Document:

exv10w3

 

EXHIBIT 10.3

SMITH INTERNATIONAL, INC.

NONSTATUTORY OPTION AGREEMENT

OPTIONEE:  «Full_Legal_Name»

     1. Grant of Stock Option. As of the Grant Date (identified in Section 2
below), Smith International, Inc. (the “Company”) hereby grants a Nonstatutory Stock Option (the
“Option”) to the Optionee, an employee of the Company and/or one or more of its Subsidiaries, to
purchase the number of shares of the Company’s common stock, $1.00 par value per share (the “Common
Stock”), identified in Section 2 below (the “Shares”), subject to the terms and conditions
of this agreement (the “Agreement”) and the Smith International, Inc. 1989 Long-Term Incentive
Compensation Plan, as amended and restated effective January 1, 2005 (the “Plan”). The Plan is
hereby incorporated herein in its entirety by reference. The Shares, when issued to Optionee upon
the exercise of the Option, shall be fully paid and nonassessable. The Option is not an “incentive
stock option” as defined in Section 422 of the Internal Revenue Code.

     2. Definitions and Other Terms. The following capitalized terms shall have those
meanings set forth opposite them:

	 	 	 	 	 	 	 
	 

	 	(a)
	 	Optionee:
	 	«Full_Legal_Name»
	 
	 	 	 	 	 	 
	 

	 	(b)
	 	Grant Date:
	 	«Grant_Date»
	 
	 	 	 	 	 	 
	 

	 	(c)
	 	Shares:
	 	«Shares_Granted» Shares of the Company’s Common Stock.
	 
	 	 	 	 	 	 
	 

	 	(d)
	 	Option Price:
	 	$«Price» per Share.
	 
	 	 	 	 	 	 
	 

	 	(e)
	 	Option Period:
	 	«Grant_Date» through «Expire_Date» (until 5:00 p.m. CST).
	 
	 	 	 	 	 	 
	 	 	(f)	 	Vesting Schedule: Options as follows:

	 	 	 	 	 	 	 
	Date	 	 	 	Options Vesting	 	 
	 	 	 	 	 	 	 
	«Vest_Date1»
	 	 	 	«Shares1»
	 	 
	 

	 	 	 	 

	 	 
	«Vest_Date2»
	 	 	 	«Shares2»	 	 
	 
	 	 	 	 	 	 
	«Vest_Date3»
	 	 	 	«Shares3»	 	 
	 
	 	 	 	 	 	 
	«Vest_Date4»
	 	 	 	«Shares4»	 	 
	 
	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 
	 	Total
	 	«Shares_Granted»	 	 
	 
	 	 	 	================
	 	 

     3. Definitions. All capitalized terms used herein shall have the meanings set forth in
the Plan unless otherwise provided herein. Section 2 sets forth meanings for certain of the
capitalized terms used in this Agreement.

     4. Option Term. The Option shall commence on the Grant Date (identified in
Section 2 above) and terminate on the tenth (10th) anniversary of the Grant Date as
specified in Section 2. The period during which the Option is in effect and may be
exercised is referred to herein as the “Option Period”.

     5. Option Price. The Option Price per Share is identified in Section 2.

     6. Vesting. The total number of Shares subject to this Option shall vest in
accordance with the Vesting Schedule (described in Section 2). The Shares may be purchased
at any time after they become vested, in whole or in part, during the Option Period; provided,
however, the Option may only be exercisable to acquire whole Shares. The right of exercise
provided herein shall be cumulative so that if the Option is not exercised to the maximum extent
permissible after vesting, the vested portion of the Option shall be exercisable, in whole or in
part, at any time during the Option Period.

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     7. Method of Exercise. The Option is exercisable by delivery of a written notice to
the Secretary of the Company, signed by the Optionee or delivered via email communication from a
verifiable email address of the Optionee, specifying the number of Shares to be acquired on, and
the effective date of, such exercise. The Optionee may withdraw notice of exercise of this Option,
in writing, at any time prior to the close of business on the business day preceding the proposed
exercise date.

     8. Method of Payment. Subject to applicable provisions of the Plan, the Option Price
upon exercise of the Option shall be payable to the Company in full either: (i) in cash or its
equivalent; (ii) subject to prior approval by the Committee in its discretion, by tendering
previously acquired Shares having an aggregate Fair Market Value (as defined in the Plan) at the
time of exercise equal to the total Option Price (provided that the Shares must have been held by
the Optionee for at least six (6) months prior to their tender to satisfy the Option Price); or
(iii) any other permitted method pursuant to the applicable terms and conditions of the Plan.

     As soon as practicable after receipt of a written notification of exercise and full payment,
including any applicable taxes as described in Section 17 below, the Company shall deliver
to or on behalf of the Optionee, in the name of the Optionee or other appropriate recipient, Share
certificates or other evidence of ownership for the number of Shares purchased under the Option.

     9. Restrictions on Exercise. The Option may not be exercised if the issuance of such
Shares or the method of payment of the consideration for such Shares would constitute a violation
of any applicable federal or state securities or other laws or regulations, or any rules or
regulations of any stock exchange on which the Common Stock may be listed. In addition, Optionee
understands and agrees that the Option cannot be exercised if the Company determines that such
exercise, at the time of such exercise, will be in violation of the Company’s insider trading
policy.

     10. Termination of Employment. Voluntary or involuntary termination of Employment
shall affect Optionee’s rights under the Option as follows:

     (a) Termination for Cause. The entire Option, including any vested portion
thereof, shall expire on 12:01 a.m. (CST) on the date of termination of Employment and shall
not be exercisable to any extent if Optionee’s Employment is terminated for Cause (as
defined in the Plan at the time of such termination of Employment).

     (b) Death or Disability. If Optionee’s Employment is terminated by death or
Disability (as defined in the Plan at the time of such termination of Employment), then (i)
the Option shall become fully vested as of such date of termination and (ii) the Option
shall expire on the date that is three (3) years after such date of termination of
Employment (to the extent not exercised by Optionee) or, in the case of death, by the person
or persons to whom Optionee’s rights under the Option have passed by will or by the laws of
descent and distribution or, in the case of Disability, by Optionee or Optionee’s legal
representative. In no event may the Option be exercised by anyone on or after the earlier
of (i) the expiration of the Option Period or (ii) three years after the date of Optionee’s
death or termination of Employment due to Disability.

     (c) Involuntary Termination Without Cause. If Optionee’s Employment is
terminated involuntarily by the Company without Cause, then (i) the non-vested portion of
the Option shall immediately expire on the termination of Employment date; and (ii) the
vested portion of the Option shall expire to the extent not exercised within one (1) year
after such termination date. In no event may the Option be exercised by anyone after the
earlier of (i) the expiration of the Option Period or (ii) one (1) year after the
termination of Employment date even if Optionee becomes deceased during such period.

     (d) Voluntary Termination. If Optionee’s Employment is terminated due to
voluntary resignation, then (i) the non-vested portion of the Option shall immediately
expire on the termination of Employment date and (ii) the vested portion of the Option shall
expire to the extent not exercised within ninety (90) calendar days after such termination
date. In no event may the Option be exercised by anyone after the earlier of (i) the
expiration of the Option Period or (ii) ninety (90) calendar days after the termination of
Employment date even if Optionee becomes deceased or disabled during such period.

     11. Independent Legal and Tax Advice. Optionee acknowledges that the Company has
advised Optionee to obtain independent legal and tax advice regarding the grant and exercise of the
Option and the disposition of any Shares acquired thereby.

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     12. Reorganization of Company. The existence of the Option shall not affect in any
way the right or power of the Company or its stockholders to make or authorize any or all
adjustments, recapitalizations, reorganizations or other changes in Company’s capital structure or
its business, or any merger or consolidation of the Company, or any issue of bonds, debentures,
preferred or prior preference stock ahead of or affecting the Shares or the rights thereof, or the
dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets
or business, or any other corporate act or proceeding, whether of a similar character or otherwise.

     13. Adjustment of Shares. In the event of stock dividends, spin-offs of assets or
other extraordinary dividends, stock splits, combinations of shares, recapitalizations, mergers,
consolidations, reorganizations, liquidations, issuances of rights or warrants and similar
transactions or events involving Company, appropriate adjustments shall be made to the terms and
provisions of the Option as provided in the Plan. However, such adjustments shall not result in
the Option being considered to be deferred compensation subject to Code Section 409A, unless
otherwise determined at the discretion of the Company.

     14. No Rights in Shares. Optionee shall have no rights as a stockholder in respect of
the Shares until the Optionee becomes the record holder of such Shares.

     15. Investment Representation. Optionee will enter into such written representations,
warranties and agreements as Company may reasonably request in order to comply with any federal or
state securities law. Moreover, any stock certificate for any Shares issued to Optionee hereunder
may contain a legend restricting their transferability as determined by the Company in its
discretion. Optionee agrees that Company shall not be obligated to take any affirmative action in
order to cause the issuance or transfer of Shares hereunder to comply with any law, rule or
regulation that applies to the Shares subject to the Option.

     16. No Guarantee of Employment. The Option shall not confer upon Optionee any right
to continued employment with the Company or any affiliate thereof.

     17. Withholding of Taxes. To the extent that the exercise of the Option hereunder
results in compensation income to Optionee for federal, state or local income tax purposes,
Optionee shall deliver to Company at such time the sum that the Company requires to meet its tax
withholding obligations under applicable law or regulation.

     18. General.

     (a) Notices. Unless provided otherwise herein, all notices under this
Agreement shall be mailed or delivered by hand to the parties at their respective addresses
set forth beneath their signatures below or at such other address as may be designated in
writing by either of the parties to one another, or to their permitted transferees if
applicable. Notices shall be effective upon receipt.

     (b) Transferability of Option. The Option is transferable only to the extent
permitted under the Plan at the time of transfer (i) by will or by the laws of descent and
distribution, (ii) by a qualified domestic relations order (as defined in Code Section
414(p), or (iii) to Optionee’s Immediate Family or entities established for the benefit of,
or solely owned by, the Optionee’s Immediate Family to the extent permitted under the Plan.
No right or benefit hereunder shall in any manner be liable for or subject to any debts,
contracts, liabilities, obligations or torts of Optionee or any permitted transferee
thereof.

     (c) Amendment and Termination. No amendment, modification or termination of
this Agreement shall be made at any time without the written consent of Optionee and
Company.

     (d) No Guarantee of Tax Consequences. The Company makes no commitment or
guarantee that any tax treatment will apply or be available to Optionee or any other person.
The Optionee has been advised, and provided with the opportunity, to obtain independent
legal and tax advice regarding the grant and exercise of the Option and the disposition of
any Shares acquired thereby.

     (e) Severability. In the event that any provision of this Agreement shall be
held illegal, invalid, or unenforceable for any reason, such provision shall be fully
severable, but shall not affect the remaining provisions of the Agreement, and the Agreement
shall be construed and enforced as if the illegal, invalid, or unenforceable provision had
not been included herein.

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     (f) Supersedes Prior Agreements. This Agreement shall supersede and replace
all prior agreements and understandings, oral or written, between the Company and the
Optionee regarding the grant of the Options covered hereby.

     (g) Governing Law. The Option shall be construed in accordance with the laws
of the State of Texas, without regard to its conflict of law provisions, to the extent
federal law does not supersede and preempt Texas law.

     IN WITNESS WHEREOF, the Company, as of the Grant Date, has caused this Agreement to be
executed on its behalf by its duly authorized officer and Optionee has hereunto executed this
Agreement as of the same date.

	 	 	 	 	 
	 	 	SMITH INTERNATIONAL, INC.
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	Name:	 	 
	 

	 	 	 	 
	 

	 	Title:	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	Optionee:	 	 
	 
	 	 	 	 
	 	 	 
	 	 	Signature

65exv10w4

 

EXHIBIT 10.4

SMITH INTERNATIONAL, INC.

RESTRICTED STOCK UNIT AGREEMENT

     THIS
RESTRICTED STOCK UNIT AGREEMENT (this “Agreement”) is made and entered into by and
between Smith International, Inc., a Delaware corporation (the
“Company”) and «Full_Legal_Name», an
individual and employee of the Company (“Grantee”), on the «Grant_Date» day of «Grant_Date», 2005
(the “Grant Date”), subject to the terms and provisions of the Smith International, Inc., 1989
Long-Term Incentive Compensation Plan, as amended and restated effective January 1, 2005 (the
“Plan”). The Plan is hereby incorporated herein in its entirety by this reference. Capitalized
terms not otherwise defined in this Agreement shall have the meaning given to such terms in the
Plan.

     WHEREAS, Grantee is an employee of the Company, and in connection therewith, the Company
desires to grant to Grantee restricted stock units
(“Units”), subject to the terms and conditions
of this Agreement and the Plan, with a view to increasing Grantee’s interest in the Company’s
success and growth; and

     WHEREAS, Grantee desires to be the holder of such Units subject to the terms and conditions of
this Agreement;

     NOW, THEREFORE, in consideration of the premises, mutual covenants and agreements contained
herein, and other good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto, intending to be legally bound hereby, agree as follows:

     1. Grant of Units. Subject to the terms and conditions of this Agreement and the Plan, the
Company hereby grants to Grantee «Shares_Granted» («Shares_Granted») Units. On any date, the
value of each Unit shall be the Fair Market Value of one share of the Company’s Common Stock
(“Share”), $1.00 par value, as determined pursuant to the Plan. Each Unit represents an unsecured
promise of the Company to deliver Shares to the Grantee pursuant to the terms and conditions of the
Plan and this Agreement. As a holder of Units, the Grantee has only the rights of a general
unsecured creditor of the Company.

     2. Transfer Restrictions. Grantee shall not sell, assign, transfer, exchange, pledge,
encumber, gift, devise, hypothecate or otherwise dispose of
(collectively, “Transfer”) any Units
granted hereunder. Any purported Transfer of Units in breach of this Agreement shall be void and
ineffective, and shall not operate to Transfer any interest or title in the purported transferee.

     3. Vesting and Payment of Units.

          (a) Vesting Generally. Grantee’s interest in the Units granted hereunder shall vest
in accordance with the following schedule, conditioned on Grantee’s continued employment with the
Company as of each such vesting date (the “Vesting Date”), except as provided in Section 4
hereof.

	 	 	 	 	 
	Vesting Date	 	Vested %
	«Vest_Date1»

	 	 	25	%
	«Vest_Date2»

	 	 	25	%
	«Vest_Date3»

	 	 	25	%
	«Vest_Date4»

	 	 	25	%
	Total

	 	 	100	%

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

          (c) Dividends, Splits and Voting Rights. If the Company (i) declares a stock dividend
or makes a distribution on Common Stock in Shares, (ii) subdivides or reclassifies outstanding
Shares into a greater number of Shares or

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(iii) combines or reclassifies outstanding Shares into a
smaller number of Shares, then the number of Units granted under this Agreement shall be
proportionately increased or reduced, as applicable, so as to prevent the enlargement or dilution
of Grantee’s rights and duties hereunder. The determination of the Compensation and Benefits
Committee (the “Committee”) of the Company’s Board of Directors regarding such adjustments shall be
binding. Until such time as Shares are actually delivered to Grantee in exchange for vested Units
pursuant to Section 3(b) (above), Grantee shall have no voting, dividend or other ownership
rights in such Shares.

     4. Forfeiture.

          (a) Termination Due to Death or Disability. If Grantee’s employment with the Company
is terminated due to death or Disability of the Grantee, then, in either such event, all
outstanding Units hereunder shall become fully vested as of such termination date and payable to
Grantee in Shares within thirty (30) days of such date.

          For purposes of this Section 4(a), “Disability” means, as determined by the Committee
in its discretion exercised in good faith, a physical or mental condition of the Grantee that would
entitle Grantee to payment of disability income payments under the Company’s long-term disability
insurance policy or plan for employees, as then effective, if any; or in the event that the Grantee
is not covered, for whatever reason, under the Company’s long-term disability insurance policy or
plan, “Disability” means a permanent and total disability as defined in Section 22(e)(3) of the
Internal Revenue Code of 1986, as amended (the “Code”). A determination of Disability may be made
by a physician selected or approved by the Committee and, in this respect, the Grantee must submit
to any reasonable examination(s) required by such physician upon request in order to render an
opinion regarding whether there is a Disability. This definition of Disability shall be construed
in accordance with the meaning given such term under the Code with respect to a termination of
Employment due to Disability for a “Key Employee” as defined in Code Section 409A.

          (b) Termination Other than Death or Disability. If Grantee’s employment with the
Company is voluntarily or involuntarily terminated by the Company or Grantee for any reason other
than due to death or Disability, then Grantee shall immediately forfeit all Units which are not
already vested as of such date. Upon the forfeiture of any Units hereunder, the Grantee shall
cease to have any rights in connection with such Units as of the date of such forfeiture. A
transfer of employment by the Grantee, without an interruption of employment service, between or
among the Company and any parent or subsidiary of the Company, shall not be considered a
termination of employment for purposes of this Agreement.

     5. Grantee’s Representations. Notwithstanding any provision hereof to the contrary, the
Grantee hereby agrees and represents that Grantee will not acquire any Shares, and that the Company
will not be obligated to issue any Shares to the Grantee hereunder, if the issuance of such Shares
constitutes a violation by the Grantee or the Company of any law or regulation of any governmental
authority. Any determination in this regard that is made by the Committee, in good faith, shall be
final and binding. The rights and obligations of the Company and the Grantee are subject to all
applicable laws and regulations.

     6. Tax Withholding. To the extent that the receipt of Shares hereunder results in
compensation income to Grantee for federal, state or local income tax purposes, the Company, in its
complete discretion, is authorized to (a) withhold, at such time as determined by the Company, from
any cash or other remuneration (including withholding from delivery to Grantee a number of Shares,
based on the market value of such Shares, as of the applicable Vesting Date), or a combination
thereof, then or thereafter payable to Grantee, the sum that the Company requires to meet its tax
withholding obligations under applicable law or regulation (the “Withholding Liability”); (b)
require Grantee to pay an amount, at such time as the Company shall specify, equal to the
Withholding Liability in cash, by certified or cashier’s check payable to the Company, or in any
other form acceptable to the Company; or (c) cause a sale or sales of Shares on behalf of Grantee
pursuant to which all or a portion of the proceeds are paid to the Company to satisfy the
Withholding Liability and all remaining proceeds (if any) are delivered to Grantee, and Grantee
agrees to take all such action as may be necessary or appropriate to effect such sales. Further,
the Company’s obligation to deliver vested Shares, or any stock certificate or certificates
representing vested Shares, to Grantee shall be subject to, and conditioned upon, payment of the
Withholding Liability.

     7. Miscellaneous.

          (a) No Fractional Shares. All provisions of this Agreement concern whole Shares. If
the application of any provision hereunder would yield a fractional Share, such fractional Share
shall be rounded down to the next whole Share.

67

 

          (b) Not an Employment Agreement. This Agreement is not an employment agreement, and
no provision of this Agreement shall be construed or interpreted to create any employment
relationship between Grantee and the Company for any time period. The employment of Grantee with
the Company shall be subject to termination to the same extent as if this Agreement had not been
executed.

          (c) Dispute Resolution. Any dispute or controversy arising out of or relating to this
Agreement, or any breach hereof, shall be resolved by binding arbitration in accordance with (i)
the Commercial Arbitration Rules (the “Rules”) of the American Arbitration Association (“AAA”)
before a single arbitrator (unless otherwise mutually agreed by the parties) as selected pursuant
to the Rules and (ii) the Federal Arbitration Act. Judgment on any award rendered by the
arbitrator may be entered in any court of competent jurisdiction. The venue for any arbitration
proceeding shall be in Harris or Montgomery County, Texas, except if otherwise mutually agreed by
the parties. The fees of the AAA and the arbitrator shall be split equally by the parties. All
other costs and expenses, including attorneys’ fees, relating to the resolution of any such dispute
shall be borne by the party incurring such costs and expenses.

          (d) Notices. Any notice, instruction, authorization, request or demand required
hereunder shall be in writing, and shall be delivered either by personal delivery, by telegram,
telex, telecopy or similar facsimile means, by certified or registered mail, return receipt
requested, or by courier or delivery service, addressed to the Company at its then current main
corporate address, and to Grantee at his address indicated on the Company’s records, or at such
other address and number as a party has previously designated by written notice given to the other
party in the manner hereinabove set forth. Notices shall be deemed given when received, if sent by
facsimile means (confirmation of such receipt by confirmed facsimile transmission being deemed
receipt of communications sent by facsimile means); and when delivered and receipted for (or upon
the date of attempted delivery where delivery is refused), if hand-delivered, sent by express
courier or delivery service, or sent by certified or registered mail, return receipt requested.

          (e) Amendment, Termination and Waiver. This Agreement may be amended, modified,
terminated or superseded only by written instrument executed by or on behalf of the Company and by
Grantee. Any waiver of the terms or conditions hereof shall be made only by a written instrument
executed and delivered by the party waiving compliance. Any waiver granted by the Company shall be
effective only if executed and delivered by a duly authorized executive officer of the Company
other than Grantee. The failure of any party at any time or times to require performance of any
provisions hereof shall in no manner affect the right to enforce the same. No waiver by any party
of any term or condition herein, or the breach thereof, in one or more instances shall be deemed to
be, or construed as, a further or continuing waiver of any such condition or breach or a waiver of
any other condition or the breach of any other term or condition.

          (f) Governing Law and Severability. This Agreement shall be governed by the internal
laws, and not the laws of conflict, of the State of Texas. The invalidity of any provision of this
Agreement shall not affect any other provision of this Agreement, which shall remain in full force
and effect.

          (g) Successors and Assigns. This Agreement shall bind, be enforceable by, and inure
to the benefit of, the Company and its successors and assigns, and Grantee and Grantee’s permitted
assigns under the Plan in the event of death or Disability.

     IN WITNESS WHEREOF, this Restricted Stock Unit Agreement is approved, granted and executed as
of the date first written above.

	 	 	 	 	 
	 	 	SMITH INTERNATIONAL, INC.
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	Name:	 	 
	 

	 	 	 	 
	 

	 	Title:	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	GRANTEE:	 	 
	 
	 	 	 	 
	 	 	«Full_Legal_Name»
	 
	 	 	 	 
	 	 	 
	 	 	Signature
	 
	 	 	 	 
	 	 	 
	 	 	Print Name

68

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