Document:

Exhibit 10.15

    

      Exhibit
        10.15

      

      LUFKIN
        INDUSTRIES, INC.

      SUPPLEMENTAL
        RETIREMENT PLAN

      

      LUFKIN
        INDUSTRIES, INC. (the “Company”) hereby establishes the Lufkin Industries, Inc.
        Supplemental Retirement Plan (the “Plan”) effective as of January 1, 1995. The
        terms, provisions and conditions of the Plan are as follows:

      

      SECTION
        I

      Purpose
        of Plan

      

      Section
        1.1 Purpose
        - The
        purpose of the Plan is to enhance the Company’s ability to attract and to retain
        those key executives who are essential to the Company’s success by providing
        them with nonqualified retirement benefits that are in addition to the
        retirement benefits provided by the Company’s qualified defined benefit pension
        plan (the “Qualified Plan”).

      

      SECTION
        II

      Eligibility
        and Participation

      

      Section
        2.1 Eligibility
        - Only
        those key executives of the Company who are (i) “highly compensated employees”
or “members of a select group of management”, within the meaning of those terms
        as set forth in Section 201(2) of the Employee Retirement Income Security
        Act of
        1974, as amended, and (ii) formally designated as participants by the
        Compensation Committee of the Board of Directors of the Company (the
“Compensation Committee”) shall be participants in this Plan.

      

      SECTION
        III

      Benefits

      

      Section
        3.1 Benefits
        -
        Subject to farther provisions of this Plan, a participant (or, in the event
        of
        his death, his Beneficiary) shall be entitled to receive from the Company
        a
        supplemental monthly retirement benefit hereunder that is equal to the excess
        of:

      

      
        	 	
                (a)

              	
                the
                  monthly retirement benefit that would be payable to such participant
                  (or
                  Beneficiary) under the Qualified Plan if (i) the participant were
                  credited
                  with an additional .5 year of credited service thereunder for each
                  year of
                  credited service actually credited to the participant under the
                  Qualified
                  Plan, (ii) the participant’s compensation were determined as provided
                  under the Qualified Plan but without limitation pursuant to Section
                  401(a)(17) of the Internal Revenue Code, and (iii) the participant’s
                  benefits thereunder were not limited by Section 415 of the Internal
                  Revenue Code,

              
	 	
                (b)

              	
                the
                  monthly retirement benefit that is actually paid to the participant
                  (or
                  Beneficiary) under the Qualified
                  Plan.

              

      

      

      Section
        3.2 Automatic Form of Benefit Payments
        -
        Subject to the further provisions of this Plan, the monthly retirement benefit
        payable to a participant (or Beneficiary) under this Plan shall commence
        at the
        same time, shall be paid in the same form, and shall be subject to the same
        restrictions and actuarial adjustments and other terms, as the benefit actually
        paid to such person under the Qualified Plan;
        provided, however,
        the
        Compensation Committee, in its sole discretion, may direct at any time on
        or
        after the participant’s retirement or death that the Actuarial Equivalent
        present value of such benefit (or remaining benefit if already in pay status)
        be
        paid to such person in a lump sum (by check).

      

      Section
        3.3 Vesting of Benefits
        -
        Subject to the further provisions of the Plan, each participant shall possess
        a
        vested interest in (a nonforfeitable right to) his accrued supplemental
        retirement benefit hereunder to the same extent that such participant is
        vested
        in his accrued retirement benefit under the Qualified Plan;
        provided, however,
        if (1)
        the participant voluntarily terminates his employment with the Company prior
        to
        attaining the age of 62 years or (2) the Company terminates the participant’s
        employment for Cause, no benefits shall be payable to or on behalf of such
        participant under the Plan;
        provided further, however,
        a
        participant who is an employee of the Company on the date of a Change in
        Control
        shall always be 100% vested under the Plan on and after that date.

      

      Section
        3.4 Automatic Lump Sum Benefit
        -
        Notwithstanding anything in Section 3.1, 3.2 or 3.3 to the contrary, if a
        participant’s employment with the Company is terminated for any reason other
        than death on or following a Change in Control or a participant’s employment is
        terminated by the Company at any time other than for Cause, the Actuarial
        Equivalent of such participant’s accrued supplemental retirement benefit shall
        be paid to him in a single lump sum as soon as is reasonably practicable
        following the date of his termination of employment.

      

      Section
        3.5 Definitions

      

      
        	 	
                (a)

              	
                A
                  “Change in Control” shall occur on the date of the earliest of the
                  following events:

              
	 	 	
                (i)

              	
                any
                  “person,” as such term is used in Section 13(d) and 14(d) of the
                  Securities Exchange Act of 1934 (the “Exchange Act”) (other than the
                  Company, any trustee or other fiduciary holding securities under
                  an
                  executive benefit plan of the Company, or any company owned, directly
                  or
                  indirectly, by the shareholders of the Company in substantially
                  the same
                  proportions as their ownership of stock of the Company) together
                  with its
                  “Affiliates” and “Associates”, as such term is defined in Rule 12b-2 of
                  the Exchange Act, is or becomes the “beneficial owner” (as defined in Rule
                  13d-3 under the Exchange Act), directly or indirectly, of securities
                  of
                  the Company representing 25% or more of the Company’s common stock or of
                  the combined voting power of the Company’s then outstanding securities
                  entitled to vote generally in the election of
                  directors;

              
	 	 	
                (ii)

              	
                during
                  any period of two consecutive years, individuals who at the beginning
                  of
                  such period constitute the Board of Directors of the Company (the
                  “Board”), and any new director (other than a director designated by a
                  person who has entered into an agreement with the Company to effect
                  a
                  transaction described in clause (i), (iii) or (iv) of this definition)
                  whose election by the Board or nomination for election by the Company’s
                  shareholders was approved by a vote of at least two-thirds of the
                  directors then still in office who either were directors at the
                  beginning
                  of the period or whose election or nomination for election was
                  previously
                  so approved, cease for any reason to constitute at least a majority
                  thereof

              
	 	 	
                (iii)

              	
                the
                  shareholders of the Company approve a merger or consolidation of
                  the
                  Company with any other company other than (A) a merger or consolidation
                  which would result in the voting securities of the Company outstanding
                  immediately prior thereto continuing to represent (either by remaining
                  outstanding or by being converted into voting securities of the
                  surviving
                  entity) more than 80% of the combined voting power of the voting
                  securities of the Company (or such surviving entity) outstanding
                  immediately after such merger or consolidation, or (B) a merger
                  or
                  consolidation effected to implement a recapitalization of the Company
                  (or
                  similar transaction) in which no “person” (as hereinabove defined)
                  acquires more than 25% of the combined voting power of the Company’s then
                  outstanding securities; or

              
	 	 	
                (iv)

              	
                the
                  shareholders of the Company adopt a plan of complete liquidation
                  of the
                  Company or approve an agreement for the sale, exchange or disposition
                  by
                  the Company of “all or a significant portion of the Company’s assets,”
                  which for this purpose shall mean a sale or other disposition transaction
                  or series of related transactions involving assets of the Company
                  or any
                  subsidiary (including the stock of any subsidiary) in which the
                  value of
                  the assets or stock being sold or otherwise disposed of (as measured
                  by
                  the purchase price being paid therefor or by such other method
                  as the
                  Board determines is appropriate in a case where there is no readily
                  ascertainable purchase price) constitutes more than 25% of the
                  fair market
                  value of the Company (as hereinafter defined). For purposes of
                  the
                  preceding sentence, the “fair market value of the Company” shall be the
                  aggregate market value of the outstanding shares of common stock
                  of the
                  Company (on a fully diluted basis) plus the aggregate market value
                  of the
                  Company’s other outstanding equity securities. The aggregate market value
                  of the shares of common stock of the Company shall be determined
                  by
                  multiplying the number of shares of the Company’s common stock (on a fully
                  diluted basis) outstanding on the date of the execution and delivery
                  of a
                  definitive agreement with respect to the transaction or series
                  of related
                  transactions (the “Transaction Date”) by the market value per share
                  immediately preceding the Transaction Date or by such other method
                  as the
                  Board shall reasonably determine is appropriate. The aggregate
                  market
                  value of any other equity securities of the Company shall be determined
                  in
                  a manner similar to that prescribed in the immediately preceding
                  sentence
                  for determining the aggregate market value of the shares of common
                  stock
                  of the Company or by such other method as the Board shall reasonably
                  determine is appropriate

              
	 	
                (b)

              	
                The
                  term “Cause” shall mean:

              
	 	 	
                (i)

              	
                an
                  act or acts of personal dishonesty taken by the participant and
                  intended
                  to result in substantial personal enrichment of the participant
                  at the
                  expense of the Company;

              
	 	 	
                (ii)

              	
                repeated
                  violations by the participant of his duties which are demonstrably
                  willful
                  and deliberate on the participant’s part and which are not remedied in a
                  reasonable period of time after receipt of written notice from
                  the
                  Company; or

              
	 	 	
                (iii)

              	
                the
                  conviction of the participant of, or plea of nolo contendere by
                  the
                  participant to, a felony.

              
	 	 	
                A
                  participant must be notified in writing of any termination of his
                  employment for Cause, which writing shall set forth in reasonable
                  detail
                  the facts and circumstances relied upon therefor. A participant
                  will then
                  have the right, within ten days of receipt of such notice, to file
                  a
                  written request for review. In such case, the participant will
                  be given
                  the opportunity to be heard, personally or by counsel, by the members
                  of
                  the Board who are not then executives of the Company (the “Independent
                  Directors”) and a majority of the Independent Directors must thereafter
                  confirm that such termination is for Cause. If the Independent
                  Directors
                  do not provide such confirmation, the termination shall be treated
                  as a
                  termination by the Company without Cause.

              
	 	
                (c)

              	
                The
                  term “Actuarial Equivalent” shall have the same meaning as such term in
                  the Qualified Plan.

              
	 	
                (d)

              	
                The
                  term “Beneficiary” shall mean the participant’s surviving spouse entitled
                  to any survivor benefits under the Qualified Plan or, if the participant
                  is either not married or his surviving spouse is not his beneficiary
                  under
                  the Qualified Plan, the person(s) including, if applicable, estate,
                  that
                  is the participant’s beneficiary receiving the comparable survivor’s
                  benefit under the Qualified Plan.

              

      

      

      

      SECTION
        IV

      Administration

      

      Section
        4.1 Administrator
        - The
        Compensation Committee shall be the Administrator of the Plan and shall have
        the
        complete discretion and authority to interpret and construe the Plan, to
        determine a person’s eligibility for and the amount of his benefit under the
        Plan and to decide all questions or disputes arising under the Plan. All
        decisions and actions by the Compensation Committee with respect to the Plan
        shall be final and binding on all persons. Section 4.2 Appeal of Decisions
        - A
        person who initially has been denied a benefit hereunder either in whole
        or in
        part may appeal that decision to the Compensation Committee. The appeals
        procedures under the Plan shall be the same as the appeals procedures under
        the
        Qualified Plan, except that the appeal shall be to the Compensation
        Committee.

      

      SECTION
        V

      Amendment
        and Termination

      

      Section
        5.1 Amendment and Termination
        - The
        Board may amend, “freeze” and/or terminate the Plan at any time for whatever
        reasons it may deem appropriate. However, no such action shall reduce or
        void
        any participant’s right to the benefit he has accrued under the Plan as of the
        date of such action. If the Plan is terminated, the Company shall pay each
        participant (and beneficiary then in pay status) the Actuarial Equivalent
        of his
        then accrued supplemental benefit (or, if in pay status, his remaining benefit)
        in a lump sum as soon as is reasonably practicable following such termination
        of
        the Plan.

      

      Section
        5.2 Successor
        - The
        Company shall require any successor, whether direct or indirect, by purchase,
        merger, consolidation or otherwise, to all or substantially all of the business
        or assets of the Company, expressly to assume and agree to pay the benefits
        accrued under this Plan as of the date of such succession in the same manner
        and
        to the same extent as the Company would have been required if no such succession
        had taken place. If a successor fails to assume such obligations, such failure
        shall be deemed a termination of the Plan as of the date of such
        succession.

      

      SECTION
        VI

      Miscellaneous

      

      Section
        6.1 No Employment Rights
        -
        Nothing contained in the Plan shall be construed as a contract of employment
        between the Company and any employee, or as creating a right in any employee
        to
        continue in the employment of the Company, or as a limitation of the right
        of
        the Company to discharge any employee, with or without Cause.

      

      Section
        6.2 Assignment
        - The
        benefits payable under the Plan may not be assigned, alienated, pledged,
        transferred, attached, garnished or hypothecated in any manner (whether
        voluntary or involuntary) by a participant (or beneficiary).

      

      Section
        6.3 Taxes
        - The
        Company shall withhold (or cause to be withheld) from all payments made under
        the Plan, all taxes required by law to be withheld from such
        payments.

      

      Section
        6.4 Benefits Unfunded
        - The
        benefits to be paid pursuant to the Plan are unfunded obligations of the
        Company
        and, until actual payment, shall constitute general obligations of the Company.
        The Company is not required to segregate any monies from its general funds,
        or
        to create any grantor trusts, or to make any special deposits or other funding
        arrangements with respect to these obligations, although it may do so in
        its
        sole discretion. Title to and the beneficial ownership of any investments,
        including grantor trust investments, which the Company may make with respect
        to
        its obligations hereunder shall at all times remain solely in the Company.
        Any
        investments and the creation or maintenance of any trust or other funding
        accounts by the Company shall not create or constitute a trust or a fiduciary
        relationship between the Company and a participant, or otherwise create any
        vested or beneficial interest in any participant or his creditors in any
        assets
        of the Company or in any such trust whatsoever. The participants shall be
        only
        general unsecured creditors of the Company with respect to the payment of
        any
        benefits due under the Plan.

      

      Section
        6.5 Applicable law
        - This
        Plan shall be governed by the laws of the State of Texas, except to the extent
        preempted by applicable Federal law.

      

      IN
        WITNESS WHEREOF,
        the
        Company has caused its duly authorized officer to affix its name hereto this
        October 6, 1995, effective for all purposes as provided above.

      

      LUFKIN
        INDUSTRIES, INC.

      

      
        	
                By:

              	
                /s/
                  C J Haley, Jr.

              
	
                Title:

              	
                Secretary
                  - Treasurer

              

      

      

      

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      AMENDMENT
        ONE TO

      

      LUFKIN
        INDUSTRIES, INC.

      

      SUPPLEMENTAL
        RETIREMENT PLAN

      

      WHEREAS,
        effective as of January 1, 1995, Lufkin Industries, Inc. (the “Company”)
        established the Lufkin Industries, Inc. Supplemental Retirement Plan (the
        “Plan”) for the benefit of certain of its key employees;

      

      WHEREAS,
        by the
        terms of Section 5.1 of the Plan, the Plan may be amended by the Board of
        Directors of the Company;

      

      WHEREAS,
        the
        Company has determined that the Plan shall be amended to correct a drafting
        error which omitted a reduction in the benefits under the Plan for benefits
        paid
        from the Company’s retirement plan restoration plan, and to reduce the age for
        vesting in Plan benefits from age 62 to age 60; and

      

      WHEREAS,
        the
        Board of Directors of the Company has approved and adopted such amendments
        as
        set forth herein;

      

      NOW,
        THEREFORE,
        the Plan
        is hereby amended, effective as of January 1, 1998, as follows:

      

      1. Section
        1.1 of the Plan is amended to read in its entirety as follows:

      

      “Section
        1.1 Purpose -
        The
        purpose of the Plan is to enhance the Company’s ability to attract and to retain
        those key executives who are essential to the Company’s success by providing
        them with nonqualified retirement benefits that are in addition to the
        retirement benefits provided by the Company’s qualified defined benefit pension
        plan (the “Qualified Plan”) and the Company’s nonqualified retirement plan
        restoration plan (the “Restoration Plan”).”

      

      2. Section
        3. l(b) of the Plan is amended to read in its entirety as follows:

      

      
        	 	
                (b)

              	
                the
                  sum of the monthly retirement benefits that are actually paid to
                  the
                  participant (or Beneficiary) under the Qualified Plan and the Restoration
                  Plan.”

              

      

      

      3. Section
        3.3 of the Plan is amended to read in its entirety as follows:

      

      “Section
        3.3 Vesting of Benefits
        -
        Subject to the further provisions of the Plan, each participant shall possess
        a
        vested interest in (a nonforfeitable right to) his accrued supplemental
        retirement benefit hereunder to the same extent that such participant is
        vested
        in his accrued retirement benefit under the Qualified Plan; provided, however,
        if(l) the participant voluntarily terminates his employment with the Company
        prior to attaining the age of 60 years or (2) the Company terminates the
        participant’s employment for Cause, no benefits shall be payable to or on behalf
        of such participant under the Plan; provided further, a participant who is
        an
        employee of the Company on the date of a Change in Control shall always be
        100%
        vested under the Plan on and after that date.”

      

      IN
        WITNESS WHEREOF,
        LUFKIN
        INDUSTRIES, INC. has caused this instrument to be executed by its duly
        authorized officers on this 4th day of August, 1998, to be effective as stated
        above.

      

      

      
        	
                ATTEST:

              	
                COMPANY

              
	 	
                LUFKIN
                  INDUSTRIES, INC.

              
	
                /s/
                  R E Myers.

              	
                By:

              	
                /s/
                  C J Haley, Jr.

              
	
                Assistant
                  Secretary

              	
                Title:

              	
                Secretary
                  - Treasurer

              

      

      

      

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      

      AMENDMENT
        TWO

      

      LUFKIN
        INDUSTRIES, INC.

      

      SUPPLEMENTAL
        RETIREMENT PLAN

      

      WHEREAS,
        effective as of January 1, 1995, Lufkin Industries, Inc. (the “Company”)
        established the Lufkin Industries, Inc. Supplemental Retirement Plan (the
        “Plan”) for the benefit of certain of its key employees;

      

      WHEREAS,
        by the
        terms of Section 5.1 of the Plan, the Plan may be amended by the Board of
        Directors of the Company;

      

      WHEREAS,
        the
        Company has determined that the Plan shall be amended to comply with the
        requirements of section 409A of the Internal Revenue Code as amended and
        to
        clarify the intent of the Plan;

      

      NOW,
        THEREFORE,
        the
        Plan is hereby amended, effective as of January 1, 2005 as follows:

      

      1. Section
        3.1 of the Plan shall be amended to read as follows:

      

      
        	 	
                “(a)

              	
                the
                  monthly retirement benefit that would be payable to such participant
                  (or
                  Beneficiary) under the Qualified Plan if (i) the participant were
                  credited
                  with an additional .5 year of credited service thereunder for each
                  year of
                  credited service actually credited to the participant under the
                  qualified
                  Plan, (ii) the participant’s compensation were determined as provided
                  under the Qualified Plan but without limitations pursuant to Section
                  401(A)(17) of the Internal Revenue Code of 1986 as amended (the
“Code”)
                  and as if the participant’s compensation under the Basic Plan had not been
                  reduced by any deferrals of his compensation which he elected to
                  make
                  under a deferred compensation agreement with an employer pursuant
                  to a
                  nonqualified defined contribution plan restoration plan maintained
                  by the
                  employer; and (iii) the participant’s benefits thereunder were not limited
                  by Section 415 of the Code,

              
	 	
                (b)

              	
                the
                  sum of the monthly retirement benefits that are actually paid to
                  the
                  participant (or Beneficiary) under the Qualified Plan and the Restoration
                  Plan.”

              

      

      

      2. Section
        3.2 of the Plan shall be amended to read as follows:

      

      “Section
        3.2 Automatic Form of Benefit Payments -
        Subject
        to the further provision of this Plan, the benefit payable to a participant
        (or
        Beneficiary) under this Plan shall be paid or commence as soon as
        administratively feasible following the participant’s Benefit Distribution Date
        (as defined below). The Participant shall be entitled to make the following
        elections as to the form and timing of the payment:

      

      
        	 	
                (a)

              	
                At
                  any time prior to the date the Participant first becomes eligible
                  to
                  participate in the Plan and subject to such requirements as may
                  be imposed
                  by the Committee, Participant may elect to receive the Actuarial
                  Equivalent of his benefits under the Plan in a lump sum or in any
                  form of
                  benefit offered under the Qualified Plan commencing on his or her
                  Benefit
                  Distribution Date;

              
	 	
                (b)

              	
                At
                  any time prior to January 1, 2006, subject to such requirements
                  as may be
                  imposed by the Committee, a Participant may elect to receive benefits
                  under the Plan in a lump sum or in any form of benefit offered
                  under the
                  Qualified Plan commencing on his or her Benefit Distribution
                  Date;

              
	 	
                (c)

              	
                At
                  any time prior to Participant’s Benefit Distribution Date, Participant may
                  elect to change his form of benefit to a lump sum or any of the
                  forms of
                  distribution permitted under the Qualified Plan, provided that
                  such change
                  complies with each of the following requirements:

                Such
                  payment change must be submitted to and accepted by the Committee
                  in its
                  sole discretion at least twelve (12) months prior to the Participant’s
                  previously designated scheduled Benefit Distribution Date;
                  and

                The
                  new scheduled Benefit Distribution Date selected by the Participant
                  must
                  be at least five years after the previously designated Benefit
                  Distribution Date; and

              
	 	 	
                (i)

              	
                payment
                  change must be submitted to and accepted by the Committee in its
                  sole
                  discretion at least twelve (12) months prior to the Participant’s
                  previously designated scheduled Benefit Distribution Date;
                  and

              
	 	 	
                (ii)

              	
                The
                  new scheduled Benefit Distribution Date selected by the Participant
                  must
                  be at least five years after the previously designated Benefit
                  Distribution Date; and

              
	 	 	
                (iii)

              	
                The
                  election of the new scheduled Benefit Distribution Date shall have
                  no
                  effect until at least twelve (12) months after the date on which
                  the
                  election is made.”

              

      

      

      3. Section
        3.4 of the Plan shall be amended to read as follows:

      

      “Section
        3.4 Automatic Lump Sum Benefit
        -
        Notwithstanding anything in Section 3.1, 3.2 or 3.3 to the contrary, if a
        participant’s employment with the Company is terminated for any reason other
        than death on or following a Change in Control or a participant’s employment is
        terminated by the Company at any time other than for Cause, the Actuarial
        Equivalent of such participant’s accrued supplemental retirement benefit shall
        be paid to him in a single lump sum as soon as reasonably practicable following
        his Benefit Distribution Date.”

      

      4. Section
        3.5 of the Plan shall be amended to add subsection 3.5 (e) to read as
        follows:

      

      
        	 	
                (e)

              	
                “Benefit
                  Distribution Date” shall mean the date that is as soon as administratively
                  feasible following a participant’s separation from service (within the
                  meaning of section 409A of the Code) with the Company and each
                  member of
                  its controlled group; provided, however, that in the event that
                  a
                  participant is determined by the Committee to be a “key employee” (as
                  defined in section 416(i) of the Code without regard to paragraph
                  (5)
                  thereof) as of the last day of the calendar year prior to the
                  Participant’s separation from service, such participant’s Benefit
                  Distribution Date shall be the date that is the earlier of (i)
                  participant’s date of death or (ii) six (6) months following such
                  separation from service. If a participant would have received payments
                  during such six-month period but for the fact that participant
                  is a “key
                  employee”, participant’s installment payments shall be accumulated during
                  such six-month period and paid as soon as administratively feasible
                  after
                  such six-month period.”

              

      

      

      4. Except
        as
        hereinabove amended, the provision of the Plan as previously amended shall
        remain in full force and effect.

      

      IN
        WITNESS WHEREOF,
        the
        Company has caused this instrument to be executed by its duly authorized
        officer
        on this 2nd day of November, 2005.

      

      Absent
        an
        election by the Participant in accordance with (i), (ii) or (iii) above,
        all
        Post-2004 accruals shall be paid in one lump sum as soon as administratively
        feasible following the Participant’s Benefit Distribution Date.

      

      

      
        	
                ATTEST:

              	
                COMPANY

              
	 	
                LUFKIN
                  INDUSTRIES, INC.

              
	
                /s/
                  P G Perez

              	
                By:

              	
                /s/
                  R D Leslie

              
	
                Secretary

              	
                Title:

              	
                Vice
                  President/Treasurer/Chief Financial
                  Officer

              

      

      

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      AMENDMENT
        THREE

      

      LUFKIN
        INDUSTRIES, INC.

      

      SUPPLEMENTAL
        RETIREMENT PLAN

      

      WHEREAS,
        effective as of January 1, 1995, Lufkin Industries, Inc. (the “Company”)
        established the Lufkin Industries, Inc. Supplemental Retirement Plan (the
        “Plan”) for the benefit of certain of its key employees;

      

      WHEREAS,
        by the
        terms of Section 5.1 of the Plan, the Plan may be amended by the Board of
        Directors of the Company;

      

      WHEREAS,
        effective as of January 1, 2005, the Company amended the Plan (Amendment
        Two) to
        comply with the requirements of section 409A of the Internal Revenue Code
        as
        amended and to clarify intent;

      

      WHEREAS,
        the
        Company wishes to clarify its intention to “grandfather” the benefits of Plan
        that were accrued and vested as of December 31, 2004;

      

      NOW,
        THEREFORE,
        the Plan
        is hereby amended as follows:

      

      1. Effective
        as of January 1, 2005, Section 3.2 of the Plan shall be amended to read as
        follows:

      

      “Section
        3.2 Automatic Form of Benefit Payments

      

      
        	 	
                (a)

              	
                Pre-2005
                  Accruals. The present value as of December 31, 2004 of the monthly
                  retirement benefit that would be payable to a participant (or Beneficiary)
                  if the participant voluntarily terminated service without cause
                  on
                  December 31, 2004 and received a payment of the benefits with the
                  maximum
                  value available from the Plan on the earliest possible date allowed
                  under
                  the Plan to receive a payment of benefits following the termination
                  of
                  services within the meaning of applicable guidance relating to
                  the
                  provisions of Section 409A of the Internal Revenue Code shall herein
                  be
                  referred to as the “Pre-2005 Accruals”. Increases in the present value of
                  the future payments to which the participant or Beneficiary are
                  entitled
                  as of December 31, 2004, due solely to the passage of time determined
                  using the same interest rate used to determine the amounts under
                  the Plan
                  before January 1, 2005 resulting from the shortening of the discount
                  period before the future payments are made, plus, if applicable
                  an
                  increase in the present value resulting from the Participant’s
                  survivorship during the year shall also be included in the “Pre-2005
                  Accruals”, however, an increase in the potential benefits under the
                  Restoration Plan due to an application of an increase in compensation
                  after December 31, 2004 to prior years or service or subsequent
                  eligibility for an early retirement subsidy shall not constitute
“Pre-2005
                  Accruals”. The Pre-2005 Accruals shall commence at the same time, shall
                  be
                  subject to the same restrictions and actuarial adjustments and
                  other terms
                  as the benefit actually paid to such person under the Qualified
                  Plan;
                  provided,
                  however, the
                  Compensation Committee, in its sole discretion, may direct at any
                  time on
                  or after the participant’s retirement or death that the Actuarial
                  Equivalent present value of such benefit (or remaining benefit
                  if already
                  in pay status) be paid to such person in a lump sum (by
                  check).

              
	 	
                (b)

              	
                Post-2004
                  Accruals. The monthly retirement benefit payable to a participant
                  (or
                  Beneficiary) which is accrued under the Plan in excess of the Pre-2005
                  Accruals shall be referred to herein as the “Post-2004 Accruals”. With
                  respect to the Post 2004 Accruals, the benefit payable to a participant
                  (or Beneficiary) under this Plan shall be paid or commence as soon
                  as
                  administratively feasible following the participant’s Benefit Distribution
                  Date (as defined below) and the Participant shall be entitled to
                  make the
                  following elections as to the form and timing of the
                  payment:

              
	 	 	
                (i)

              	
                At
                  any time prior to the date the Participant first becomes eligible
                  to
                  participate in the Plan and subject to such requirements as may
                  be imposed
                  by the Committee, Participant may elect to receive the Actuarial
                  Equivalent of his benefits under the Plan in a lump sum or in any
                  form of
                  benefit offered under the Qualified Plan commencing on his or her
                  Benefit
                  Distribution Date;

              
	 	 	
                (ii)

              	
                At
                  any time prior to January 1, 2006, subject to such requirements
                  as may be
                  imposed by the Committee, a Participant may elect to receive benefits
                  under the Plan in a lump sum or in any form of benefit offered
                  under the
                  Qualified Plan commencing on his or her Benefit Distribution
                  Date;

              
	 	 	
                (iii)

              	
                At
                  any time prior to Participant’s Benefit Distribution Date, Participant may
                  elect to change his form of benefit to a lump sum or any of the
                  forms of
                  distribution permitted under the Qualified Plan, provided that
                  such change
                  complies with each of the following requirements:

              
	 	 	 	
                (A)

              	
                Such
                  payment change must be submitted to and accepted by the Committee
                  in its
                  sole discretion at least twelve (12) months prior to the Participant’s
                  previously designated scheduled Benefit Distribution Date;
                  and

              
	 	 	 	
                (B)

              	
                The
                  new scheduled Benefit Distribution Date selected by the Participant
                  must
                  be at least five years after the previously designated Benefit
                  Distribution Date; and

              
	 	 	 	
                (C)

              	
                The
                  election of the new scheduled Benefit Distribution Date shall have
                  no
                  effect until at least twelve (12) months after the date on which
                  the
                  election is made.”

              
	 	 	
                (iv)

              	
                Absent
                  an election by the Participant in accordance with (i), (ii) or
                  (iii)
                  above, all Post-2004 accruals shall be paid in one lump sum as
                  soon as
                  administratively feasible following the Participant’s Benefit Distribution
                  Date.

              

      

      

      2. Section
        3.4 of the Plan shall be amended to read as follows:

      

      “Section
        3.4 Automatic Lump Sum Benefit
        -
        Notwithstanding anything in Section 3.1, 3.2 or 3.3 to the contrary, if a
        participant’s employment with the Company is terminated for any reason other
        than death on or following a Change in Control or a participant’s employment is
        terminated by the Company at any time other than for Cause, the Actuarial
        Equivalent of such participant’s accrued supplemental retirement benefit that is
        a Pre-2005 Accruals shall be paid to him in a single lump sum as soon as
        reasonably practicable following the date of his termination of employment.
        The
        Actuarial Equivalent of Post-2004 Accruals shall be paid to him in a single
        lump
        sum as soon as reasonably practicable following his Benefit Distribution
        Date.”

      

      3. Section
        3.5 of the Plan shall be amended to add subsection 3.5 (e) to read as
        follows:

      

      
        	 	
                “(e)

              	
                “Benefit
                  Distribution Date” shall mean the date that is as soon as administratively
                  feasible following a participant’s separation from service (within the
                  meaning of section 409A of the Code) with the Company and each
                  member of
                  its controlled group; provided, however, that in the event that
                  a
                  participant is determined by the Committee to be a “key employee” (as
                  defined in section 416(i) of the Code without regard to paragraph
                  (5)
                  thereof) as of the last day of the calendar year prior to the
                  Participant’s separation from service, such participant’s Benefit
                  Distribution Date shall be the date that is the earlier of (i)
                  participant’s date of death or (ii) six (6) months following such
                  separation from service. If a participant would have received payments
                  during such six-month period but for the fact that participant
                  is a “key
                  employee”, participant’s installment payments shall be accumulated during
                  such six-month period and paid as soon as administratively feasible
                  after
                  such six-month period.” 

              

      

      

      4. To
        the extent that any provision of any amendments herein or in any previous
        or
        subsequent amendment shall be construed as a “material modification” (within the
        meaning of the grandfathering provisions of section 409A of the Code and
        applicable guidance) of the Plan provisions as in effect prior to January
        1,
        2005 with respect to the Pre-2005 Accounts, such provisions shall be void
        ab
        initio and of no effect.
        Except as hereinabove amended, the provisions of the Plan as previously amended
        shall remain in full force and effect.  

      

      IN
        WITNESS WHEREOF, the Company has caused this instrument to be executed by
        its
        duly authorized officer on this 1st day of November,
        2006.

      

       

      

        	
                ATTEST:

              	
                COMPANY

              
	 	
                LUFKIN
                  INDUSTRIES, INC.

              
	
                /s/
                  P G Perez

              	
                By:

              	
                /s/
                  R D Leslie

              
	
                Secretary

              	
                Title:

              	
                Vice
                  President/Treasurer/Chief Financial
                  OfficerExhibit 10.22

    

      Exhibit
        10.22

      

      AMENDED
        AND RESTATED

      

      EMPLOYMENT
        AGREEMENT 

      

      THIS
        AMENDED AND RESTATED EMPLOYMENT AGREEMENT
        (“Agreement”) is made and entered into effective as of January 1, 1999 (the
“Effective Date”), by and between LUFKIN
        INDUSTRIES, INC.,
        a
        Texas corporation (the “Company”), and DOUGLAS
        V. SMITH
        of
        Lufkin, Texas (the “Executive”).

      

      WHEREAS,
        the
        Company wishes to continue the employment of the Executive as president and
        Chief Executive Officer of the Company, under the terms and conditions set
        forth
        herein;

      

      WHEREAS,
        the
        Executive wishes to continue his employment under those terms and conditions;
        and

      

      WHEREAS,
        the
        Company and the Executive (the “Parties”) previously entered into an Employment
        Agreement dated as of January 1, 1995 and they desire to amend and restate
        said
        Employment Agreement as provided herein;

      

      NOW,
        THEREFORE,
        in
        consideration of the premises and mutual covenants contained herein, and
        for
        other consideration mutually acknowledged, the Parties agree as
        follows:

      

      1. Employment.

      

      The
        Company hereby agrees to continue to employ the Executive, and the Executive
        hereby agrees to continue his employment with the Company, for the term set
        forth in Section 2 below, in the positions and with the duties and
        responsibilities set forth in Section 3 below, at an office location in Lufkin,
        Texas or such other location as the Parties may mutually agree, and upon
        such
        other terms and conditions as are hereinafter stated.

      

      2. Terms.

      

      Subject
        to renewal as hereinafter provided in this Section 2, the amended term of
        the
        Executive’s employment with the Company (the “Term”) shall commence on the
        Effective Date and shall continue through the third annual anniversary of
        the
        Effective Date, unless sooner terminated in accordance with the terms and
        provisions hereinafter set forth. The Term shall be automatically renewed
        and
        extended for a period of twelve (12) months commencing on the first annual
        anniversary of the Effective Date and on each successive annual anniversary
        thereafter unless the Company shall give the Executive written notice, at
        least
        sixty (60) days prior to the first annual anniversary (or, if previously
        renewed
        and extended, at least sixty (60) days prior to any succeeding annual
        anniversary) of the Effective Date of this Agreement, of the Company’s desire
        not to renew this Agreement. The Executive shall, unless requested otherwise
        by
        the Company, remain in the employ of the Company during the entirety of the
        remaining Term.

      

      3. Position
        and Duties.

      

      
        	 	
                (a)

              	
                During
                  the Term, the Executive shall serve as President and Chief Executive
                  Officer of the Company reporting directly to the Board of Directors
                  of the
                  Company. During the Term, the Company shall cause the Executive
                  to be
                  nominated for election as the Chairman of the Board of Directors
                  of the
                  Company and shall use its reasonable best efforts to secure such
                  election.

              
	 	
                (b)

              	
                While
                  employed hereunder, the Executive shall devote his full business
                  time and
                  attention to the operations and activities of the Company, and
                  shall not
                  be employed by, consult with or otherwise render services to, any
                  other
                  business, except with the consent of the Board of Directors of
                  the
                  Company. The foregoing notwithstanding, the Parties recognize and
                  agree
                  that the Executive may engage in passive personal investments and
                  other
                  business, industry, civic and charitable activities that do not
                  conflict
                  with the business and affairs of the Company or interfere with
                  the
                  Executive’s performance of his duties
                  hereunder.

              

      

      

      4. Compensation
        and Benefits.

      

      
        	 	
                (a)

              	
                Salary.
                  The Company shall pay the Executive a base salary (“Salary”) at an annual
                  rate of $360,000 (the “Base Rate”). Salary shall be payable in accordance
                  with the Company’s payroll practices. The Compensation Committee of the
                  Board of Directors of the Company (the “Committee”) shall review with the
                  Executive the Salary during February of each year in the Term,
                  and may
                  adjust such Salary in its sole discretion, provided that such Salary
                  shall
                  never be at an annual rate less than the Base Rate.

              
	 	
                (b)

              	
                Bonus.
                  The Executive will have an opportunity to receive a bonus with
                  respect to
                  each year during the Term; provided, however, that the maximum
                  annual
                  bonus opportunity for each such year shall not be less than one
                  hundred
                  percent (100%) of the Executive’s Salary for the bonus year. The level or
                  levels of the annual bonus for each year during the Term and the
                  criteria
                  for entitlement to such level or levels shall be reasonable and
                  reflective
                  of industry norms as shall be determined in good faith by the Company
                  with
                  the advice and counsel of competent compensation consultants of
                  the
                  Company’s choosing who shall currently review such data as may be
                  available with respect to bonuses that are made available to similarly
                  situated executives of companies that are in the same industry
                  and are
                  approximately the same size (based on sales) as the Company. The
                  bonus for
                  any bonus year during the Term shall be paid at the time bonuses
                  for such
                  year are generally paid under the Company’s bonus program and shall be in
                  the form of a lump sum cash payment.

              
	 	
                (c)

              	
                Stock
                  Options.
                  On the date of the first regular meeting of the Committee which
                  occurs
                  each calendar year during the Term, the Company shall grant the
                  Executive
                  a ten- year stock option under the Company’s 1990 Stock Option Plan or any
                  successor or other plan maintained by the Company (“Stock Plan”). With
                  respect to any Stock Plan under which the Executive is granted
                  options to
                  purchase shares of the Company’s common stock reserved thereunder at any
                  time when such stock is publicly traded (i) on a national securities
                  exchange on which such stock is listed or (ii) over the counter
                  on an
                  established market, prior to such time as options granted under
                  the Stock
                  Plan to the Executive are first exercisable, the Company shall
                  register
                  the interests in the Stock Plan and the shares of the Company’s common
                  stock reserved thereunder under all applicable securities laws.
                  On the
                  date of the first regular meeting of the Committee in 1999, 2000,
                  2001 and
                  any subsequent year during the Term, the Company shall grant the
                  Executive
                  an additional ten-year option under the Company’s Stock Plan (or any
                  successor plan) to purchase a number of shares of the Company’s common
                  stock not less than that number (rounded up to the next full number)
                  which
                  is equal to the Executive’s Base Rate on such grant date multiplied by 2.5
                  which product shall be divided by the fair market value of a share
                  of
                  common stock (as defined in the Stock Plan) on such date. Each
                  option
                  granted hereunder shall provide that it shall not terminate prior
                  to the
                  expiration of its ten-year term unless the Company terminates the
                  Executive’s employment for Cause and no less than one-third of the
                  Company’s common stock subject to the option shall be cumulatively
                  exercisable on the date of the grant and on each of the succeeding
                  two
                  anniversaries so that after the second anniversary of the grant
                  date of
                  the option the Executive (or his representative or estate, as applicable)
                  may exercise any unexercised portion of such option throughout
                  the
                  remainder of the option’s ten-year term. Subject to the preceding
                  provisions of this Section 4(c), the form and other terms and conditions
                  of such options shall be substantially as set forth in Exhibit
                  A, “Lufkin
                  Industries, Inc. Stock Option Agreement” attached to and forming a part of
                  this Agreement.

              
	 	
                (d)

              	
                Employee
                  Benefit Programs.
                  During the Term, the Executive shall be entitled to participate
                  in all
                  employee benefit programs of the Company as in effect from time
                  to time
                  and in which the Company’s senior executives are eligible to participate,
                  provided that, with respect to all plans other than plans subject
                  to
                  nondiscrimination rules under Section 79, 105(h), 125, 129 or 401(a)
                  of
                  the Internal Revenue Code of 1986, as amended (the “Code”), any minimum
                  service requirement shall be waived. In addition, the Company shall
                  continue to maintain a nonqualified supplemental executive retirement
                  plan
                  (the “SERP”) in which the Executive shall continue to participate
                  effective from and after the Effective Date and for the remainder
                  of the
                  Term, including any extensions thereof, with terms substantially
                  the same
                  as those set forth in the Lufkin Industries, Inc. Supplemental
                  Retirement
                  Plan attached hereto as Exhibit B.

              
	 	
                (e)

              	
                Other
                  Benefits.
                  During his employment hereunder, the Executive shall be afforded
                  each and
                  every one of the following benefits as incidences of his
                  employment:

              
	 	 	
                (i)

              	
                Company
                  automobile - the Company will provide to the Executive for his
                  personal
                  and business use a top-of-the-line automobile, and shall provide,
                  or
                  reimburse the Executive for, maintenance and insurance (liability
                  and
                  collision coverage insuring both the Company and the Executive
                  and
                  covering both business and personal use) for such automobile. Such
                  automobile shall be owned or leased by the Company, and, if requested
                  by
                  the Executive, shall be replaced not less frequently than three
                  (3) years
                  after the date the automobile was provided to the Executive by
                  the
                  Company.

              
	 	 	
                (ii)

              	
                Business
                  and entertainment expenses - the Company will reimburse the Executive
                  for,
                  or pay on behalf of the Executive, reasonable and appropriate expenses
                  incurred by the Executive for business related purposes, including
                  dues
                  and fees to industry and professional organizations, costs of
                  entertainment and business development, and costs reasonably incurred
                  as a
                  result of the Executive’s wife accompanying the Executive on business
                  travel.

              
	 	 	
                (iii)

              	
                Club
                  memberships - in addition to the other business and entertainment
                  expenses
                  reimbursable pursuant to item (ii) above, the Company shall pay
                  membership
                  fees, dues and assessments for (a) one country club located in
                  Angelina
                  County, Texas, to be selected by the Executive, (b) one luncheon
                  club
                  located in Houston, Texas, to be selected by the Executive, and
                  (c) such
                  other luncheon or country club memberships as the Board of Directors
                  of
                  the Company may deem to be justified by business usage.

              
	 	 	
                (iv)

              	
                Annual
                  physical examination - the Company shall pay for the cost of an
                  annual
                  physical examination to be conducted by a doctor or clinic of the
                  Executive’s choosing in Houston, Texas or in Lufkin,
                  Texas.

              
	 	 	
                (v)

              	
                Life
                  insurance - the Company will provide, or cause to be provided,
                  to the
                  Executive, at no cost to the Executive, term life insurance coverage
                  equal
                  to twice the Executive’s Salary. Proceeds of such insurance shall be
                  payable to a beneficiary to be designated in writing by the
                  Executive.

              
	 	 	
                (vi)

              	
                Tax
                  preparation expenses - the Company will reimburse the Executive
                  for
                  expenses incurred by him in connection with the preparation of
                  his federal
                  income tax return up to a maximum of $3,000 per
                  year.

              

      

      

      5. Termination
        of Employment.

      

      The
        Executive’s employment is subject to termination during the Term only as
        provided in this Section 5.

      

      5.1 Death
        or Disability.

      

      If
        the
        Executive’s employment is terminated due to his death or total disability, as
        determined under the Company’s applicable long-term disability plan,
        then:

      

      
        	 	 	
                (i)

              	
                The
                  Executive (or his estate) shall be entitled to receive salary and
                  benefit
                  coverages for a period of six months from and after the date of
                  termination of employment; and

              
	 	 	
                (ii)

              	
                The
                  Executive (or his estate) shall be entitled to a bonus payment
                  for the
                  year in which termination occurs equal to the bonus amount paid
                  or payable
                  by the Company to the Executive for the immediately preceding bonus
                  year
                  prorated to reflect the actual number of full weeks worked during
                  the year
                  in which the Executive’s employment terminates; and

              
	 	 	
                (iii)

              	
                The
                  Executive (or his estate) shall be entitled to the pension provided
                  under
                  the SERP as described in Section 4(d)
                  above.

              

      

      

      5.2 Termination
        by the Company without Cause.

      

      The
        Company may terminate the Executive’s employment at any time without Cause as
        such term is defined in Section 5.3 below, in which case:

      

      
        	 	 	
                (i)

              	
                The
                  Executive shall be paid a lump sum cash payment, payable within
                  30 days of
                  his termination of employment, equal to the total Salary which
                  would have
                  been paid to him under this Agreement for the remainder of the
                  Term, based
                  on a Salary rate equal to the greater of (A) the rate in effect
                  on the
                  Effective Date, or (B) the rate in effect on termination of his
                  employment; and

              
	 	 	 	 
	 	 	
                (ii)

              	
                The
                  Executive shall be entitled to a lump sum payment, payable within
                  30 days
                  of his termination of employment, equal to the amount of annual
                  bonuses
                  which would have been paid to him under this Agreement for the
                  remainder
                  of the Term based upon the bonus rate per annum that is equal to
                  the bonus
                  paid or payable by the Company to the Executive for the immediately
                  preceding bonus year; and

              
	 	 	 	 
	 	 	
                (iii)

              	
                The
                  Executive shall be entitled to the pension provided under the SERF
                  as
                  described in Section 4(d) above;

              
	 	 	 	 
	 	 	
                (iv)

              	
                Benefits
                  (as described in Sections 4(d), other than the pension provided
                  under the
                  SERF that are payable upon termination of employment, and 4(e)
                  above)
                  shall continue to be provided to the Executive by the Company during
                  the
                  period of Salary continuation described in item (i) above as if
                  the
                  Executive’s employment had continued for the remainder of the Term;
                  provided, however, that to the extent any such benefit cannot be
                  continued
                  as a matter of law during the remaining period of the Term because
                  the
                  Executive is no longer employed by the Company, the Company shall
                  pay the
                  Executive an amount equal to the economic value of such benefit
                  at the
                  same rate or level and at the same time as such benefit was provided
                  or
                  available at the time the benefit was required as a matter of law
                  to be
                  discontinued because the Executive ceased to be employed by the
                  Company
                  and; provided, further, that any such benefit shall be discontinued,
                  if
                  earlier, on the date that the Executive becomes entitled to coverage
                  for a
                  substantially equivalent rate or level of a comparable benefit
                  as a result
                  of his employment by a successor
                  employer.

              

      

      

      5.3 Termination
        by the Company for Cause.

      

      If
        the
        Company terminates the Executive’s employment for Cause, as defined in this
        Agreement, the Executive shall be entitled only to Salary, and any benefits,
        accrued as of the effective date of termination. Any other benefits shall
        be
        determined under applicable plans, programs or other coverages of the Company.
        For purposes of this Agreement, the term “Cause” shall mean:

      

      
        	 	 	
                (i)

              	
                the
                  Executive’s conviction for, or plea of nolo contendere to, a felony;
                  or

              
	 	 	
                (ii)

              	
                the
                  commission by the Executive of an act involving fraud or intentional
                  dishonesty, which act is intended to result in substantial personal
                  enrichment of the Executive at the expense of the Company or any
                  of its
                  subsidiaries; or

              
	 	 	
                (iii)

              	
                the
                  Executive’s material breach of any material provision of this Agreement
                  which remains uncorrected for 30 days after written notice and
                  an
                  opportunity to correct; or

              
	 	 	
                (iv)

              	
                the
                  Executive’s knowing and willful misconduct in the performance of his
                  duties, which continues for 30 days after written notice from the
                  Company
                  and which results in material injury to the reputation, business
                  or
                  operation of the Company or any of its
                  subsidiaries.

              

      

      

      The
        existence of “Cause” shall be determined by an affirmative vote of not less than
        two- thirds of the members of the Board of Directors of the Company. If the
        requisite affirmative vote by two thirds of the members of the Board of
        Directors of the Company is not obtained, any termination of the Executive’s
        employment by the Company shall be deemed to be a termination by the Company
        without Cause.

      

      5.4  Voluntary
        Termination by the Executive Without Good Reason.

      

      The
        Executive may terminate his employment at any time without Good Reason (as
        such
        term is defined in Section 5.5 below) on 30 days written notice, in which
        case
        the Executive shall be entitled only to his Salary earned through the effective
        date of termination and any benefits accrued as of the effective date of
        termination as determined under applicable plans, programs or other coverages
        of
        the Company.

      

      5.5 Termination
        of the Executive for Good Reason.

      

      In
        the
        event the Executive’s employment by the Company is terminated by the Executive
        for Good Reason, as defined in this Section 5.5, such termination shall be
        deemed to be a termination by the Company of the Executive’s employment without
        Cause, as such term is defined in Section 5.3 above, in which case the Executive
        shall be entitled to the benefits described in Section 5.2 of this Agreement.
        For purposes of this Agreement, the term “Good Reason” shall mean any one of the
        following shall have occurred and shall not been corrected within thirty
        days
        following written notice by the Executive to the Company:

      

      
        	 	 	
                (i)

              	
                the
                  assignment to the Executive of any duties inconsistent in any respect
                  with
                  the Executive’s position (including status, offices, titles and reporting
                  requirements), authority, duties or responsibilities as contemplated
                  by
                  Section 3 of this Agreement, or any other action by the Company;
                  or any
                  affiliate which results in a diminution in such position, authority,
                  duties or responsibilities, excluding for this purpose an isolated,
                  insubstantial and inadvertent action not taken in bad faith and
                  which is
                  remedied by the Company promptly after receipt of written notice
                  thereof
                  given by the Executive; or

              
	 	 	
                (ii)

              	
                any
                  failure by the Company to comply with any of the provisions of
                  Section 3
                  of this Agreement, other than an isolated, insubstantial and inadvertent
                  failure not occurring in bad faith which is remedied by the Company
                  promptly after receipt of written notice thereof given by the Executive;
                  or

              
	 	 	
                (iii)

              	
                the
                  Company’s requiring the Executive to be based at any office or location
                  other than that described in Section 1 hereof, except for travel
                  reasonably required in the performance of the Executive’s
                  responsibilities; or

              
	 	 	
                (iv)

              	
                any
                  purported termination by the Company of the Executive’s employment
                  otherwise than as expressly permitted by this
                  Agreement.

              

      

      

      For
        purposes of this Section 5.5, any good faith determination of “Good Reason” made
        by the Executive shall be final and binding upon the Parties, unless, within
        thirty days following the Executive’s providing written notice to the Company
        under the first sentence of this Section 5.5, not less than two-thirds of
        the
        members of the Board of Directors of the Company affirmatively votes not
        to
        confirm the Executive’s determination that such termination is for Good Reason.
        If two-thirds of the members of the Board of Directors of the Company
        affirmatively vote not to confirm the Executive’s determination that such
        termination is for Good Reason, any termination by the Executive of his
        employment by the Company shall be deemed to be a termination by the Executive
        without Good Reason.

      

      6. Non-Competition.

      

      During
        the term of his employment hereunder, and, for the period extending to the
        first
        anniversary of his termination of employment for any reason other than
        termination of the Executive’s employment by the Company without Cause or
        termination of the Executive’s employment by the Executive for Good Reason (the
“No-Compete Period”), the Executive shall not, directly or indirectly, manage,
        control, participate in, consult with, render services to, or in any manner
        engage in any pumping unit or gear manufacturing business (the “Subject
        Businesses”) with (any such action to be referred to as an “Association” with)
        any person, corporation, partnership, trust or other business organization
        (any
        such person or entity to be referred to as a “Person”) if such business is
        directly competitive with the Subject Businesses of the Company; provided,
        however, that the foregoing shall not restrict the Executive from having
        an
        Association with a Person that is engaged in the Subject Businesses so long
        as
        the Executive is not personally involved in a material respect in the Subject
        Businesses of such Person, it being understood that an indirect supervisory
        role
        of a Subject Business and other businesses of such Person shall not constitute
        involvement in a material respect. If any court having jurisdiction determines
        that the provisions of this Section 6 are not enforceable to the fullest
        extent,
        because of the provisions as to the time period, the geographical area or
        the
        scope of activity covered, the Parties agree that such court may narrow any
        such
        provision as the court deems necessary to enforceability, and this Section
        6
        shall be enforced as so narrowed.

      

      The
        Executive acknowledges that monetary damages would not constitute an adequate
        remedy for the Company in the event of a breach of this Section 6, and he
        therefore agrees that the Company shall be entitled to injunctive or other
        equitable relief for the enforcement hereof. However, in no event shall an
        asserted violation of the provisions of this Section 6 constitute a basis
        for
        deferring or withholding any amounts otherwise payable to the Executive under
        this Agreement.

      

      7. Confidential
        Information.

      

      The
        Executive shall not, at any time, except in good faith in the performance
        of his
        duties for the Company, divulge any trade secrets or other proprietary or
        confidential information concerning the accounts, business or affairs of
        the
        Company, which shall have been obtained by the Executive during the Executive’s
        employment by the Company and which shall not be or become public knowledge
        other than by acts of the Executive in violation of this Agreement (except
        such
        information as is required by law or legal process to be divulged, in which
        case
        he shall give the Company prompt notice of such required disclosure and use
        his
        reasonable best efforts, in cooperation with the Company, to defend against
        any
        such required disclosure). However, in no event shall an asserted violation
        of
        the provisions of this Section 7 constitute a basis for deferring or withholding
        any amounts otherwise payable to the Executive under this
        Agreement.

      

      8. Indemnification.

      

      8.1 If
        at any
        time the Executive is a party or is threatened to be made a party to any
        threatened, pending or completed action, suit or proceeding, whether civil,
        criminal, administrative or investigative, by reason of the fact that he
        is or
        was a director, officer, employee or agent of the Company, or is or was serving
        at the request of the Company as a director, officer, employee or agent of
        another corporation, partnership, joint venture, trust, employee benefit
        plan or
        other enterprise, the Company shall indemnify the Executive and hold him
        harmless against reasonable expenses (including attorneys’ fees), judgments,
        fines, penalties, amounts paid in settlement and other liabilities actually
        and
        reasonably incurred by him in connection with such action, suit or proceeding
        to
        the full extent permitted by law.

      

      8.2 Expenses
        (including attorneys’ fees) incurred by the Executive in appearing at,
        participating in, or defending any threatened, pending or completed action,
        suit
        or proceeding, whether civil, criminal, administrative or investigative,
        shall
        be paid by the Company at reasonable intervals in advance of the final
        disposition of such action, suit or proceeding upon receipt of an undertaking
        by
        the Executive to repay such amounts if it shall ultimately be determined
        that he
        is not entitled to be indemnified.

      

      8.3 All
        claims for indemnification under this Agreement shall be asserted and resolved
        as is set forth below in this Section 8.3.

      

      
        	 	
                (a)

              	
                The
                  Executive (i) shall promptly notify the Company of any third-party
                  claim
                  or claims asserted against him (“Third Party Claim”) that could give rise
                  to a right of indemnification under this Agreement and (ii) shall
                  transmit
                  to the Company a written notice (“Claim Notice”) describing in reasonable
                  detail the nature of the Third Party Claim, a copy of all papers
                  served
                  with respect to such claim (if any), and the basis of his request
                  for
                  indemnification under this Agreement.

              
	 	
                (b)

              	
                Within
                  30 days after receipt of any Claim Notice (“Election Period”), the Company
                  shall notify the Executive (i) whether the Company disputes its
                  potential
                  liability to the Executive under this Section 8 with respect to
                  such Third
                  Party Claim and (ii) whether the Company desires, at its sole cost
                  and
                  expense, to defend the Executive against such Third Party Claim
                  by any
                  appropriate proceedings, which proceedings shall be prosecuted
                  diligently
                  by the Company to a final conclusion or settled at the discretion
                  of the
                  Company in accordance with this Subsection 8.3(b). The Company
                  shall have
                  full control of such defense and proceedings, including any compromise
                  or
                  settlement thereof. The Executive is hereby authorized, at the
                  Company’s
                  sole cost and expense (but only if he is actually entitled to
                  indemnification hereunder or if the Company assumes the defense
                  with
                  respect to the Third Party Claim), to file, during the Election
                  Period,
                  any motion, answer or other pleadings which he shall deem necessary
                  or
                  appropriate to protect his interests or those of the Company and
                  not
                  prejudicial to the Company. If requested by the Company, the Executive
                  agrees, at the Company’s sole cost and expense, to cooperate with the
                  Company and its counsel in contesting any Third Party Claim that
                  the
                  Company elects to contest, including without limitation, through
                  the
                  making of any related counterclaim against the person asserting
                  the Third
                  Party Claim or any cross-complaint against any person. The Executive
                  may
                  participate in but not control, any defense or settlement of any
                  Third
                  Party Claim controlled by the Company pursuant to this Section
                  8.3 and the
                  Company shall bear his costs and expenses with respect to such
                  participation.

              
	 	
                (c)

              	
                If
                  the Company fails to notify the Executive within the Election Period
                  that
                  the Company elects to defend the Executive pursuant to Subsection
                  8.3(b),
                  or if the Company elects to defend the Executive pursuant to Subsection
                  8.3(b) but fails to diligently and promptly prosecute or settle
                  the Third
                  Party Claim, then the Executive shall have the right to defend,
                  at the
                  sole cost and expense of the Company, the Third Party Claim. The
                  Executive
                  shall have full control of such defense and proceedings; provided,
                  however, that the Executive may not enter into, without the Company’s
                  consent, which shall not be unreasonably withheld, any compromise
                  or
                  settlement of such Third Party Claim. Notwithstanding the foregoing,
                  if
                  the Company has delivered a written notice to the Executive to
                  the effect
                  that the Company disputes its potential liability to the Executive
                  under
                  this Section 8, and if such dispute is resolved in favor of the
                  Company by
                  final, nonappealable order of a court of competent jurisdiction,
                  the
                  Company shall not be required to bear the costs and expenses of
                  the
                  Executive’s defense pursuant to this Section 8 or of the Company’s
                  participation therein at the Executive’s request, and the Executive shall
                  reimburse the Company promptly in full for all costs and expenses
                  of such
                  litigation. The Company may participate in, but not control, any
                  defense
                  or settlement controlled by the Executive pursuant to this Section
                  8.3(c),
                  and the Company shall bear its own costs and expenses with respect
                  to such
                  participation.

              
	 	
                (d)

              	
                The
                  indemnification provided by this Section 8 shall apply whether
                  or not the
                  negligence of a party is alleged or
                  proved.

              

      

      

      

      9. Withholding. 

      

      Anything
        to the contrary notwithstanding, all payments required to be made by the
        Company
        hereunder to the Executive, his spouse, his estate or beneficiaries, shall
        be
        subject to withholding of such amounts relating to taxes as the Company may
        reasonably determine it should withhold pursuant to any applicable law or
        regulation. In lieu of withholding such amounts in whole or in part, the
        Company
        may, in its sole discretion, accept other provisions for payment of taxes
        as
        required by law, provided it is satisfied that all requirements of law affecting
        its responsibilities to withhold such taxes have been satisfied.

      

      10. Assignability;
        Binding Nature.

      

      This
        Agreement is binding upon, and shall inure to the benefit of; the Parties
        hereto
        and their respective successors, heirs, administrators, executors and assigns.
        No rights or obligations of the Executive under this Agreement may be assigned
        or transferred by the Executive except that (i) his rights to compensation
        and
        benefits hereunder, which rights shall remain subject to the limitations
        of this
        Agreement, may be transferred by will or operation of law, and (ii) his rights
        under employee benefit plans or programs as referred to in Section 4, above,
        may
        be assigned or transferred in accordance with such plans or programs. No
        rights
        or obligations of the Company under this Agreement may be assigned or
        transferred except that such rights or obligations may be assigned or
        transferred by operation of law in the event of a merger or consolidation
        in
        which the Company is not the continuing entity, or the sale or liquidation
        of
        all or substantially all of the assets of the Company, provided that the
        assignee or transferee is the successor to all or substantially all of the
        assets of the Company and such assignee or transferee assumes the liabilities,
        obligations and duties of the Company, as contained in this Agreement, either
        contractually or as a matter of law.

      

      11. Effect
        of Agreement.

      

      This
        Agreement contains the entire agreement between the Parties concerning the
        subject matter hereof and supersedes all prior agreements, understandings,
        discussions, negotiations, and undertakings, whether written or oral, between
        the Parties with respect thereto. However, the Parties acknowledge having
        entered into a Severance Agreement as of January 16, 1993 (the “Severance
        Agreement”), and it is understood that such Severance Agreement is independent
        of this Agreement. In the event of a Change in Control of the Company, as
        defined in the Severance Agreement, then, notwithstanding any other provision
        hereof; this Agreement shall terminate and be superseded by the Severance
        Agreement.

      

      12. Amendments
        and Waivers.

      

      This
        Agreement may not be modified or amended except by a writing signed by both
        Parties. A Party may waive compliance by the other Party with any term or
        provision of this Agreement, or any part thereof; provided that the term
        or
        provision, or part thereof; is for the benefit of the waiving Party. Any
        waiver
        shall be limited to the facts or circumstances giving rise to the noncompliance
        and shall not be deemed either a general waiver or modification with respect
        to
        the term or provision, or part thereof; being waived, or as to any other
        term or
        provision of this Agreement, nor shall it be deemed a waiver of compliance
        with
        respect to any other facts or circumstances then or thereafter
        occurring.

      

      13. Mediation
        and Legal Actions.

      

      If
        a
        dispute arises out of or related to this Agreement or its breach arid if
        the
        dispute cannot be settled through direct discussions, then the Company and
        the
        Executive agree first to endeavor to settle the dispute in an amicable manner
        by
        mediation, under the applicable provisions of Sec. 154.001 et seq. Texas
        Civil
        Practices & Remedies Code, as supplemented by the mediation rules of the
        American Arbitration Association, before having recourse to any other proceeding
        or forum. If any Party to this Agreement brings legal action to enforce the
        terms of this Agreement against another Party to this Agreement, except as
        may
        otherwise be ordered by the court or other forum, each such Party shall be
        liable for his or its own expenses incurred in such legal action including
        costs
        of court or other forum and the fees and expenses of counsel.

      

      14. Notices.

      

      Any
        notice given hereunder shall be in writing and shall be deemed given when
        delivered personally or by courier, or five days after being mailed, certified
        or registered mail, duly addressed to the Party concerned at the address
        indicated below or at such other address as such Party may subsequently
        provide:

      

      
        	 	
                To
                  the Company:

              	
                Lufkin
                  Industries, Inc.

                601
                  South Raguet

                Lufkin,
                  Texas 75901

                Attn:
                  Secretary

              
	 	
                with
                  a copy to:

              	
                ________________

                Andrews
                  Kurth, LLP

                ________________

                ________________

              
	 	
                 

                To
                  the Executive:

              	
                 

                Mr.
                  Douglas W. Smith

                2210
                  Copeland Street

                Lufkin,
                  Texas 75901

              

      

      

      15. Severability.

      

      In
        the
        event that any provision or portion of this Agreement shall be determined
        to be
        invalid or unenforceable for any reason, the remaining provisions or portions
        of
        this Agreement shall be unaffected thereby and shall remain in full force
        and
        effect to the fullest extent permitted by law.

      

      16. Survivorship.

      

      The
        respective rights and obligations of the Parties hereunder shall survive
        any
        termination of this Agreement to the extent necessary to the intended
        preservation of such rights and obligations.

      

      17. References.

      

      In
        the
        event of the Executive’s death or a judicial determination of his incompetence,
        reference in this Agreement to the Executive shall be deemed, where appropriate,
        to refer to his legal representative or, where appropriate, to his beneficiary
        or beneficiaries.

      

      18. Governing
        Law.

      

      THIS
        AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE
        WITH
        THE LAWS OF THE STATE OF TEXAS WITHOUT REFERENCE TO THE PRINCIPLES OF CONFLICTS
        OF LAW.

      

      19. Legal
        Fees.

      

      The
        Company promptly shall reimburse the Executive for all of his reasonable
        legal
        fees and expenses incurred in connection with the negotiation and documentation
        of this Agreement.

      

      20. Mitigation.

      

      In
        no
        event shall the Executive be obligated to seek other employment or take any
        other action by way of mitigation of the amounts payable to the Executive
        under
        any of the provisions of this Agreement.

      

      21. Headings.

      

      The
        headings of paragraphs contained in this Agreement are for convenience only
        and
        shall not be deemed to control or affect the meaning or construction of any
        provision of this Agreement.

      

      22. Counterparts.

      

      This
        Agreement may be executed in one or more counterparts.

      

      IN
        WITNESS WHEREOF,
        the
        Parties have executed this Agreement effective for all purposes as the date
        first written above.

       

      

        
          	 	
                  LUFKIN
                    INDUSTRIES, INC.

                   

                   

                
	 	
                  By:

                	
                  /s/
                    C. J. Haley, Sr.

                
	 	
                  Name:

                	
                  C.
                    J. Haley, Sr

                
	 	
                  Title:

                   

                   

                	
                  Secretary/Treasurer

                
	 	
                  EXECUTIVE

                   

                   

                
	 	
                  By:

                	
                  /s/
                    Douglas V. Smith

                
	 	
                  Name:

                	
                  Douglas
                    V. Smith

                
	 	
                  Title:

                	
                  President/Chief
                    Executive Officer

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