EXHIBIT 10.1
[AMENDED AND RESTATED] CHANGE-OF-CONTROL EMPLOYMENT AGREEMENT
AGREEMENT, effective as of the 1st day of January, 2009, by and between Smith
International, Inc., a Delaware Corporation (the “Company”) and [          ]
(the “Executive”).
[WHEREAS, the Executive and the Company are parties to that certain
change-of-control employment agreement dated [      ] (the “Original
Agreement”); and
WHEREAS, the Executive and the Company desire to amend and restate the Original
Agreement; 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 assure
that the Company will have the continued dedication of the Executive,
notwithstanding the possibility, threat or occurrence of a Change of Control (as
defined below) of the Company. The Board believes it is imperative to diminish
the inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change of Control and
to encourage the Executive’s full attention and dedication to the Company
currently and in the event of any threatened or pending Change of Control, and
to provide the Executive with compensation and benefits arrangements upon a
Change of Control which ensure that the compensation and benefits expectations
of the Executive will be satisfied and which are competitive with those of other
corporations. Therefore, in order to accomplish these objectives, the Board has
caused the Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
                    Certain Definitions. (a) The “Effective Date”, shall mean
the first date during the Change of Control Period (as defined in Section l (b))
on which a Change of Control (as defined in Section 2) occurs. Anything in this
Agreement to the contrary notwithstanding, if a Change of Control occurs and if
the Executive’s employment with the Company is terminated by the Company within
the 12 months prior to the date on which the Change of Control occurs, which
Change of Control is a “change in control event” within the meaning of
Section 409A of the Code, and if it is reasonably demonstrated by the Executive
that such termination of employment (i) was at the request of a third party who
has taken steps reasonably calculated to effect such Change of Control or
(ii) otherwise arose in connection with or anticipation of such Change of
Control (such a termination of employment, an “Anticipatory Termination”), then
for all purposes of this Agreement the “Effective Date” shall mean the date
immediately prior to the date of such termination of employment. Notwithstanding
the foregoing, the Executive and the Company acknowledge that, except as may
otherwise be provided under this Agreement or any other written agreement
between the Executive and the Company, the employment of the Executive by the
Company is “at will.”
                    The “Change of Control Period” shall mean the period
commencing on the date hereof and ending on the third anniversary of the date
hereof; provided, however, that commencing on the date one year after the date
hereof, and on each annual anniversary of such date (such date and each annual
anniversary thereof shall be hereinafter referred to as the “Renewal Date”),
unless previously terminated, the Change of Control Period shall be
automatically extended so as to terminate three years from such Renewal Date,
unless at least 60 days prior to the Renewal Date the Company shall give notice
to the Executive that the Change of Control Period shall not be so extended.
                    Change of Control. For the purpose of this Agreement, a
“Change of Control” shall mean:
                    The acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the “Exchange Act”)) (a “Person”) of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 30% or
more of either (i) the then outstanding shares of common stock of the Company
(the “Outstanding Company Common Stock”) or (ii) the combined voting power of
the then outstanding voting securities of the Company entitled to vote generally
in the election of directors (the “Outstanding Company Voting Securities”);
provided, however, that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change of Control: (i) any acquisition
directly from the Company, (ii) any acquisition by the Company, (iii) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company or
(iv) any acquisition pursuant to a transaction which complies with clauses (i),
(ii) and (iii) of subsection (c) of this Section 2; or
                    Individuals who, as of the date hereof, constitute the Board
(the “Incumbent Board”) cease for any reason to constitute at least a majority
of the Board; provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination for election by the
Company’s shareholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as though such
individual was a member of the Incumbent Board, but excluding, for this purpose,
any such individual whose initial assumption of office occurs as a result of an
actual or threatened election contest with respect to the election or removal of
directors or other actual or threatened solicitation of proxies or consents by
or on behalf of a Person other than the Board; or

 

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                    Consummation of a reorganization, merger, statutory share
exchange or consolidation or similar transaction involving the Company or any of
its subsidiaries, a sale or other disposition of all or substantially all of the
assets of the Company, or the acquisition of assets or stock of another entity
by the Company or any of its subsidiaries (each, a “Business Combination”), in
each case, unless, following such Business Combination, (i) all or substantially
all of the individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and Outstanding Company
Voting Securities immediately prior to such Business Combination beneficially
own, directly or indirectly, more than 60 % of, respectively, the then
outstanding shares of common stock (or, for a non-corporate entity, equivalent
securities) and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors (or, for a
non-corporate entity, equivalent securities), as the case may be, of the
corporation resulting from such Business Combination (including, without
limitation, an entity which as a result of such transaction owns the Company or
all or substantially all of the Company’s assets either directly or through one
or more subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination, of the Outstanding Company
Common Stock and Outstanding Company Voting Securities, as the case may be,
(ii) no Person (excluding any entity resulting from such Business Combination or
any employee benefit plan (or related trust) of the Company or such entity
resulting from such Business Combination) beneficially owns, directly or
indirectly, 30% or more of, respectively, the then outstanding shares of common
stock (or, for a non-corporate entity, equivalent securities) of the entity
resulting from such Business Combination or the combined voting power of the
then outstanding voting securities (or, for a non-corporate entity, equivalent
securities) of such entity except to the extent that such ownership existed
prior to the Business Combination and (iii) at least a majority of the members
of the board of directors (or, for a non-corporate entity, equivalent governing
body) of the entity resulting from such Business Combination were members of the
Incumbent Board at the time of the execution of the initial agreement, or of the
action of the Board, providing for such Business Combination; or
                    Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
                    Employment Period. The Company hereby agrees to continue the
Executive in its employ, and the Executive hereby agrees to remain in the employ
of the Company subject to the terms and conditions of this Agreement, for the
period commencing on the Effective Date and ending on the third anniversary of
such date (the “Employment Period”).
                    Terms of Employment. (a) Position and Duties. (i) During the
Employment 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 120-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 35 miles from
such location.
                    During the Employment 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 Employment 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 employee 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.
                    Compensation. (i) Base Salary. During the Employment Period,
the Executive shall receive an annual base salary (“Annual Base Salary”), which
shall be paid at a monthly rate, at least equal to 12 times the highest monthly
base salary paid or payable, including any base salary which has been earned but
deferred, to the Executive by the Company and its affiliated companies in
respect of the twelve-month period immediately preceding the month in which the
Effective Date occurs. During the Employment Period, the Annual Base Salary
shall be reviewed no more than 12 months after the last salary increase awarded
to the Executive prior to the Effective Date and thereafter at least annually.
Any increase in Annual Base Salary shall not serve to limit or reduce any other
obligation to the Executive under this Agreement. Annual Base Salary shall not
be reduced after any such increase and the term Annual Base Salary as utilized
in this Agreement shall refer to Annual Base Salary as so increased. As used in
this Agreement, the term “affiliated companies” shall include any company
controlled by, controlling or under common control with the Company.
                    Annual Bonus. In addition to Annual Base Salary, the
Executive shall be awarded, for each fiscal year ending during the Employment
Period, an annual bonus (the “Annual Bonus”) in cash (i) under the Company’s
annual incentive plan based upon meeting the targets in the Annual Incentive
Plan, provided that the Executive’s target bonus percentage shall be at least
equal to the Executive’s target bonus percentage for the fiscal year prior to
the Effective Date or equal to an increase in the target bonus percentage given
to any similarly situated executive after the Effective Date, or, if higher,
(ii) under any annual incentive plan or discretionary award by the Company to
similarly situated executives which is enacted or approved after the Effective
Date. Each

 

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such Annual Bonus shall be paid no later than two and a half months after the
end of the fiscal year next following the fiscal year for which the Annual Bonus
is awarded, unless the Executive shall elect to defer the receipt of such Annual
Bonus pursuant to an arrangement that meets the requirements of Section 409A of
the Internal Revenue Code of 1986, as amended (the “Code”).
                    Incentive, Savings and Retirement Plans. During the
Employment Period, the Executive shall be entitled to participate in all
incentive, savings and retirement plans, practices, policies and programs
applicable generally to other peer executives of the Company and its affiliated
companies, but in no event shall such plans, practices, policies and programs
provide the Executive with incentive opportunities (measured with respect to
both regular and special incentive opportunities, to the extent, it any, that
such distinction is applicable), savings opportunities and retirement benefit
opportunities, in each case, less favorable, in the aggregate, than the most
favorable of those provided by the Company and its affiliated companies for the
Executive under such plans, practices, policies and programs as in effect at any
time during the 120-day period immediately preceding the Effective Date or if
more favorable to the Executive, those provided generally at any time after the
Effective Date to other peer executives of the Company and its affiliated
companies.
                    Welfare Benefit Plans. During the Employment 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 affiliated
companies (including, without limitation, medical, prescription, dental,
disability, employee life, group life, accidental death and travel accident
insurance plans and programs) to the extent applicable generally to other peer
executives of the Company and its affiliated companies, but in no event shall
such plans, practices, policies and programs provide the Executive with benefits
which are less favorable, in the aggregate, than the most favorable of such
plans, practices, policies and programs in effect for the Executive at any time
during the 120-day period immediately preceding the Effective Date or, if more
favorable to the Executive, those provided generally at any time after the
Effective Date to other peer executives of the Company and its affiliated
companies.
                    Expenses. During the Employment 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 affiliated companies in effect for the
Executive at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive, as in effect generally at
any time thereafter with respect to other peer executives of the Company and its
affiliated companies.
                    Fringe Benefits. During the Employment Period, the Executive
shall be entitled to fringe benefits, including, without limitation, tax and
financial planning services, payment of club dues, and, if applicable, use of an
automobile and payment of related expenses, in accordance with the most
favorable plans, practices, programs and policies of the Company and its
affiliated companies in effect for the Executive at any time during the 120-day
period immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies.
                    Office and Support Staff. During the Employment Period, the
Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to exclusive personal secretarial and
other assistance, at least equal to the most favorable of the foregoing provided
to the Executive by the Company and its affiliated companies at any time during
the 120-day period immediately preceding the Effective Date or, if more
favorable to the Executive, as provided generally at any time thereafter with
respect to other peer executives of the Company and its affiliated companies.
                    Vacation. During the Employment 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 affiliated companies as
in effect for the Executive at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other peer executives of
the Company and its affiliated companies.
                    Termination of Employment. (a) Death or Disability. The
Executive’s employment shall terminate automatically upon the Executive’s death
during the Employment Period. If the Company determines in good faith that the
Disability of the Executive has occurred during the Employment Period (pursuant
to the definition of Disability set forth below), it may give to the Executive
written notice in accordance with Section 12(b) of this Agreement of its
intention to terminate the Executive’s employment. In such event, the
Executive’s employment with the Company shall terminate effective on the 30th
day after receipt of such notice by the Executive (the “Disability Effective
Date”), provided that, within the 30 days after such receipt, the Executive
shall not have returned to full-time performance of the Executive’s duties. For
purposes of this Agreement, “Disability” shall mean the absence of the Executive
from the Executive’s duties with the Company on a full-time basis for 180
consecutive business days as a result of incapacity due to mental or physical
illness which is determined to be total and permanent by a physician selected by
the Company or its insurers and acceptable to the Executive or the Executive’s
legal representative.
                    Cause. The Company may terminate the Executive’s employment
during the Employment Period for Cause. For purposes of this Agreement, “Cause”
shall mean:

 

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                    the willful and continued failure of the Executive to
perform substantially the Executive’s duties with the Company or one of its
affiliates (other than any such failure resulting from incapacity due to
physical or mental illness), after a written demand for substantial performance
is delivered to the Executive by the Board or the Chief Executive Officer of the
Company which specifically identifies the manner in which the Board or Chief
Executive Officer believes that the Executive has not substantially performed
the Executive’s duties, or
                    the willful engaging by the Executive in illegal conduct or
gross misconduct which is materially and demonstrably injurious to the Company.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered “willful” unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive’s action or omission was in the best interests of the Company. Any
act, or failure to act, based upon (A) authority given pursuant to a resolution
duly adopted by the Board or, if the Company is not the ultimate parent of a
group of affiliated companies and is not publicly-traded, the board of directors
or equivalent governing body of the ultimate parent of the Company (the
“Applicable Board”), [(B) the instructions of the Chief Executive Officer or a
senior officer of the Company]1 or (C) the advice of counsel for the Company
shall be conclusively presumed to be done, or omitted to be done, by the
Executive in good faith and in the best interests of the Company. The cessation
of employment of the Executive shall not be deemed to be for Cause unless and
until there shall have been delivered to the Executive a copy of a resolution
duly adopted by the affirmative vote of not less than three-quarters of the
Applicable Board (excluding the Executive, if the Executive is a member of the
Applicable Board) at a meeting of the Applicable Board called and held for such
purpose (after reasonable notice is provided to the Executive and the Executive
is given an opportunity, together with counsel, to be heard before the
Applicable Board), finding that, in the good faith opinion of the Applicable
Board, the Executive is guilty of the conduct described in subparagraph (i) or
(ii) above, and specifying the particulars thereof in detail.
                    Good Reason. The Executive’s employment may be terminated by
the Executive for Good Reason. For purposes of this Agreement, “Good Reason”
shall mean:
                    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 4(a) of this Agreement, or any other action by the
Company which results in a diminution in such position, authority, duties or
responsibilities (including as a result of the Company’s ceasing to be a
publicly traded entity), 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 notice thereof given by the Executive;
                    any failure by the Company to comply with any of the
provisions of Section 4(b) of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive;
                    the Company’s requiring the Executive to be based at any
office or location other than as provided in Section 4(a)(i)(B) hereof or to
travel on Company business to a substantially greater extent than required
immediately prior to the Effective Date;
                    any purported termination by the Company of the Executive’s
employment otherwise than as expressly permitted by this Agreement; or
                    any failure by the Company to comply with and satisfy
Section 11(c) of this Agreement.
For purposes of this Section 5(c), any good faith determination of “Good Reason”
made by the Executive shall be conclusive. Anything in this Agreement to the
contrary notwithstanding, a termination by the Executive for any reason during
the 30-day period immediately following the first anniversary of the Effective
Date shall be deemed to be a termination for Good Reason for all purposes of
this Agreement. The Executive’s mental or physical incapacity following the
occurrence of any of the circumstances described in clauses (i) through
(v) shall not affect the Executive’s ability to terminate employment for Good
Reason and the Executive’s death following delivery of a Notice of Termination
for Good Reason shall not affect the Executive’s estate’s entitlement to
severance payments and benefits provided hereunder upon a termination of
employment for Good Reason. Notwithstanding anything herein to the contrary, the
Executive’s resignation under this Agreement with or without Good Reason shall
in no way affect the Executive’s ability to terminate employment by reason of
the Executive’s retirement or to be eligible to receive benefits under any
retirement or pension plan of the Company and its affiliates.
                    Notice of Termination. Any termination by the Company for
Cause, or by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 12(b) of
this Agreement. For purposes of this Agreement, a “Notice of Termination” means
a written notice which indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to
 

1   For all but CEO.

 

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provide a basis for termination of the Executive’s employment under the
provision so indicated and (iii) if the Date of Termination (as defined below)
is other than the date of receipt of such notice, specifies the termination date
(which date shall be not more than thirty days after the giving of such notice).
The failure by the Executive or the Company to set forth in the Notice of
Termination any fact or circumstance which contributes to a showing of Good
Reason or Cause shall not waive any right of the Executive or the Company,
respectively, hereunder or preclude the Executive or the Company, respectively,
from asserting such fact or circumstance in enforcing the Executive’s or the
Company’s rights hereunder.
                    Date of Termination. “Date of Termination” means (i) if the
Executive’s employment is terminated by the Company for Cause, or by the
Executive for or without Good Reason, the date of receipt of the Notice of
Termination or any later date specified therein, as the case may be, (ii) if the
Executive’s employment is terminated by the Company other than for Cause or
Disability, the Date of Termination shall be the date on which the Company
notifies the Executive of such termination and (iii) if the Executive’s
employment is terminated by reason of death or Disability, the Date of
Termination shall be the date of death of the Executive or the Disability
Effective Date, as the case may be. Notwithstanding the foregoing, unless
mutually agreed in writing by the Company and the Executive, in no event shall
the Date of Termination occur until the Executive experiences, and the Company
and the Executive shall take all steps necessary (including with regard to any
post-termination services by the Executive) to ensure that any termination
described in this Section 5 constitutes a “separation from service” within the
meaning of Section 409A of the Code, and notwithstanding anything contained
herein to the contrary, the date on which such separation from service takes
place shall be the “Date of Termination.”
                    Obligations of the Company upon Termination. (a) Good
Reason; Other Than for Cause, Death or Disability. If, during the Employment
Period, the Company shall terminate the Executive’s employment other than for
Cause or Disability or the Executive shall terminate employment for Good Reason:
                    the Company shall pay to the Executive in a lump sum in cash
within 30 days after the Date of Termination the aggregate of the following
amounts:
               the sum of (1) the Executive’s Annual Base Salary through the
Date of Termination to the extent not theretofore paid, (2) the product of
(x) the higher of (I) the highest Annual Bonus paid to the Executive for the
last three full fiscal years prior to the Effective Date and (II) the Annual
Bonus paid or payable, including any bonus or portion thereof which has been
earned but deferred (and annualized for any fiscal year consisting of less than
twelve full months or during which the Executive was employed for less than
twelve full months), for the most recently completed fiscal year during the
Employment Period, if any (such higher amount being referred to as the “Highest
Annual Bonus”) and (y) a fraction, the numerator of which is the number of days
in the current fiscal year through the Date of Termination, and the denominator
of which is 365 (the “Pro-Rata Bonus”) and (3) any accrued vacation pay, in each
case to the extent not theretofore paid (the sum of the amounts described in
clauses (1) and (3) shall be hereinafter referred to as the “Accrued
Obligations”); provided, that notwithstanding the foregoing, if the Executive
has made an irrevocable election under any deferred compensation arrangement
subject to Section 409A of the Code to defer any portion of the Annual Base
Salary Bonus described in clause (1) above, then for all purposes of this
Section 6 (including, without limitation, Sections 6(b) through 6(d)), such
deferral election, and the terms of the applicable plan, agreement, or other
arrangement shall apply to the same portion of the amount described in such
clause (1), and such portion shall not be considered as part of the “Accrued
Obligations” but shall instead be an “Other Benefit” (as defined below); and
               the amount equal to the product of (1) the Termination Multiple
(as defined below) and (2) the sum of (x) the Executive’s Annual Base Salary and
(y) the Highest Annual Bonus; and
               an amount equal to the excess of (a) the actuarial equivalent of
the benefit under any excess or supplemental retirement plan in which the
Executive participates (the “SERP”) which the Executive would receive if the
Executive’s employment continued for a number of years after the Date of
Termination equal to the Termination Multiple, assuming for this purpose that
all accrued benefits are fully vested, and, assuming that the Executive’s
compensation in each of such years is that required by Section 4(b)(i) and
Section 4(b)(ii), over (b) the actuarial equivalent of the Executive’s actual
benefit (paid or payable), if any, under the SERP as of the Date of Termination
(the “Additional SERP Payment”);
                    for a number of years after the Executive’s Date of
Termination equal to the Termination Multiple, or such longer period as may be
provided by the terms of the appropriate plan, program, practice or policy (the
“Benefits Continuation Period”), the Company shall continue health care and life
insurance benefits to the Executive and/or the Executive’s family at least equal
to those which would have been provided to them in accordance with the plans,
programs, practices and policies described in Section 4(b)(iv) of this Agreement
if the Executive’s employment had not been terminated or, if more favorable to
the Executive, as in effect generally at any time thereafter with respect to
other peer executives of the Company and its affiliated companies and their
families; provided, however, that, the health care benefits provided during the
Benefit Continuation Period shall be provided in such a manner that such
benefits (and the costs and premiums thereof) are excluded from the Executive’s
income for federal income tax

 

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purposes and, if the Company reasonably determines that providing continued
coverage under one or more of its health care benefit plans contemplated herein
could be taxable to the Executive, the Company shall provide such benefits at
the level required hereby through the purchase of individual insurance coverage;
provided, however, that if the Executive becomes reemployed with another
employer and is eligible to receive medical or other welfare benefits under
another employer provided plan, the medical and other welfare benefits described
herein shall be secondary to those provided under such other plan during such
applicable period of eligibility. For purposes of determining eligibility (but
not the time of commencement of benefits) of the Executive for retiree benefits
pursuant to such plans, practices, programs and policies, the Executive shall be
considered to have remained employed until a number of years after the Date of
Termination equal to the Termination Multiple and to have retired on the last
day of such period and the Company shall take such actions as are necessary to
cause the Executive to commence in the applicable retiree benefit plans as of
the applicable benefit commencement date;
                    the Company shall, at its sole expense as incurred, provide
the Executive with outplacement services the scope and provider of which shall
be selected by the Executive in his sole discretion; provided, that such
outplacement benefits shall end not later than the last day of the second
calendar year that begins after the Date of Termination; and
                    to the extent not theretofore paid or provided, the Company
shall timely pay or provide to the Executive any other amounts or benefits
required to be paid or provided or which the Executive is eligible to receive
under any plan, program, policy or practice or contract or agreement of the
Company and its affiliated companies (such other amounts and benefits shall be
hereinafter referred to as the “Other Benefits”).
Notwithstanding the foregoing provisions of Section 6(a)(i), and except as
otherwise provided in Section 12(h) with respect to an Anticipatory Termination,
in the event that the Executive is a “specified employee” within the meaning of
Section 409A of the Code (as determined in accordance with the methodology
established by the Company as in effect on the Date of Termination) (a
“Specified Employee”), amounts that constitute “nonqualified deferred
compensation” within the meaning of Section 409A of the Code and that would
otherwise be payable under this Section 6(a)(i) during the six-month period
immediately following the Date of Termination (other than the Accrued
Obligations) shall instead be paid, with interest on any delayed payment at the
applicable federal rate provided for in Section 7872(f)(2)(A) of the Code
(“Interest”), or provided on the first business day after the date that is six
months following the Executive’s “separation from service” within the meaning of
Section 409A of the Code (the “Delayed Payment Date”).
For purposes of this Section 6, “Termination Multiple” shall mean (x) three, if
the Date of Termination occurs on or prior to the first anniversary of the
Effective Date, (y) two, if the Date of Termination occurs after the first
anniversary of the Effective Date and on or prior to the second anniversary of
the Effective Date and (z) one, if the Date of Termination occurs after the
second anniversary of the Effective Date and on or prior to the third
anniversary of the Effective Date.
                    Death. If the Executive’s employment is terminated by reason
of the Executive’s death during the Employment Period, this Agreement shall
terminate without further obligations to the Executive’s legal representatives
under this Agreement, other than for payment of Accrued Obligations, payment of
the Pro-Rata Bonus and the timely payment or provision of Other Benefits.
Accrued Obligations (subject to the proviso set forth in Section 6(a)(i)(A) to
the extent applicable) and the Pro-Rata Bonus shall be paid to the Executive’s
estate or beneficiary, as applicable, in a lump sum in cash within 30 days of
the Date of Termination. With respect to the provision of Other Benefits, the
term Other Benefits as utilized in this Section 6(b) shall include, without
limitation, and the Executive’s estate and/or beneficiaries shall be entitled to
receive, benefits at least equal to the most favorable benefits provided by the
Company and affiliated companies to the estates and beneficiaries of peer
executives of the Company and such affiliated companies under such plans,
programs, practices and policies relating to death benefits, if any, as in
effect with respect to other peer executives and their beneficiaries at any time
during the 120-day period immediately preceding the Effective Date or, if
more-favorable to the Executive’s estate and/or the Executive’s beneficiaries,
as in effect on the date of the Executive’s death with respect to other peer
executives of the Company and its affiliated companies and their beneficiaries.
                    Disability. If the Executive’s employment is terminated by
reason of the Executive’s Disability during the Employment Period, this
Agreement shall terminate without further obligations to the Executive, other
than for payment of Accrued Obligations and the timely payment or provision of
Other Benefits. Accrued Obligations (subject to the proviso set forth in
Section 6(a)(i)(A) to the extent applicable) and the Pro-Rata Bonus shall be
paid to the Executive in a lump sum in cash within 30 days of the Date of
Termination; provided, that in the event that the Executive is a Specified
Employee, the Pro-Rata Bonus shall be paid, with Interest, to the Executive on
the Delayed Payment Date. With respect to the provision of Other Benefits, the
term Other Benefits as utilized in this Section 6(c) shall include, and the
Executive shall be entitled after the Disability Effective Date to receive,
disability and other benefits at least equal to the most favorable of those
generally provided by the Company and its affiliated companies to disabled
executives and/or their families in accordance with such plans, programs,
practices and policies relating to disability, if any, as in effect generally
with respect to other peer executives and their families at any time during the
120-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
generally with respect to other peer executives of the Company and its
affiliated companies and their families.
                    Cause; Other than for Good Reason. If the Executive’s
employment shall be terminated for Cause during the Employment Period, this
Agreement shall terminate without further obligations to the Executive other
than the obligation to pay to the Executive (x) his Annual Base Salary through
the Date of Termination (subject to the proviso set forth in Section 6(a)(i)(A)
to the

 

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extent applicable) and (y) Other Benefits, in each case to the extent
theretofore unpaid. If the Executive voluntarily terminates employment during
the Employment Period, excluding a termination for Good Reason, this Agreement
shall terminate without further obligations to the Executive, other than for
payment of the Accrued Obligations and the Pro-Rata Bonus and the timely payment
or provision of Other Benefits. In such case, all Accrued Obligations (subject
to the proviso set forth in Section 6(a)(i)(A) to the extent applicable) and the
Pro-Rata Bonus shall be paid to the Executive in a lump sum in cash within
30 days of the Date of Termination; provided, that in the event that the
Executive is a Specified Employee, the Pro-Rata Bonus shall be paid, with
Interest, to the Executive on the Delayed Payment Date.
                    Non-exclusivity of Rights. Nothing in this Agreement shall
prevent or limit the Executive’s continuing or future participation in any plan,
program, policy or practice provided by the Company or any of its affiliated
companies and for which the Executive may qualify, nor, subject to
Section 12(g), shall anything herein limit or otherwise affect such rights as
the Executive may have under any contract or agreement with the Company or any
of its affiliated companies. Amounts which are vested benefits or which the
Executive is otherwise entitled to receive under any plan, policy, practice or
program of or any contract or agreement with the Company or any of its
affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program or contract or
agreement except as explicitly modified by this Agreement.
                    Full Settlement. The Company’s obligation to make the
payments provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any setoff, counterclaim, recoupment, defense
or other claim, right or action which the Company may have against the Executive
or others. 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 and such amounts shall
not be reduced whether or not the Executive obtains other employment. The
Company agrees to pay as incurred (within 10 days following the Company’s
receipt of an invoice from the Executive) at any time from the Effective Date of
this Agreement through the Executive’s remaining lifetime (or, if longer,
through the 20th anniversary of the Effective Date), to the full extent
permitted by law, all legal fees and expenses which the Executive may reasonably
incur as a result of any contest (regardless of the outcome thereof) by the
Company, the Executive or others of the validity or enforceability of, or
liability under, any provision of this Agreement or any guarantee of performance
thereof (including as a result of any contest by the Executive about the amount
of any payment pursuant to this Agreement), plus in each case Interest. In order
to comply with Section 409A of the Code, in no event shall the payments by the
Company under this Section 8 be made later than the end of the calendar year
next following the calendar year in which such fees and expenses were incurred,
provided, that the Executive shall have submitted an invoice for such fees and
expenses at least 10 days before the end of the calendar year next following the
calendar year in which such fees and expenses were incurred. The amount of such
legal fees and expenses that the Company is obligated to pay in any given
calendar year shall not affect the amount of legal fees and expenses that the
Company is obligated to pay in any other calendar year, and the Executive’s
right to have the Company pay such legal fees and expenses may not be liquidated
or exchanged for any other benefit.
                    Certain Additional Payments by the Company. (a) Anything in
this Agreement to the contrary notwithstanding and except as set forth below, in
the event it shall be determined that any payment or distribution by the Company
or its affiliates to or for the benefit of the Executive (whether paid or
payable or distributed or distributable pursuant to the terms of this Agreement
or otherwise, but determined without regard to any additional payments required
under this Section 9) (a “Payment”) would be subject to excise or other similar
tax (but excluding penalties imposed pursuant to Section 409A of the Code), or
federal income tax above the rate ordinarily applicable to wages and salaries
paid in the ordinary course of business, whether as a result of the provisions
of Sections 280G and 4999 of the Code, any similar or analogous provisions of
any statute or regulation adopted subsequent to the date hereof, or otherwise,
or any interest or penalties are incurred by the Executive with respect to such
tax (such excise tax, other similar tax or federal income tax, together with any
such interest and penalties, are hereinafter collectively referred to as the
“Excise Tax”), then the Executive shall be entitled to receive an additional
payment (a “Gross-Up Payment”) in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with respect
to such taxes), including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and Excise Tax imposed upon
the Gross-Up Payment, but excluding penalties imposed pursuant to Section 409A
of the Code, the Executive retains an amount of the Gross-Up Payment equal to
the Excise Tax imposed upon the Payments. Notwithstanding the foregoing
provisions of this Section 9(a), if it shall be determined that the Executive is
entitled to a Gross-Up Payment, but that the Payments do not exceed 110% of the
greatest amount (the “Reduced Amount”) that could be paid to the Executive such
that the receipt of Payments would not give rise to any Excise Tax, then no
Gross-Up Payment shall be made to the Executive and the Payments, in the
aggregate, shall be reduced to the Reduced Amount. The reduction of the amounts
payable hereunder, if applicable, shall be made by reducing the payments and
benefits under the following sections in the following order:
(i) Section 6(a)(i)(B),(ii) Section 6(a)(i)(C), (iii) Section 6(a)(i)(A)(2) and
(iv) Section 6(a)(ii). For purposes of reducing the Payments to the Reduced
Amount, only amounts payable under this Agreement (and no other Payments) shall
be reduced. If the reduction of the amount payable under this Agreement would
not result in a reduction of the Payments to the Reduced Amount, no amounts
payable under the Agreement shall be reduced pursuant to this Section 9(a). The
Company’s obligation to make Gross-Up Payments under this Section 9 shall not be
conditioned upon the Executive’s termination of employment.
                    Subject to the provisions of Section 9(c), all
determinations required to be made under this Section 9, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be

 

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utilized in arriving at such determination, shall be made by a certified public
accounting firm as may be designated by the Executive (the “Accounting Firm”)
which shall provide detailed supporting calculations both to the Company and the
Executive within 15 business days of the receipt of notice from the Executive
that there has been a Payment, or such earlier time as is requested by the
Company. In the event that the Accounting Firm is serving as accountant or
auditor for the individual, entity or group effecting the Change of Control, the
Executive shall appoint another nationally recognized accounting firm to make
the determinations required hereunder (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any determination by the
Accounting Firm shall be binding upon the Company and the Executive. As a result
of the uncertainty in the application of Section 4999 of the Code at the time of
the initial determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments which will not have been made by the Company should have been
made (“Underpayment”), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies pursuant to
Section 9(c) and the Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive.
                    The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall be given
as soon as practicable but no later than ten business days after the Executive
is informed in writing of such claim and shall apprise the Company of the nature
of such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which the Executive gives such notice to the Company (or
such shorter period ending on the date that any payment of taxes with respect to
such claim is due). If the Company notifies the Executive in writing prior to
the expiration of such period that the Company desires to contest such claim,
the Executive shall:
                    give the Company any information reasonably requested by the
Company relating to such claim,
                    take such action in connection with contesting such claim as
the Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim by
an. attorney reasonably selected by the Company,
                    cooperate with the Company in good faith in order
effectively to contest such claim, and
                    permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 9(c), the Company shall control all proceedings taken in connection
with such contest and, at its sole discretion, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the
applicable taxing authority in respect of such claim and may, at its sole
discretion, either pay the tax claimed to the appropriate taxing authority on
behalf of the Executive and direct the Executive to sue for a refund or contest
the claim in any permissible manner, and the Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company pays such claim and directs
the Executive to sue for a refund, the Company shall indemnify and hold the
Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such payment or with respect to any imputed income with respect to such payment;
and further provided that any extension of the statute of limitations relating
to payment of taxes for the taxable year of the Executive with respect to which
such contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company’s control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
the Executive shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.
                    If, after the receipt by the Executive of a Gross-Up Payment
or payment by the Company of an amount on the Executive’s behalf pursuant to
Section 9(c), the Executive becomes entitled to receive any refund with respect
to the Excise Tax to which such Gross-Up Payment relates or with respect to such
claim, the Executive shall (subject to the Company’s complying with the
requirements of Section 9(c), if applicable) promptly pay to the Company the
amount of such refund (together with any interest paid or credited thereon after
taxes applicable thereto). If, after payment by the Company of an amount on the
Executive’s behalf pursuant to Section 9(c), a determination is made that the
Executive shall not be entitled to any refund with respect to such claim and the
Company does not notify the Executive in writing of its intent to contest such
denial of refund prior to the expiration of 30 days after such determination,
then the amount of such payment shall offset, to the extent thereof, the amount
of Gross-Up Payment required to be paid.
                    Any Gross-Up Payment, as determined pursuant to this
Section 9, shall be paid by the Company to the Executive within five days of the
receipt of the Accounting Firm’s determination; provided that, the Gross-Up
Payment shall in all events be paid no later than the end of the Executive’s
taxable year next following the Executive’s taxable year in which the Excise

 

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Tax (and any income or other related taxes or interest or penalties thereon) on
a Payment are remitted to the Internal Revenue Service or any other applicable
taxing authority or, in the case of amounts relating to a claim described in
Section 9(c) that does not result in the remittance of any federal, state, local
and foreign income, excise, social security and other taxes, the calendar year
in which the claim is finally settled or otherwise resolved. Notwithstanding any
other provision of this Section 9, the Company may, in its sole discretion,
withhold and pay over to the Internal Revenue Service or any other applicable
taxing authority, for the benefit of the Executive, all or any portion of any
Gross-Up Payment, and the Executive hereby consents to such withholding.
                    Confidential Information. The Executive shall hold in a
fiduciary capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or any of its affiliated
companies, and their respective businesses, which shall have been obtained by
the Executive during the Executive’s employment by the Company or any of its
affiliated companies and which shall not be or become public knowledge (other
than by acts by the Executive or representatives of the Executive in violation
of this Agreement). After termination of the Executive’s employment with the
Company, the Executive shall not, without the prior written consent of the
Company or as may otherwise be required by law or legal process, communicate or
divulge any such information, knowledge or data to anyone other than the Company
and those designated by it. In no event shall an asserted violation of the
provisions of this Section 10 constitute a basis for deferring or withholding
any amounts otherwise payable to the Executive under this Agreement.
                    Successors. (a) This Agreement is personal to the Executive
and without the prior written consent of the Company shall not be assignable by
the Executive otherwise than by will or the laws of descent and distribution.
This Agreement shall inure to the benefit of and be enforceable by the
Executive’s legal representatives.
                    This Agreement shall inure to the benefit of and be binding
upon the Company and its successors and assigns.
                    The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, “Company” shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
                    Miscellaneous. (a) This Agreement shall be governed by and
construed in accordance with the laws of the State of Texas, without reference
to principles of conflict of laws. The captions of this Agreement are not part
of the provisions hereof and shall have no force or effect. This Agreement may
not be amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal representatives.
                    All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:

     
If to the Executive:
   
 
   
 
  [                    ]
 
  at the address set forth in his personnel file at Smith International, Inc.
 
   
If to the Company:
   
 
   
 
  Smith International, Inc.
 
  16740 Hardy Street
 
  Houston, TX 77032
 
  Fax: (281) 233-5996
 
  Attention: General Counsel

or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
                    The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
                    The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
                    The Executive’s or the Company’s failure to insist upon
strict compliance with any provision of this Agreement or the failure to assert
any right the Executive or the Company may have hereunder, including, without
limitation, the right

 

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of the Executive to terminate employment for Good Reason pursuant to
Section 5(c)(i)-(v) of this Agreement, shall not be deemed to be a waiver of
such provision or right or any other provision or right of this Agreement.
                    The Agreement is intended to comply with the requirements of
Section 409A of the Code or an exemption or exclusion therefrom and, with
respect to amounts that are subject to Section 409A of the Code, shall in all
respects be administered in accordance with Section 409A of the Code. Each
payment under this Agreement shall be treated as a separate payment for purposes
of Section 409A of the Code. In no event may the Executive, directly or
indirectly, designate the calendar year of any payment to be made under this
Agreement. If the Executive dies following the Date of Termination and prior to
the payment of any amounts delayed on account of Section 409A of the Code, such
amounts shall be paid to the personal representative of the Executive’s estate
within 30 days after the date of the Executive’s death. All reimbursements and
in-kind benefits provided under this Agreement that constitute deferred
compensation within the meaning of Section 409A of the Code shall be made or
provided in accordance with the requirements of Section 409A of the Code,
including, without limitation, that (i) in no event shall reimbursements by the
Company under this Agreement be made later than the end of the calendar year
next following the calendar year in which the applicable fees and expenses were
incurred, provided, that the Executive shall have submitted an invoice for such
fees and expenses at least 10 days before the end of the calendar year next
following the calendar year in which such fees and expenses were incurred;
(ii) the amount of in-kind benefits that the Company is obligated to pay or
provide in any given calendar year shall not affect the in-kind benefits that
the Company is obligated to pay or provide in any other calendar year; (iii) the
Executive’s right to have the Company pay or provide such reimbursements and
in-kind benefits may not be liquidated or exchanged for any other benefit; and
(iv) in no event shall the Company’s obligations to make such reimbursements or
to provide such in-kind benefits apply later than the Executive’s remaining
lifetime (or if longer, through the 20th anniversary of the Effective Date).
Prior to the Effective Date but within the time period permitted by the
applicable Treasury Regulations or other applicable guidance, the Company may,
in consultation with the Executive, modify the Agreement, in the least
restrictive manner necessary and without any diminution in the value of the
payments to the Executive, in order to cause the provisions of the Agreement to
comply with the requirements of Section 409A of the Code, so as to avoid the
imposition of accelerated tax, additional tax and/or penalties on the Executive
pursuant to Section 409A of the Code.
                    Subject to Section 1(a), the Executive’s employment may be
terminated by either the Executive or the Company at any time prior to the
Effective Date, in which case the Executive shall have no further rights under
this Agreement. From and after the Effective Date, except as specifically
provided herein, this Agreement shall supersede any other agreement between the
parties with respect to the subject matter hereof[; provided, that the terms of
the Employment Agreement by and between the Company and the Executive dated as
of December 10, 1987 (the “Employment Agreement”), without giving effect to any
amendments entered into thereto prior to the Effective Date shall remain in full
force and effect; provided, further, that in the event of a Change of Control or
an Anticipatory Termination, the terms of this Agreement shall control, except
with respect to any Accrued Obligations (as defined herein)].
                    Notwithstanding any provision in this Agreement to the
contrary, in the event of an Anticipatory Termination, any payments that are
deferred compensation within the meaning of Section 409A of the Code that the
Company shall be required to pay pursuant to Section 6(a)(i) of this Agreement
shall be paid on the date of such Change of Control and any payments or benefits
that are not deferred compensation within the meaning of Section 409A of the
Code that the Company shall be required to pay or provide pursuant to Section
6(a) of this Agreement shall be paid or shall commence being provided on the
date of the Change of Control. Interest with respect to the period, if any, from
the date of the Change of Control through the actual date of payment shall be
paid on any delayed cash amounts.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive’s hand and,
pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.

            [Executive]    
SMITH INTERNATIONAL, INC.
 

            By: