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him eligible to participate. Any annual bonus shall be paidto the Executive no later than the 15th day of the third month following the fiscal yearfor which such bonus was earned, unless the Executive shall elect to defer the receipt of suchannual bonus under an arrangement established by the Company which is intended to comply withSection 409A of the Code.          **3.3  Reimbursement of Expenses**. The Company shall reimburse the Executive for allreasonable travel, entertainment and other expenses incurred or paid by the Executive in connectionwith, or related to, the performance of his duties, responsibilities or services under thisAgreement, upon presentation by the Executive of documentation, expense statements, vouchers and/orsuch other supporting information as the Board of Directors may request.     **4.  Employment, Termination**. The employment of the Executive by the Company pursuant tothis Agreement shall terminate upon the occurrence of any of the following:          4.1  At the election of the Company, for cause, immediately upon written notice by the Company tothe Executive. For the purposes of this Section 4.1, cause for termination shall be deemed toexist upon (a) the conviction of the Executive of, or the entry of a pleading of guilty ornolocontendere by the Executive to, any crime involving moral turpitude or anyfelony; or (b) any theft, embezzlement, fraud or other act of dishonesty whether or not involvingthe Company, which, in the good faith finding of the Board, will have a material adverse effect onthe Company if Executive’s employment by the Company were to continue.          4.2  Upon the Executive’s death or in accordance with the Company’s policies applicable toExecutive in the event of the inability of the Executive to provide services due to illness,disability, or physical or emotional incapacity.          4.3  If for any reason the Executive’s Position is eliminated or otherwise becomes redundant, orhis responsibilities are substantially decreased, whether because of merger, acquisition, sale ofbusiness or assets, dissolution, tender offer, or any other reason.          4.4  The expiration of the Employment Period in accordance with Section 1.2.     **5.  Effect of Termination**.          **5.1  Termination Pursuant to Section 4.1 or 4.4**. In the event the Executive’s employmentis terminated pursuant to Section 4.1 or 4.4, the Company shall pay to the Executive thecompensation and benefits otherwise payable to him under Section 3 through the last day of hisactual employment by the Company. Any compensation previously earned by Executive hereunder butnot yet paid to him shall be accelerated and shall become payable in a lump sum upon such atermination of employment, unless the Executive has made an irrevocable election under any deferredcompensation arrangement subject to Section 409A of the Code to defer any portion of suchcompensation, in which case such deferral election, and the terms of the applicable arrangement,shall apply to such portion and such amounts shall be payable in accordance with the applicablearrangement.          **5.2  Termination Pursuant to Section 4.2 or 4.3**. If the Executive’s employment isterminated pursuant to Section 4.2 or 4.3, the Company shall pay to the Executive or his personalrepresentative, as the case may be, the compensation which would otherwise be payable to theExecutive under Section 3 in a lump sum, equal to the amounts in effect under Section 3 through theend of the Employment Period. Any compensation previously earned by Executive hereunder but notyet paid to him shall be accelerated and shall become payable in a lump sum upon termination ofemployment, unless the Executive has made an irrevocable election under any deferred compensationarrangement subject to Section 409A of the Code to defer any portion of such compensation, in whichcase such deferral election, and the terms of the applicable arrangement shall apply to suchportion and such amounts shall be payable in accordance with the applicable arrangement.          **5.3  No Duty to Mitigate**. If the Executive’s employment is terminated pursuant to Section4.3 or under circumstances constituting a breach of this Agreement by the Company, the payments andbenefits provided in Section 5.2 shall be payable without regard to Executive’s other income or hisability to obtain other employment, and Executive shall be under no duty to mitigate the amountpayable hereunder.          **5.4  Survival**. The provisions of Sections 6, 7 and 8 shall survive the termination of thisAgreement.     **6.  Breach of Contract by Executive**. Executive recognizes that the Company is enteringinto this Agreement in order to obtain the exclusive use of his personal services during the termhereof, that Executive’s services are of a special, unique,
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unusual, extraordinary, creative andintellectual character, and that the commercial success of the enterprise by which Executive isemployed depends primarily upon the unique character of his services. Executive therefore agreesthat the termination of employment by the Executive or the diversion of a substantial portion ofthe Executive’s services to unrelated endeavors during the Employment Period, in violation of thisAgreement and without consent of the Company, shall be a material breach of this Agreement. TheExecutive understands that such loss or diversion of his services could neither be cured by thehiring of other executives nor could damages be reasonably or adequately calculated and recoveredin an action at law, and therefore Executive further agrees that, to the extent permitted by law,any material breach of this Agreement may, without limiting any other remedies, be prevented orcured by an action for specific performance or injunctive relief, without the need for the Companyto post bond or other security.     **7.  Non-Competition**.          (a)  During the Employment Period, the Executive will not directly or indirectly:          (i)  As an individual proprietor, partner, stockholder, officer, executive, director, jointventurer, investor, lender, or in any other capacity whatsoever (other than as a holder ofnot more than one percent (1%) of the total outstanding stock of a publicly held company),engage in the business of developing, producing, marketing or selling, whether at wholesaleor at retail, or of performing, providing, or offering, products and/or services of the kindor type developed or being developed, produced, marketed, sold, offered, provided orperformed by the Company while the Executive was employed by the Company; or          (ii)  recruit, solicit or induce, or attempt to induce, any executive or executives of theCompany or any other person or entity having any continuing or periodic relationship withthe Company to terminate their employment with, or otherwise cease their relationship with,the Company; or          (iii)  solicit, divert or take away, or attempt to divert or to take away, the business orpatronage of any of the customers or accounts, or prospective customers or accounts, of theCompany which were contacted, solicited or served by the Executive while employed by theCompany.          (b)  If any restriction set forth in this Section 7 is found by a court of competent jurisdictionto be unenforceable because it extends for too long a period of time or over too great a range ofactivities or in too broad a geographic area, it shall be interpreted to extend only over themaximum period of time, range of activities or geographic areas as to which it may be enforceable.          (c)  The restrictions contained in this Section 7 are necessary for the protection of the businessand goodwill of the Company and are considered by the Executive to be reasonable for such purpose.The Executive agrees that any breach of this Section 7 will cause the Company substantial andirrevocable damage and therefore, the Company shall have the right, in addition to any otherremedies it may have, to seek specific performance and injunctive relief, without the need to posta bond or other security.     **8.  Proprietary Information and Developments**.          **8.1  Proprietary Information**.          (a)  Executive agrees that all information and know-how, whether or not in writing, of a private,secret or confidential nature concerning the Company’s business or financial affairs, businessmethods, suppliers or customers (collectively, “Proprietary Information”) is and shall be theexclusive property of the Company. Executive will not disclose any Proprietary Information toothers outside the Company or use the same for any unauthorized purposes without written approvalby the Board, either during or after his employment, unless and until such Proprietary Informationhas become public knowledge without fault of the Executive.          (b)  Executive agrees that all files, letters, memoranda, reports, records, data, sketches,drawings, flow charts, business methods, promotional materials, video or sound recordings, programlistings, or other written, photographic, or other tangible material containing ProprietaryInformation, whether created by the Executive or others, which shall comeinto his custody or possession, shall be and are the exclusive property of the Company to beused by the Executive only in the performance of his duties for the Company.
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          (c)  Executive agrees that his obligation not to disclose or use information, know-how and recordsof the types set forth in paragraphs (a) and (b) above, also extends to such types of information,know-how, records and intangible property of customers of the Company or suppliers to the Companyor other third parties who may have disclosed or entrusted the same to the Company or to theExecutive in the course of the Company’s business.          **8.2  Developments**.          (a)  Executive will make full and prompt disclosure to the Company of all inventions, improvements,discoveries, methods, developments, software and works of authorship, whether or not patentable orcopyrightable, which are created, made, conceived or reduced to practice by the Executive or underhis direction or jointly with others during his employment by the Company, whether or not duringnormal working hours or on the premises of the Company (all of which are collectively referred toin this Agreement as “Developments”).          (b)  Executive agrees to assign and does hereby assign to the Company (or any person or entitydesignated by the Company) all his right, title and interest in and to all Developments and allrelated patents, patent applications, copyrights and copyright applications. However, this Section8.2(b) shall not apply to Developments which do not relate to the present or planned business orresearch and development of the Company and which are made and conceived by the Executive notduring normal working hours, not on the Company’s premises and not using the Company’s tools,devices, equipment or Proprietary Information.          (c)  Executive agrees to cooperate fully with the Company, both during and after his employmentwith the Company, with respect to the procurement, maintenance and enforcement of copyrights,patents and other intellectual and intangible property rights (both in the United States and inforeign countries) relating to Proprietary Information and Developments. Executive shall sign allpapers, including, without limitation, copyright applications and/or assignments, patentapplications and/or assignments, declarations, oaths, formal assignments, assignments ofproprietary rights, and powers of attorney, which the Company may deem necessary or desirable inorder to protect its rights and interests in any Proprietary Information or Development.          **8.3  Other Agreements**. Executive hereby represents that he is not bound by the terms ofany agreement with any previous employer or other party to refrain from using or disclosing anytrade secret or confidential or proprietary information in the course of his employment with theCompany or to refrain from competing, directly or indirectly, with the business of such previousemployer or any other party. Executive further represents that his performance of all the terms ofthis Agreement and as an Executive of the Company does not and will not breach any agreement tokeep in confidence proprietary information, knowledge or data acquired by him in confidence or intrust prior to his employment with the Company.     **  9.  Notices**. All notices required or permitted under this Agreement shall be in writingand shall be deemed effective upon personal delivery or upon deposit in the United States PostOffice, by registered or certified mail, postage prepaid, addressed to the other party at theaddress shown above, or at such other address or addresses as either party shall designate to theother in accordance with this Section 9. A copy of all notices given by Executive to the Companyshall be sent to each member of the Board.     **10.  Pronouns**. Whenever the context may require, any pronouns used in this Agreement shallinclude the corresponding masculine, feminine or neuter forms, and the singular forms of nouns andpronouns shall include the plural, and vice versa.     **11.  Entire Agreement**. This Agreement constitutes the entire agreement between the partiesand supersedes all prior agreements and understandings, whether written or oral, relating to thesubject matter of this Agreement, including, without limitation, the Original Agreement.     **12.  Amendment**. This Agreement may be amended or modified only by a written instrumentexecuted by both the Company and Executive.     **13.  Governing Law**. This Agreement shall be construed, interpreted and enforced inaccordance with the Law of the State of Texas, without reference to principles of conflict of law.     **14.  Successors and Assigns**. This Agreement shall be binding upon and inure to the benefitof both parties and their respective successors and assigns, including any corporation with whichor into which the Company may be merged or
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which may succeed to its assets or business, provided,however, that the obligations of Executive are personal and shall not be assigned by him.     **15.  Section 409A**. The parties intend that this Agreement be interpreted in a manner to beexempt from the requirements of Section 409A of the Code and, where not so exempt, to be incompliance therewith. Each payment under this Agreement shall be treated as a separate payment forpurposes of Section 409A of the Code. Other than pursuant to an irrevocable deferral election thatcomplies with the requirements of Section 409A of the Code pursuant to a deferred compensationarrangement implemented by the Company, Executive (or his estate or beneficiary) shall have noright to dictate the taxable year in which any payment hereunder should be paid. Notwithstandingany provision of this Agreement to the contrary, only to the extent that this Agreement is subjectto the requirements of Section 409A of the Code and is not exempted from such requirements, if atthe time of Executive’s termination of employment with the Company, the Executive is a “specifiedemployee” within the meaning of Section 409A of the Code, no payment or benefit that results fromthe Executive’s termination of employment will be provided until the date which is six months afterthe date of Executive’s termination of employment. Payments to which the Executive would otherwisebe entitled during the six-month period described above will be accumulated and paid in a lump sumon the first day of the seventh month after the date of the Executive’s termination of employment.For purposes of this Section 15 and, only to the extent that this Agreement is subject to therequirements of Section 409A of the Code and is not exempted from such requirements, Sections 4 and5, “terminate”, “termination” or “termination of employment” shall have the same meaning as“separation from service” as set forth in Treasury Regulation section 1.409A-1(h)(1). Allreimbursements and in-kind benefits provided under this Agreement that constitute deferredcompensation within the meaning of Section 409A of the Code shall be made or provided in accordancewith the requirements of Section 409A of the Code, including, without limitation, that (i) in noevent shall reimbursements by the Company under this Agreement be made later than the end of thecalendar year next following the calendar year in which the applicable fees and expenses wereincurred, provided, that Executive shall have submitted an invoice for such fees and expenses atleast 10 days before the end of the calendar year next following the calendar year in which suchfees and expenses were incurred; (ii) the amount of in-kind benefits that the Company is obligatedto pay or provide in any given calendar year shall not affect the in-kind benefits that the Companyis obligated to pay or provide in any other calendar year; (iii) the Executive’s right to have theCompany pay or provide such reimbursements and in-kind benefits may not be liquidated or exchangedfor any other benefit; and (iv) in no event shall the Company’s obligations to make suchreimbursements or to provide such in-kind benefits apply later than the Executive’s remaininglifetime (or if longer, through the 20th anniversary of the Effective Date).     **16.  Miscellaneous**.          16.1  No delay or omission by the Company in exercising any right under this Agreement shall operateas a waiver of that or any other right. A waiver of consent given by the Company on any oneoccasion shall be effective only in that instance and shall not be construed as a bar or waiver ofany right on any other occasion.          16.2  The captions of the sections of this Agreement are for convenience of reference only and in noway define, limit or affect the scope or substance of any section of this Agreement.          16.3  In case any provision of this Agreement shall be invalid, illegal or otherwise unenforceable,the validity, legality and enforceability of the remaining provisions shall in no way be affectedor impaired thereby.
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          IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year setforth above.           SMITH INTERNATIONAL, INC.             By:                          Its:                        EXECUTIVE:                
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