EXHIBIT 10.4
SMITH INTERNATIONAL, INC.
RESTRICTED STOCK UNIT AGREEMENT
     THIS RESTRICTED STOCK UNIT AGREEMENT (this “Agreement”) is made and entered
into by and between Smith International, Inc., a Delaware corporation (the
“Company”) and «Full_Legal_Name», an individual and employee of the Company
(“Grantee”), on the «Grant_Date» day of «Grant_Date», 2005 (the “Grant Date”),
subject to the terms and provisions of the Smith International, Inc., 1989
Long-Term Incentive Compensation Plan, as amended and restated effective
January 1, 2005 (the “Plan”). The Plan is hereby incorporated herein in its
entirety by this reference. Capitalized terms not otherwise defined in this
Agreement shall have the meaning given to such terms in the Plan.
     WHEREAS, Grantee is an employee of the Company, and in connection
therewith, the Company desires to grant to Grantee restricted stock units
(“Units”), subject to the terms and conditions of this Agreement and the Plan,
with a view to increasing Grantee’s interest in the Company’s success and
growth; and
     WHEREAS, Grantee desires to be the holder of such Units subject to the
terms and conditions of this Agreement;
     NOW, THEREFORE, in consideration of the premises, mutual covenants and
agreements contained herein, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto,
intending to be legally bound hereby, agree as follows:
     1. Grant of Units. Subject to the terms and conditions of this Agreement
and the Plan, the Company hereby grants to Grantee «Shares_Granted»
(«Shares_Granted») Units. On any date, the value of each Unit shall be the Fair
Market Value of one share of the Company’s Common Stock (“Share”), $1.00 par
value, as determined pursuant to the Plan. Each Unit represents an unsecured
promise of the Company to deliver Shares to the Grantee pursuant to the terms
and conditions of the Plan and this Agreement. As a holder of Units, the Grantee
has only the rights of a general unsecured creditor of the Company.
     2. Transfer Restrictions. Grantee shall not sell, assign, transfer,
exchange, pledge, encumber, gift, devise, hypothecate or otherwise dispose of
(collectively, “Transfer”) any Units granted hereunder. Any purported Transfer
of Units in breach of this Agreement shall be void and ineffective, and shall
not operate to Transfer any interest or title in the purported transferee.
     3. Vesting and Payment of Units.
          (a) Vesting Generally. Grantee’s interest in the Units granted
hereunder shall vest in accordance with the following schedule, conditioned on
Grantee’s continued employment with the Company as of each such vesting date
(the “Vesting Date”), except as provided in Section 4 hereof.

          Vesting Date   Vested %
«Vest_Date1»
    25 %
«Vest_Date2»
    25 %
«Vest_Date3»
    25 %
«Vest_Date4»
    25 %
Total
    100 %

          (b) Settlement of Units. Subject to Section 6 hereof, the Company
shall grant to Grantee within thirty (30) days after each Vesting Date, or such
other date upon which Units become vested as provided in this Agreement, a
number of Shares equal to the number of such vested Units (provided Grantee has
not terminated employment prior to such Vesting Date), unless otherwise provided
under Section 4 hereof. Each vested Unit shall thus be exchanged by the Company
for one Share, and such Unit shall be cancelled as of the effective time of such
exchange as reflected on the Company’s stock records. All Shares delivered to or
on behalf of Grantee in exchange for vested Units shall be free of any further
vesting, transfer or other restrictions, except as may otherwise be required by
securities law or other applicable law as determined by the Company.
          (c) Dividends, Splits and Voting Rights. If the Company (i) declares a
stock dividend or makes a distribution on Common Stock in Shares,
(ii) subdivides or reclassifies outstanding Shares into a greater number of
Shares or

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(iii) combines or reclassifies outstanding Shares into a smaller number of
Shares, then the number of Units granted under this Agreement shall be
proportionately increased or reduced, as applicable, so as to prevent the
enlargement or dilution of Grantee’s rights and duties hereunder. The
determination of the Compensation and Benefits Committee (the “Committee”) of
the Company’s Board of Directors regarding such adjustments shall be binding.
Until such time as Shares are actually delivered to Grantee in exchange for
vested Units pursuant to Section 3(b) (above), Grantee shall have no voting,
dividend or other ownership rights in such Shares.
     4. Forfeiture.
          (a) Termination Due to Death or Disability. If Grantee’s employment
with the Company is terminated due to death or Disability of the Grantee, then,
in either such event, all outstanding Units hereunder shall become fully vested
as of such termination date and payable to Grantee in Shares within thirty
(30) days of such date.
          For purposes of this Section 4(a), “Disability” means, as determined
by the Committee in its discretion exercised in good faith, a physical or mental
condition of the Grantee that would entitle Grantee to payment of disability
income payments under the Company’s long-term disability insurance policy or
plan for employees, as then effective, if any; or in the event that the Grantee
is not covered, for whatever reason, under the Company’s long-term disability
insurance policy or plan, “Disability” means a permanent and total disability as
defined in Section 22(e)(3) of the Internal Revenue Code of 1986, as amended
(the “Code”). A determination of Disability may be made by a physician selected
or approved by the Committee and, in this respect, the Grantee must submit to
any reasonable examination(s) required by such physician upon request in order
to render an opinion regarding whether there is a Disability. This definition of
Disability shall be construed in accordance with the meaning given such term
under the Code with respect to a termination of Employment due to Disability for
a “Key Employee” as defined in Code Section 409A.
          (b) Termination Other than Death or Disability. If Grantee’s
employment with the Company is voluntarily or involuntarily terminated by the
Company or Grantee for any reason other than due to death or Disability, then
Grantee shall immediately forfeit all Units which are not already vested as of
such date. Upon the forfeiture of any Units hereunder, the Grantee shall cease
to have any rights in connection with such Units as of the date of such
forfeiture. A transfer of employment by the Grantee, without an interruption of
employment service, between or among the Company and any parent or subsidiary of
the Company, shall not be considered a termination of employment for purposes of
this Agreement.
     5. Grantee’s Representations. Notwithstanding any provision hereof to the
contrary, the Grantee hereby agrees and represents that Grantee will not acquire
any Shares, and that the Company will not be obligated to issue any Shares to
the Grantee hereunder, if the issuance of such Shares constitutes a violation by
the Grantee or the Company of any law or regulation of any governmental
authority. Any determination in this regard that is made by the Committee, in
good faith, shall be final and binding. The rights and obligations of the
Company and the Grantee are subject to all applicable laws and regulations.
     6. Tax Withholding. To the extent that the receipt of Shares hereunder
results in compensation income to Grantee for federal, state or local income tax
purposes, the Company, in its complete discretion, is authorized to
(a) withhold, at such time as determined by the Company, from any cash or other
remuneration (including withholding from delivery to Grantee a number of Shares,
based on the market value of such Shares, as of the applicable Vesting Date), or
a combination thereof, then or thereafter payable to Grantee, the sum that the
Company requires to meet its tax withholding obligations under applicable law or
regulation (the “Withholding Liability”); (b) require Grantee to pay an amount,
at such time as the Company shall specify, equal to the Withholding Liability in
cash, by certified or cashier’s check payable to the Company, or in any other
form acceptable to the Company; or (c) cause a sale or sales of Shares on behalf
of Grantee pursuant to which all or a portion of the proceeds are paid to the
Company to satisfy the Withholding Liability and all remaining proceeds (if any)
are delivered to Grantee, and Grantee agrees to take all such action as may be
necessary or appropriate to effect such sales. Further, the Company’s obligation
to deliver vested Shares, or any stock certificate or certificates representing
vested Shares, to Grantee shall be subject to, and conditioned upon, payment of
the Withholding Liability.
     7. Miscellaneous.
          (a) No Fractional Shares. All provisions of this Agreement concern
whole Shares. If the application of any provision hereunder would yield a
fractional Share, such fractional Share shall be rounded down to the next whole
Share.

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          (b) Not an Employment Agreement. This Agreement is not an employment
agreement, and no provision of this Agreement shall be construed or interpreted
to create any employment relationship between Grantee and the Company for any
time period. The employment of Grantee with the Company shall be subject to
termination to the same extent as if this Agreement had not been executed.
          (c) Dispute Resolution. Any dispute or controversy arising out of or
relating to this Agreement, or any breach hereof, shall be resolved by binding
arbitration in accordance with (i) the Commercial Arbitration Rules (the
“Rules”) of the American Arbitration Association (“AAA”) before a single
arbitrator (unless otherwise mutually agreed by the parties) as selected
pursuant to the Rules and (ii) the Federal Arbitration Act. Judgment on any
award rendered by the arbitrator may be entered in any court of competent
jurisdiction. The venue for any arbitration proceeding shall be in Harris or
Montgomery County, Texas, except if otherwise mutually agreed by the parties.
The fees of the AAA and the arbitrator shall be split equally by the parties.
All other costs and expenses, including attorneys’ fees, relating to the
resolution of any such dispute shall be borne by the party incurring such costs
and expenses.
          (d) Notices. Any notice, instruction, authorization, request or demand
required hereunder shall be in writing, and shall be delivered either by
personal delivery, by telegram, telex, telecopy or similar facsimile means, by
certified or registered mail, return receipt requested, or by courier or
delivery service, addressed to the Company at its then current main corporate
address, and to Grantee at his address indicated on the Company’s records, or at
such other address and number as a party has previously designated by written
notice given to the other party in the manner hereinabove set forth. Notices
shall be deemed given when received, if sent by facsimile means (confirmation of
such receipt by confirmed facsimile transmission being deemed receipt of
communications sent by facsimile means); and when delivered and receipted for
(or upon the date of attempted delivery where delivery is refused), if
hand-delivered, sent by express courier or delivery service, or sent by
certified or registered mail, return receipt requested.
          (e) Amendment, Termination and Waiver. This Agreement may be amended,
modified, terminated or superseded only by written instrument executed by or on
behalf of the Company and by Grantee. Any waiver of the terms or conditions
hereof shall be made only by a written instrument executed and delivered by the
party waiving compliance. Any waiver granted by the Company shall be effective
only if executed and delivered by a duly authorized executive officer of the
Company other than Grantee. The failure of any party at any time or times to
require performance of any provisions hereof shall in no manner affect the right
to enforce the same. No waiver by any party of any term or condition herein, or
the breach thereof, in one or more instances shall be deemed to be, or construed
as, a further or continuing waiver of any such condition or breach or a waiver
of any other condition or the breach of any other term or condition.
          (f) Governing Law and Severability. This Agreement shall be governed
by the internal laws, and not the laws of conflict, of the State of Texas. The
invalidity of any provision of this Agreement shall not affect any other
provision of this Agreement, which shall remain in full force and effect.
          (g) Successors and Assigns. This Agreement shall bind, be enforceable
by, and inure to the benefit of, the Company and its successors and assigns, and
Grantee and Grantee’s permitted assigns under the Plan in the event of death or
Disability.
     IN WITNESS WHEREOF, this Restricted Stock Unit Agreement is approved,
granted and executed as of the date first written above.

              SMITH INTERNATIONAL, INC.
 
  By:    
 
       
 
  Name:    
 
       
 
  Title:    
 
       
 
       
 
  GRANTEE:    
 
            «Full_Legal_Name»
 
                  Signature
 
                  Print Name

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