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SEVERANCE
AGREEMENT
THIS
SEVERANCE AGREEMENT (“Agreement”) is made and
entered into as of May 7, 2008, by and between LUFKIN
INDUSTRIES, INC., a Texas corporation (the
“Company”) and Christopher L. Boone of Lufkin,
Texas (the “Executive”).
WHEREAS,
the Company currently employs the Executive as a Vice
President of the Company; and
WHEREAS,
the board of directors of the Company (the
“Board”) has determined that it is in the best
interests of the Company and its shareholders to provide
certain terms and conditions of the Executive’s
employment upon the occurrence of a “Change in
Control”, as defined below;
NOW,
THEREFORE, in consideration of the premises and mutual
covenants contained herein, and for other consideration
mutually acknowledged, the Company and the Executive (the
“Parties”) agree as follows:
1.
Term .
The
term of this Agreement (the “Term”) shall commence
on the date first set forth above (the “Start
Date”), and shall continue through December 31, 2010;
provided, however, that on December 31, 2009 and on each
succeeding December 31, the Term shall automatically extend
for one calendar year, unless either party gives written
notice to the contrary at least sixty (60) days prior to the
date the Agreement would otherwise be
extended. Notwithstanding the above, if the
Executive’s employment terminates for any reason prior
to a Change in Control then, except as provided in Section
2(c), this Agreement shall terminate.
2.
Employment .
(a)
If,
during the Term, a Change in Control occurs while the Executive is
employed by the Company, the Company shall continue to employ the
Executive, and the Executive shall remain in employment, subject to
this Agreement, for the period commencing on the Effective Date (as
defined below) and ending on the earlier of (A) the second
anniversary of such date, or (B) the first day of the month
coinciding with or next following the Executive’s Normal
Retirement Date (the “Protection Period”).
(b)
For
purposes of this Agreement, the Effective Date shall be the date on
which occurs the earliest of the following events, each of which is
hereinafter referred as a “Change in
Control”:
(i)
any
“person,” as such term is used in Section 13(d) and
14(d) of 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, 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 65% 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 35% 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.
(c)
If
the Executive’s employment with the Company is terminated
other than for Cause prior to a date on which a Change in Control
occurs or if the Executive’s employment with the Company is
affected prior to the date on which a Change in Control occurs in a
way which if occurring after a Change in Control would constitute
Good Reason (as defined in Section 4.4(b) of this Agreement), and
it is reasonably demonstrated that such termination or effect (1)
was at the request of a third party who had taken steps reasonably
calculated to effect a Change in Control or (2) otherwise arose in
connection with or anticipation of a Change in Control, then both
the Change in Control and the Effective Date shall be deemed to
have occurred on the date immediately prior to such termination of
employment or effect upon the Executive’s employment and the
Executive’s rights shall be as determined under Section 4.4
below on such basis.
3.
Terms of Employment .
(a)
Position and Duties .
(i)
During
the Protection Period, (A) the Executive’s position
(including status, offices, titles and reporting requirements),
authority, duties and responsibilities shall be at least
commensurate in all material respects with the most significant of
those held, exercised and assigned at any time during the 90-day
period immediately preceding the Effective Date and (B) the
Executive’s services shall be performed at the location where
the Executive was employed immediately preceding the Effective
Date, or any office or location less than thirty-five (35) miles
from such location.
(ii)
During
the Protection Period, and excluding any periods of vacation and
sick leave to which the Executive is entitled, the Executive agrees
to devote reasonable attention and time during normal business
hours to the business and affairs of the Company and, to the extent
necessary to discharge the responsibilities assigned to the
Executive hereunder, to use the Executive’s reasonable best
efforts to perform faithfully and efficiently such
responsibilities. During the Protection Period it shall
not be a violation of this Agreement for the Executive to (A) serve
on corporate, civic or charitable boards or committees, (B) deliver
lectures, fulfill speaking engagements or teach at educational
institutions and (C) manage personal investments, so long as such
activities do not significantly interfere with the performance of
the Executive’s responsibilities as an executive of the
Company in accordance with this Agreement. It is
expressly understood and agreed that to the extent that any such
activities have been conducted by the Executive prior to the
Effective Date, the continued conduct of such activities (or the
conduct of activities similar in nature and scope thereto),
subsequent to the Effective Date shall not thereafter be deemed to
interfere with the performance of the Executive’s
responsibilities to the Company.
(b)
Compensation .
(i)
Base Salary . During the Protection Period the
Executive shall receive a base salary (“Base Salary”)
at a monthly rate at least equal to the highest monthly base salary
paid or payable to the Executive by the Company during the
thirty-six month period immediately preceding the month in which
the Effective Date occurs. During the Protection Period,
the Base Salary shall be reviewed at least annually and shall be
increased at any time and from time to time as shall be
substantially consistent with increases in base salary awarded in
the ordinary course of business to other key executives of the
Company and its subsidiaries. Any increase in Base
Salary shall not serve to limit or reduce any other obligation to
the Executive under this Agreement. Base Salary shall
not be reduced after any such increase.
(ii)
Annual Bonus . In addition to Base Salary, the
Executive shall be awarded, for each fiscal year during the
Protection Period, an annual bonus (an “Annual Bonus”)
in cash at least equal to the highest bonus payable to the
Executive from the Company and its subsidiaries in respect of the
three fiscal years immediately preceding the fiscal year in which
the Effective Date occurs.
(iii)
Incentive, Savings and Retirement Plans . In
addition to Base Salary and Annual Bonus payable as hereinafter
provided, the Executive shall be entitled to participate during the
Protection Period in all incentive, savings and retirement plans,
practices, policies and programs applicable to other key executives
of the Company and its subsidiaries, in each case providing
benefits which are the economic equivalent to those in effect or as
subsequently amended. Such plans, practices, policies
and programs, in the aggregate, shall provide the Executive with
compensation, benefits and reward opportunities at least as
favorable as the most favorable of such compensation, benefits and
reward opportunities provided by the Company for the Executive
under such plans, practices, policies and programs as in effect at
any time during the 90-day period immediately preceding the
Effective Date or, if more favorable to the Executive, as provided
at any time thereafter with respect to other key executives of the
Company and its subsidiaries.
(iv)
Welfare Benefit Plans . During the Protection
Period, the Executive and/or the Executive’s family, as the
case may be, shall be eligible for participation in and shall
receive all benefits under welfare benefit plans, practices,
policies and programs provided by the Company and its subsidiaries,
at least as favorable as the most favorable of such plans,
practices, policies and programs in effect at any time during the
90-day period immediately preceding the Effective Date or, if more
favorable to the Executive and/or the Executive’s family, as
in effect at any time thereafter with respect to other key
executives of the Company and its subsidiaries.
(v)
Expenses . During the Protection Period, the
Executive shall be entitled to receive prompt reimbursement for all
reasonable expenses incurred by the Executive in accordance with
the most favorable policies, practices and procedures of the
Company and its subsidiaries in effect at any time during the
90-day period immediately preceding the Effective Date or, if more
favorable to the Executive, as in effect at any time thereafter
with respect to other key executives of the Company and its
subsidiaries.
(vi)
Fringe Benefits . During the Protection Period,
the Executive shall be entitled to fringe benefits in accordance
with the most favorable plans, practices, programs and policies of
the Company and its subsidiaries in effect at any time during the
90-day period immediately preceding the Effective Date or, if more
favorable to the Executive, as in effect at any time thereafter
with respect to other key executives of the Company and its
subsidiaries.
(vii)
Office and Support Staff . During the Protection
Period, the Executive shall be entitled to an office or offices of
a size and with furnishing and other appointments, and to
secretarial and other assistance, at least equal to the most
favorable of the foregoing provided to the Executive by the Company
and its subsidiaries at any time during the 90-day period
immediately preceding the Effective Date or, if more favorable to
the Executive, as provided at any time thereafter with respect to
other key executives of the Company and its
subsidiaries.
(viii)
Vacation . During the Protection Period, the
Executive shall be entitled to paid vacation in accordance with the
most favorable plans, policies, programs and practices of the
Company and its subsidiaries as in effect at any time during the
90-day period immediately preceding the Effective Date or, if more
favorable to the Executive, as in effect at any time thereafter
with respect to other key executives of the Company and its
subsidiaries.
4.
Termination of Employment .
The
Executive’s employment is subject to termination during
the Protection Period only as provided in this Section
4.
4.1
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, this
Agreement shall terminate without further obligations to the
Executive or in the case of the Executive’s death to the
Executive’s legal representatives under this Agreement,
other than those obligations accrued or earned and vested (if
applicable) by the Executive as of the date of termination of
employment (the “Termination Date”), including,
for this purpose (i) the Executive’s full Base Salary
through the Termination Date at the rate in effect on the
Termination Date or, if higher, at the highest rate in effect
at any time from the 90-day period preceding the Effective
Date through the Termination Date (the “Highest Base
Salary”), (ii) the product of (A) the Annual Bonus, if
any, paid to the Executive for the last full fiscal year and
(B) a fraction, the numerator of which is the number of days
in the current fiscal year through the Termination Date, and
the denominator of which is 365, and (iii) any compensation
previously deferred by the Executive (together with any
accrued interest or other earnings thereon), and not yet paid
by the Company and any accrued vacation pay not yet paid by
the Company (such amounts specified in clauses (i), (ii) and
(iii) are hereinafter referred to as “Accrued
Obligations”). All such Accrued Obligations
shall be paid to the Executive or in the event of the
Executive’s death to the Executive’s estate or
beneficiary, as applicable, in a lump sum in cash within
thirty (30) days of the Termination Date. Anything
in this Agreement to the contrary notwithstanding, the
Executive, or the Executive’s family as appropriate,
shall be entitled to receive benefits at least equal to the
most favorable benefits provided by the Company and any of its
subsidiaries under all plans, programs, practices and policies
relating to disability or family death benefits, as
applicable, if any, in accordance with the most favorable
plans, programs, practices and policies of the Company and its
subsidiaries in effect at any time during the 90-day period
immediately preceding the Effective Date or, if more favorable
to the Executive and/or the Executive’s family, as in
effect on the date of the Executive’s disability or
death with respect to other key executives of the Company and
its subsidiaries and their families.
4.2
Termination by
the Company for Cause .
If
the Company terminates the Executive’s employment for
Cause, as defined below, the Executive shall be entitled only
to Highest Base Salary and benefits accrued as of the
effective date of such termination plus the amount of any
compensation previously deferred by the Executive (together
with accrued interest or other earnings
thereon). Any other benefits shall be determined
under applicable plans, programs or other coverages maintained
by the Company. For purposes of this Agreement, the
term “Cause” shall mean:
(i)
an
act or acts of personal dishonesty taken by the Executive and
intended to result in substantial personal enrichment of the
Executive at the expense of the Company;
(ii)
repeated
violations by the Executive of the Executive’s obligations
under Section 3 of this Agreement which are demonstrably willful
and deliberate on the Executive’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 Executive of, or plea of nolo contendere by the
Executive to, a felony.
The
Executive 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
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