Document:

exv10w7

Exhibit 10.7

EXECUTION VERSION

EMPLOYMENT AGREEMENT

     THIS EMPLOYMENT AGREEMENT (“Agreement”) is made by and between Concho Resources Inc., a
Delaware corporation (“Company”), and Jack F. Harper (“Executive”).

W I T N E S S E T H:

     WHEREAS, both Executive and Company seek to enter into an agreement regarding Executive’s
employment with Company or a subsidiary of Company and in doing so agree that this Agreement
supersedes any previous contracts between Executive and Company relating to such subject matter and
identified as an Employment Agreement; and

     WHEREAS, Company is desirous of continuing to employ Executive in an executive capacity on the
terms and conditions, and for the consideration, hereinafter set forth and Executive is desirous of
continuing to be employed by Company on such terms and conditions and for such consideration;

     NOW, THEREFORE, for and in consideration of the mutual promises, covenants and obligations
contained herein, Company and Executive agree as follows:

ARTICLE 1: DEFINITIONS AND INTERPRETATIONS

     1.1 Definitions.

     (a) “Annual Base Salary” shall mean an amount equal to the greater of:

     (i) Executive’s base salary at the annual rate in effect pursuant to Section
4.1 at the date of Executive’s Involuntary Termination;

     (ii) Executive’s base salary at the annual rate in effect pursuant to Section
4.1 on the date that is 60 days prior to the date of Executive’s Involuntary
Termination; or

     (iii) Executive’s base salary at the annual rate in effect pursuant to Section
4.1 immediately prior to a Change of Control if Executive’s employment shall be
subject to an Involuntary Termination during the Change of Control Period.

     (b) “Average Annual Bonus” shall mean the average of the annual cash performance
bonuses, if any, paid to Executive by Company pursuant to Section 4.2 with respect to the
two calendar years ending prior to the date of Executive’s Involuntary Termination;
provided, however, that (i) if Executive has not been employed by Company for a sufficient
period of time to have been eligible to receive bonuses with respect to both of such
calendar years, then the term “Average Annual Bonus” shall mean
the average of all such bonuses, if any, paid to Executive by Company pursuant to
Section 4.2 with respect to all calendar years ending prior to the date of Executive’s

 

 

Involuntary Termination, and (ii) if Executive was employed by Company for only a portion of
a year with respect to which such a bonus was paid, then the “Average Annual Bonus” shall be
determined by annualizing the bonus received by Executive for such portion of such year
based on the ratio of the number of days Executive was employed by Company during such year
to 365 days.

     (c) “Board” shall mean the Board of Directors of Company.

     (d) “Cause” shall mean Executive (i) has engaged in gross negligence, gross
incompetence or willful misconduct in the performance of Executive’s duties, (ii) has
refused, without proper reason, to perform Executive’s duties, (iii) has materially breached
any material provision of this Agreement or corporate policy or code of conduct established
by Company, (iv) has willfully engaged in conduct which is materially injurious to Company
or its subsidiaries (monetarily or otherwise), (v) has committed an act of fraud,
embezzlement or willful breach of a fiduciary duty to Company or an affiliate (including the
unauthorized disclosure of confidential or proprietary material information of Company or an
affiliate), (vi) has been convicted of (or pleaded no contest to) a crime involving fraud,
dishonesty or moral turpitude or any felony, or (vii) has used Company securities owned or
controlled by Executive as collateral for a securities margin account.

     (e) “Change in Duties” shall mean:

          (i) The occurrence, prior to the date that a Change of Control Period begins or
after the expiration of a Change of Control Period, of any one or more of the
following without the consent of Executive:

     (1) a reduction in the rank of Executive’s title as an officer of
Company from that previously applicable to Executive (it is specifically
agreed that any change in Executive’s position(s) or title(s) with Company
shall not constitute a Change in Duties under this clause unless the rank of
Executive’s title as an officer is reduced in connection with such change
(for example, a reduction in rank from vice president to assistant vice
president));

     (2) a reduction in Executive’s base salary; or

     (3) a material diminution in employee benefits (including but not
limited to medical, dental, life insurance and long-term disability plans)
and perquisites applicable to Executive from those substantially similar to
the employee benefits and perquisites provided by Company (including its
subsidiaries) to similarly situated executives; or

          (ii) The occurrence, within a Change of Control Period, of any one or more of
the following without the consent of Executive:

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     (1) a material reduction in the nature or scope of Executive’s
authorities or duties from those applicable to Executive immediately prior
to the date on which a Change of Control Period begins;

     (2) a reduction in Executive’s base salary from that provided to
Executive immediately prior to the date on which a Change of Control Period
begins;

     (3) a diminution in Executive’s eligibility to participate in bonus,
stock option, incentive award and other compensation plans which provide
opportunities to receive compensation which are the greater of (A) the
opportunities provided by Company (including its subsidiaries) for similarly
situated executives or (B) the opportunities under any such plans under
which Executive was participating immediately prior to the date on which a
Change of Control Period begins;

     (4) a material diminution in employee benefits (including but not
limited to medical, dental, life insurance and long-term disability plans)
and perquisites applicable to Executive from the greater of (A) the employee
benefits and perquisites provided by Company (including its subsidiaries) to
similarly situated executives or (B) the employee benefits and perquisites
to which Executive was entitled immediately prior to the date on which a
Change of Control Period begins; or

     (5) a change in the location of Executive’s principal place of
employment by Company (including its subsidiaries) by more than 10 miles
from the location where Executive was principally employed immediately prior
to the date on which a Change of Control Period begins.

     (f) “Change of Control” shall mean:

     (i) a merger of Company with another entity, a consolidation involving Company,
or the sale of all or substantially all of the assets of Company to another entity
if, in any such case, (1) the holders of equity securities of Company immediately
prior to such transaction or event do not beneficially own immediately after such
transaction or event equity securities of the resulting entity entitled to 50% or
more of the votes then eligible to be cast in the election of directors generally
(or comparable governing body) of the resulting entity in substantially the same
proportions that they owned the equity securities of Company immediately prior to
such transaction or event or (2) the persons who were members of the Board
immediately prior to such transaction or event shall not constitute at least a
majority of the board of directors of the resulting entity immediately after such
transaction or event;

     (ii) the dissolution or liquidation of Company;

     (iii) when any person or entity, including a “group” as contemplated by Section
13(d)(3) of the Securities Exchange Act of 1934,

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acquires or gains ownership or control (including, without limitation, power to
vote) of more than 50% of the combined voting power of the outstanding securities of
Company; or

     (iv) as a result of or in connection with a contested election of directors,
the persons who were members of the Board immediately before such election shall
cease to constitute a majority of the Board.

For purposes of the preceding sentence, (1) “resulting entity” in the context of a
transaction or event that is a merger, consolidation or sale of all or substantially
all assets shall mean the surviving entity (or acquiring entity in the case of an
asset sale) unless the surviving entity (or acquiring entity in the case of an asset
sale) is a subsidiary of another entity and the holders of common stock of Company
receive capital stock of such other entity in such transaction or event, in which
event the resulting entity shall be such other entity, and (2) subsequent to the
consummation of a merger or consolidation that does not constitute a Change of
Control, the term “Company” shall refer to the resulting entity and the term “Board”
shall refer to the board of directors (or comparable governing body) of the
resulting entity.

     (g) “Change of Control Period” shall mean, with respect to a Change of Control, the
two-year period beginning on the date upon which such Change of Control occurs.

     (h) “Code” shall mean the Internal Revenue Code of 1986, as amended.

     (i) “Compensation Committee” shall mean the Compensation Committee of the Board.

     (j) “Disability” shall mean that, as a result of Executive’s incapacity due to physical
or mental illness, Executive shall have been absent from the full-time performance of
Executive’s duties for six consecutive months and Executive shall not have returned to
full-time performance of Executive’s duties within 30 days after written notice of
termination is given to Executive by Company (provided, however, that such notice may not be
given prior to 30 days before the expiration of such six-month period).

     (k) “Effective Date” shall mean January 1, 2009.

     (l) “Involuntary Termination” shall mean any termination of Executive’s employment with
Company which:

     (i) does not result from a resignation by Executive (other than a resignation
pursuant to clause (ii) of this Section 1.1(l)); or

     (ii) results from a resignation by Executive on or before the date which is 60
days after the date upon which Executive receives notice of a Change in Duties;

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provided, however, the term “Involuntary Termination” shall not include a termination for
Cause or any termination as a result of death or Disability.

          (m) “Monthly Severance Amount” shall mean an amount equal to one-twelfth of Executive’s
Annual Base Salary.

     1.2 Interpretations. In this Agreement, unless a clear contrary intention appears,
(a) the words “herein,” “hereof” and “hereunder” and other words of similar import refer to this
Agreement as a whole and not to any particular Article, Section or other subdivision, (b) reference
to any Article or Section, means such Article or Section hereof, (c) the words “including” (and
with correlative meaning “include”) means including, without limiting the generality of any
description preceding such term, and (d) where any provision of this Agreement refers to action to
be taken by either party, or which such party is prohibited from taking, such provision shall be
applicable whether such action is taken directly or indirectly by such party.

ARTICLE 2: EMPLOYMENT AND DUTIES

     2.1 Employment. Effective as of the Effective Date and continuing for the period of
time set forth in Section 3.1, Executive’s employment by Company shall be subject to the terms and
conditions of this Agreement.

     2.2 Positions. From and after the Effective Date, (a) Executive shall serve as an
officer of Company in the position or positions determined by the Board and (b) Executive shall be
employed by Company or a subsidiary or affiliate of Company. The Board may at any time and from
time to time assign Executive to a different position or positions with Company and cause Executive
to be employed by Company or any subsidiary or affiliate of Company; provided, however, that any
such assignment shall not impair any rights Executive may have under Section 3.3 as a result of
such assignment. Subject to the provisions of the last sentence of Section 5.7, employment with a
subsidiary or affiliate of Company pursuant to the preceding sentence shall be considered as
employment with Company for purposes of this Agreement.

     2.3 Duties and Services. Executive agrees to serve in the positions referred to in
Section 2.2 and to perform diligently and to the best of Executive’s abilities the duties and
services appertaining to such offices, as well as such additional duties and services appropriate
to such offices which the parties mutually may agree upon from time to time. Executive’s
employment shall also be subject to the policies maintained and established by Company that are of
general applicability to Company’s executive employees, as such policies may be amended from time
to time.

     2.4
Other Interests. Executive agrees, during the period of Executive’s employment by Company, to devote
substantially all of Executive’s business time, energy and best efforts to the business and affairs
of Company and its affiliates and not to engage, directly or indirectly, in any other business or
businesses, whether or not similar to that of Company, except with the consent of the Board. The
foregoing notwithstanding, the parties recognize and agree that, subject to Section 1.1(d)(vii),
Executive may engage in passive personal investment and charitable activities that do not conflict
with the business and affairs of Company or interfere

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with Executive’s performance of Executive’s
duties hereunder, which shall be at the sole determination of the Board. As of the date of this
Agreement, the Board has approved the activities set forth on Attachment A to this Agreement.

     2.5 Duty of Loyalty. Executive acknowledges and agrees that Executive owes a
fiduciary duty of loyalty to act at all times in the best interests of Company. In keeping with
such duty, Executive shall make full disclosure to Company of all business opportunities pertaining
to Company’s business and shall not appropriate for Executive’s own benefit business opportunities
concerning Company’s business.

ARTICLE 3: TERM AND TERMINATION OF EMPLOYMENT

     3.1 Term. Unless sooner terminated pursuant to other provisions hereof, Company
agrees to employ Executive for the period beginning on the Effective Date and ending on the third
anniversary of the Effective Date (the “Initial Expiration Date”); provided, however, that
beginning on the Initial Expiration Date, and on each anniversary of the Initial Expiration Date
thereafter, if Executive’s employment under this Agreement has not been terminated pursuant to
Section 3.2 or 3.3, then said term of employment shall automatically be extended for an additional
one-year period unless on or before the date that is 90 days prior to the first day of any such
extension period either party shall give written notice to the other that no such automatic
extension shall occur.

     3.2 Company’s Right to Terminate. Notwithstanding the provisions of Section 3.1,
Company shall have the right to terminate Executive’s employment under this Agreement at any time
for any of the following reasons:

     (a) upon Executive’s death;

     (b) upon Executive’s Disability;

     (c) for Cause; or

     (d) at any time, for any other reason whatsoever, in the sole discretion of the Board.

     3.3 Executive’s Right to Terminate. Notwithstanding the provisions of Section 3.1
Executive shall have the right to terminate Executive’s employment under this Agreement for any of
the following reasons:

     (a) as a result of a Change in Duties; provided, however, that prior to Executive’s
termination as a result of a Change in Duties, Executive must give written notice to Company
of the specific occurrence that resulted in the Change in Duties and such occurrence must
remain uncorrected for 10 days following such written notice; or

     (b) at any time for any other reason whatsoever, in the sole discretion of Executive.

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     3.4 Notice of Termination. If Company desires to terminate Executive’s employment
hereunder at any time prior to expiration of the term of employment as provided in Section 3.1, it
shall do so by giving written notice to Executive that it has elected to terminate Executive’s
employment hereunder and stating the effective date and reason for such termination, provided that
no such action shall alter or amend any other provisions hereof or rights arising hereunder. If
Executive desires to terminate Executive’s employment hereunder at any time prior to expiration of
the term of employment as provided in Section 3.1, Executive shall do so by giving a 60-day written
notice to Company that Executive has elected to terminate Executive’s employment hereunder and
stating the effective date and reason for such termination; provided, however, that (a) no such
action shall alter or amend any other provisions hereof or rights arising hereunder and (b) Company
may accelerate Executive’s elected effective date of termination to any date of Company’s choice
from and after its receipt of such notice, and such action by Company shall not change the basis
for Executive’s termination nor be construed or interpreted as a termination of Executive’s
employment by Company for any reason whatsoever.

     3.5 Deemed Resignations. Any termination of Executive’s employment shall constitute
an automatic resignation of Executive as an officer of Company and each affiliate of Company, and
an automatic resignation of Executive from the Board (if applicable) and from the board of
directors or similar governing body of any affiliate of Company and from the board of directors or
similar governing body of any corporation, limited liability company or other entity in which
Company or any affiliate holds an equity interest (including any retirement or other benefit plan
of Company or any affiliate of Company) and with respect to which board or similar governing body
Executive serves as Company’s or such affiliate’s designee or other representative.

ARTICLE 4: COMPENSATION AND BENEFITS

     4.1 Base Salary. During the period of this Agreement, Executive shall receive a
minimum base salary of $265,000 per annum. Executive’s base salary may, in the sole discretion of
the Compensation Committee, be increased, but not decreased, effective as of any date determined by
the Compensation Committee. Executive’s base salary shall be paid in equal installments in
accordance with Company’s standard policy regarding payment of compensation to executives but no
less frequently than monthly.

     4.2 Bonuses. Executive shall be eligible to participate in Company’s annual cash
incentive plan as approved from time to time by the Board or the Compensation Committee in amounts
to be determined by the Compensation Committee based upon criteria established by the Compensation
Committee.

     4.3 Other Perquisites. During Executive’s employment hereunder, Executive shall be
afforded the following benefits as incidences of Executive’s employment:

     (a) Business and Entertainment Expenses - Subject to Company’s standard policies and
procedures with respect to expense reimbursement as applied to its executive employees
generally, Company shall reimburse Executive for, or pay on behalf of Executive, reasonable
and appropriate expenses incurred by Executive for business

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related purposes, including dues
and fees to industry and professional organizations and costs of entertainment and business
development.

     (b) Other Company Benefits - Executive and, to the extent applicable, Executive’s
spouse, dependents and beneficiaries, shall be allowed to participate in all benefits, plans
and programs, including improvements or modifications of the same, which are now, or may
hereafter be, available to other executive employees of Company. Such benefits, plans and
programs shall include, without limitation, any profit sharing plan, thrift plan, health
insurance or health care plan, life insurance, disability insurance, pension plan,
supplemental retirement plan, vacation and sick leave plan, and the like which may be
maintained by Company. Company shall not, however, by reason of this paragraph be obligated
to institute, maintain, or refrain from changing, amending, or discontinuing, any such
benefit plan or program, so long as such changes are similarly applicable to executive
employees generally.

ARTICLE 5: EFFECT OF TERMINATION ON COMPENSATION; ADDITIONAL PAYMENTS

     5.1 Termination Other Than an Involuntary Termination. If Executive’s employment
hereunder shall terminate upon expiration of the term provided in Section 3.1 because either party
has provided the notice contemplated in such Section, or if Executive’s employment hereunder shall
terminate for any other reason except those described in Sections 5.2 and 5.3, then all
compensation and all benefits to Executive hereunder shall continue to be provided until the date
of such termination of employment and such compensation and benefits shall terminate
contemporaneously with such termination of employment; provided, however, that if such termination
of employment shall be for a reason encompassed by Section 3.2(a) or (b), then, subject to the
provisions of Sections 5.5, 5.7 and, in
the case of a termination encompassed by Section 3.2(b), Section 5.6, Company shall (a) pay
Executive an aggregate amount equal to Executive’s base salary at the annual rate in effect
pursuant to Section 4.1 as of the date of such termination of employment, which aggregate amount
shall be divided into 18 equal installments and one such installment shall be paid on the last day
of each month throughout the 18-month period commencing on the date of such termination of
employment, and (b) pay Executive within 30 days after such termination of employment an amount
equal to Executive’s target bonus pursuant to Section 4.2 for the year in which such termination of
employment occurs multiplied by a fraction, the numerator of which is the number of days during the
period beginning on the first day of the calendar year in which such termination of employment
occurs and ending on the date of such termination of employment, and the denominator of which is
365.

     5.2 Involuntary Termination Other Than During a Change of Control Period. Subject to
the provisions of Sections 5.5, 5.6 and 5.7, if Executive’s employment by Company or any subsidiary
thereof or successor thereto shall be subject to an Involuntary Termination which occurs prior to
the date that a Change of Control Period begins or after the expiration of a Change of Control
Period, then Company shall, as additional compensation for services rendered to Company (including
its subsidiaries), pay to Executive the following amounts and take the following actions:

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     (a) pay Executive the Monthly Severance Amount on the last day of each month throughout
the 18-month period commencing on the date of such Involuntary Termination; and

     (b) during the portion, if any, of the 12-month period commencing on the date of such
Involuntary Termination that Executive is eligible to elect and elects to continue coverage
for himself and his eligible dependents under Company’s or a subsidiary’s group health
plans, as applicable, under the Consolidated Omnibus Budget Reconciliation Act of 1985, as
amended, and/or Sections 601 through 608 of the Employee Retirement Income Security Act of
1974, as amended, Company shall promptly reimburse Executive on a monthly basis for the
difference between the amount Executive pays to effect and continue such coverage and the
employee contribution amount that active senior executive employees of Company pay for the
same or similar coverage under such group health plans.

     5.3 Involuntary Termination During a Change of Control Period. Subject to the
provisions of Section 5.5, 5.6 and 5.7, if Executive’s employment by Company or any subsidiary
thereof or successor thereto shall be subject to an Involuntary Termination during a Change of
Control Period, then Company shall, as additional compensation for services rendered to Company
(including its subsidiaries), pay to Executive the following amounts and take the following
actions:

     (a) (i) if the Change of Control relating to such Change of Control Period constitutes
a change in control event (as defined in Treasury regulation section 1.409A-3(i)(5)), pay
Executive on or before the fifth day after the last day of Executive’s
employment with Company a lump sum cash payment in an amount equal to two times the sum
of (A) Executive’s Annual Base Salary plus (B) Executive’s Average Annual Bonus, or (ii) if
the Change of Control relating to such Change of Control Period does not constitute a change
in control event (as defined in Treasury regulation section 1.409A-3(i)(5)), pay Executive
an aggregate amount equal to two times the sum of (A) Executive’s Annual Base Salary plus
(B) Executive’s Average Annual Bonus, which aggregate amount shall be divided into 18 equal
installments and one such installment shall be paid on the last day of each month throughout
the 18-month period commencing on the date of such Involuntary Termination;

     (b) cause any and all outstanding options to purchase common stock of Company held by
Executive to be fully vested and to become immediately exercisable in full and cause any and
all shares of restricted shares of Company’s common stock held by Executive to become
immediately nonforfeitable; and

     (c) during the portion, if any, of the 18-month period commencing on the date of such
Involuntary Termination that Executive is eligible to elect and elects to continue coverage
for himself and his eligible dependents under Company’s or a subsidiary’s group health
plans, as applicable, under the Consolidated Omnibus Budget Reconciliation Act of 1985, as
amended, and/or Sections 601 through 608 of the Employee Retirement Income Security Act of
1974, as amended, Company shall promptly reimburse Executive on a monthly basis for the
difference between the amount Executive pays to effect and

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continue such coverage and the
employee contribution amount that active senior executive employees of Company pay for the
same or similar coverage under such group health plans.

     5.4 Interest on Late Payments. If any payment provided for in Section 5.2 or
Section 5.3 hereof is not made when due (applying the deferred payment date provided for in Section
5.7 as the due date, if applicable), then Company shall pay to Executive interest on the amount
payable from the date that such payment should have been made under such Section until such payment
is made, which interest shall be calculated at the prime or base rate of interest announced by
JPMorgan Chase Bank (or any successor thereto) at its principal office in New York, and shall
change when and as any such change in such prime or base rate shall be announced by such bank.

     5.5 Parachute Payments. Notwithstanding anything to the contrary in this Agreement,
if Executive is a “disqualified individual” (as defined in Section 280G(c) of the Code), and the
benefits provided for in this Article, together with any other payments and benefits which
Executive has the right to receive from Company and its affiliates, would constitute a “parachute
payment” (as defined in Section 280G(b)(2) of the Code), then the benefits provided hereunder
(beginning with any benefit to be paid in cash hereunder) shall be either (1) reduced (but not
below zero) so that the present value of such total amounts and benefits received by Executive from
Company will be one dollar ($1.00) less than three times Executive’s “base amount” (as defined in
Section 280G(b)(3) of the Code) and so that no portion of such amounts and benefits received by
Executive shall be subject to the excise tax imposed by Section 4999 of the Code or (2) paid
in full, whichever produces the better net after-tax position to Executive (taking into account any
applicable excise tax under Section 4999 of the Code and any other applicable taxes). The
determination as to whether any such reduction in the amount of the benefits provided hereunder is
necessary shall be made by the Compensation Committee in good faith and in consultation with
Executive and tax and legal advisors of Company. If a reduced cash payment is made and through
error or otherwise that payment, when aggregated with other payments and benefits from Company (or
its affiliates) used in determining if a “parachute payment” exists, exceeds one dollar ($1.00)
less than three times Executive’s base amount, then Executive shall immediately repay such excess
to Company upon notification that an overpayment has been made. Nothing in this Section 5.5 shall
require Company to be responsible for, or have any liability or obligation with respect to,
Executive’s excise tax liabilities under Section 4999 of the Code.

     5.6 Release and Full Settlement. As a condition to the receipt of any severance
compensation and benefits under this Agreement, Executive must first execute a release and
agreement, in a form reasonably satisfactory to Company, which (1) shall release and discharge
Company and its affiliates, and their officers, directors, employees and agents from any and all
claims or causes of action of any kind or character, including but not limited to all claims or
causes of action arising out of Executive’s employment with Company or its affiliates or the
termination of such employment, and (2) must be effective and irrevocable within 55 days after the
termination of Executive’s employment. If Executive is entitled to and receives the benefits
provided hereunder, performance of the obligations of Company hereunder will constitute full
settlement of all claims that Executive might otherwise assert against Company on account of
Executive’s termination of employment.

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     5.7 Payments Subject to Section 409A of the Code. Notwithstanding the foregoing provisions
of this Article 5, if the payment of any severance compensation or severance benefits under this
Agreement would be subject to additional taxes and interest under Section 409A of the Code because
the timing of such payment is not delayed as provided in Section 409A(a)(2)(B) of the Code, then
any such payments that Executive would otherwise be entitled to during the first six months
following the date of Executive’s termination of employment shall be accumulated and paid on the
date that is six months after the date of Executive’s termination of employment (or if such payment
date does not fall on a business day of Company, the next following business day of Company), or
such earlier date upon which such amount can be paid under Section 409A of the Code without being
subject to such additional taxes and interest. Executive hereby agrees to be bound by Company’s
determination of its “specified employees” (as such term is defined in Section 409A of the Code) in
accordance with any of the methods permitted under the regulations issued under Section 409A of the
Code. The provisions of this Section 5.7 shall also apply, to the extent required under Section
409A of the Code, to any payment of the Monthly Severance Amount to Executive pursuant to Section
7.1(b). For the purposes of this Agreement, Executive shall be considered to have terminated
employment with Company when Executive incurs a “separation from service” with Company within the
meaning of Section 409A(a)(2)(A)(i) of the Code and applicable administrative guidance issued
thereunder; provided, however, that whether such a separation from service has
occurred shall be determined based upon a reasonably anticipated permanent reduction in the level
of bona fide services to be performed to no more than 49% of the average level of bona fide
services provided in the immediately preceding 36 months.

     5.8 Liquidated Damages. In light of the difficulties in estimating the damages for an
early termination of Executive’s employment under this Agreement, Company and Executive hereby
agree that the payments, if any, to be received by Executive pursuant to this Article 5 shall be
received by Executive as liquidated damages.

     5.9 Other Benefits. This Agreement governs the rights and obligations of Executive
and Company with respect to Executive’s base salary and certain perquisites of employment. Except
as expressly provided herein, Executive’s rights and obligations both during the term of his
employment and thereafter with respect to stock options, restricted stock, incentive and deferred
compensation, life insurance policies insuring the life of Executive, and other benefits under the
plans and programs maintained by Company shall be governed by the separate agreements, plans and
other documents and instruments governing such matters.

ARTICLE 6: PROTECTION OF CONFIDENTIAL INFORMATION

     6.1 Disclosure to and Property of Company. All information, designs, ideas, concepts,
improvements, product developments, discoveries and inventions, whether patentable or not, that are
conceived, made, developed or acquired by Executive, individually or in conjunction with others,
during the period of Executive’s employment by Company (whether during business hours or otherwise
and whether on Company’s premises or otherwise) that relate to Company’s (or any of its
affiliates’) business, trade secrets, products or services (including, without limitation, all such
information relating to corporate opportunities, product specification, compositions, manufacturing
and distribution methods and processes, research, financial and sales data, pricing terms,
evaluations, opinions, interpretations, acquisitions prospects, the

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identity of customers or their
requirements, the identity of key contacts within the customer’s organizations or within the
organization of acquisition prospects, marketing and merchandising techniques, business plans,
computer software or programs, computer software and database technologies, prospective names and
marks) (collectively, “Confidential Information”) shall be disclosed to Company and are and shall
be the sole and exclusive property of Company (or its affiliates). Moreover, all documents,
videotapes, written presentations, brochures, drawings, memoranda, notes, records, files,
correspondence, manuals, models, specifications, computer programs, E-mail, voice mail, electronic
databases, maps, drawings, architectural renditions, models and all other writings or materials of
any type embodying any of such information, ideas, concepts, improvements, discoveries, inventions
and other similar forms of expression (collectively, “Work Product”) are and shall be the sole and
exclusive property of Company (or its affiliates). Upon Executive’s termination of employment with
Company, for any reason, Executive promptly shall deliver such Confidential Information and Work
Product, and all copies thereof, to Company.

     6.2 Disclosure to Executive. Company has and will disclose to Executive, or place
Executive in a position to have access to or develop, Confidential Information and Work Product of
Company (or its affiliates); and/or has and will entrust Executive with business opportunities of
Company (or its affiliates); and/or has and will place Executive in a position to develop business
good will on behalf of Company (or its affiliates). Executive agrees to preserve and protect the
confidentiality of all Confidential Information or Work Product of Company (or its affiliates).

     6.3 No Unauthorized Use or Disclosure. Executive agrees that he will not, at any time
during or after Executive’s employment by Company, make any unauthorized disclosure of, and will
prevent the removal from Company premises of, Confidential Information or Work Product of Company
(or its affiliates), or make any use thereof, except in the carrying out of Executive’s
responsibilities during the course of Executive’s employment with Company. Executive shall use
commercially reasonable efforts to cause all persons or entities to whom any Confidential
Information shall be disclosed by him hereunder to observe the terms and conditions set forth
herein as though each such person or entity was bound hereby. Executive shall have no obligation
hereunder to keep confidential any Confidential Information if and to the extent disclosure thereof
is specifically required by law; provided, however, that in the event disclosure is required by
applicable law, Executive shall provide Company with prompt notice of such requirement prior to
making any such disclosure, so that Company may seek an appropriate protective order. At the
request of Company at any time, Executive agrees to deliver to Company all Confidential Information
that he may possess or control. Executive agrees that all Confidential Information of Company
(whether now or hereafter existing) conceived, discovered or made by him during the period of
Executive’s employment by Company exclusively belongs to Company (and not to Executive), and
Executive will promptly disclose such Confidential Information to Company and perform all actions
reasonably requested by Company to establish and confirm such exclusive ownership. Affiliates of
Company shall be third party beneficiaries of Executive’s obligations under this Article 6. As a
result of Executive’s employment by Company, Executive may also from time to time have access to,
or knowledge of, Confidential Information or Work Product of third parties, such as customers,
suppliers, partners, joint venturers, and the like, of Company and its affiliates. Executive also
agrees to preserve and

12

 

protect the confidentiality of such third party Confidential Information and
Work Product to the same extent, and on the same basis, as Company’s Confidential Information and
Work Product.

     6.4 Ownership by Company. If, during Executive’s employment by Company, Executive
creates any work of authorship fixed in any tangible medium of expression that is the subject
matter of copyright (such as videotapes, written presentations, or acquisitions, computer programs,
E-mail, voice mail, electronic databases, drawings, maps, architectural renditions, models,
manuals, brochures, or the like) relating to Company’s business, products, or services, whether
such work is created solely by Executive or jointly with others (whether during business hours or
otherwise and whether on Company’s premises or otherwise), including any Work Product, Company
shall be deemed the author of such work if the work is prepared by Executive in the scope of
Executive’s
employment; or, if the work is not prepared by Executive within the scope of Executive’s
employment but is specially ordered by Company as a contribution to a collective work, as a part of
a motion picture or other audiovisual work, as a translation, as a supplementary work, as a
compilation, or as an instructional text, then the work shall be considered to be work made for
hire and Company shall be the author of the work. If such work is neither prepared by Executive
within the scope of Executive’s employment nor a work specially ordered that is deemed to be a work
made for hire, then Executive hereby agrees to assign, and by these presents does assign, to
Company all of Executive’s worldwide right, title, and interest in and to such work and all rights
of copyright therein.

     6.5 Assistance by Executive. During the period of Executive’s employment by Company
and thereafter, Executive shall, at Company’s expense, assist Company and its nominee, at any time,
in the protection of Company’s (or its affiliates’) worldwide right, title and interest in and to
Work Product and the execution of all formal assignment documents requested by Company or its
nominee and the execution of all lawful oaths and applications for patents and registration of
copyright in the United States and foreign countries.

     6.6 Remedies. Executive acknowledges that money damages would not be sufficient
remedy for any breach of this Article 6 by Executive, and Company or its affiliates shall be
entitled to enforce the provisions of this Article 6 by terminating payments then owing to
Executive under this Agreement or otherwise and to specific performance and injunctive relief as
remedies for such breach or any threatened breach. Such remedies shall not be deemed the exclusive
remedies for a breach of this Article 6 but shall be in addition to all remedies available at law
or in equity, including the recovery of damages from Executive and his agents.

ARTICLE 7: NON-COMPETITION AND RELATED OBLIGATIONS

     7.1 General. (a) As part of the consideration for Company’s employment of Executive
and the compensation and benefits that may be paid to Executive hereunder; to protect the trade
secrets and Confidential Information of Company or its affiliates that have been and will in the
future be disclosed or entrusted to Executive, the business good will of Company or its affiliates
that has been and will in the future be developed in Executive, or the business opportunities that
have been and will in the future be disclosed or entrusted to Executive by Company or its
affiliates; and as an additional incentive for Company to enter into this Agreement, Company and
Executive agree to the provisions of this Article 7. Except as provided in Section 7.1(b),
Executive agrees that during Executive’s employment with Company

13

 

and for a period of one year
following the termination of Executive’s employment with Company for any reason (the “Non-Compete
Period”), Executive shall not:

     (i) directly or indirectly, either as principal, agent, independent contractor,
consultant, director, officer, employee, employer, advisor, stockholder, partner or in any
other individual or representative capacity whatsoever, either for Executive’s own benefit
or for the benefit of any other person or entity either (1) hire, contract or solicit,
or attempt any of the foregoing with respect to hiring any employee of Company or its
affiliates, or (2) induce or otherwise counsel, advise, or encourage any employee of Company
or its affiliates to leave the employment of Company or its affiliates; and

     (ii) within any geographic area or market where Company or any of its affiliates are
conducting any business or have, during the twelve months preceding the termination of
Executive’s employment with Company, conducted such business, as applicable:

     (1) directly or indirectly participate in the ownership, management, operation
or control of, or be connected as an officer, employee, partner, director,
contractor or otherwise with, or have any financial interest in or aid or assist
anyone else in the conduct of, any business in any of the business territories in
which Company is presently or from time-to-time conducting business that either
conducts a business similar to that conducted by Company or its affiliates or
provides or sells a service or product that is the same, substantially similar to or
otherwise competitive with the products and services provided or sold by Company or
its affiliates (a “Competitive Operation”); provided, however, that this provision
shall not preclude Executive after the termination of Executive’s employment with
Company from owning less than 2% of the equity securities of any publicly held
Competitive Operation so long as Executive does not serve as an employee, officer,
director or consultant to such business;

     (2) directly or indirectly, either as principal, agent, independent contractor,
consultant, director, officer, employee, employer, advisor, stockholder, partner or
in any other individual or representative capacity whatsoever, either for
Executive’s own benefit or for the benefit of any other person or entity call upon,
solicit, divert or take away, any customer or vendor of Company or its affiliates
with whom Executive dealt, directly or indirectly, during Executive’s engagement
with Company or its affiliates, in connection with a Competitive Operation; or

     (3) call upon any prospective acquisition candidate on Executive’s own behalf
or on behalf of any Competitive Operation, which candidate is a Competitive
Operation or which candidate was, to Executive’s knowledge after due inquiry, either
called upon by Company or for which Company or any of its affiliates made an
acquisition analysis, for the purpose of acquiring such entity.

     (b) Notwithstanding the provisions of Section 7.1(a), if (i) Executive provides written notice
to Company pursuant to Section 3.4 that Executive will terminate employment with Company pursuant
to a resignation by Executive that does not constitute an Involuntary

14

 

Termination or (ii) either
party provides written notice to the other that the term of this Agreement shall not be
automatically extended as provided in Section 3.1, then, in any such case:

     (1) for purposes of Sections 7.1(a)(ii)(1), the Non-Compete Period shall end on a date
selected by Company and set forth in a written notice provided by Company to
Executive (the “Non-Compete Notice”); provided, however, that (1) the date selected by
Company shall be a whole number of months (not in excess of 12) after the last day of
Executive’s employment with Company and (2) Company shall pay to Executive the Monthly
Severance Amount on the last day of each month during the portion of the Non-Compete Period
that is after the last day of Executive’s employment with Company; and

     (2) for purposes of Sections 7.1(a)(i), 7.1(a)(ii)(2) and 7.1(a)(ii)(3), the
Non-Compete period shall end on the date that is one year after the last day of Executive’s
employment with Company.

The Non-Compete Notice shall be delivered by Company to Executive within 10 days after receipt by
Company of Executive’s notice pursuant to Section 3.4 or on or before the date that is 45 days
prior to the expiration of the term of this Agreement under Section 3.1, as applicable. Executive
hereby delegates to Company the right to select and determine in good faith the duration of the
Non-Compete Period as provided in Section 7.1(b)(i).

     7.2 Non-Disparagement. During Executive’s employment with Company and following any
termination of employment with Company, Executive and Company agree not to disparage, either orally
or in writing, Executive, Company, any of Company’s affiliates, business, products, services or
practices, or any of Company’s or its affiliates’ directors, officers, agents, representatives,
stockholders, or employees.

     7.3 New Employer. Executive agrees that prior to accepting any new employment during
the Non-Compete Period, Executive shall advise Company of the identity of the potential new
employer. Company may serve such new employer with notice of the non-competition restrictions set
forth in this Article 7 and may furnish such employer with a copy of this Agreement or the relevant
portions thereof.

     7.4 Remedies. Executive acknowledges that money damages would not be a sufficient
remedy for any breach of this Article 7 by Executive, and Company or its affiliates shall be
entitled to enforce the provisions of this Article 7 by terminating payments then owing to
Executive under this Agreement or otherwise and to specific performance and injunctive relief as
remedies for such breach or any threatened breach. Such remedies shall not be deemed the exclusive
remedies for a breach of this Article 7 but shall be in addition to all remedies available at law
or in equity, including the recovery of damages from Executive and his agents.

     7.5 Reformation. Company and Executive agree that the foregoing restrictions are
reasonable under the circumstances and that any breach of the covenants contained in this Article 7
would cause irreparable injury to Company. Executive understands that the foregoing restrictions
may limit Executive’s ability to engage in certain businesses anywhere in the United States or such
other
geographic areas or markets in which Company or any of its affiliates are

15

 

conducting business
or have, during the 12 months preceding the termination of Executive’s employment, conducted such
business, as applicable, during the Non-Compete Period, but acknowledges that Executive will
receive sufficiently high remuneration and other benefits from Company to justify such restriction.
Nevertheless, if any of the aforesaid restrictions are found by a court of competent jurisdiction
to be unreasonable, or overly broad as to geographic area or time, or otherwise unenforceable, the
parties intend for the restrictions therein set forth to be modified by the court making such
determination so as to be reasonable and enforceable and, as so modified, to be fully enforced. By
agreeing to this contractual modification prospectively at this time, Company and Executive intend
to make this provision enforceable under the law or laws of all applicable States so that the
entire agreement not to compete and this Agreement as prospectively modified shall remain in full
force and effect and shall not be rendered void or illegal. Such modification shall not affect the
payments made to Executive under this Agreement.

ARTICLE 8: MISCELLANEOUS

     8.1 Indemnification. If Executive shall obtain any money judgment or otherwise
prevail with respect to any litigation brought by Executive or Company to enforce or interpret any
provision contained herein, Company, to the fullest extent permitted by applicable law, hereby
indemnifies Executive for his reasonable attorneys’ fees and disbursements incurred in such
litigation and hereby agrees (i) to pay in full all such fees and disbursements and (ii) to pay
prejudgment interest on any money judgment obtained by Executive from the earliest date that
payment to him should have been made under this Agreement until such judgment shall have been paid
in full, which interest shall be calculated at the prime or base rate of interest announced by
JPMorgan Chase Bank (or any successor thereto) at its principal office in New York, and shall
change when and as any such change in such prime or base rate shall be announced by such bank. Any
reimbursement of reasonable attorneys’ fees and disbursements required under this Section 8.1 shall
be made not later than the close of Executive’s taxable year following the taxable year in which
Executive incurs the expense; provided, however, that, upon Executive’s termination of employment
with Company, in no event shall any additional reimbursement be made prior to the date that is six
months after the date of Executive’s termination of employment to the extent such payment delay is
required under Section 409A(a)(2)(B)(i) of the Code. In no event shall any reimbursement be made
to Executive for such fees and disbursements incurred after the later of (1) Executive’s death or
(2) the date that is 10 years after the date of Executive’s termination of employment with Company.

     8.2 Payment Obligations Absolute. Except as specifically provided in Sections 6.6 and
7.4, Company’s obligation to pay (or cause one of its subsidiaries to pay) Executive the amounts
and to make the arrangements provided herein shall be absolute and unconditional and shall not be
affected by any circumstances, including, without limitation, any set-off, counterclaim,
recoupment, defense or other right which Company (including its subsidiaries) may have against him
or anyone else. All amounts payable by Company (including its subsidiaries hereunder) shall be
paid without notice or demand. Executive shall not be obligated to seek other employment in
mitigation of the
amounts payable or arrangements made under any provision of this Agreement, and the obtaining
of any such other employment shall in no event effect any reduction of Company’s obligations to
make (or cause to be made) the payments and arrangements required to be made under this Agreement.

16

 

     8.3 Notices. For purposes of this Agreement, notices and all other communications
provided for herein shall be in writing and shall be deemed to have been duly given when personally
delivered or when mailed by United States registered or certified mail, return receipt requested,
postage prepaid, addressed as follows:

	 	 	 	 	 
	 

	 	If to Company to:
	 	Concho Resources Inc.
	 

	 	 	 	550 W. Texas Avenue, Suite 100
	 

	 	 	 	Midland, Texas 79701
	 

	 	 	 	Attention: Chairman of the Board of Directors
	 
	 	 	 	 
	 

	 	 	 	With a copy to:
	 
	 	 	 	 
	 

	 	 	 	Concho Resources Inc.
	 

	 	 	 	550 W. Texas Avenue, Suite 100
	 

	 	 	 	Midland, Texas 79701
	 

	 	 	 	Attention: Vice President, General Counsel
	 
	 	 	 	 
	 

	 	If to Executive to:
	 	Jack F. Harper
	 

	 	 	 	550 W. Texas Avenue, Suite 100
	 

	 	 	 	Midland, Texas 79701

or to such other address as either party may furnish to the other in writing in accordance
herewith, except that notices or changes of address shall be effective only upon receipt.

     8.4 Applicable Law. This Agreement is entered into under, and shall be governed for
all purposes by, the laws of the State of Texas.

     8.5 No Waiver. No failure by either party hereto at any time to give notice of any
breach by the other party of, or to require compliance with, any condition or provision of this
Agreement shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or
at any prior or subsequent time.

     8.6 Severability. Any provision in this Agreement which is prohibited or
unenforceable in any jurisdiction by reason of applicable law shall, as to such jurisdiction, be
ineffective only to the extent of such prohibition or unenforceability without invalidating or
affecting the remaining
provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction.

     8.7 Counterparts. This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original, but all of which together will constitute one and the same
Agreement.

     8.8 Withholding of Taxes and Other Employee Deductions. Company may withhold from any
benefits and payments made pursuant to this Agreement all federal, state, city and other taxes as
may be required pursuant to any law or governmental regulation or ruling and all other normal
employee deductions made with respect to Company’s employees generally.

17

 

     8.9 Headings. The paragraph headings have been inserted for purposes of convenience
and shall not be used for interpretive purposes.

     8.10 Gender and Plurals. Wherever the context so requires, the masculine gender
includes the feminine or neuter, and the singular number includes the plural and conversely.

     8.11 Assignment. This Agreement shall be binding upon and inure to the benefit of
Company and any successor of Company, by merger or otherwise. This Agreement shall also be binding
upon and inure to the benefit of Executive and his estate. If Executive shall die prior to full
payment of amounts due pursuant to this Agreement, such amounts shall be payable pursuant to the
terms of this Agreement to his estate. Executive shall not have any right to pledge, hypothecate,
anticipate or assign this Agreement or the rights hereunder, except by will or the laws of descent
and distribution.

     8.12 Term. This Agreement has a term co-extensive with the term of employment
provided in Section 3.1. Termination shall not affect any right or obligation of any party which
is accrued or vested prior to such termination. The provisions of Section 3.5 and Articles 6 and 7
shall survive the termination of this Agreement.

     8.13 Entire Agreement. This Agreement constitutes the entire agreement of the parties
with regard to the subject matter hereof, and contains all the covenants, promises,
representations, warranties and agreements between the parties with respect to such subject matter.
Without limiting the scope of the preceding sentence, all understandings and agreements preceding
the date of execution of
this Agreement and relating to the subject matter hereof are hereby null and void and of no
further force and effect, including, without limitation, all prior employment and severance
agreements, if any, by and between Company and Executive. Any modification of this Agreement will
be effective only if it is in writing and signed by the party to be charged.

[Signatures begin on next page.]

18

 

     IN
WITNESS WHEREOF, the parties hereto have executed this Agreement on the 19th day of
December, 2008, to be effective as of the Effective Date.

	 	 	 	 	 	 	 
	 	 	Concho Resources Inc.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ David W. Copeland
 

Name: David W. Copeland
	 	 
	 

	 	 	 	Title: Vice President and General Counsel	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	COMPANY	 	 
	 
	 	 	 	 	 	 
	 

	 	Jack F. Harper

/s/ Jack F. Harper
 

	 	 
	 
	 

	 	 	 	

EXECUTIVE
	 	 

19

 

ATTACHMENT A

TO EMPLOYMENT AGREEMENT BY AND BETWEEN

CONCHO RESOURCES INC., A DELAWARE CORPORATION

AND JACK F. HARPER (“EXECUTIVE”)

PERMITTED ACTIVITIES

          As of the Effective Date, the Board has approved Executive’s participation in the following
activities:

	 	•	 	Board Positions

o     Midland YMCA Board

o     Permian Basin Area Foundation Board

o     Permian Basin Petroleum Association Board

o     First United Methodist Church of Midland (Foundation Board)

o     Advisory director to Western International Gas & Cylinders

	 	•	 	Business Interests

	 	o	 	Investments in publicly traded securities
	 
	 	o	 	Investment in Steven and Tull Opportunity Fund – Real Estate
	 
	 	o	 	Partnerships in which various investments are held include: HDL
Partners Ltd.(1/4 partner in LP and GP), Shack Ventures, LP
(1/2 owner in LP and sole GP), and Hedloc Investment Company,
LP (1/2 owner in LP and GP)

	 	•	 	Passive Oil & Gas Property Interest

	 	o	 	Various non-operated working interests, overriding royalty interests,
and royalty interests primarily located in West Texas.
	 
	 	o	 	Desert Partners II LP royalty investment partnership, General Partner-
Permian Basis Acquisition Fund
	 
	 	o	 	Desert Partners III LP royalty investment partnership, General Partner-
Permian Basin Acquisition Fund

A-1exv10w1

	 	 	 	 	 

EXHIBIT 10.1

EMPLOYMENT AGREEMENT

WITH

NON-COMPETITION PROVISION

          THIS EMPLOYMENT AGREEMENT (this “Agreement”), made this [___] day of December, 2008 and
effective as of the 1st day of January, 2009 (the “Effective Date”), is entered into by
SMITH INTERNATIONAL, INC., a Delaware corporation with its principal place of business at Houston,
Texas (the “Company”), and DOUG ROCK, an individual (the “Executive”). The Company and Executive
are referred to in this Agreement singularly as a “Party” and collectively as the “Parties”.

          WHEREAS, the Company has and wishes to continue to employ Executive, and Executive desires to
continue his employment by the Company; and

          WHEREAS, the Parties wish this Agreement to memorialize their agreements as to the terms and
conditions of Executive’s employment.

          NOW THEREFORE, in consideration of the mutual covenants and promises contained herein, and
other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged
by the Parties, the Parties do agree as follows:

     1. Other Agreements. The Company and Executive are parties to: (i) an Employment
Agreement dated as of December 10, 1987 (the “Employment Agreement”); and (ii) a Change-of-Control
Employment Agreement dated as of January 4, 2000 (the “Change of Control Agreement”). The
Employment Agreement and the Change of Control Agreement (collectively, the “Prior Agreements”)
determine the terms of Executive’s employment prior to the Effective Date except as provided
hereinafter. Except as to eligibility for an annual bonus for 2008 as further described in
paragraph 4.2, the Parties intend that the Prior Agreements expire and have no further force or
effect as of 11:59 p.m. on December 31, 2008 and that this Agreement control and determine all
terms of Executives employment with the Company on or after the Effective Date. As further
described in paragraph 9.9, from and after the Effective Date this Agreement shall supersede any
other pre-existing agreement between the parties with respect to the subject matter hereof. The
foregoing notwithstanding, the Parties understand and agree that the terms of all awards made under
the Company’s Long-Term Incentive Compensation Plan (the “LTICP”), which awards were made prior to
the Effective Date, shall continue to be controlled by the LTICP and the relevant award agreements.
Furthermore, the Parties understand and agree that Executive’s service on the Company’s Board of
Directors (the “Board”) does not fall within the scope of this Agreement.

     2. Term of Employment. The Company hereby agrees to continue Executive’s employment,
and Executive accepts the continuation of his employment, under the terms set forth in this
Agreement, for the period commencing on the Effective Date and ending on the first day following
the conclusion of the Company’s annual meeting of shareholders for calendar year 2010 (the
“Termination Date”), unless terminated sooner in accordance with the provisions of paragraph 5.
The “Employment Period” under this Agreement shall mean the period of time that starts on the
Effective Date and that ends on the Date of Termination as determined under paragraph 5.5.

     3. Title; Capacities; Duties. Executive shall serve as Special Executive Advisor or
in such other position as the Board may determine from time to time. The foregoing description of
Executive’s position shall not limit the Company from assigning to Executive other duties and
functions in addition to or in substitution for those described above. Executive shall be subject
to the supervision of, and shall have such authority as is delegated to him by, the Board or the
Company’s Chief Executive Officer. The parties intend, and reasonably anticipate, that in no event
shall Executive’s average level of services to the Company and the group of entities which are
considered a single employer with the Company for purposes of Section 414(b) and (c) of Internal
Revenue Code of 1986, as amended (the “Code”) during the Employment Period be less than 20% of the
average level of services Executive performed for the Company such entities during the 36-month
period prior to the Effective Date.

4. Compensation and Benefits.

4.1 Salary. During the Employment Period, the Company shall pay Executive an annual base
salary of $1,300,000, which shall be paid in regular periodic installments consistent with the
Company’s general pay practices.

4.2 Bonus. Executive’s eligibility for an annual bonus based on the Company’s
performance for 2008, shall be determined under the terms of the Prior Agreements, provided that
such bonus shall be paid no later than the 15th day of the third month of 2009 unless
Executive shall elect to defer the receipt of such Annual Bonus under the Smith International,
Inc. Amended and Restated

 

 

Post-2004 Supplemental Executive Retirement Plan, effective as of January 1, 2006, as amended
from time to time, or a successor plan (collectively, the “SERP”). Executive shall be eligible
for a cash bonus based on the Company’s performance for 2009, under the Company’s Annual
Incentive Plan, at a bonus target of 120% of Annual Base Salary, upon meeting the goals the Board
sets for the Company’s Chief Executive Officer (the “Annual Bonus”). The Annual Bonus shall be
paid no later than the 15th day of the third month of 2010 unless Executive shall
elect to defer the receipt of such Annual Bonus under the SERP. Executive shall not be eligible
for an annual bonus, nor for any pro-ration thereof, based on the Company’s performance related
to its 2010 fiscal year or otherwise with respect to the Company’s 2010 fiscal year.

4.3 Incentive Savings and Retirement Plans. The Employment Period shall constitute
Executive’s continued employment, with no break in service, for purposes of Executive’s vesting
and eligibility in all of the Company’s equity-based compensation programs and all other savings
and retirement plans, practices, policies or programs. The foregoing sentence notwithstanding,
Executive shall not be eligible to receive any awards under the LTICP during the Employment
Period.

4.4 Welfare Benefit Plans. During the Employment Period, Executive and/or
Executive’s-family, as the case may be, shall continue to 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 senior executives of
the Company and its affiliated companies.

4.5 Fringe Benefits. During the Employment Period, Executive shall be entitled to
continued participation in the Company’s Executive Perquisite Program which provides compensation
to Executive to cover: an annual physical, financial planning and tax return preparation, payment
of club dues, an automobile allowance, mobile phone purchase, and fees for legal counseling for
Executive.

4.6 Reimbursement of Expenses. The Company shall reimburse Executive for all reasonable
travel, entertainment and other expenses incurred or paid by Executive in connection with, or
related to, the performance of his duties, responsibilities or services under this Agreement,
upon presentation by Executive of documentation, expense statements, vouchers and/or such other
supporting information as is required under the Company’s policies and practices related to
reimbursement of business expenses.

4.7 Office and Support Staff. During the Employment Period, Executive shall be entitled
to an office with furnishings and other appointments, and to personal secretarial and other
assistance as provided generally with respect to other senior executives of the Company.

4.8 Vacation. During the Employment Period, Executive shall be entitled to paid vacation
in accordance with the plans, policies, programs and practices of the Company with respect to
other senior executives of the Company.

5. Employment Termination. Executive’s employment by the Company pursuant to this
Agreement shall terminate upon the occurrence of any of the following:

5.1 Death or Disability. Executive’s employment shall terminate automatically upon
Executive’s death during the Employment Period. If the Company determines in good faith that a
Disability of Executive has occurred during the Employment Period (pursuant to the definition of
Disability set forth below), it may give to Executive written notice of its intention to
terminate Executive’s employment. In such event, Executive’s employment with the Company shall
terminate effective on the 30th day after receipt of such notice by Executive (the “Disability
Effective Date”), provided that, within the 30 days after such receipt, Executive shall not have
returned to full-time performance of Executive’s duties. For purposes of this Agreement,
“Disability” shall mean the absence of Executive from 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 Executive or Executive’s legal representative.

5.2 Upon a Change of Control. Executive’s employment shall terminate automatically upon
a Change of Control. For purposes of this Agreement, a “Change of Control” shall mean:

5.2.1 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 subparagraph, 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 by any corporation pursuant to a transaction which complies
with clauses (i), (ii) and (iii) of subparagraph 5.2.3; or

5.2.2 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 were 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

5.2.3 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 and
the combined voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation resulting from
such Business Combination (including, without limitation, a corporation 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 corporation resulting from such Business Combination or any employee benefit
plan (or related trust) of the Company or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, 30% or more of, respectively, the
then outstanding shares of common stock of the corporation resulting from such Business
Combination or the combined voting power of the then outstanding voting securities of such
corporation 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 of the
corporation 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

5.2.4 Approval by the shareholders of the Company of a complete liquidation or dissolution of
the Company.

5.3 For Cause. The Company may terminate Executive’s employment during the Employment
Period for Cause. For purposes of this Agreement, “Cause” shall mean:

5.3.1 The willful and continued failure of Executive to perform substantially 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 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 Executive has not substantially performed Executive’s duties;

5.3.2 Executive engaging willfully in illegal conduct or gross misconduct which is materially
and demonstrably injurious to the Company; or,

5.3.3 Executive’s indictment for, or entry of a plea of guilty or nolo contendere with
respect to, a felony crime or a crime involving moral turpitude, fraud, forgery, embezzlement
or similar conduct.

5.3.4 For purposes of this paragraph 5.3, no act, or failure to act, on the part of Executive
shall be considered “willful” unless it is done, or omitted to be done, by Executive in bad
faith or without reasonable belief that Executive’s action or omission was in the best
interests of the Company. Any act, or failure to act, based upon authority given pursuant to
a resolution duly adopted by the Board or upon the instructions of the Chief Executive
Officer or a senior officer of the Company or based upon the advice of counsel for the
Company shall be conclusively presumed to be done, or omitted to be done, by Executive in
good faith and in the best interests of the Company. The cessation of employment of
Executive shall not be deemed to be for Cause unless and until there shall have been
delivered to Executive a copy of a resolution duly adopted by the affirmative vote of not
less than three-quarters of the entire membership of the board of directors of the Company,
or if following the Change of Control the Company is not publicly-traded and any parent
corporation of the Company is publicly traded, the board of directors of such parent(s) of
the Company (excluding Executive, if Executive is a member of such board) at a meeting of
such board called and held for such purpose (after reasonable notice is provided to Executive
and Executive is given an opportunity, together with counsel, to be heard before the Board),
finding that, in the

 

 

good faith opinion of the Board, Executive is guilty of the conduct described in
subparagraphs 5.3.1 or 5.3.2 above, and specifying the particulars thereof in detail.

5.4 Without Cause. The Company may terminate Executive’s employment hereunder without
Cause at any time upon prior written notice.

5.5 By Executive. Executive’s employment may be terminated by the Executive for any
reason or no reason upon no less than thirty (30) days prior written notice (any such
termination, a “Voluntary Resignation”).

5.6 Notice of Termination. Any termination by the Company for Cause or without Cause, or
by Executive due to a Voluntary Resignation shall be communicated by Notice of Termination to the
other party. For purposes of this Agreement, a “Notice of Termination” means a written notice
which (i) 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 provide
a basis for termination of Executive’s employment under the provision so indicated and (iii) if
the effective date of the termination is other than the date of receipt of such notice, specifies
the Date of Termination, as defined below (which date shall be not more than thirty days after
the giving of such notice). The failure by the Company to set forth in the Notice of Termination
any fact or circumstance which contributes to a showing of Cause shall not waive any right of the
Company hereunder or preclude the Company from asserting such fact or circumstance in enforcing
the Company’s rights hereunder.

5.7 Date of Termination. “Date of Termination” means the earlier of (i) the Termination
Date, (ii) if Executive’s employment is terminated by reason of death or Disability, the date of
death of Executive or the Disability Effective Date, as the case may be, (iii) if Executive’s
employment is terminated by reason of a Change of Control, the date such Change of Control is
effective, (iv) if Executive’s employment is terminated by the Company for Cause or without
Cause, the date of receipt of the Notice of Termination or any later date specified therein, or
(v) if Executive’s employment is terminated by Executive due to a Voluntary Resignation, the date
specified in the Notice of Termination, which shall be no less than thirty (30) days following
the Company’s receipt of the Notice of Termination.

5.8 Payment Upon Termination.

5.8.1 For Cause; Voluntary Resignation. If the Company terminates Executive’s
employment under this Agreement for Cause, in accordance with paragraph 5.3, or Executive
terminates his employment due to a Voluntary Resignation, in accordance with paragraph 5.5,
then, upon such termination all compensation and benefits to Executive hereunder shall
terminate contemporaneously with the termination of such employment provided, however, that
the Company shall pay to Executive all earned but as yet unpaid salary and bonus (the
“Accrued Obligations”), unless Executive has made an irrevocable election under any deferred
compensation arrangement subject to Section 409A of the Code to defer any portion of such
salary or bonus, 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 applicable arrangement.

5.8.2 Death, Disability, Change of Control or Without Cause. If Executive’s
employment under this Agreement terminates in accordance with paragraph 5.1, paragraph 5.2 or
paragraph 5.4, then, upon such termination, the Company shall pay Executive the Accrued
Obligations as provided for in subparagraph 5.8.1 above and a termination payment (the
“Termination Payment”) to Executive (or in the case of Executive’s death, to Executive’s
designated beneficiary, or to his estate if Executive does not have a beneficiary designation
on file with the Company for this purpose). The amount of the Termination Payment shall be
determined by multiplying $108,333.33 times the number of whole months between the Date of
Termination (as determined under paragraph 5.7) and the Termination Date (as defined under
paragraph 2). For purposes of determining the number of whole months for this calculation, a
remainder of 15 days or more shall be rounded up to the next higher number of whole months
and a remainder of 14 days or less shall be disregarded. Subject to paragraph 9.10, the
Termination Payment under this subparagraph 5.8.2 shall be made in a single lump sum, as soon
as administratively practicable, but in no event later than within sixty days after the Date
of Termination.

6. Protection of Information.

6.1 Disclosure to Executive. The Company shall disclose to Executive, or place Executive
in a position to have access to or develop, trade secrets or confidential information of the
Company or its affiliates; and/or shall entrust Executive with business opportunities of the
Company or its affiliates; and/or shall place Executive in a position to develop business good
will on behalf of the Company or its affiliates (collectively, “Company’s Confidential
Intellectual Property”).

6.2 Property of the Company. All documents, drawings, memoranda, notes, records, files,
correspondence, manuals, models, specifications, computer programs, e-mail, voice mail,
electronic databases, maps, and all other writings or materials of any type embodying any
information relating to the Company or its business are and shall be the sole and exclusive
property of the Company. Upon termination of Executive’s employment by the Company, for any
reason, Executive promptly shall deliver the same, and all copies thereof, to the Company.

6.3 No Unauthorized Use or Disclosure. Executive will not, at any time during or after
Executive’s employment by the Company, make any unauthorized disclosure of any of the Company’s
Confidential Intellectual Property, or make any use thereof, except in the carrying out of
Executive’s employment responsibilities hereunder. Affiliates of the Company shall be third
party beneficiaries of Executive’s obligations under this paragraph. As a result of Executive’s
employment by the Company, Executive

 

 

may also from time to time have access to, or knowledge of, confidential business information or
trade secrets of third parties, such as customers, suppliers, partners, joint venture partners,
and the like, of the Company and its affiliates. Executive also agrees to preserve and protect
the confidentiality of such third party confidential information and trade secrets to the same
extent, and on the same basis, as the Company’s confidential business information and trade
secrets.

6.4 Remedies. Executive acknowledges that money damages would not be sufficient remedy
for any breach of paragraph 6.3 by Executive, and the Company shall be entitled to specific
performance and injunctive relief as remedies for such breach or any threatened breach. Such
remedies shall not be deemed the exclusive remedies for a breach of paragraph 6.3, but shall be
in addition to all remedies available at law or in equity to the Company, including the recovery
of damages from Executive.

7. Noncompetition Obligations

7.1 In General. As part of the consideration for the compensation and benefits to be
paid to Executive hereunder; to protect the Company’s Confidential Intellectual Property that has
been and will in the future be disclosed or entrusted to or developed by Executive; and as an
additional incentive for the Company to enter into this Agreement, the Company and Executive
agree that Executive shall not, directly or indirectly, for Executive or for others:

7.1.1 Engage in any business competitive with the business conducted by the Company during
the term of employment of Executive;

7.1.2 Render advice or services to, be employed by, acquire an ownership interest in, or
otherwise assist, any other person, association, or entity who is engaged, directly or
indirectly, in any business competitive with the business conducted by the Company during the
term of employment of Executive with respect to such competitive business, except that
Executive may hold up to 2% of the outstanding shares of any publicly held company engaged in
such competitive activities;

7.2 Temporal Scope. The Company and Executive agree that the non-competition obligations
set out in paragraph 7.1 above (the “Non-Competition Obligations”) shall apply to Executive
during the Employment Period. Furthermore, the Parties agree that the Non-Competition
Obligations shall continue to apply to Executive after the Employment Period ends and that they
shall expire at 11:59 p.m. on December 6, 2010 (the “Post-Employment Non-Competition Period”).
The foregoing notwithstanding, the Parties agree that if Executive’s employment ends under
paragraph 5.1 or paragraph 5.2, then there shall be no Post-Employment Non-Competition Period.
The Parties agree that this temporal scope is a reasonable limitation upon Executive in order to
protect the Company’s Confidential Intellectual Property because of Executive’s position with the
Company, and the scope of Executive’s access to the Company’s Confidential Intellectual Property.

7.3 Geographic Scope. The Parties agree that the Non-Competition Obligations shall apply
in: (i) every State of the United States in which the Company maintains business operations (A)
during the Employment Period, as to activities during the Employment Period, and (B) at the time
the Employment Period ends, as to activities following the Employment Period, including, but not
limited to, in either case, the parishes of the State of Louisiana listed on Appendix 1 hereto;
(ii) any country, other than the United States, in which the Company maintains business
operations (C) during the Employment Period, as to activities during the Employment Period, and
(D) at the time the Employment Period ends, as to activities following the Employment Period;
and, (iii) any off-shore, or marine, area of petroleum exploration or production in which the
Company maintains business operations (E) during the Employment Period, as to activities during
the Employment Period, and (F) at the time the Employment Period ends, as to activities following
the Employment Period. The Parties agree that this geographic scope is a reasonable limitation
upon Executive in order to protect the Company’s Confidential Intellectual Property because of
Executive’s position with the Company, and the scope of Executive’s access to the Company’s
Confidential Intellectual Property.

7.4 Enforcement and Remedies. Executive acknowledges that money damages would not be
sufficient remedy for any breach by Executive of the Non-Competition Obligations, including any
breach during the Post-Employment Non-Competition Period, and that the Company shall be entitled
to specific performance and injunctive relief as remedies for such breach or any threatened
breach. Such remedies shall not be deemed the exclusive remedies for a breach of this Article,
but shall be in addition to all remedies available at law or in equity to the Company, including
without limitation, the recovery of damages from Executive.

7.5 Reformation. It is expressly understood and agreed that the Company and Executive
consider the Non-Competition Obligations, including the Post-Employment Non-Competition Period,
to be reasonable and necessary to protect the proprietary information of the Company.
Nevertheless, if any of the aforesaid restrictions are found by a court having jurisdiction to be
unreasonable, or overly broad as to geographic area or time, or otherwise unenforceable, the
parties intend for the restrictions therein set forth to be modified by such court so as to be
reasonable and enforceable and, as so modified by the court, to be fully enforced.

8. Successors.

8.1 Of Executive. This Agreement is personal to Executive and without the prior written
consent of the Company shall not be assignable by Executive otherwise than by will or the laws of
descent and distribution. This Agreement shall inure to the benefit of and be enforceable by
Executive’s legal representatives.

8.2 Of the Company. 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.

9. Miscellaneous.

9.1 Choice of Law. 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.

9.2 Notices. 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 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.

9.3 Tax Withholding and Deductions. The Company may withhold from any benefits and
payments made pursuant to this Agreement all federal, state, city and other taxes as may be
required pursuant to any law or governmental regulation or ruling and all other normal employee
deductions made with respect to the Company’s employees generally.

9.4 No Waiver. 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 Executive or the Company
may have hereunder shall not be deemed to be a waiver of such provision or right or any other
provision or right of this Agreement.

9.5 Severability. If a court of competent jurisdiction determines that any provision of
this Agreement is invalid or unenforceable, then the invalidity or unenforceability of that
provision shall not affect the validity or enforceability of any other provision of this
Agreement and all other provisions shall remain in full force and effect.

9.6 Counterparts. This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original, but all of which together will constitute one and the
same Agreement.

9.7 Headings. The paragraph headings have been inserted for purposes of convenience and
shall not be used for interpretive purposes.

9.8 Gender and Plurals. Wherever the context so requires, the masculine gender includes
the feminine or neuter, and the singular number includes the plural and conversely.

9.9 Entire Agreement. Except as provided in (i) paragraph 4.2 regarding Executive’s
bonus for 2008; (ii) the written benefit plans and programs referenced in paragraphs 4.3, 4.4, or
4.5 (and any agreements between the Company and Executive that have been executed under such
plans and programs) and (iii) any signed written agreement contemporaneously or hereafter
executed by the Company and Executive, this Agreement constitutes the entire agreement of the
parties with regard to the subject matter hereof, and contains all the covenants, promises,
representations, warranties and agreements between the parties with respect to employment of
Executive by the Company. Without limiting the scope of the preceding sentence, all
understandings and agreements preceding the date of execution of this Agreement and relating to
the subject matter hereof (other than the agreements described in clauses (i) and (ii) of the
preceding sentence) are hereby null and void and of no further force and effect. Any
modification of this Agreement will be effective only if it is in writing and signed by the party
to be charged.

9.10 Section 409A. The parties intend that this Agreement be interpreted in a manner to
be exempt from the requirements of Section 409A of the Code and, where not so exempt, to be in
compliance therewith. Each payment under this Agreement shall be treated as a separate payment
for purposes of Section 409A of the Code. Other than pursuant to an irrevocable deferral
election that complies with the requirements of Section 409A of the Code pursuant to an
arrangement implemented by the Company, Executive (or his estate or beneficiary) shall have no
right to dictate the taxable year in which any payment hereunder should be paid. Notwithstanding
any provision of this Agreement to the contrary, only to the extent that this Agreement is
subject to the

 

 

requirements of Section 409A of the Code and is not exempted from such requirements, if at the
time of Executive’s termination of employment with the Company, Executive is a “specified
employee” within the meaning of Section 409A of the Code, no payment or benefit that results from
Executive’s termination of employment will be provided until the date which is six months after
the date of Executive’s termination of employment. Payments to which Executive would otherwise
be entitled during the six-month period described above will be accumulated and paid in a lump
sum on the first day of the seventh month after the date of Executive’s termination of
employment. For purposes of this paragraph 9.10 and, only to the extent that this Agreement is
subject to the requirements of Section 409A of the Code and is not exempted from such
requirements, paragraphs 5.1, 5.3, 5.4, 5.5, 5.7(ii), 5.7(iii) and, subparagraph 5.8.2,
“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). 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 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)
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
Executive’s remaining lifetime (or if longer, through the 20th anniversary of the Effective
Date).

SIGNATURE PAGE FOLLOWS

 

 

     IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the                      day of
December, 2008, to be effective as of the Effective Date.

	 	 	 	 	 
	 	SMITH INTERNATIONAL, INC.

 	 
	 	By:  	 
 	 
	 	Name:  	Malcolm W. Anderson 	 
	 	Title:  	Senior Vice President,
Human Resources 	 
	 
	 	EXECUTIVE	 

	 	 	 	 	 
	 	 
 	 
	 	Doug Rock

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