Lufkin Industries, Inc. Supplemental Retirement Plan as amended

(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.

(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.

By:

/s/ C J Haley, Jr.

Title:

Secretary - Treasurer

(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.”

/s/ R E Myers.

By:

/s/ C J Haley, Jr.

Assistant Secretary

Title:

Secretary - Treasurer

“(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.”

(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.”

(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.”

/s/ P G Perez

By:

/s/ R D Leslie

Secretary

Title:

Vice President/Treasurer/Chief Financial Officer

(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.

“(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.”

/s/ P G Perez

By:

/s/ R D Leslie

Secretary

Title:

Vice President/Treasurer/Chief Financial Officer