**EXHIBIT10.5****Agreement No.****89«Agr_No»****SMITH INTERNATIONAL, INC.****NONSTATUTORY OPTION AGREEMENT**               **OPTIONEE:  «Full_Legal_Name»**     **1. ****Grant of Stock Option****.**As of the **Grant Date**(identified in Section 2below), Smith International, Inc. (the “**Company**”) hereby grants a Nonstatutory Stock Option (the“**Option**”) to Optionee, an Employee of the Company and/or one or more of its Subsidiaries, topurchase the number of shares of the Company’s common stock, $1.00 par value per share (the “**CommonStock**”), identified in Section 2 below (the “**Shares**”), subject to the terms and conditionsof this agreement (the “**Agreement**”) and the Smith International, Inc. 1989 Long-Term IncentiveCompensation Plan, as amended and restated effective January 1, 2005 (the “**Plan**”). The Plan ishereby incorporated herein in its entirety by reference. The Shares, when issued to Optionee uponthe exercise of the Option, shall be fully paid and nonassessable. The Option is not an “incentivestock option” as defined in Section 422 of the Internal Revenue Code.     **2. ****Definitions and Other Terms****.**The following capitalized terms shall have thosemeanings set forth opposite them:         (a) Optionee: **«Full_Legal_Name»**         (b) Grant Date: **«Grant_Date»**         (c) Shares: **«Shares_Granted»**Shares of the Company’s Common Stock.         (d) Option Price: $**«Price»**per Share.         (e) Option Period: **«Grant_Date»**through **«Expire_Date»**(until 5:00 p.m. CST).         (f) Vesting Schedule: Options as follows:    **Date**  **Options Vesting****«Vest_Date1»**  **«Shares1»**    **«Vest_Date2»**  **«Shares2»**    **«Vest_Date3»**  **«Shares3»**    **«Vest_Date4»**  **«Shares4»**       Total**«Shares_Granted»**         **3. ****Definitions****.**All capitalized terms used herein shall have the meanings set forth inthe Plan unless otherwise provided herein. Section 2 sets forth meanings for certain of thecapitalized terms used in this Agreement.     **4. ****Option Term****.**The Option shall commence on the Grant Date (identified inSection 2 above) and terminate on the tenth (10th) anniversary of the Grant Date asspecified in Section 2. The period during which the Option is in effect and may beexercised is referred to herein as the **“Option Period”**.     **5. ****Option Price****.**The Option Price per Share is identified in Section 2.     **6. ****Vesting****.**The total number of Shares subject to this Option shall vest inaccordance with the **Vesting Schedule**(described in Section 2). The Shares may be purchasedat any time after they become vested, in whole or in part, during the Option Period; provided,however, the Option may only be exercisable to acquire whole Shares. The right ofexercise provided herein shall be cumulative so that if the Option is not exercised to themaximum extent permissible after vesting, the vested portion of the Option shall be exercisable, inwhole or in part, at any time during the Option Period.
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     **7. ****Method of Exercise****.**The Option is exercisable by delivery of a written notice tothe Secretary of the Company, signed by Optionee or delivered via email communication from averifiable email address of Optionee, specifying the number of Shares to be acquired on, and theeffective date of, such exercise. Optionee may withdraw notice of exercise of this Option, inwriting, at any time prior to the close of business on the business day preceding the proposedexercise date.     **8. ****Method of Payment****.**Subject to applicable provisions of the Plan, the Option Priceupon exercise of the Option shall be payable to the Company in full either: (i) in cash or itsequivalent; (ii) subject to prior approval by the Committee in its discretion, by tenderingpreviously acquired Shares having an aggregate Fair Market Value (as defined in the Plan) at thetime of exercise equal to the total Option Price (provided that the Shares must have been held byOptionee for at least six (6) months prior to their tender to satisfy the Option Price); or (iii)any other permitted method pursuant to the applicable terms and conditions of the Plan.     As soon as practicable after receipt of a written notification of exercise and full payment,including any applicable taxes as described in Section 17 below, the Company shall deliverto or on behalf of Optionee, in the name of Optionee or other appropriate recipient, Sharecertificates or other evidence of ownership for the number of Shares purchased under the Option.     **9. ****Restrictions on Exercise****.**The Option may not be exercised if the issuance of suchShares or the method of payment of the consideration for such Shares would constitute a violationof any applicable federal or state securities or other laws or regulations, or any rules orregulations of any stock exchange on which the Common Stock may be listed. In addition, Optioneeunderstands and agrees that the Option cannot be exercised if the Company determines that suchexercise, at the time of such exercise, will be in violation of the Company’s insider tradingpolicy.     **10. ****Termination of Employment****.**Voluntary or involuntary termination of Employmentshall affect Optionee’s rights under the Option as follows:     (a) Termination for Cause. The entire Option, including any vested portionthereof, shall expire on 12:01 a.m. (CST) on the date of termination of Employment and shallnot be exercisable to any extent if Optionee’s Employment is terminated for Cause (asdefined in the Plan at the time of such termination of Employment).     (b) Death or Disability. If Optionee’s Employment is terminated by death orDisability (as defined in the Plan at the time of such termination of Employment), then (i)the Option shall become fully vested as of such date of termination and (ii) the Optionshall expire on the date that is three (3) years after such date of termination ofEmployment (to the extent not exercised by Optionee) or, in the case of death, by the personor persons to whom Optionee’s rights under the Option have passed by will or by the laws ofdescent and distribution or, in the case of Disability, by Optionee or Optionee’s legalrepresentative. In no event may the Option be exercised by anyone on or after the earlierof (i) the expiration of the Option Period or (ii) three years after the date of Optionee’sdeath or termination of Employment due to Disability.     (c) Involuntary Termination Without Cause. If Optionee’s Employment isterminated involuntarily by the Company or a Subsidiary without Cause, then (i) thenon-vested portion of the Option shall immediately expire on the termination of Employmentdate; and (ii) the vested portion of the Option shall expire to the extent not exercisedwithin one (1) year after such termination date. In no event may the Option be exercised byanyone after the earlier of (i) the expiration of the Option Period or (ii) one (1) yearafter the termination of Employment date even if Optionee becomes deceased during suchperiod.     (d) Voluntary Termination. If Optionee’s Employment is terminated due tovoluntary resignation, then (i) the non-vested portion of the Option shall immediatelyexpire on the termination of Employment date and (ii) the vested portion of the Option shallexpire to the extent not exercised within ninety (90) calendar days after such terminationdate. In no event may the Option be exercised by anyone after the earlier of (i) theexpiration ofthe Option Period or (ii) ninety (90) calendar days after the termination of Employmentdate even if Optionee becomes deceased or disabled during such period.     (e) Transfer of Employment. A transfer of Employment by Optionee, without aninterruption of Employment service, between or among the Company and any Subsidiary of theCompany shall not be considered a termination of Employment for purposes of this Agreement.
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     **11. ****Independent Legal and Tax Advice****.**Optionee understands that he or she may sufferadverse tax consequences as a result of the grant, vesting or exercise of the Option grantedhereunder. Optionee represents that he or she has consulted with any tax consultants he or shedeems advisable in connection with the acquisition or disposition of the Option and any Sharesacquired thereby and that he or she is not relying on the Company or Subsidiary for any tax advice.     **12. ****Reorganization of Company****.**The existence of the Option shall not affect in anyway the right or power of the Company or its stockholders to make or authorize any or alladjustments, recapitalizations, reorganizations or other changes in Company’s capital structure orits business, or any merger or consolidation of the Company, or any issue of bonds, debentures,preferred or prior preference stock ahead of or affecting the Shares or the rights thereof, or thedissolution or liquidation of the Company, or any sale or transfer of all or any part of its assetsor business, or any other corporate act or proceeding, whether of a similar character or otherwise.     **13. ****Adjustment of Shares****.**In the event of stock dividends, spin-offs of assets orother extraordinary dividends, stock splits, combinations of shares, recapitalizations, mergers,consolidations, reorganizations, liquidations, issuances of rights or warrants and similartransactions or events involving the Company, appropriate adjustments shall be made to the termsand provisions of the Option as provided in the Plan. However, such adjustments shall not resultin the Option being considered to be deferred compensation subject to Code Section 409A, unlessotherwise determined at the discretion of the Company.     **14. ****No Rights in Shares****.**Optionee shall have no rights as a stockholder in respect ofthe Shares until Optionee becomes the record holder of such Shares.     **15. ****Investment Representation****.**Optionee will enter into such written representations,warranties and agreements as the Company may reasonably request in order to comply with any federalor state securities law. Moreover, any stock certificate for any Shares issued to Optioneehereunder may contain a legend restricting their transferability as determined by the Company inits discretion. Optionee agrees that the Company shall not be obligated to take any affirmativeaction in order to cause the issuance or transfer of Shares hereunder to comply with any law, ruleor regulation that applies to the Shares subject to the Option.     **16. ****No Effect on Employment or Service****.**Optionee acknowledges and agrees that thevesting of the Option pursuant to Section 2 hereof is earned only by continuing as anemployee. Optionee further acknowledges and agrees that this Agreement, the transactionscontemplated hereunder and the vesting schedule set forth herein do not constitute an express orimplied promise of continued engagement as an employee for the vesting period, for any period, orat all, and will not interfere with Optionee’s right, or the Company’s or Subsidiary’s right, toterminate Optionee’s relationship as an employee at any time.     **17. ****Withholding of Taxes****.**To the extent that the exercise of the Option hereunderresults in compensation income to Optionee for federal, state or local income tax purposes,Optionee shall deliver to Company at such time the sum that the Company requires to meet its taxwithholding obligations under applicable law or regulation.     **18. ****General****.**     (a) Delivery of Documents and Notices. Any document relating to participatingin the Plan and/or notice required or permitted hereunder shall be given in writing andshall be deemed effectively given (except to the extent that this Agreement provides foreffectiveness only upon actual receipt of such notice) upon personal delivery, by telegram,telex, telecopy or similar facsimile means, electronic delivery, or upon deposit in the U.S.Post Office or foreign postal service, by certified or registered mail, return receiptrequested, with postage and fees prepaid, addressed to the Company at its then-current maincorporate address or by electronic mail to **[name@smith.com]**, and to Optionee at his or heraddress indicated on the Company’s records, at the e-mailaddress, if any, provided for Optionee by the Company or its Subsidiary, or at suchother address and number as a party has previously designated in writing from time to timeto the other party.          (i) *Description of Electronic Delivery*. The Plan documents, which may include but donot necessarily include the Plan Prospectus, this Agreement and U.S. financial reports ofthe Company, may be delivered to Optionee electronically. Such means of delivery mayinclude but do not necessarily include the delivery of a link to a Company intranet or theinternet site of a third party involved in administering the Plan, the delivery of thedocument via electronic mail or such other delivery determined at the Company’s discretion.
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          (ii) *Consent to Electronic Delivery*. Optionee acknowledges that Optionee has read thisSection 18(a) of this Agreement and consents to the electronic delivery of the Plandocuments. Optionee acknowledges that he or she may receive from the Company a paper copyof any documents delivered electronically at no cost if Optionee contacts the Company bytelephone, through a postal service or electronic mail at **[name@smith.com]**. Optioneefurther acknowledges that Optionee will be provided with a paper copy of any documentsdelivered electronically if electronic delivery fails; similarly, Optionee understands thatOptionee must provide the Company or any designated third party with a paper copy of anydocuments delivered electronically by Optionee if electronic delivery fails. Optioneeunderstands that Optionee’s consent may be revoked or changed, including any change in theelectronic mail address to which documents are delivered (if Optionee has provided anelectronic mail address), at any time by notifying the Company of such revised or revokedconsent by telephone, postal service or electronic mail at **[name@smith.com]**. Finally,Optionee understands that he or she is not required to consent to electronic delivery butthat, to the extent permitted by applicable law, such refusal may affect Grantee’s abilityto participate in the Plan.     (b) Transferability of Option. The Option is transferable only to the extentpermitted under the Plan at the time of transfer (i) by will or by the laws of descent anddistribution, (ii) by a qualified domestic relations order (as defined in Code Section414(p), or (iii) to Optionee’s Immediate Family or entities established for the benefit of,or solely owned by, Optionee’s Immediate Family to the extent permitted under the Plan. Noright or benefit hereunder shall in any manner be liable for or subject to any debts,contracts, liabilities, obligations or torts of Optionee or any permitted transfereethereof.     (c) Amendment and Termination. No amendment, modification or termination ofthis Agreement shall be made at any time without the written consent of Optionee andCompany.     (d) Nature of the Grant. In accepting this Agreement, Optionee acknowledgesthat:          (i) the Plan is established voluntarily by the Company, it is discretionary in natureand may be modified, amended, suspended or terminated by the Company at any time, unlessotherwise provided in the Plan and this Agreement;          (ii) the grant of the Option is voluntary and occasional and does not create anycontractual or other right to receive future awards of Options, or benefits in lieu ofOptions, even if Options have been awarded repeatedly in the past;          (iii) all decisions with respect to future grants of Options, if any, will be at thesole discretion of the Company;          (iv) Optionee’s participation in the Plan is voluntary;          (v) Options are an extraordinary item that do not constitute compensation of any kindfor services of any kind rendered to the Company or any Subsidiary, and Options are outsidethe scope of Optionee’s employment contract, if any;          (vi) Options are not part of normal or expected compensation or salary for any purpose,including, but not limited to, calculation of any severance, resignation, termination,redundancy, end of service payments, bonuses, long-service awards, pension or retirementbenefits or similar payments and in no event should be considered as compensation for, orrelating in any way to, past services for the Company or any Subsidiary;          (vii) the future value of the underlying Shares is unknown and cannot be predicted withcertainty;          (viii) if the underlying Shares do not increase in value, the Option will have novalue;          (ix) the value of the Shares acquired upon exercise of the Option may increase ordecrease in value; and          (x) in consideration of the grant of the Option, no claim or entitlement tocompensation or damages arises from termination of the Option or diminution in value of theOption or Shares acquired upon
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exercise of the Option resulting from termination ofOptionee’s employment by the Company or any Subsidiary (for any reason whatsoever andwhether or not in breach of local labor laws), and Optionee irrevocably releases the Companyand each Subsidiary from any such claim that may arise; if, notwithstanding the foregoing,any such claim is found by a court of competent jurisdiction to have arisen, then, bysigning this Agreement, Optionee shall be deemed irrevocably to have waived his or herentitlement to pursue such claim.     (e) Data Privacy Notice and Consent. Optionee hereby explicitly andunambiguously consents to the collection, use and transfer, in electronic or other form, ofhis or her personal data as described in this Agreement by and among, as applicable, theCompany and its Subsidiaries and other affiliates for the exclusive purpose of implementing,administering and managing Optionee’s participation in the Plan.          Optionee understands that the Company and its Subsidiaries may hold certain personalinformation about Optionee, including, but not limited to, Optionee’s name, home address andtelephone number, date of birth, social insurance number or other identification number,salary, nationality, job title, any shares of stock or directorships held in the Company andits Subsidiaries, details of all Options or any other entitlement to Shares awarded,canceled, vested, unvested or outstanding in Optionee’s favor, for the purpose ofimplementing, administering and managing the Plan (“Data”).          Optionee understands that Data may be transferred to any third parties assisting in theimplementation, administration and management of the Plan, that these recipients may belocated in Optionee’s country or elsewhere, and that the recipients’ countries may havedifferent data privacy laws and protections than Optionee’s country. Optionee understandsthat he or she may request a list with the names and addresses of any potential recipientsof the Data by contacting his or her local human resources representative. Optioneeauthorizes the recipients to receive, possess, use, retain and transfer the Data, inelectronic or other form, for the purposes of implementing, administering and managingOptionee’s participation in the Plan, including any requisite transfer of such Data as maybe required to a broker, escrow agent or other third party with whom the Shares receivedupon exercise of the Option may be deposited. Optionee understands that Data will be heldonly as long as is necessary to implement, administer and manage his or her participation inthe Plan. Optionee understands that he or she may, at any time, view Data, requestadditional information about the storage and processing of Data, require any necessaryamendments to Data or refuse or withdraw the consent herein, in any case without cost, bycontacting in writing his or her local human resources representative. Optioneeunderstands, however, that refusal or withdrawal of consent may affect his or her ability toparticipate in the Plan and, to the extent permitted by applicable law, may void thisAgreement. For more information on the consequences of his or her refusal to consent orwithdrawal of consent, Optionee understands that he or she may contact his or her localhuman resources representative.     (f) Language. If Optionee has received this Agreement or any other documentrelated to the Plan translated into a language other than English and if the translatedversion is different than the English version, the English version will control.     (g) Severability. In the event that any provision of this Agreement shall beheld illegal, invalid, or unenforceable for any reason, such provision shall be fullyseverable, but shall not affect the remaining provisions of the Agreement, and the Agreementshall be construed and enforced as if the illegal, invalid, or unenforceable provision hadnot been included herein.     (h) Supersedes Prior Agreements. This Agreement shall supersede and replaceall prior agreements and understandings, oral or written, between the Company and Optioneeregarding the grant of the Options covered hereby.     (i) Governing Law. The Option shall be construed in accordance with the lawsof the State of Texas, without regard to its conflict of law provisions, to the extentfederal law does not supersede and preempt Texas law.[*Signature page follows*.]     **IN WITNESS WHEREOF**, the Company, as of the Grant Date, has caused this Agreement to beexecuted on its behalf by its duly authorized officer and Optionee has hereunto executed thisAgreement as of the same date.
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       **SMITH INTERNATIONAL, INC.**       **By:**              **Name:**              **Title:**              ***Address for Notices:***       **Smith International, Inc.**