition agreements of Employee contained in Section 6 of
this Agreement, and (iii) all amounts owed and earned by reason of Employee’s
extraordinary contribution to the Company in the management of the affairs of
the Division and in the Company’s successful efforts leading to the pending
sale of the Division to Ansary, S&S agrees to pay Employee the aggregate
amount of $1,372,000 (the “Payment”) comprised of the following amounts:

 

	
  MICP

  	
   

  	
  $

  	
  172,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Additional
  Compensation

  	
   

  	
  $

  	
  1,200,000

  	
   

  
						

 

The Payment shall be made in two traunches:  Upon the expiration of the Revocation Period
(as defined in Section 24) $872,000 shall be paid to Employee, and, if the
closing of the transaction contemplated by the APA (the “Closing”) shall occur,
then on the Closing Date the balance of the Payment in the amount of $500,000
shall be paid to Employee.

 

All such
payments shall be net of customary withholding for taxes and applicable
deductions imposed by law or permissible elections made by Employee.

 

3.                                      VACATION
PAY:  In addition, S&S agrees to
pay to Employee, within 30 days of the Closing Date, the accrued unpaid
vacation due him under the S&S vacation policy through the Closing Date.

 

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4.                                      STOCK
OPTIONS:  Any stock options in the
name of Employee held on the Closing Date (the “Stock Options”) shall be
governed by the terms of the applicable stock option agreement and stock option
plan; provided, however, that it is specifically agreed that the
Stewart & Stevenson Services, Inc. 1998 Nonstatutory Stock Option Plan
shall be amended as of the date hereof to permit, at the Compensation Committee’s
discretion, the acceleration of the vesting of the Stock Options, to the extent
not previously vested, immediately upon the Closing Date and to permit the
exercise thereof at any time after the Closing 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 amendments to such Stock Option
Plan 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.

 

c.                                       Employee
acknowledges and agrees that these non-disclosure agreements shall survive any
termination of 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 (other than (i) information relating
solely to the Division or, (ii) subject to the closing of the sale thereof
to Ansary, information relating solely to the Company’s Power Products Division
(the “Other Division”), the business and assets of which are also expected to
be sold to Ansary on or about the Closing Date, all of which information shall
not be governed by this Section 5 of this Agreement).  “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 

 

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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.

 

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 Division Business
from Non-Competition Obligations.  Notwithstanding any other provision hereof, Employee’s
activities in respect of his continued employment by Ansary or any successor
thereof after the Closing Date solely in respect of the business of the
Division as it existed on such date, and solely to the extent he remains in the
employ of Ansary or any successor thereof as to the Division, 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 two years following the Closing 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 

 

4

 

purpose of
engaging in the Same or a Similar Business as S&S in the Market Area, as defined
herein;

 

(ii)                                  Employee
further acknowledges and agrees that during the two years following the Closing
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 Securities Exchange Act of 1934.

 

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 

 

5

 

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 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 two years following
the Closing 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 Division 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 Closing
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 all actual past expenses incurred by him in the course of his employment
and activities as to the Division (incurred after the Closing Date) to Ansary or
his successor or representatives and not to S&S, and Employee shall look only
to Ansary and/or his successor for satisfaction of any obligation in respect of
such expenses.  Employee acknowledges and
agrees that he has no authority as to the incurrence of, and has not incurred,
any expenses after the Closing Date on behalf of S&S, and 

 

6

 

further agrees that S&S shall not have any obligation to reimburse
expenses incurred by him with respect to the business of the Division (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 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 Closing Date other than property or assets being sold to Ansary under
the APA.

 

12.                               DOCUMENTS: Employee agrees, except to the extent
they relate solely to the business of the Division, to deliver to S&S on
the Closing 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 on behalf of S&S and the orderly transfer of any such pending
work as reasonably designated by 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 

 

7

 

specifically
without limitation, any false statements or omissions that would be a violation
of the False Claims Act or any other similar law or law of similar tenor, the
Securities Act of 1933 as amended, the Securities Exchange Act of 1934 as
amended, 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 

 

8

 

wrongdoing being expressly denied.  This Agreement does not constitute evidence of
unlawful conduct or wrongdoing by either party hereto.

 

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.                               MERGER: This Agreement supersedes, replaces and
merges all previous agreements, understandings and discussions, whether written
or oral, relating to the same or similar subject matters between Employee and
S&S and constitutes the entire agreement between Employee and S&S with
respect to the subject matter of this Agreement.  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 

 

9

 

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

 

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 the 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 Payments.

 

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 

 

10

 

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.  Any determination by the 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 

 

11

 

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
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, the “Code” shall mean the
Internal Revenue Code of 1986, as amended; “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; and “Auditor” shall mean the
accounting firm which was, immediately prior to the change of control, the
Company’s independent auditor.

 

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 

 

12

 

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 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:

 

Mark L. Whitman

74 Twin Ridge Parkway

Round Rock, Texas 78664

 

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.

 

13

 

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/ Mark L. Whitman

  	
   

  	
  12/20/05

  
	
  Mark L. Whitman

  	
   

  	
  Date

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  STEWART
  & STEVENSON SERVICES, INC.

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Stephen
  A. Hines

  	
   

  	
  12/23/05

  
	
   

  	
  Stephen A.
  Hines 

  	
  Date

  
	
   

  	
  Vice
  President of Human Resources

  	
   

  

 

14Exhibit 10.3

 

TERMINATION AND RELEASE AGREEMENT

 

THIS TERMINATION AND RELEASE AGREEMENT (this
“Agreement”) is entered into by and between Don K. Kyle (“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 chief
executive officer of one of its divisions, the Power Products Division (the “Division”);
and

 

WHEREAS, the Company
has entered into that certain Asset Purchase Agreement dated October 24, 2005
(the “APA”), with Hushang Ansary (“Ansary”) to sell the assets and business of
the Division to Ansary upon the terms set forth therein, and the Company has
agreed with Ansary that the sale of the Division shall close no later than January 31,
2006 (the “Closing Date”), but in any event after the closing of the Company’s
books for the period ended December 31, 2005 and the completion of Ansary’s
arrangements to succeed to the business of the Division as of that date and with
the effective date thereof to be as of December 31, 2005; and

 

WHEREAS, Employee
has, on behalf of S&S, contributed significantly to the transaction
contemplated by the APA as well as having contributed significantly to the
performance of the Division in recent periods which facilitated the transaction
contemplated by the APA on the terms thereof; and

 

WHEREAS, Employee’s
position and employment as an employee and an officer of S&S shall, under
the foregoing circumstances, be terminated on the Closing Date; and

 

WHEREAS, Employee is
a participant in the Company’s Management Incentive Compensation Plan (the “MICP”)
and is at present fully entitled to compensation under the MICP for his
performance during the Company’s fiscal year that will end on January 31,
2006; and

 

WHEREAS, the Company
and Employee have agreed with respect to certain future obligations of Employee
to the Company, including 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 their 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
position and employment as an employee and officer with S&S on and as of the
Closing Date.  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 Closing Date.  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 owed Employee under the MICP, (ii) all
amounts applicable to payment for the 
non-competition agreements of Employee contained in Section 6 of
this Agreement, and (iii) all amounts owed and earned by reason of
Employee’s extraordinary contribution to the Company in the management of the
affairs of the Division and in the Company’s successful efforts leading to the
pending sale of the Division to Ansary, S&S agrees to pay Employee the
aggregate amount of $1,447,200 (the “Payment”) comprised of the following
amounts:

 

	
  MICP

  	
   

  	
  $

  	
  152,200

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Additional
  Compensation

  	
   

  	
  $

  	
  1,295,000

  	
   

  

 

The Payment shall be made in two traunches:  Upon the expiration of the Revocation Period
(as defined in Section 24) $947,200 shall be paid to Employee, and, if the
closing of the transaction contemplated by the APA (the “Closing”) shall occur,
then on the Closing Date the balance of the Payment in the amount of $500,000
shall be paid to Employee.

 

All such payments shall be net of customary withholding for
taxes and applicable deductions imposed by law or permissible elections made by
Employee.

 

3.                                      VACATION
PAY:  In addition, S&S agrees to
pay to Employee, within 30 days of the Closing Date, the accrued unpaid
vacation due him under the S&S vacation policy through the Closing Date.

 

2

 

4.                                      STOCK
OPTIONS:  Any stock options in the
name of Employee held on the Closing Date (the “Stock Options”) shall be
governed by the terms of the applicable stock option agreement and stock option
plan; provided, however, that it is specifically agreed that the Stewart &
Stevenson Services, Inc. 1998 Nonstatutory Stock Option Plan shall be
amended as of the date hereof to permit, at the Compensation Committee’s
discretion, the acceleration of the vesting of the Stock Options, to the extent
not previously vested, immediately upon the Closing Date and to permit the
exercise thereof at any time after the Closing 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 amendments to such Stock Option
Plan 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.

 

c.                                       Employee
acknowledges and agrees that these non-disclosure agreements shall survive any
termination of 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 (other than (i) information relating
solely to the Division or, (ii) subject to the closing of the sale thereof
to Ansary, information relating solely to the Company’s Engineered Products
Division (the “Other Division”), the business and assets of which are also expected
to be sold to Ansary on or about the Closing Date, all of which information shall
not be governed by this Section 5 of this Agreement).  “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

 

3

 

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.

 

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 Division Business
from Non-Competition Obligations.  Notwithstanding any other provision hereof, Employee’s
activities in respect of his continued employment by Ansary or any successor
thereof after the Closing Date solely in respect of the business of the
Division as it existed on such date, and solely to the extent he remains in the
employ of Ansary or any successor thereof as to the Division, 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 two years following the Closing 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

 

4

 

purpose of
engaging in the Same or a Similar Business as S&S in the Market Area, as defined
herein;

 

(ii)                                  Employee
further acknowledges and agrees that during the two years following the Closing
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 Securities Exchange Act of 1934.

 

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

 

5

 

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 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 two years following
the Closing 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 Division 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 Closing
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 all actual past expenses incurred by him in the course of his employment
and activities as to the Division  (incurred
after the Closing Date) to Ansary or his successor or representatives and not
to S&S, and Employee shall look only to Ansary and/or his successor for
satisfaction of any obligation in respect of such expenses.  Employee acknowledges and agrees that he has
no authority as to the incurrence of, and has not incurred, any expenses after
the Closing Date on behalf of S&S, and 

 

6

 

further
agrees that S&S shall not have any obligation to reimburse expenses
incurred by him with respect to the business of the Division (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 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 Closing Date other than property or assets being sold to Ansary under
the APA.

 

12.                               DOCUMENTS: Employee agrees, except to the extent
they relate solely to the business of the Division, to deliver to S&S on
the Closing 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 on behalf of S&S and the orderly transfer of any such pending
work as reasonably designated by 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 

 

7

 

specifically without limitation, any false statements
or omissions that would be a violation of the False Claims Act or any other
similar law or law of similar tenor, the Securities Act of 1933 as amended, the
Securities Exchange Act of 1934 as amended, 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

 

8

 

wrongdoing
being expressly denied.  This Agreement
does not constitute evidence of unlawful conduct or wrongdoing by either party
hereto.

 

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.                               MERGER: This Agreement supersedes, replaces and
merges all previous agreements, understandings and discussions, whether written
or oral, relating to the same or similar subject matters between Employee and
S&S and constitutes the entire agreement between Employee and S&S with
respect to the subject matter of this Agreement.  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 

 

9

 

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

 

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 the 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 Payments.

 

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

 

10

 

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.  Any determination by the 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

 

11

 

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 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, the “Code” shall mean the
Internal Revenue Code of 1986, as amended; “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; and “Auditor” shall mean the
accounting firm which was, immediately prior to the change of control, the
Company’s independent auditor.

 

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

 

12

 

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 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:

 

Don K. Kyle

98 E. Greywing Court

The Woodlands, Texas 77382

 

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.

 

13

 

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/ Don K.
  Kyle

  	
   

  	
  12/20/05

  
	
  Don K. Kyle

  	
   

  	
  Date

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  STEWART & STEVENSON SERVICES, INC.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Stephen
  A. Hines

  	
   

  	
  12/23/05

  
	
   

  	
  Stephen A. Hines 

  Vice President of Human Resources

  	
   

  	
  Date

  

 

14

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