EMPLOYMENT AGREEMENT

 

AGREEMENT, effective as of February 1, 2004 by and between Max L. Lukens (the “Executive”) and Stewart & Stevenson Services, Inc., a Texas corporation (the “Company”).

 

WHEREAS, the Board of Directors of the Company (the “Board”) desires initially to retain the Executive as the President and Chief Executive Officer of the Company and thereafter as an advisor, and  to encourage the attention and dedication to the Company of the Executive as a member of the Company’s management, in the best interests of the Company and its shareholders;

 

WHEREAS, the Executive is willing to commit himself to serve the Company, on the terms and conditions herein provided; and

 

WHEREAS, the Company and the Executive desire to set forth in this Agreement the terms and conditions of the Executive’s employment; and

 

WHEREAS, the Company and the Executive have simultaneously herewith executed a Severance Agreement effective as of February 1, 2004 (the “Severance Agreement”);

 

NOW, THEREFORE, in consideration of the premises and the respective covenants and agreements of the parties herein contained, and intending to be legally bound hereby, the parties hereto agree as follows:

 

1.                                       Employment; Term.  The Company hereby agrees to employ the Executive, and the Executive hereby accepts such employment, on the terms and conditions hereinafter set forth.  The period of employment of the Executive by the Company hereunder (the “Employment Period”) shall commence on the date first written above (the “Effective Date”) and shall end on the Executive’s Date of Termination (as defined in Section 7(b) hereof).  The term of this Agreement (the “Term”) shall begin on the Effective Date and shall end on the fourth anniversary thereof.  The period beginning on the Effective Date and ending on the second anniversary thereof is herein referred to as the “Base Term”, and the period beginning on the day following such second anniversary and ending on the fourth anniversary of the Effective Date is herein referred to as the “Ancillary Term”.

 

2.                                       Position and Duties.  As of the Effective Date and for the Base Term, the Executive shall be employed by the Company  as President and Chief Executive Officer of the Company, in which capacity the Executive shall perform the usual and customary duties of such office, which shall be those normally inherent in such capacity in U.S. publicly held corporations of similar size and character.

 

During the Ancillary Term the Executive shall serve the Company as an advisor to the senior executives of the Company with respect to strategy, management development and other matters consistent with the Executive’s experience and expertise and consistent with the Executive’s having completed the Base Term as Chief Executive Officer of the Company.

 

The Executive agrees and acknowledges that, in connection with his employment relationship with the Company, the Executive owes fiduciary duties to the Company and will act accordingly.

 



 

During the Base Term, the Executive agrees to devote substantially his full time, attention and energies to the Company’s business and agrees to faithfully and diligently endeavor to the best of his ability to further the best interests of the Company.  The Executive shall not engage in any other business activity, whether or not such business activity is pursued for gain, profit or other pecuniary advantage.  Subject to the covenants of Section 9 herein, this shall not be construed as preventing the Executive from investing his own assets in such form or manner as will not require his services in the daily operations of the affairs of the companies in which such investments are made.  Further, subject to Section 9 herein, the Executive may serve as a director of other companies so long as such service is not detrimental to the Company and does not interfere with his service to the Company and so long as such service does not present the Executive with a conflict of interest.

 

During the Ancillary Term, the Executive agrees at such times as requested (with such requests to be commercially reasonable) to advise the senior executives of the Company; provided however, the parties agree that the Executive shall not be required to provide services for more than fifteen days per year (including time in which Executive serves as a director).  The parties may, by mutual agreement, increase the time Executive shall provide such services during the Ancillary Term.

 

In keeping with the Executive’s fiduciary duties to the Company, the Executive agrees that he shall not knowingly, directly or indirectly, become involved in any Conflict of Interest, or upon discovery thereof, allow such a conflict to continue.  Moreover, the Executive agrees that he shall promptly disclose to the Board any facts known to him which might involve any reasonable possibility of a Conflict of Interest.  For purposes of this paragraph,  Conflict of Interest on the part of the Executive shall be defined as:  (a) ownership of a material interest in, acting in any material capacity for, or accepting directly or indirectly any material payments, services or loans from a supplier, contractor, subcontractor, customer or other entity with which the Company does business; (b) misuse of information or facilities to which the Executive has access in a manner which will be materially detrimental to the Company’s interest; (c) disclosure or other misuse of Confidential Information (as defined in Section 9); (d) acquiring or trading in, directly or indirectly, other properties or interests material to the design, manufacture or marketing of products designed, manufactured or marketed by the Company; (e) the appropriation to the Executive or the diversion to others, directly or indirectly, of any material opportunity in which it is known or could reasonably be anticipated that the Company would be interested; or (f) the ownership, directly or indirectly, of a material interest in an enterprise in competition with the Company or its dealers and distributors or acting as a director, officer, partner, consultant, employee or agent of any enterprise which is in competition with the Company or its dealers or distributors.

 

3.                                       Place of Performance.  In connection with the Executive’s employment by the Company, the Executive’s principal business address shall be at the Company’s current principal executive offices in Houston, Texas (the “Principal Place of Employment”) or in such other place as the Executive and the Company may agree.

 

4.                                       Compensation and Related Matters.

 

(a)                                  Base Salary.  During the Base Term, the Company shall pay the Executive an annual base salary (“Base Salary”), payable in approximately equal installments in

 

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accordance with the Company’s customary payroll practices.  The Base Salary shall be $750,000.  The Base Salary may not be decreased during the Base Term.  During the Base Term, the Executive shall not be eligible for any equity compensation provided for or afforded to members of the Board of Directors as such.

 

(b)                                 Bonuses.  At the end of the Base Term, the Executive shall be eligible for a discretionary bonus taking into account the following criteria:

 

(i)                                     return during the Base Period on net capital employed in the Company’s businesses on a consolidated basis;

 

(ii)                                  the Company’s earnings per share during the Base Period;

 

(iii)                               the Company’s revenues during the Base Period; and

 

(iv)                              the development of the Company’s management team so as to facilitate a succession plan to come into effect after the Base Period.

 

Any bonus earned pursuant to this Agreement shall be paid as promptly as possible after the end of the Base Period.   The Executive shall be eligible for a bonus of up to 100 (for target level performance) percent of his aggregate Base Salary during the Base Period (up to $1,500,000) but the actual amount thereof shall, in any event, be dependent upon the assessment of the members of the Compensation Committee and other members of the Board who are independent directors, in good faith, of his performance and contribution to the Company during the Base Period taking the above factors into account.

 

(c)                                  Ancillary Term Compensation.  During the Ancillary Term, the Executive, shall not be eligible for any equity compensation provided for or afforded to members of the Board of Directors as such.  During the Ancillary Term, the Company shall pay the Executive an annual salary of $35,000, payable in approximately equal installments in accordance with the Company’s customary payroll practices.    In the event the parties by mutual agreement increase the time the Executive shall provide services from that provided in Section 2, the Company shall pay the Executive an additional $6,250 per day for such services. The compensation to be paid to the Executive for his services during the Ancillary Term is herein referred to as the “Ancillary Term Compensation”.

 

(d)                                 Stock Option.  On January 3, 2005 the Executive will be granted an option to purchase 100,000 shares of the Company’s common stock under the Stewart & Stevenson Services, Inc. 1988 Nonstatutory Stock Option Plan, as amended and restated effective as of June 10, 1997 (the “1988 Option Plan”), which shall be subject to the terms and conditions thereof and of the stock option agreement with respect thereto as contemplated by the 1998 Option Plan.  The option agreement for such option shall contain the same terms as are specified in the Executive’s option agreement dated March 31, 2004; provided however that the per share exercise price applicable to such option shall be the fair market value of a share of the Company’s common stock on January 3, 2005 (determined in accordance with the terms of the 1988 Option Plan) and such option shall be fully exercisable on the first anniversary of the date of grant of such option.

 

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(e)                                  Expenses.  The Company shall promptly reimburse the Executive for all reasonable (taking into account the character of the office of Chief Executive) business expenses incurred during the Employment Period by the Executive in performing services hereunder, including all expenses of travel and living expenses while away from home on business or at the request of and in the service of the Company, provided that such expenses are incurred and accounted for in accordance with the policies and procedures established by the Company.

 

(f)                                    Other Benefits.  During the Employment Period, the Executive shall be entitled to participate in all of the employee benefit plans and arrangements, other than equity compensation and bonus plans, made available by the Company to its other senior executive officers, subject to and on a basis consistent with the terms, conditions and overall administration of such plans and arrangements, and shall be entitled to all perquisites and special benefits suitable to the character of the Chief Executive Officer while acting as Chief Executive Officer.  Notwithstanding the foregoing, the Company shall have the right to change, amend or discontinue any benefit plan, program, or perquisite, so long as such changes are similarly applicable to senior executive officers of the Company generally.

 

(g)                                 Vacation.  During the Employment Period, the Executive shall be entitled to vacation in accordance with reasonable and customary vacation practice for chief executive offices of New York Stock Exchange listed companies of a size similar to the Company’s size.

 

(h)                                 Services Furnished.  During the Employment Period, the Executive shall at all times be provided with office space, clerical assistance and such other facilities and services as are suitable to his then position.

 

5.                                       Offices.  Subject to Sections 2, 3 and 4 hereof, during the Base Term the Executive agrees to serve without additional compensation, if elected or appointed thereto, as a director of any of the Company’s subsidiaries and as a member of any committees of the board of directors of any such corporations, and in one or more executive positions of any of the Company’s subsidiaries, provided that the Executive is indemnified for serving in any and all such capacities on a basis no less favorable than is currently, or may be, provided to any other director or officer of the Company, any of its subsidiaries or in connection with any such executive position, as the case may be.

 

6.                                       Termination.  The Employment Period shall end in the event of a termination of the Executive’s employment in accordance with any of the provisions of Section 6 or 7, and the Term shall expire in the event of a termination of Executive’s employment by the Company for Cause or by the Executive without Good Reason, in each case, on the Executive’s Date of Termination.

 

(a)                                  Death.  The Executive’s employment hereunder shall terminate upon his death.

 

(b)                                 Disability.  If, as a result of the Executive’s incapacity due to physical or mental illness, the Executive shall have been absent from the full-time performance of his duties hereunder for the entire period of ninety (90) days in the aggregate during any period of twelve (12) consecutive months or it is reasonably expected that such disability will exist for more than such period of time, and within thirty (30) days after written Notice of Termination (as defined in Section 7) is given (which notice may be given during such ninety (90) day period) shall not

 

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have returned to the performance of his duties hereunder on a full-time basis, the Company may terminate the Executive’s employment hereunder for “Disability.”

 

During any period that the Executive fails to perform his duties hereunder as a result of incapacity due to physical or mental illness (“Disability Period”), the Executive shall continue to receive his Base Salary or his Ancillary Term Compensation, as the case may be, at the rate in effect at the beginning of such period as well as all other payments and benefits set forth in Section 4 hereof, reduced by any payments made to the Executive during the Disability Period under the disability benefit plans of the Company then in effect or under the Social Security disability insurance program.

 

(c)                                  Cause.  The Company may terminate the Executive’s employment hereunder for Cause.  For purposes of this Agreement, the Company shall have “Cause” to terminate the Executive’s employment hereunder upon the occurrence of any of the following events:

 

(i)                                     the commission by the Executive of an act of fraud, embezzlement, theft or other criminal act constituting a felony;

 

(ii)                                  the willful and continued failure by the Executive to substantially perform the Executive’s duties with the Company (other than any such failure resulting from the Executive’s incapacity due to physical or mental illness or any such actual or anticipated failure after issuance of a Notice of Termination for Good Reason by the Executive) after a written demand for substantial performance is delivered to the Executive by the Board, which demand specifically identifies the manner in which the Board believes that the Executive has not substantially performed the Executive’s duties; or

 

(iii)                               the willful engaging by the Executive in conduct which is demonstrably and materially injurious to the Company or its subsidiaries, monetarily or otherwise.

 

provided, that, the Executive shall have thirty (30) business days from the date on which the Executive receives the Company’s Notice of Termination for Cause under clause (ii) or (iii) above to remedy any such occurrence otherwise constituting Cause under such clause (ii) or (iii).  For purposes of clauses (ii) and (iii) of this definition, no act, or failure to act, on the Executive’s part shall be deemed to be “willful” unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the Executive’s act, or failure to act, was in the best interest of the Company.

 

Cause shall not exist unless and until the Company has delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of a majority of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice to the Executive and an opportunity for the Executive, together with his counsel, to be heard before the Board), finding in the good faith opinion of the Board on clear and convincing evidence there is Cause as set forth in this Section 6(c), specifying the material particulars thereof and, if applicable, determining that such Cause has not been remedied within the applicable 30-day time frame specified in Section 6(c).

 

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(d)                                 Good Reason.  The Executive may terminate his employment hereunder for “Good Reason.”  Good Reason for the Executive’s termination of employment shall mean the occurrence, without the Executive’s prior written consent, of any one or more of the following;

 

(i)                                     the assignment to the Executive of any duties inconsistent with the Executive’s position (including status, office, title and reporting requirements), authorities, duties or other responsibilities as contemplated by Section 2 of this Agreement;

 

(ii)                                  the relocation of the Principal Place of Employment to a location more than fifty (50) miles from the Principal Place of Employment;

 

(iii)                               a material reduction in any element of the Executive’s compensation as set forth in Section 4 hereof, other than in connection with a Company-wide reduction of such benefits; or

 

(iv)                              a material breach by the Company of any provision of this Agreement;

 

provided, in any case, that the Company shall have thirty (30) business days from the date on which the Company receives the Executive’s Notice of Termination for Good Reason to remedy any such occurrence otherwise constituting Good Reason.

 

(e)                                  Without reliance upon Section 6(b), 6(c) or 6(d), either party hereto may terminate this Agreement during the Base Term at any time by giving the other no less than thirty (30) days’ and no more than sixty (60) days’ prior written notice, in accordance with Section 7 hereof, of such party’s intent to so terminate this Agreement.

 

7.                                       Termination Procedure.

 

(a)                                  Notice of Termination.  Any termination of the Executive’s employment by the Company or by the Executive (other than termination pursuant to Section 6(a) hereof) shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 12 hereof.  For purposes of this Agreement, a “Notice of Termination” shall mean a notice that shall indicate the specific termination provision in this Agreement relied upon and if Section 6(b), 6(c) or 6(d) is relied upon, shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated.

 

(b)                                 Date of Termination.  “Date of Termination” shall mean (i) if the Executive’s employment is terminated pursuant to Section 6(a) above, the date of the Executive’s death, (ii) if the Executive’s employment is terminated pursuant to Section 6(b) above, thirty (30) days after the date Notice of Termination is given (provided that the Executive shall not have returned to the performance of his duties on a full-time basis during such thirty (30) day period), (iii) if the Executive’s employment is terminated pursuant to Section 6(c)(i) above, the date specified in the Notice of Termination, (iv) if the Executive’s employment is terminated pursuant to Section 6(c)(ii) or (iii) above, thirty (30) days after the date on which a Notice of Termination is given, (v) if the Executive’s employment is terminated for any other reason, the date specified in the Notice of Termination, which date shall be not earlier than thirty

 

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(30) days following the date on which Notice of Termination is given and not later than sixty (60) days following the date on which Notice of Termination is given; provided, however, that, if within ten (10) days after any Notice of Termination under Section 6(b),(c) or (d) is given the party receiving such Notice of Termination notifies the other party that a dispute exists concerning such termination, the Date of Termination shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties, by a binding and final arbitration award or by a final judgment, order or decree of a court of competent jurisdiction (the time for appeal therefrom having expired and no appeal having been perfected).

 

(c)                                  Compensation During Dispute.  If a purported termination occurs during the Term, and such termination is disputed in accordance with subsection (b) of this Section 7, the Company shall continue to pay the Executive the full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to, Base Salary, if applicable) and continue the Executive as a participant in all compensation, benefit and insurance plans in which the Executive was participating when the notice giving rise to the dispute was given, until the Date of Termination, determined in accordance with subsection (b) of this Section 7.  Amounts paid under this Section 7(c) are in addition to all other amounts due under this Agreement and shall not be offset against or reduce any other amounts due under this Agreement.

 

8.                                       Compensation upon Termination or During Disability.

 

(a)                                  Accrued Obligation Defined.  For purposes of this Agreement, payment of the “Accrued Obligation” shall mean payment by the Company to the Executive (or his designated beneficiary or legal representative, as applicable), when due, of all vested benefits to which the Executive is entitled under the terms of the employee benefit plans in which the Executive is a participant as of the Date of Termination and a lump sum amount in cash equal to the sum of (i) the Executive’s Base Salary or Ancillary Term Compensation, as the case may be, through the Date of Termination, (ii) any accrued vacation pay and (iii) any other amounts due the Executive as of the Date of Termination, in each case to the extent not theretofore paid.

 

(b)                                 Disability; Death.  Upon termination of the Executive’s employment pursuant to Sections 6(a) or (b) hereof, the Company shall within thirty (30) days pay to the Executive (or his designated beneficiary or legal representative, if applicable) (i) the Accrued Obligation, and (ii) a lump sum amount, in cash, in cash, equal to a pro rata portion to the Date of Termination of the aggregate value of the contingent bonus award contemplated by Section 4(b) of the Employment Agreement, calculated as to such award by multiplying the award that the Executive would have earned as of the last day of the Base Period (as defined in the Employment Agreement), assuming the achievement, at the expected value target level, of the performance goals established with respect to such award, by the fraction obtained by dividing the number of full days during the Base Period through the Date of Termination by the total number of days contained in the Base Period.

 

(c)                                  By the Company for Cause.  If during the Term the Executive’s employment is terminated by the Company pursuant to Section 6(c) hereof, the Company shall pay to the Executive the Accrued Obligation within thirty (30) days following the Date of Termination.  Following such payment, the Company shall have no further obligations to the Executive other than as may be required by law or the terms of an employee benefit plan of the Company.

 

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(d)                                 By the Executive Without Good Reason.  If during the Term the Executive terminates his employment for any reason other than Good Reason, the Company shall pay to the Executive the Accrued Obligation within thirty (30) days following the Date of Termination.  Following such payment, the Company shall have no further obligations to the Executive other than as may be required by law or the terms of an employee benefit plan or stock option plan of the Company.

 

(e)                                  By the Company Without Cause or by the Executive for Good Reason.  If during the Term the Executive’s employment is terminated by the Company other than for Cause, death or Disability or if the Executive terminates his employment for Good Reason, then

 

(i)                                     the Company shall pay the Executive the Accrued Obligation;

 

(ii)                                  the Company shall continue to pay to the Executive his Base Salary or Ancillary Term Compensation (at the rate in effect as of the Date of Termination) for the remainder of the Base Term or the Ancillary Term, as the case may be, payable consistent with the Company’s normal payroll practices.

 

(iii)                               all equity-based awards then held by Executive shall become fully vested and exercisable as of the Notice of Termination;

 

(iv)                              the Company shall continue to provide to the Executive the benefits described in Section 4(f), to the extent contractually and legally permitted, provided that such benefits shall be reduced to the extent benefits of the same type are received by, or made available at no greater cost to, the Executive under any group plan, whether by reason of new employment, participation in a spouse’s plan or otherwise, during such period, and provided, further, that the Executive shall have the obligation to notify the Company that he is entitled to receive such benefits;

 

(v)                                 the committee (as defined in the Stewart & Stevenson Services, Inc.1988 Nonstatutory Stock Option Plan) shall deem Executive’s termination of employment as a retirement under the Stewart & Stevenson Services, Inc. 1988 Nonstatutory Stock Option Plan;

 

(vi)                              the Company shall pay to the Executive a lump sum amount, in cash, equal to the aggregate value of the contingent bonus award contemplated by Section 4(b) that the Executive would have earned as of the last day of the Base Period, assuming the achievement, at the expected value target level, of the performance goals established with respect to such award; and

 

(vii)                           if the Executive’s employment is terminated before he has been granted the stock option contemplated by Section 4(d), then in lieu of granting such stock option the Company shall pay to the Executive a lump sum payment, in cash, equal to the Black-Scholes value, as reasonably determined by the Company as of March 31, 2004, of an option to purchase 100,000 shares of the Company’s common stock, assuming for this purpose the option was granted on March 31, 2004, the per share exercise price under the option is $ 14.62, the option has the same terms and conditions as applied to the option granted by the Company to the Executive on March 31, 2004 (other than the number of shares subject to the option), and the option remains outstanding for the full ten year

 

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term; and utilizing the risk free interest rate, dividend yield, and expected volatility assumptions used by the Company for purposes of valuing stock options for its 2003 fiscal year as reflected in its fiscal year 2003 Form 10-K filed with the Securities and Exchange Commission.

 

The Company agrees that, if the Executive’s employment with the Company terminates during the Term, the Executive is not required to seek other employment or to attempt in any way to reduce any amounts payable to the Executive by the Company pursuant to this Section 8.  Further, except with respect to the benefits provided pursuant to clause (iv) above, the amount of any payment or benefit provided for in this Agreement shall not be reduced by any compensation earned by the Executive as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the Company, or otherwise.  Satisfaction of the obligations to the Executive under Sections 8(b) and 8(e) of this Agreement is contingent upon the Executive’s (or, if applicable, his designated beneficiary or legal representative’s) execution of a release substantially in the form of Exhibit A hereto.

 

9.                                       Confidential Information; Non-Competition; Non-Solicitation.

 

(a)                                  Confidential Information.  The Executive shall hold in a fiduciary capacity for the benefit of the Company all trade secrets,  and information, knowledge or data relating to the Company and its businesses treated as confidential by the Company, which shall have been obtained by the Executive during the Executive’s employment by the Company and which shall not have been or hereafter become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement) (hereinafter being collectively referred to as “Confidential Information”).  The Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such trade secrets, information, knowledge or data to anyone other than the Company and those designated by the Company.  Any termination of the Executive’s employment or of this Agreement shall have no effect on the continuing operation of this Section 9(a).  The Executive agrees to return all Confidential Information, including all photocopies, extracts and summaries thereof, and any such information stored electronically on tapes, computer disks or in any other manner to the Company at any time upon request by the Company and upon the termination of his employment hereunder for any reason.

 

(b)                                 Non-Competition.  During the Employment Period and for a period of  one  (1) year following the Date of Termination (such period following the Employment Period, the “Restricted Period”), the Executive shall not engage in Competition, as defined below, with the Company; provided, that it shall not be a violation of this Section 9(b) for the Executive to become the registered or beneficial owner of up to one percent (1%) of any class of the capital stock of a corporation registered under the Securities Exchange Act of 1934, as amended, provided that the Executive does not actively participate in the business of such corporation until such time as this covenant expires.

 

For purposes of this Agreement, Competition by the Executive shall mean the Executive’s engaging in, or otherwise directly or indirectly being employed by or acting as a consultant or lender to, or being a director, officer, employee, principal, agent, stockholder, member, owner or partner of, or permitting his name to be used in connection with the activities

 

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of any other business or organization which competes, directly or indirectly, with the business of the Company as the same shall be constituted at any time during the Employment Period.

 

(c)                                  Non-Solicitation.  During the Restricted Period, the Executive agrees that he will not, directly or indirectly, for his benefit or for the benefit of any other person, firm or entity, do any of the following:

 

(i)                                     solicit from any customer doing business with the Company as of the Date of Termination, business of the same or of a similar nature to the business of the Company with such customer;

 

(ii)                                  solicit from any known potential customer of the Company business of the same or of a similar nature to that which has been the subject of a known written or oral bid, offer or proposal by the Company, or of substantial preparation with a view to making such a bid, proposal or offer, within six (6) months prior to such Date of Termination;

 

(iii)                               solicit the employment or services of, or hire, any person who was known to be employed by or was a known consultant to the Company upon the Date of Termination, or within six (6) months prior thereto; or

 

(iv)                              otherwise knowingly interfere with the business or affairs of the Company.

 

The Executive and the Company agree and acknowledge that the Company has a substantial and legitimate interest in protecting the Company’s Confidential Information and goodwill.  The Executive and the Company further agree and acknowledge that the provisions of this Section 9 are reasonably necessary to protect the Company’s legitimate business interests and are designed to protect the Company’s Confidential Information and goodwill.

 

The Executive agrees that the scope of the restrictions as to time, geographic area, and scope of activity in this Section 9 are reasonably necessary for the protection of the Company’s legitimate business interests and are not oppressive or injurious to the public interest.  The Executive agrees that in the event of a breach or threatened breach of any of the provisions of this Section 9 the Company shall, notwithstanding Section 14 hereof, be entitled to injunctive relief against the Executive’s activities to the extent allowed by law.  The Executive further agrees that any breach or threatened breach of any of the provisions of Section 9(a) would cause irreparable injury to the Company for which it would have no adequate remedy at law.

 

(d)                                 Publicity.  The Executive agrees that the Company may use, and hereby grants the Company the nonexclusive and worldwide right to use, the Executive’s name, picture, likeness, photograph, signature or any other attribute of the Executive’s persona (all of such attributes are hereafter collectively referred to as “Persona”) in any media for any advertising, publicity or other purpose at any time during the Restricted Period.  The Executive agrees that such use of his Persona will not result in any invasion or violation of any privacy or property rights the Executive may have; and the Executive agrees that he will receive no additional compensation for the use of his Persona.  The Executive further agrees that any negatives, prints or other material for printing or reproduction purposes prepared in connection with the use of his Persona by the Company shall be and are the sole property of the Company.

 

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10.                                 Indemnification; Legal Fees.  The Company shall indemnify the Executive to the fullest extent permitted by the laws of the Company’s state of incorporation in effect at that time, or certificate of incorporation and by-laws of the Company, whichever affords the greater protection to the Executive, for any judgments, penalties, fines, settlements and reasonable expenses (including, without limitation, reasonable attorneys’ fees and costs) incurred by the Executive in connection with any action, suit or proceeding, threatened or pending, to which he may be made a party by reason of his being a director, officer or advisor, as contemplated hereby, whether incurred during or after the Term.  The Executive will be entitled to any insurance policies the Company may elect to maintain generally for the benefit of its officers, directors or advisors against all costs, charges and expenses incurred in connection with any action, suit or proceeding, threatened or pending,  to which he may be made a party by reason of being a director or officer of the Company.

 

11.                                 Successors; Binding Agreement.

 

(a)                                  Company’s Successors.  This Agreement shall be binding upon the Company and any successor thereof (whether direct or indirect, by purchase, merger, consolidation or otherwise).  As used in this Agreement, “Company” shall mean the Company as hereinbefore defined and any successor to its business and/or assets or any entity which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law or by contract.

 

(b)                                 Executive’s Successors.  This Agreement and all rights of the Executive hereunder shall inure to the benefit of and be enforceable by the Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.  If the Executive should die while any amounts are payable to him hereunder, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Executive’s devisee, legatee or other designee or, if there is no such designee, to the Executive’s estate.

 

12.                                 Notices.  For the purposes of this Agreement, notices, demands and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or (unless otherwise specified) mailed by United States certified or registered mail, return receipt requested, postage prepaid, addressed as follows:

 

If the Executive:

 

Max L. Lukens
3415 Albans
Houston, Texas   77005

 

If to the Company:

 

Stewart & Stevenson Services, Inc.
2707 North Loop West
Houston, TX 77008-1088
Attention:      Secretary

 

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or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt.

 

13.                                 Amendment or Modification; Waiver.  No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Executive and such officer of the Company as may be specifically designated by the Board or the Compensation Committee of the Board.  No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time.  No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in Agreement.

 

14.                                 Arbitration.  Any dispute or controversy arising out of or relating to this Agreement, including without limitation, any and all disputes, claims (whether in tort, contract, statutory or otherwise), breaches or disagreements concerning the interpretation or application of the provisions of this Agreement shall be resolved by arbitration before a panel of three arbitrators and administered by the American Arbitration Association (“AAA”) under its Commercial Arbitration Rules then in effect.   Within ten (10) business days of the initiation of an arbitration hereunder, the Company and the Executive will each separately designate an arbitrator, and within twenty (20) business days of selection, the appointed arbitrators will appoint a neutral arbitrator.  All arbitrators shall be members of the National Panel of Commercial Arbitrators maintained by the AAA.  The arbitrators shall issue their written decision (including a statement of finding of facts) within thirty (30) days from the date of the close of the arbitration hearing.  The decision of the arbitrators selected hereunder will be final and binding on both parties.  This arbitration provision is expressly made pursuant to and shall be governed by the Federal Arbitration Act, 9 U.S.C. Sections 1-16 (or replacement or successor statute).  Pursuant to Section 9 of the Federal Arbitration Act, the Company and the Executive agree that a judgment of the United States District Court for the Southern District of Texas may be entered upon the award made pursuant to the arbitration.  The Company shall pay to the Executive all reasonable legal fees and expenses, when incurred by the Executive, in contesting or disputing any termination of employment or seeking to obtain or enforce any right, payment or benefit provided by this Agreement, regardless of outcome, unless a final decision is rendered that such claim was not brought by the Executive in good faith.

 

15.                                 Governing Law.  The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Texas without regard to its conflicts of law principles.

 

16.                                 Miscellaneous.  All references to sections of any statute shall be deemed also to refer to any successor provisions to such sections.  The obligations of the parties under Sections 4, 8, 9, 10, 11, 12, 14, 15, 16, 17, 18,  and 19 hereof shall survive the expiration of the Term to the extent they may be applicable by their terms.  The compensation and benefits payable to the Executive or his beneficiary under Section 8 of this Agreement shall be in lieu of any other severance benefits to which the Executive may otherwise be entitled upon his termination of employment under any severance plan, program, policy, practice or arrangement of the Company other than the Severance Agreement, and the Executive shall not be entitled to receive any

 

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benefits under Section 8(e) hereof if he has become eligible to receive benefits under the Severance Agreement.

 

17.                                 Severability.  The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect throughout the Term.  Should any one or more of the provisions of this Agreement be held to be excessive or unreasonable as to duration, geographical scope or activity, then that provision shall be construed by limiting and reducing it so as to be reasonable and enforceable to the extent compatible with the applicable law.

 

18.                                 Counterparts.  This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument.

 

19.                                 Entire Agreement.  This Agreement sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein and, as of the Effective Date, 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; provided, however, that the Severance Agreement shall not be superseded hereby but shall remain in full force and effect.

 

IN WITNESS WHEREOF, the parties have executed this Agreement on the date first above written.

 

 

 

STEWART & STEVENSON SERVICES, INC.

 

 

 

 

 

By

/s/ Carl B. King

 

 

Carl B. King

 

 

Senior Vice President, Secretary,
and General Counsel

 

 

 

 

 

EXECUTIVE:

 

 

 

 

 

/s/ Max L. Lukens

 

Max L. Lukens

 

3415 Albans
Houston, Texas 77005

 

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EXHIBIT A

 

RELEASE

 

The Executive hereby irrevocably and unconditionally releases, acquits and forever discharges the Company and its affiliated companies and their directors, officers, employees and representatives, (collectively “Releasees”), from any and all claims, liabilities, obligations, damages, causes of action, demands, costs, losses and/or expenses (including attorneys’ fees) of any nature whatsoever, whether known or unknown, including, but not limited to, rights arising out of alleged violations of any contracts, express or implied, any covenant of good faith and fair dealing, express or implied, or any tort, or any legal restrictions on the Company’s right to terminate employees, or any federal, state or other governmental statute, regulation, or ordinance, including, without limitation, Title VII of the Civil Rights Act of 1964, and the Federal Age Discrimination in Employment Act, which the Executive claims to have against any of the Releasees.  In addition, the Executive waives all rights and benefits afforded by any state laws which provide in substance that a general release does not extend to claims which a person does not know or suspect to exist in his favor at the time of executing the release which, if known by him, must have materially affected the Executive’s settlement with the other person.  The only exception to the foregoing are claims and rights that may arise after the date of execution of this Release.

 

The Executive represents and acknowledges that in executing this Release he does not rely and has not relied upon any representation or statement, oral or written, not set forth herein or in the Agreement made by any of the Releasees or by any of the Releasees’ agents, representatives or attorneys with regard to the subject matter, basis or effect of this Release, the Agreement or otherwise.

 

The Executive represents and agrees that he fully understands his right to discuss all aspects of this Release with his private attorney, that to the extent, if any, that he desires, he has availed himself of this right, that he has carefully read and fully understands all of the provisions of this Release and that he is voluntarily entering into this Release.

 

AGREED AND ACCEPTED, on this           day of                               , 20   .

 

 

 


 

SEVERANCE AGREEMENT

 

THIS AGREEMENT, effective as of February 1, 2004, is made by and between Stewart & Stevenson Services, Inc., a Texas corporation (the “Company”), and Max L. Lukens (the “Executive”).

 

WHEREAS, the Company considers it essential to the best interests of its stockholders to foster the continued employment of key management personnel; and

 

WHEREAS, the Board recognizes that, as is the case with many publicly held corporations, the possibility of a Change in Control exists and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of management personnel to the detriment of the Company and its stockholders; and

 

WHEREAS, the Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Company’s management, including the Executive, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a Change in Control;

 

NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the Company and the Executive hereby agree as follows:

 

1.                                       Defined Terms.  The definitions of capitalized terms used in this Agreement are provided in the last Section hereof.

 

2.                                       Term of Agreement.  The Term of this Agreement shall commence on the date hereof and shall continue in effect through February 1, 2006.

 

3.                                       Company’s Covenants Summarized.  In order to induce the Executive to remain in the employ of the Company and in consideration of the Executive’s covenants set forth in Section 3 hereof, the Company agrees, under the conditions described herein, to pay the Executive the Severance Payments and the other payments and benefits described herein.  Except as provided in Section 8.1 hereof, no Severance Payments shall be payable under this Agreement unless there shall have been (or, under the terms of the second sentence of Section 5.1 hereof, there shall be deemed to have been) a termination of the Executive’s employment with the Company following a Change in Control and during the Term.  This Agreement shall not be construed as creating an express or implied contract of employment and, except as otherwise agreed in writing between the Executive and the Company, the Executive shall not have any rights to be retained in the employ of the Company.

 

4.                                       Compensation Other Than Severance Payments.

 

4.1                                 Following a Change in Control and during the Term, during any period that the Executive fails to perform the Executive’s duties with the Company as a result of incapacity due to physical or mental illness, the Company shall pay the Executive’s full salary to the Executive at the rate in effect at the commencement of any such period, together with all compensation and benefits payable to the Executive under the terms of any compensation or

 



 

benefit plan, program or arrangement maintained by the Company during such period, until the Executive’s employment is terminated by the Company for Disability.

 

4.2                                 If the Executive’s employment shall be terminated for any reason following a Change in Control and during the Term, the Company shall pay the Executive’s full salary to the Executive through the Date of Termination at the rate in effect immediately prior to the Date of Termination or, if higher, the rate in effect immediately prior to the first occurrence of an event or circumstance constituting Good Reason, together with all compensation and benefits payable to the Executive through the Date of Termination under the terms of the Company’s compensation and benefit plans, programs or arrangements as in effect immediately prior to the Date of Termination or, if more favorable to the Executive, as in effect immediately prior to the first occurrence of an event or circumstance constituting Good Reason.

 

4.3                                 If the Executive’s employment shall be terminated for any reason following a Change in Control and during the Term, the Company shall pay to the Executive the Executive’s normal post-termination compensation and benefits as such payments become due in accordance with written plans.  Such post-termination compensation and benefits shall be determined under, and paid in accordance with, the Company’s retirement, insurance and other compensation or benefit plans, programs and arrangements as in effect immediately prior to the Date of Termination or, if more favorable to the Executive, as in effect immediately prior to the occurrence of the first event or circumstance constituting Good Reason.

 

4.4                                 Upon the occurrence of a Change in Control all options to acquire shares of Company stock, all shares of restricted Company stock and all other equity incentives held by the Executive under any plan of the Company (including, but not limited to, the Company’s various stock option plans) shall become immediately vested, exercisable and nonforfeitable and all conditions thereof (including, but not limited to, any required holding periods) shall be deemed to have been satisfied.

 

5.                                       Severance Payments.

 

5.1                                 If the Executive’s employment is terminated following a Change in Control and during the Term, other than (A) by the Company for Cause, (B) by reason of death or Disability, or (C) by the Executive without Good Reason, then, the Company shall pay the Executive the amounts, and provide the Executive the benefits, described in this Section 5.1 (“Severance Payments”) and Section 5.2, in addition to any payments and benefits to which the Executive is entitled under Section 4 hereof.  Solely for purposes of determining whether termination occurred following a Change in Control pursuant to this Agreement (and without any implication that a Change in Control has in fact occurred), the Executive’s employment shall be deemed to have been terminated following a Change in Control by the Company without Cause or by the Executive with Good Reason, if (i) the Executive’s employment is terminated by the Company without Cause prior to a Change in Control and such termination was at the request, direction or suggestion, directly or indirectly, of a Person who has entered into an agreement or with whom the Company contemplates will enter into an agreement with the Company the consummation of which would constitute a Change in Control or, (ii) the Executive terminates his employment for Good Reason prior to a Change in Control and the circumstance or event which constitutes Good Reason occurs at the request, direction or suggestion of such Person

 

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described in clause (i).  For purposes of any determination regarding the applicability of the immediately preceding sentence, any position taken by the Executive shall be presumed to be correct unless the Company establishes to the Committee by clear and convincing evidence that such position is not correct.

 

(A)                              In lieu of any further salary payments to the Executive for periods subsequent to the Date of Termination and in lieu of any severance benefit otherwise payable to the Executive, the Company shall pay to the Executive a lump sum severance payment, in cash, equal to $2,250,000.

 

(B)                                For the thirty-six (36) month period immediately following the Date of Termination, the Company shall arrange to provide the Executive and his dependents life, disability, accident and health insurance benefits and perquisites (including, but not limited to, executive life insurance, club memberships, financial planning and tax preparation, annual physical examination and charitable contributions), in each case, substantially similar to those provided to the Executive and his dependents immediately prior to the Date of Termination or, if more favorable to the Executive, those provided to the Executive and his dependents immediately prior to the first occurrence of an event or circumstance constituting Good Reason, at no greater cost to the Executive than the cost to the Executive immediately prior to such date or occurrence; provided, however, that, unless the Executive consents to a different method (after taking into account the effect of such method on the calculation of “parachute payments” pursuant to Section 5.2 hereof), such health insurance benefits shall be provided through a third-party insurer.  Benefits otherwise receivable by the Executive pursuant to this Section 5.1(B) shall be reduced to the extent benefits of the same type are received by the Executive under any individual or group policy or program, or made available to the Executive under a group plan whether by reason of the employment of the Executive or the employment of the spouse of the Executive, during the thirty-six (36) month period following the Executive’s termination of employment (and any such benefits received by or made available to the Executive shall be reported to the Company by the Executive); provided, however, that the Company shall reimburse the Executive for the excess, if any, of the cost of such benefits to the Executive over such cost immediately prior to the Date of Termination or, if more favorable to the Executive, the first occurrence of an event or circumstance constituting Good Reason.

 

(C)                                Notwithstanding any provision of that certain Employment Agreement between the Company and the Executive effective as of February 1, 2004 (the “Employment Agreement”), the Company shall pay to the Executive a lump sum amount, in cash, equal to the aggregate value of the contingent bonus award contemplated by Section 4(b) of the Employment Agreement that the Executive would have earned as of the last day of the Base Period (as defined in the Employment Agreement), assuming the achievement, at the expected value target level, of the performance goals established with respect to such award.

 

(D)                               The committee (as defined by the Stewart & Stevenson Services, Inc. 1998 Nonstatutory Stock Option Plan) shall deem the Executive’s termination of

 

3



 

employment as a retirement for purposes of the Stewart & Stevenson Services, Inc. 1998 Nonstatutory Stock Option Plan.

 

(E)                                 If a Change in Control occurs prior to January 4, 2005 the Company shall pay to the Executive a lump sum payment, in cash, equal to the Black-Scholes value, as reasonably determined by the Company as of March 31, 2004, of an option to purchase 100,000 shares of the Company’s common stock, assuming for this purpose the option was granted on March 31, 2004, the per share exercise price under the option is $ 14.62, the option has the same terms and conditions as applied to the option granted by the Company to the Executive on March 31, 2004 (other than the number of shares subject to the option), and the option remains outstanding for the full ten year term; and utilizing the risk free interest rate, dividend yield, and expected volatility assumptions used by the Company for purposes of valuing stock options for its 2003 fiscal year as reflected in its fiscal year 2003 Form 10-K filed with the Securities and Exchange Commission.

 

5.2                                 (A)                              Whether or not the Executive becomes entitled to the Severance Payments, if any of the payments or benefits received or to be received by the Executive in connection with a Change in Control or the Executive’s termination of employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any Person whose actions result in a Change in Control or any Person affiliated with the Company or such Person) (such payments or benefits, excluding the Gross-Up Payment, being hereinafter referred to as the “Total Payments”) will be subject to the Excise Tax, the Company shall pay to the Executive an additional amount (the “Gross-Up Payment”) such that the net amount retained by the Executive, after deduction of any Excise Tax on the Total Payments and any federal, state and local income and employment taxes and Excise Tax upon the Gross-Up Payment, shall be equal to the Total Payments.

 

(B)                                For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) all of the Total Payments shall be treated as “parachute payments” (within the meaning of section 280G(b)(2) of the Code) unless, in the opinion of tax counsel (“Tax Counsel”) reasonably acceptable to the Executive and selected by the accounting firm which was, immediately prior to the Change in Control, the Company’s independent auditor (the “Auditor”), such payments or benefits (in whole or in part) do not constitute parachute payments, including by reason of section 280G(b)(4)(A) of the Code, (ii) all “excess parachute payments” within the meaning of section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax unless, in the opinion of Tax Counsel, such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered (within the meaning of section 280G(b)(4)(B) of the Code) in excess of the Base Amount allocable to such reasonable compensation, or are otherwise not subject to the Excise Tax, and (iii) the value of any noncash benefits or any deferred payment or benefit shall be determined by the Auditor in accordance with the principles of section 280G(d)(3) and (4) of the Code.  For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal income tax at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of

 

4



 

taxation in the state and locality of the Executive’s residence on the Date of Termination (or if there is no Date of Termination, then the date on which the Gross-Up Payment is calculated for purposes of this Section 5.2), net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes.

 

(C)                                In the event that the Excise Tax is finally determined to be less than the amount taken into account hereunder in calculating the Gross-Up Payment, the Executive shall repay to the Company, within five (5) business days following the time that the amount of such reduction in the Excise Tax is fully determined, the portion of the Gross-Up Payment”) attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income and employment taxes imposed on the Gross-Up Payment being repaid by the Executive, to the extent that such repayment results in a reduction in the Excise Tax and a dollar-for-dollar reduction in the Executive’s taxable income and wages for purposes of federal, state and local income and employment taxes, plus interest on the amount of such repayment at 120% of the rate provided in section 1274(b)(2)(B) of the Code.  In the event that the Excise Tax is determined to exceed the amount taken into account hereunder in calculating the Gross-Up Payment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment in respect of such excess (plus any interest, penalties or additions payable by the Executive with respect to such excess) within five (5) business days following the time that the amount of such excess is finally determined.  The Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Total Payments.

 

5.3                                 The payments provided in subsection (A) and (C) of Section 5.1 hereof and in Section 5.2 hereof shall be made not later than the fifth day following the Date of Termination; provided, however, that if the amounts of such payments cannot be finally determined on or before such day, the Company shall pay to the Executive on such day an estimate, as determined in good faith by the Executive or, in the case of payments under Section 5.2 hereof, in accordance with Section 5.2 hereof, of the minimum amount of such payments to which the Executive is clearly entitled and shall pay the remainder of such payments (together with interest on the unpaid remainder (or on all such payments to the extent the Company fails to make such payments when due) at 120% of the rate provided in section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth (30th) day after the Date of Termination.  In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to the Executive, payable on the fifth (5th) business day after demand by the Company (together with interest at 120% of the rate provided in section 1274(b)(2)(B) of the Code), but only to the extent such amount has not been paid by the Executive pursuant to Section 5.2(C) above.  At the time that payments are made under this Agreement, the Company shall provide the Executive with a written statement setting forth the manner in which such payments were calculated and the basis for such calculations including, without limitation, any opinions or other advice the Company has received from Tax Counsel, the Auditor or other advisors or

 

5



 

consultants (and any such opinions or advice which are in writing shall be attached to the statement).

 

5.4                                 If the Executive’s employment with the Company is terminated following a Change in Control and during the Term, the Company shall pay to the Executive all legal fees and expenses incurred by the Executive in disputing in good faith any issue hereunder relating to the termination of the Executive’s employment, in seeking in good faith to obtain or enforce any benefit or right provided by this Agreement or in connection with any tax audit or proceeding to the extent attributable to the application of section 4999 of the Code to any payment or benefit provided hereunder.  Such payments shall be made within five (5) business days after delivery of the Executive’s written requests for payment accompanied with such evidence of fees and expenses incurred as the Company reasonably may require.

 

6.                                       Termination Procedures and Compensation During Dispute.

 

6.1                                 Notice of Termination.  After a Change in Control and during the Term, any purported termination of the Executive’s employment (other than by reason of death) shall be communicated by written Notice of Termination from one party hereto to the other party hereto in accordance with Section 9 hereof.  For purposes of this Agreement, a “Notice of Termination” shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated.  Further, a Notice of Termination for Cause is required to include a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters (3/4) of the Committee at a meeting of the Committee which was called and held for the purpose of considering such termination (after reasonable notice to the Executive and an opportunity for the Executive, together with the Executive’s counsel, to be heard before the Committee) finding on clear and convincing evidence and the good faith opinion of the Committee, the Executive’s employment was terminated for Cause, and specifying the particulars thereof in detail.

 

6.2                                 Date of Termination.  “Date of Termination,” with respect to any purported termination of the Executive’s employment after a Change in Control and during the Term, shall mean (i) if the Executive’s employment is terminated for Disability, thirty (30) days after Notice of Termination is given (provided that the Executive shall not have returned to the full-time performance of the Executive’s duties during such thirty (30) day period), and (ii) if the Executive’s employment is terminated for any other reason, the date specified in the Notice of Termination (which, in the case of a termination for Cause and, in the case of a termination by the Executive, shall not be less than fifteen (15) days nor more than sixty (60) days, respectively, from the date such Notice of Termination is given).

 

6.3                                 Dispute Concerning Termination.  If within fifteen (15) days after any Notice of Termination is given following a Change in Control, or, if later, prior to the Date of Termination (as determined without regard to this Section 6.3), the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be extended until the earlier of (i) the date on which the Term ends or (ii) the date on which the dispute is finally resolved, either by mutual written agreement of the parties or by a final judgment, order or decree of an arbitrator or a court of competent jurisdiction

 

6



 

(which is not appealable or with respect to which the time for appeal therefrom has expired and no appeal has been perfected); provided, however, that the Date of Termination shall be extended by a notice of dispute only if such notice is given in good faith and the party giving notice pursues the resolution of such dispute with reasonable diligence.

 

6.4                                 Compensation During Dispute.  If a purported termination occurs following a Change in Control and during the Term and the Date of Termination is extended in accordance with Section 6.3 hereof, the Company shall continue to pay the Executive the full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to, salary) and continue the Executive as a participant in all compensation, benefit and insurance plans in which the Executive was participating when the notice giving rise to the dispute was given or those plans in which the Executive was participating immediately prior to the first occurrence of an event or circumstance giving rise to the Notice of Termination, if more favorable to the Executive, until the Date of Termination, as determined in accordance with Section 6.3 hereof.  Amounts paid under this Section 6.4 are in addition to all other amounts due under this Agreement (other than those due under Section 4.2 hereof) and shall not be offset against or reduce any other amounts due under this Agreement.

 

7.                                       No Mitigation.  The Company agrees that, if the Executive’s employment with the Company terminates during the Term, the Executive is not required to seek other employment or to attempt in any way to reduce any amounts payable to the Executive by the Company pursuant to Sections 4, 5 or 6.4 hereof.  Further, the amount of any payment or benefit provided for in this Agreement (other than Section 5.1(B) hereof but including (but not limited to) Section 6.4 hereof) shall not be reduced by any compensation earned by the Executive as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the Company, or otherwise.

 

8.                                       Successors; Binding Agreement.

 

8.1                                 In addition to any obligations imposed by law upon any successor to the Company, the Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place.  Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Company in the same amount and on the same terms as the Executive would be entitled to hereunder if the Executive were to terminate the Executive’s employment for Good Reason after a Change in Control, except that, for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination.

 

8.2                                 This Agreement shall inure to the benefit of and be enforceable by the Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.  If the Executive shall die while any amount would still be payable to the Executive hereunder (other than amounts which, by their terms, terminate upon the death of the Executive) if the Executive had continued to live, all such amounts, unless

 

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otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the executors, personal representatives or administrators of the Executive’s estate.

 

9.                                       Notices.  For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed, if to the Executive, to the address inserted below the Executive’s signature on the final page hereof and, if to the Company, to the address set forth below, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon actual receipt:

 

To the Company:

 

Stewart & Stevenson Services, Inc.
2707 North Loop West
Houston, Texas   77008-1088

 

Attention:  Secretary

 

10.                                 Miscellaneous.  No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive and such officer as may be specifically designated by the Committee.  No waiver by either party hereto at any time of any breach by the other party hereto of, or of any lack of compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time.  This Agreement supersedes any other agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof which have been made by either party, provided, however, that this Agreement shall supersede any agreement setting forth the terms and conditions of the Executive’s employment with the Company only in the event that the Executive’s employment with the Company is terminated on or following a Change in Control, by the Company other than for Cause or by the Executive other than for Good Reason; and provided further that all agreements otherwise superseded by this Agreement shall be automatically reinstated with full force and effect to the extent this Agreement is terminated.  The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Texas.  All references to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections.  Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law and any additional withholding to which the Executive has agreed.  The obligations of the Company and the Executive under this Agreement which by their nature may require either partial or total performance after the expiration of the Term (including, without limitation, those under Sections 5 and 6 hereof) shall survive such expiration.

 

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11.                                 Validity.  The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.

 

12.                                 Counterparts.  This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument.

 

13.                                 Settlement of Disputes; Arbitration.

 

13.1                           All claims by the Executive for benefits under this Agreement shall be directed to and determined by the Committee and shall be in writing.  Any denial by the Committee of a claim for benefits under this Agreement shall be delivered to the Executive in writing within thirty (30) days after written notice of the claim is provided to the Company in accordance with Section 10 and shall set forth the specific reasons for the denial and the specific provisions of this Agreement relied upon.  The Committee shall afford a reasonable opportunity to the Executive for a review of the decision denying a claim and shall further allow the Executive to appeal to the Committee a decision of the Committee within sixty (60) days after notification by the Committee that the Executive’s claim has been denied.

 

13.2                           Any further dispute or controversy arising out of or relating to this Agreement, including without limitation, any and all disputes, claims (whether in tort, contract, statutory or otherwise), breaches or disagreements concerning the interpretation or application of the provisions of this Agreement shall be resolved by arbitration before a panel of three arbitrators and administered by the American Arbitration Association (“AAA”) under its Commercial Arbitration Rules then in effect.  No arbitration proceeding relating to this Agreement may be initiated by either the Company or the Executive unless the claims review and appeals procedures specified in Section 13.1 have been exhausted.  Within ten (10) business days of the initiation of an arbitration hereunder, the Company and the Executive will each separately designate an arbitrator, and within twenty (20) business days of selection, the appointed arbitrators will appoint a neutral arbitrator.  All arbitrators shall be members of the National Panel of Commercial Arbitrators maintained by the AAA.  The arbitrators shall issue their written decision (including a statement of finding of facts) within thirty (30) days from the date of the close of the arbitration hearing.  The decision of the arbitrators selected hereunder will be final and binding on both parties.  This arbitration provision is expressly made pursuant to and shall be governed by the Federal Arbitration Act, 9 U.S.C. Sections 1-16 (or replacement or successor statute).  Pursuant to Section 9 of the Federal Arbitration Act, the Company and the Executive agree that a judgment of the United States District Court for the Southern District of Texas may be entered upon the award made pursuant to the arbitration.

 

14.                                 Definitions.  For purposes of this Agreement, the following terms shall have the meanings indicated below:

 

(A)                              “Affiliate” shall have the meaning set forth in Rule 12b-2 promulgated under Section 12 of the Exchange Act.

 

(B)                                “Auditor” shall have the meaning set forth in Section 5.2 hereof.

 

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(C)                                “Base Amount” shall have the meaning set forth in section 280G(b)(3) of the Code.

 

(D)                               “Beneficial Owner” shall have the meaning set forth in Rule 13d-3 under the Exchange Act.

 

(E)                                 “Board” shall mean the Board of Directors of the Company.

 

(F)                                 “Cause” for termination by the Company of the Executive’s employment shall mean (i) the willful and continued failure by the Executive to substantially perform the Executive’s duties with the Company (other than any such failure resulting from the Executive’s incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance of a Notice of Termination for Good Reason by the Executive pursuant to Section 6.1 hereof) after a written demand for substantial performance is delivered to the Executive by the Board, which demand specifically identifies the manner in which the Board believes that the Executive has not substantially performed the Executive’s duties, or (ii) the willful engaging by the Executive in conduct which is demonstrably and materially injurious to the Company or its subsidiaries, monetarily or otherwise.  For purposes of clauses (i) and (ii) of this definition, (x) no act, or failure to act, on the Executive’s part shall be deemed “willful” unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the Executive’s act, or failure to act, was in the best interest of the Company and (y) the Executive has received written notice from the Company of the specific conduct asserted as Cause for termination and has thirty (30) business days to remedy any such occurrence otherwise constituting Cause.

 

(G)                                A “Change in Control” shall be deemed to have occurred if the event set forth in any one of the following paragraphs shall have occurred:

 

(I)                                    any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its affiliates) representing 35% or more of the combined voting power of the Company’s then outstanding securities, excluding any Person who becomes such a Beneficial Owner in connection with a transaction described in clause (i) of paragraph (III) below; or

 

(II)                                the following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, on the date hereof, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of directors of the Company) whose appointment or election by the Board or nomination for election by the Company’s stockholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the date hereof or whose appointment, election or nomination for election was previously so approved or recommended; or

 

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(III)                            there is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with any other corporation, other than (i) a merger or consolidation that would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any subsidiary of the Company, at least 51% of the combined voting power of the securities of the Company or its parent outstanding immediately after such merger or consolidation, or (ii) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities Beneficially Owned by such Person any securities acquired directly from the Company or its Affiliates other than in connection with the acquisition by the Company or its Affiliates of a business) representing at least 51% or more of the combined voting power of the Company’s then outstanding securities; or

 

(IV)                            the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets, other than a sale or disposition by the Company of all or substantially all of the Company’s assets to an entity, at least 51% of the combined voting power of the voting securities of which are owned by stockholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale.  For purposes of this Agreement, it is contemplated that a sale of substantially all of the assets of the Company shall not be deemed to occur unless at least 75% of the book value (as stated in the Company’s most recent audited financial statements) of the Company’s total assets is disposed of in a single transaction.

 

Notwithstanding the foregoing, a “Change in Control” shall not be deemed to have occurred by virtue of the consummation of any transaction or series of integrated transactions immediately following which the record holders of the common stock of the Company immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in an entity which owns all or substantially all of the assets of the Company immediately following such transaction or series of transactions.

 

(H)                               “Code” shall mean the Internal Revenue Code of 1986, as amended from time to time.

 

(I)                                    “Committee” shall mean (i) the individuals (not fewer than three in number) who, on the date six months before a Change in Control, constitute the Compensation Committee of the Board, plus (ii) in the event that fewer than three individuals are available from the group specified in clause (i) above for any reason, such

 

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individuals as may be appointed by the individual or individuals so available (including for this purpose any individual or individuals previously so appointed under this clause (ii)); provided, however, that the maximum number of individuals constituting the Committee shall not exceed six (6).

 

(J)                                   “Company” shall mean Stewart & Stevenson Services, Inc. and, except in determining under Section 15(G) hereof whether or not any Change in Control of the Company has occurred, shall include any successor to its business and/or assets which assumes and agrees to perform this Agreement by operation of law, or otherwise.

 

(K)                               “Date of Termination” shall have the meaning set forth in Section 6.2 hereof.

 

(L)                                 “Disability” shall be deemed the reason for the termination by the Company of the Executive’s employment, if, as a result of the Executive’s incapacity due to physical or mental illness, the Executive shall have been absent from the full-time performance of the Executive’s duties with the Company for a period of six (6) consecutive months, the Company shall have given the Executive a Notice of Termination for Disability, and, within thirty (30) days after such Notice of Termination is given, the Executive shall not have returned to the full-time performance of the Executive’s duties.

 

(M)                            “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended from time to time.

 

(N)                               “Excise Tax” shall mean any excise tax imposed under section 4999 of the Code.

 

(O)                               “Executive” shall mean the individual named in the first paragraph of this Agreement.

 

(P)                                 “Extension Date” shall have the meaning set forth in Section 2 hereof.

 

(Q)                               “Good Reason” for termination by the Executive of the Executive’s employment shall mean the occurrence (without the Executive’s express written consent) after any Change in Control, or prior to a Change in Control under the circumstances described in clause (ii) of the second sentence of Section 5.1 hereof of any one of the following acts by the Company, or failures by the Company to act, unless, in the case of any act or failure to act described in paragraph (I), (V), (VI) or (VII) below, such act or failure to act is corrected prior to the Date of Termination specified in the Notice of Termination given in respect thereof:

 

(I)                                    the assignment to the Executive of any duties inconsistent with the Executive’s status as a senior executive officer of the Company or a substantial adverse alteration in the nature or status of the Executive’s responsibilities from those in effect immediately prior to the Change in Control;

 

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(II)                                a reduction by the Company in the Executive’s annual base salary as in effect on the date hereof or as the same may be increased from time to time except for across-the-board salary reductions similarly affecting all senior executives of the Company and all senior executives of any Person in control of the Company;

 

(III)                            the relocation of the Executive’s principal place of employment to a location more than 50 miles from the Executive’s principal place of employment immediately prior to the Change in Control or the Company’s requiring the Executive to be based anywhere other than such principal place of employment (or permitted relocation thereof) except for required travel on the Company’s business to an extent substantially consistent with the Executive’s present business travel obligations;

 

(IV)                            the failure by the Company to pay to the Executive any portion of the Executive’s current compensation except pursuant to an across-the-board compensation deferral similarly affecting all senior executives of the Company and all senior executives of any Person in control of the Company, or to pay to the Executive any portion of an installment of deferred compensation under any deferred compensation program of the Company, within seven (7) days of the date such compensation is due;

 

(V)                                the failure by the Company to continue in effect any compensation plan in which the Executive participates immediately prior to the Change in Control which is material to the Executive’s total compensation, including but not limited to the Company’s stock option plans or any substitute plans adopted prior to the Change in Control, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the Company to continue the Executive’s participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount or timing of payment of benefits provided and the level of the Executive’s participation relative to other participants, as existed immediately prior to the Change in Control;

 

(VI)                            the failure by the Company to continue to provide the Executive with benefits substantially similar to those enjoyed by the Executive under any of the Company’s pension, savings, life insurance, medical, health and accident, or disability plans in which the Executive was participating immediately prior to the Change in Control (except for across the board changes similarly affecting all senior executives of the Company and all senior executives of any Person in control of the Company), the taking of any other action by the Company which would directly or indirectly materially reduce any of such benefits or deprive the Executive of any material fringe benefit or perquisite enjoyed by the Executive at the time of the Change in Control, or the failure by the Company to provide the Executive with the number of paid vacation days to which the Executive is entitled on the basis of years of service with the Company in

 

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accordance with the Company’s normal vacation policy in effect at the time of the Change in Control; or

 

(VII)                        any purported termination of the Executive’s employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 6.1 hereof; for purposes of this Agreement, no such purported termination shall be effective.

 

The Executive’s right to terminate the Executive’s employment for Good Reason shall not be affected by the Executive’s incapacity due to physical or mental illness.  The Executive’s continued employment shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason hereunder.

 

For purposes of any determination regarding the existence of Good Reason, any claim by the Executive that Good Reason exists shall be presumed to be correct unless the Company establishes to the Committee by clear and convincing evidence that Good Reason does not exist.

 

(R)                                “Gross-Up Payment” shall have the meaning set forth in Section 5.2 hereof.

 

(S)                                 “Notice of Termination” shall have the meaning set forth in Section 6.1 hereof.

 

(T)                                “Person” shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) the Company or any of its subsidiaries, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its Affiliates, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv)a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company.

 

(U)                               “Plan” shall have the meaning set forth in Section 5.1 hereof.

 

(V)                                “Severance Payments” shall have the meaning set forth in Section 5.1 hereof.

 

(W)                           “Tax Counsel” shall have the meaning set forth in Section 5.2 hereof.

 

(X)                               “Term” shall mean the period of time described in Section 2 hereof.

 

(Y)                                “Total Payments” shall mean those payments so described in Section 5.2 hereof.

 

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date above first written.

 

 

STEWART & STEVENSON SERVICES, INC.

 

 

 

 

 

By:

/s/ Carl B. King

 

 

Carl B. King

 

 

Senior Vice President, Secretary,
and General Counsel

 

 

 

 

 

 

EXECUTIVE:

 

 

 

 

 

/s/ Max L. Lukens

 

Max L. Lukens

 

3415 Albans
Houston, Texas 77005

 

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STEWART & STEVENSON SERVICES, INC.
NONQUALIFIED STOCK OPTION AGREEMENT

 

THIS AGREEMENT, made and entered into as of March 31, 2004 (the “Grant Date”), is between Stewart & Stevenson Services, Inc., a Texas corporation (hereinafter called the “Company”) and Max L. Lukens (hereinafter called the “Employee”).

 

WHEREAS, the Company has determined that its interests will be advanced by providing an incentive to the Employee to acquire a proprietary interest in the Company and, as a stockholder, to share in its success, with added incentive to work effectively for and in the Company’s interest;

 

NOW THEREFORE, in consideration of the mutual promises hereafter set forth and for other good and valuable consideration, the parties hereby agree as follows:

 

1.                                      Grant.  Pursuant to the provisions of the Stewart & Stevenson Services, Inc. 1988 Nonstatutory Stock Option Plan (the “Plan”) the Company hereby grants to the Employee, subject to the terms and conditions of the Plan and subject further to the terms and conditions herein set forth, the right and option (the “Option”) to purchase from the Company, all or any part of 200,000 shares of Common Stock, without par value, of the Company  (the “Stock”) at the purchase price of $14.62 per share, subject to adjustment as provided in the Plan.

 

2.                                      Expiration of Option.  The Option shall terminate and become null and void upon the earliest to occur of (1) the tenth anniversary of the Grant Date, (2) the 30th day after the severance of the employment relationship between the Employee and the Company and all of its affiliates for any reason other than death, Disability, Retirement, or for Cause, (3) the first anniversary of the severance of the employment relationship between the Employee and the Company and all of its affiliates due to death, Disability or Retirement, or (4) the date of the severance of the employment relationship between the Employee and the Company and all of its affiliates for Cause.   In the event of the  severance of the employment  relationship between the Employee and the Company and all of its affiliates for any reason other than death, Disability, Retirement or Cause, the Option shall not continue to vest after such severance of employment.

 

3.                                      Vesting of Option.

 

The Option is exercisable in accordance with the following schedule:

 

(i)                                     on the first anniversary of the Grant Date, the Option may be exercised with respect to up to fifty percent (50%) of the shares subject to the Option; and

 

(ii)                                  on the second anniversary of the Grant Date the Option shall be exercisable in full.

 

Notwithstanding the foregoing, upon the death, Disability or Retirement of the Employee prior to the expiration of the Option, the Option shall be exercisable in full.

 



 

Further, notwithstanding the foregoing or any provision of the Plan, upon the occurrence of a “change in control” (as defined in the Severance Agreement between the Company and the Employee dated effective as of February 1, 2004) prior to the expiration of the Option, the Option shall be exercisable in full.

 

Further, notwithstanding the foregoing or any provision of the Plan, upon the termination of the Employee’s employment by the Company other than for “cause” or by the Employee for “good reason” (as such terms are defined in the Employment Agreement between the Company and the Employee dated effective as of February 1, 2004) prior to the expiration of the Option, the Option shall be exercisable in full.

 

4.                                      Certain Terminations Agreed to Constitute Retirement.  Any termination of the Employee’s employment by the Company other than for “cause” or by the Employee for “good reason” (as such terms are defined in the Employment Agreement between the Company and the Employee dated effective as of February 1, 2004) prior to the expiration of the Option shall be treated as a Retirement for all purposes of the Plan and this Agreement.

 

5.                                      Manner of Exercise.  The Employee shall exercise the Option by written notice to the Company specifying the number of shares as to which the Option is being exercised.

 

6.                                      Payment of Purchase Price Upon Exercise.  At the time of any exercise, the purchase price of the shares as to which the Option is exercised shall be paid to the Company in cash or with Stock already owned by the Employee for at least six months (‘Mature Shares”) having a total fair market value, as determined by the Committee appointed pursuant to paragraph 3 of the Plan, equal to the purchase price, or a combination of cash and Mature Shares having a total fair market value, as so determined, equal to the purchase price.

 

7.                                      Transfer.  The Option shall not be transferable other than by will or by the laws of descent and distribution and may not be pledged, hypothecated, encumbered, garnished, attached, executed on or levied against.  During the lifetime of the Employee, the Option shall be exercisable only by the Employee.

 

8.                                      Adjustments.  In the event of any change in the Stock of the Company by reason of any stock dividend, recapitalization, reorganization, merger, consolidation, split-up, combination or exchange of shares, or any rights offering to purchase Stock at a price substantially below fair market value, or of any similar change affecting the Stock, the number and kind of shares subject to the Option and their purchase price per share shall be appropriately adjusted consistent with such change in such manner as the Committee may deem equitable to prevent substantial dilution or enlargement of the rights granted to the Employee hereunder.  Any adjustment so made shall be final and binding upon the Employee.

 

9.                                      No Rights as Stockholder.  The Employee shall have no rights as a stockholder with respect to any shares of Stock subject to the Option prior to the date of exercise and payment for such shares.

 

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10.                               No Right to Continued Employment.  The Option shall not confer upon the Employee any right with respect to continuance of employment by the Company, nor shall it interfere in any way with the right of his employer to terminate the Employee’s employment at any time.

 

11.                               Compliance with Laws and Regulations.  The Option, and the obligation of the Company to sell and deliver shares hereunder, shall be subject to all applicable federal and state laws, rules and regulations and to such approvals by any government or regulatory agency as may be required.  The Company shall not be required to issue or deliver any certificates for shares of Stock prior to (i) the listing of such shares on any stock exchange on which the Stock may then be listed; and (ii) the completion of any registration or qualification of such shares under any federal or state law, or any rule or regulation of any government body which the Company shall, in its sole discretion, determine to be necessary or advisable.  Moreover, the Option may not be exercised if its exercise or the receipt of shares of Stock pursuant thereto, would be contrary to applicable law.

 

12.                               Investment Representation.  The Committee may require the Employee to furnish to the Company, prior to the issuance of any shares upon the exercise of all or any part of the Option, an agreement (in such form as the Committee may specify) in which the Employee represents that the shares acquired by him upon exercise are being acquired for investment and not for resale or with a view to distribution thereof.

 

13.                               Withholding Taxes.  The Company may directly or indirectly withhold all federal, state, city or other taxes as a result of the Employee’s exercise of the Option.

 

In order to provide for the necessary withholding under this Agreement, the Company will deduct the additional amount of withholding required from the Employee’s salary unless the Employee makes other provision in accordance with this Agreement.  The Employee has an option to provide the Company with the necessary funds for this purpose or advising the Company that the Employee will accept a reduction in the amount of Stock due equal to the amount of withholding required.

 

The Company will advise the Employee at the appropriate time when the additional withholding funds are required so that the Employee can provide for the necessary funds or advise the Company that the Employee will accept a reduction in the amount of Stock due.

 

If a reduction in Stock is requested, the Company may deliver only the number of whole shares remaining after the withholding has been accomplished.

 

14.                               Binding Terms.  The Employee hereby acknowledges receipt of a copy of the Plan and agrees to be bound by all the terms and provisions thereof, including the terms and provisions adopted after the granting of the Option but prior to the complete exercise hereof.  This Agreement shall be binding upon, and shall inure to the benefit of, the Employee and the Company and their respective permitted successors, assigns, heirs, beneficiaries, and representatives.  All capitalized terms in this Agreement that are not specifically defined herein shall have the meanings set forth in the Plan.

 

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15.                               Notices.  All notices, requests, demands, and other communications required or permitted hereunder shall be given in writing.

 

16.                               Headings of No Effect.  The section headings contained in this Agreement are included solely for convenience of reference and shall not in any way affect the meaning or interpretation of any of the provisions of the Agreement.

 

17.                               Counterparts.  This Agreement may be executed in two (2) counterparts, each of which shall constitute one and the same instrument.

 

18.                               Governing Law.  This Agreement has been executed and delivered in the State of Texas and its validity, interpretation, performance, and enforcement shall be governed by the laws of that state.  If any provisions of this instrument shall be held by a court of competent jurisdiction to be invalid or unenforceable, the remaining provisions hereof shall continue to be fully effective.  In the event the Company determines that an adverse claim exists to payments to be made pursuant to this Agreement, the Company shall have the right, but not the obligation, to interplead the parties with claims to such payments and recover reasonable attorney fees and court costs from interplead funds.

 

IN WITNESS WHEREOF, this Agreement has been duly executed and delivered to be effective as of the Grant Date.

 

 

 

STEWART & STEVENSON SERVICES, INC.

 

 

 

 

 

 

By:

  /s/ Carl B. King

 

 

 

ACCEPTED:

 

 

 

 

 

 

 

 

  /s/ Max L. Lukens

 

 

 

Max L. Lukens

 

 

 

 

 

 

 

 

 

 

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