Document:

EXHIBIT 10.2

 

SUMMARY DESCRIPTION OF 2005 MICP

 

On April 5, 2005, the Board
of Directors of the Company approved the 2005 MICP targets which are applicable
to the Expected Named Executives for the fiscal year ending January 31, 2006 (“Fiscal
2005”).  For Fiscal 2005, the target
incentive for annual incentive compensation for each Expected Named Executive
is fifty percent (50%) of their respective base salary, with an
over-achievement opportunity up to a maximum of one hundred percent (100%) of
their respective base salary.  Incentive
components for each Expected Named Executive are based on a financial
measurement, the achievement by the Company of a specified return on net
capital employed in Fiscal 2005, although the Board reserves the right to
consider other subjective factors and to alter or modify the MICP in its
discretion.

 

1EXHIBIT 10.3

 

SUMMARY DESCRIPTION OF DIRECTOR COMPENSATION

 

Directors
whose principal occupation is other than employment with the Company will be
compensated in cash at the rate of $20,000 per year plus $2,000 for each
meeting of the Board of Directors and each committee meeting attended in person
and $1,000 for each meeting attended by telephone.  The Chairman of the Board will receive
additional compensation in the amount of $12,000 per month.  Each committee chairman will receive an
annual fee of $5,000, except the Chairman of the Audit Committee will receive
an annual fee of $7,500.  The directors
will also be reimbursed for any out-of-pocket expenses incurred to attend
meetings.

 

Furthermore, each director who is not an officer or employee of the
Company will be eligible to participate in the Stewart & Stevenson
Services, Inc. 1996 Director Stock Plan (the “1996 Plan”) which was filed
with the Commission on September 1, 2004, as Exhibit 4.1 to the Company’s
Registration Statement of Form S-8 (File No. 333-118742).  Under the 1996 Plan, the eligible directors
will receive, on the date of the 2005 Annual Meeting, (i) the number of
shares of the Company’s Common Stock determined by dividing (A) the sum of
$15,000 by (B) the fair market value of a share of the Company’s Common
Stock, and (ii) options to purchase 5,000 shares of the Company’s Common
Stock.

 

1EXHIBIT 10.4

 

 

STEWART
& STEVENSON

 

SUPPLEMENTAL
RETIREMENT PLAN

 

 

Effective as of July 1, 2003

 

1

 

TABLE
OF CONTENTS

 

ARTICLE

 

	
  I.

  	
  Definitions and Construction

  	
   

  
	
   

  	
   

  	
   

  
	
  II.

  	
  Participation

  	
   

  
	
   

  	
   

  	
   

  
	
  III.

  	
  Benefits

  	
   

  
	
   

  	
   

  	
   

  
	
  IV.

  	
  Deemed Investment of Accounts

  	
   

  
	
   

  	
   

  	
   

  
	
  V.

  	
  Determination of Vested Interest and Forfeitures

  	
   

  
	
   

  	
   

  	
   

  
	
  VI.

  	
  Benefit Payments

  	
   

  
	
   

  	
   

  	
   

  
	
  VII.

  	
  Administration of the Plan

  	
   

  
	
   

  	
   

  	
   

  
	
  VIII.

  	
  Nature of the Plan

  	
   

  
	
   

  	
   

  	
   

  
	
  IX.

  	
  Miscellaneous

  	
   

  

 

2

 

STEWART
& STEVENSON

 

SUPPLEMENTAL
RETIREMENT PLAN

 

W
I T N E S S E T H :

 

WHEREAS, Stewart
& Stevenson Services, Inc. (the “Company”) desires to establish the Stewart
& Stevenson Supplemental Retirement Plan (the “Plan”) to help provide a
more adequate retirement benefit for certain key employees of the Company and
its Affiliates;

 

NOW, THEREFORE, the
Plan is hereby adopted effective as of July 1, 2003.

 

3

 

I.

 

Definitions and Construction

 

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

 

Account:  A Member’s bookkeeping account and the
amounts credited thereto from time to time.

 

Administrative Committee:  The Administrative Committee appointed by the
Board of Directors of the Company to administer the Company’s benefit plans.

 

Affiliate:  Any entity that is treated as being one
employer with the Company under section 414 of the Code.

 

Change of Control:  A Change of Control as defined in the Company’s
stock option plan.

 

Code:  The Internal Revenue Code of 1986, as
amended.

 

Company: Stewart &
Stevenson Services, Inc. 

 

Compensation:  With respect to a Member, compensation as
defined in the Savings Plan, but including any elective deferrals made under a
nonqualified deferred compensation plan and determined without regard to any
limits on such compensation pursuant to Code section 401(a)(17); provided,
however, in no event shall Compensation include any amount payable prior to the
effective date of the Plan or for any period thereafter during which the Member
either is not an Eligible Employee or an active Member.

 

Compensation Committee:  The
Compensation Committee of the Board of Directors of the Company.

 

Disability:   A Member shall be considered totally and
permanently disabled if such Member is eligible for and receiving Social
Security disability under the federal Social Security Act.

 

Eligible Employee:  An employee of an Employer who is a member of
a select group of management or highly compensated employees.

 

Employer:  The
Company and any other Affiliate that adopts the Plan pursuant to the provisions
of Section 2.3.

 

Employer Contributions:  Notional contributions “made” by the Employer
on a Member’s behalf pursuant to Section 3.1.

 

Funds:  The investment fund(s) designated from time
to time for the deemed investment of Accounts pursuant to Article IV.

 

4

 

Member:  Each Eligible Employee who has become a Member
pursuant to Article II of this Plan.

 

Plan:  The Stewart & Stevenson Supplemental
Retirement Plan, as amended from time to time.

 

Plan Year:  The calendar year, however, the first year
shall be a partial year beginning July 1, 2003.

 

Retirement:  The Member’s Termination of Service, other
than due to death or Disability, (i) on or after age 65, or (ii) with the
express written consent of the Administrative Committee, on or after age 55 and
the completion of five years of Vesting Service.

 

Savings Plan:  The Stewart & Stevenson 401(k) Savings
Plan, as amended from time to time.

 

Termination of Service:  The termination of a Member’s employment with
the Employer and all Affiliates for any reason whatsoever.

 

Trust:  The trust, if any, established under the
Trust Agreement.

 

Trust Agreement:  The agreement, if any, entered into between
the Company and the Trustee pursuant to Article X.

 

Trust Fund:  The funds and properties held pursuant to the
provisions of the Trust Agreement, together with all income, profits and
increments thereto.

 

Trustee:  The trustee or trustees qualified and acting
under the Trust Agreement at any time.

 

Vested Interest:  The portion of a Member’s Account which,
pursuant to the Plan, is nonforfeitable.

 

Vesting Service:  The Vesting Service such Member has or would
have under the Savings Plan.

 

1.2          Number and Gender.  Wherever
appropriate herein, words used in the singular shall be considered to include
the plural and words used in the plural shall be considered to include the
singular.  The masculine gender, where
appearing in the Plan, shall be deemed to include the feminine gender.

 

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

 

5

 

II.

Participation

 

2.1          Participation.

 

(a)           The Compensation Committee, in its sole discretion, shall
select and notify those Eligible Employees who shall be Members; provided,
however, Eligible Employees who were members of the Company’s Supplemental
Executive Retirement Plan on June 30, 2003 automatically shall be Members on
the Plan’s effective date.

 

(b)           Subject to the provisions of Section 2.2, a Member shall
remain eligible to receive an allocation of Employer Contributions for each
Plan Year following his commencement of participation in the Plan so long as
the Member remains an Eligible Employee.

 

2.2          Cessation of
Active Participation.  Notwithstanding any provision herein to the
contrary, an Eligible Employee who has become a Member of the Plan shall cease
to receive an allocation of Employer Contributions effective as of any date
designated by the Compensation Committee or the date he ceases to be an
Eligible Employee.  Any such Compensation
Committee action shall be communicated to the affected Member prior to the
effective date of such action.  Such an
individual may again become an active Member beginning as of any date selected
by the Compensation Committee in its sole discretion, provided he is an
Eligible Employee on such date.

 

2.3          Adopting
Affiliates. 
It is contemplated that other entities may adopt this Plan in the future
and thereby become an Employer.  Any such
entity, whether or not presently existing, may become a party hereto by
appropriate action of its officers and the approval of the Administrative
Committee; provided, however, that such entity must be an Affiliate.  The provisions of the Plan shall apply separately
and equally to each Employer and its employees in the same manner as is
expressly provided for the Company and its employees, except that the power to
appoint or otherwise affect the Administrative Committee and the Trustee and
the power to amend or terminate the Plan or amend the Trust Agreement shall be
exercised by the Board of Directors of the Company alone.  Any Employer may, by appropriate action of
its officers without the need for approval of its board of directors (or
noncorporate counterpart), terminate its participation in the Plan.  Moreover, the Administrative Committee may,
in its discretion, terminate an Employer’s Plan participation at any time.  Any Employer that ceases to be an Affiliate
shall automatically terminate its participation on such date.

 

6

 

III.

Benefits

 

3.1          Employer Contributions for Members.

 

(a)           As of the end of each Plan Year, the Employers shall
credit an eligible Member’s Account with an Employer Contribution in an amount
determined by the following formula:

 

	
  Member’s Age as of Applicable Plan Year End

  	
   

  	
  Percentage
  of Compensation

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  under age 30

  	
   

  	
  0

  	
  %

  
	
  30-39

  	
   

  	
  1.5

  	
  %

  
	
  40-49

  	
   

  	
  3.5

  	
  %

  
	
  50-59

  	
   

  	
  7.0

  	
  %

  
	
  60 and older

  	
   

  	
  15.0

  	
  %

  

 

(b)           Subject to Paragraphs (c) and (d) below, a Member shall be
eligible for the Employer Contribution credited with respect to a Plan Year if
such Member (i) is an employee of the Employers or an Affiliate as of such Plan
Year end or (ii) terminated employment with the Employers and the Affiliates
during such year due to his death, Disability or Retirement.

 

(c)           Notwithstanding Paragraph (a), if a Member’s Termination
of Service is due to his death, Disability or Retirement, the Employer
Contribution on behalf of such Member for such Plan Year shall be made as soon
as practical following the Member’s Termination of Service and be based on his
age at such time.

 

(d)           Notwithstanding Paragraph (a), the Employer Contribution
on behalf of a Member for the Plan Year in which a Change of Control occurs
shall be made on the earliest of (i) the end of such Plan Year, (ii) the date
the Plan is terminated or (iii) the date of the Member’s Termination of
Service, and shall be based on the formula in Section 3.1(a) as in effect
immediately prior to such Change of Control and using the Member’s age at the
end of such Plan Year.

 

3.2          Valuation of
Accounts. 
All amounts credited to a Member’s Account shall be deemed invested as
soon as administratively feasible following the date upon which such credit
occurs in the Fund(s) maintained under the Plan as provided in Article IV.  The balance of each Account shall reflect the
result of daily pricing of the assets in which such Account is deemed invested
from time to time until the time of distribution.

 

7

 

IV.

Deemed Investment of Accounts

 

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

 

A Member may change his deemed investment designation
for future Employer Contributions to be allocated to his Account.  Any such change shall be made in accordance
with the procedures established by the Administrative Committee, and the
frequency of such changes may be limited by the Administrative Committee.

 

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

 

Notwithstanding the foregoing or any Member election
to the contrary, the Administrative Committee may, in its sole discretion,
provide for only one Fund under the Plan, in which event all amounts shall be
credited as if invested in such Fund.

 

8

 

V.

Determination of Vested Interest and Forfeitures

 

5.1          Vesting.

 

(a)           Subject to Paragraphs (b) and (c) below, a Member shall
become vested in his Account as follows:

 

	
  Years of Vesting Service

  	
   

  	
  Vested Interest

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  less than 1

  	
   

  	
  0

  	
  %

  
	
  1

  	
   

  	
  20

  	
  %

  
	
  2

  	
   

  	
  40

  	
  %

  
	
  3

  	
   

  	
  60

  	
  %

  
	
  4

  	
   

  	
  80

  	
  %

  
	
  5 or more

  	
   

  	
  100

  	
  %

  

 

(b)           Regardless of his years of Vesting Service, a Member shall
have a 100% Vested Interest in his Account if his Termination of Service is due
to his death, Disability or Retirement.

 

(c)           A Member who is employed by an Employer or an Affiliate
immediately prior to a Change of Control shall have a 100% Vested Interest in
his Account upon the occurrence of such Change of Control.

 

5.2          Forfeitures.  A Member who has a Vested Interest in his
Account that is less than 100% as of the date of his Termination of Service
shall forfeit to the Employer the nonvested portion of such Account as of the
date of such termination.

 

9

 

VI.

Benefit Payments

 

6.1          Payment of Accounts.

 

(a)           Upon a
Member’s Termination of Service, the Member, or, in the event of his death, the
Member’s designated beneficiary (as determined below), shall become entitled to
receive a lump sum cash payment equal in value to the Member’s Vested Interest
in the balance of his Account.  The value
of a Member’s Vested Interest in his Account shall be determined as of the
payment date.

 

(b)           Payment of a Member’s Account shall be made as soon as
administratively practicable after the date of his Termination of Service.

 

(c)           Each Member shall have the right to designate the
beneficiary or beneficiaries to receive payment of his Account in the event of
his death.  Each such designation shall
be made by executing the beneficiary designation form prescribed by the
Administrative Committee and filing same with the Administrative
Committee.  Any such designation may be
changed at any time by execution of a new designation in accordance with this
Section.  If no such designation is on
file with the Administrative Committee at the time of the death of the Member
or such designation is not effective for any reason as determined by the
Administrative Committee, then the designated beneficiary or beneficiaries to
receive such benefit shall be as follows: (i) if a Member leaves a surviving
spouse, his benefit shall be paid to such surviving spouse; or (ii) if a Member
leaves no surviving spouse, his benefit shall be paid to such Member’s executor
or administrator, or to his heirs at law if there is no administration of such
Member’s estate.

 

6.2          Unclaimed Benefits.  In the case of a benefit payable on behalf of
a Member, if the Administrative Committee is unable to locate the Member or
beneficiary to whom such benefit is payable, upon the Administrative Committee’s
determination thereof, such benefit shall be forfeited to the Employer.  Notwithstanding the foregoing, if subsequent
to any such forfeiture the Member or beneficiary to whom such benefit is
payable makes a valid claim for such benefit, such forfeited benefit (without
any adjustment for earnings or loss after the time of such forfeiture is an
Account) shall be restored to the Plan by the Employer and paid in accordance
with the Plan.

 

10

 

VII.

Administration of the Plan

 

7.1          The Administrative
Committee.  The general administration of the Plan shall
be vested in the Administrative Committee.

 

7.2          Self-Interest of
Members.  No
member of the Administrative Committee shall have any right to vote or decide
upon any matter relating solely to himself under the Plan or to vote in any
case in which his individual right to claim any benefit under the Plan is
particularly involved.  In any case in
which a Administrative Committee member is so disqualified to act and the
remaining members cannot agree, the Company shall appoint a temporary
substitute member to exercise all the powers of the disqualified member
concerning the matter in which he is disqualified.

 

7.3          Administrative
Committee Powers and Duties.  The Administrative
Committee shall supervise the administration and enforcement of the Plan
according to the terms and provisions hereof and shall have all powers
necessary to accomplish these purposes, including, but not by way of
limitation, the right, power, and authority:

 

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

 

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

 

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

 

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

 

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

 

(f)            To
determine whether and when a Member has incurred a Termination of Service;

 

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

 

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

 

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

 

11

 

7.4          Claims Procedures. 
The same procedures applicable for claims for benefits under the Stewart
& Stevenson 401(k) Savings Plan shall be applicable to this Plan.

 

7.5          Employer to Supply
Information.  The Employer shall supply full and timely
information to the Administrative Committee and Compensation Committee,
including, but not limited to, information relating to each Member’s
Compensation, Termination of Service and such other pertinent facts as the
Administrative Committee and Compensation Committee may require.  The Employer shall advise the Trustee of such
of the foregoing facts as are deemed necessary for the Trustee to carry out the
Trustee’s duties under the Plan and the Trust Agreement.  When making a determination in connection
with the Plan, the Administrative Committee and Compensation Committee shall be
entitled to rely upon the aforesaid information furnished by the Employer.

 

7.6          Indemnity.  To the extent permitted by applicable law,
the Employers shall indemnify and save harmless each member of the
Administrative Committee and the Compensation Committee against any and all
expenses, liabilities and claims (including legal fees incurred to defend
against such liabilities and claims) arising out of their discharge in good
faith of responsibilities under or incident to the Plan.  Expenses and liabilities arising out of
willful misconduct shall not be covered under this indemnity.  This indemnity shall not preclude such
further indemnities as may be available under insurance purchased by the Employers
or provided by the Employers under any bylaw, agreement, vote of stockholders
or disinterested directors or otherwise, as such indemnities are permitted
under applicable law.

 

7.7          Payment of Plan
Expenses. 
All expenses incident to the administration of the Plan and Trust,
including but not limited to, legal, accounting, Trustee fees, and expenses of
the Administrative Committee, may be paid by the Employer and, if not paid by
the Employer, shall be paid by the Trustee from the Trust Fund.

 

7.8          Trust Fund
Property. 
All income, profits, recoveries, contributions, forfeitures and any and
all moneys, securities and properties of any kind at any time received or held
by the Trustee shall be held for investment purposes as a commingled Trust Fund
pursuant to the terms of the Trust Agreement. 
No Member shall have any title to any specific asset in the Trust Fund.

 

7.9          Investment of the
Trust Fund.  The Administrative Committee shall
have the right, power, authority, and duty to instruct the Trustee as to the
management, investment, and reinvestment of the Trust Fund.

 

12

 

VIII.

Nature of the Plan

 

The Employer intends and desires by the adoption of
the Plan to recognize the value to the Employer of the services of Eligible
Employees covered by the Plan and to encourage their continued service with the
Employer by making more adequate provision for their future retirement
security.  The Plan is intended to
constitute an unfunded, unsecured plan of deferred compensation for a select
group of management or highly compensated employees of the Employer and shall
be construed and operated consistent with the same.  Plan benefits herein provided are a
contractual obligation of the Employer which shall be paid out of the Employer’s
general assets, which shall include the assets of any Trust Fund.

 

13

 

IX.

Miscellaneous

 

9.1          Not Contract of
Employment. 
The adoption and maintenance of the Plan shall not be deemed to be a
contract between the Employer and any person or to be consideration for the
employment of any person.  Nothing herein
contained shall be deemed to (a) give any person the right to be retained in
the employ of the Employer, (b) restrict the right of the Employer to discharge
any person at any time, (c) give the Employer the right to require any person
to remain in the employ of the Employer, or (d) restrict any person’s right to
terminate his employment at any time.

 

9.2          Alienation of
Interest Forbidden.  The interest of a Member or his beneficiary
or beneficiaries hereunder may not be sold, transferred, assigned, or
encumbered in any manner, either voluntarily or involuntarily, and any attempt
to anticipate, alienate, sell, transfer, assign, pledge, encumber, or charge
the same shall be null and void; neither shall the benefits hereunder be liable
for or subject to the debts, contracts, liabilities, engagements or torts of
any person to whom such benefits or funds are payable, nor shall they be an
asset in bankruptcy or subject to garnishment, attachment or other legal or
equitable proceedings.

 

9.3          Tax Withholding.  All payments provided for hereunder shall be
subject to applicable withholding and other deductions as shall be required of
the Employer under any applicable law. 
In addition, the Employer may reduce a Member’s Account for any
applicable FICA taxes the Employer is required to withhold or make other
arrangements for the payment of the same, in its sole discretion.

 

9.4          Amendment and
Termination. The Board of Directors of the Company
may from time to time, in its discretion, amend, in whole or in part, any or
all of the provisions of the Plan; provided, however, that no amendment may be
made that would adversely affect the rights of a Member with respect to amounts
already allocated to his Account.  On and
following a Change of Control, no amendment may be made that would adversely
affect a Member’s rights under the Plan from those in effect if the Plan had
been terminated immediately prior to such amendment.  The Board of Directors may terminate or
freeze the Plan at any time.  In the
event that the Plan is terminated, the Vested Interest in the balance in a
Member’s Account shall be paid to such Member in a lump sum investment.  In addition, the Administrative Committee may
make any amendment of an administrative nature that would not materially
increase the Employers’ liability under the Plan.

 

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

 

9.6          Guaranty.  Notwithstanding any provisions of the Plan to
the contrary, in the event any Affiliate that adopts the Plan pursuant to
Section 2.3 hereof fails to make payment of the benefits due under the Plan on
behalf of its Members, the Company shall be liable for and shall make payment
of such benefits due as a guarantor of such entity’s obligations hereunder.

 

9.7          Governing Laws.  All
provisions of the Plan shall be construed in accordance with the laws of Texas
except to the extent preempted by applicable federal law.

 

14

 

EXECUTED
this April 5, 2005.

 

	
   

  	
  STEWART & STEVENSON SERVICES, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /S/ Stephen A. Hines

  	
   

  
	
   

  	
   

  	
  Name: 

  	
  Stephen A. Hines

  	
   

  
	
   

  	
   

  	
  Title:

  	
  Vice President

  	
   

  
							

 

15

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