Document:

exv10w1

 

EXHIBIT 10.1

Countrywide Financial Corporation

Executive Contribution Account Plan

 

 

TABLE OF CONTENTS

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Page	 
	ARTICLE 1. Definitions	 	 	1	 
	 
	 	1.1	 	“Account”	 	 	1	 
	 
	 	1.2	 	“Beneficiary”	 	 	1	 
	 
	 	1.3	 	“Beneficiary Designation Form”	 	 	1	 
	 
	 	1.4	 	“Benefit Distribution Date”	 	 	1	 
	 
	 	1.5	 	“Board”	 	 	1	 
	 
	 	1.6	 	“Change in Control”	 	 	2	 
	 
	 	1.7	 	“Code”	 	 	4	 
	 
	 	1.8	 	“Committee”	 	 	4	 
	 
	 	1.9	 	“Company”	 	 	4	 
	 
	 	1.10	 	“Compensation”	 	 	4	 
	 
	 	1.11	 	“Disability” or “Disabled”	 	 	4	 
	 
	 	1.12	 	“ERISA”	 	 	4	 
	 
	 	1.13	 	“Initial Account Balance”	 	 	4	 
	 
	 	1.14	 	“Key Employee”	 	 	4	 
	 
	 	1.15	 	“Participant”	 	 	4	 
	 
	 	1.16	 	“Plan”	 	 	4	 
	 
	 	1.17	 	“Plan Year”	 	 	5	 
	 
	 	1.18	 	“Retirement”,
“Retire(s)” or “Retired”	 	 	5	 
	 
	 	1.19	 	“SERP”	 	 	5	 
	 
	 	1.20	 	“Termination of Employment”	 	 	5	 
	 
	 	1.21	 	“Unforeseeable Financial Emergency”	 	 	5	 
	 
	 	1.22	 	“Years of Plan Participation”	 	 	5	 
	 
	 	1.23	 	“Years of Service”	 	 	5	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE 2. Participation	 	 	6	 
	 
	 	2.1	 	Participation	 	 	6	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE 3. Accounts	 	 	6	 
	 
	 	3.1	 	Initial Account Balance	 	 	6	 
	 
	 	3.2	 	Company Contributions	 	 	6	 
	 
	 	3.3	 	Paid Leave of Absence	 	 	7	 
	 
	 	3.4	 	Vesting	 	 	7	 
	 
	 	3.5	 	Investment of Accounts	 	 	7	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE 4. Distributions	 	 	7	 
	 
	 	4.1	 	Payment of Benefit	 	 	7	 
	 
	 	4.2	 	In-Service Distributions	 	 	8	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE 5. Beneficiary Designation	 	 	8	 
	 
	 	5.1	 	Beneficiary	 	 	8	 
	 
	 	5.2	 	Acknowledgment	 	 	8	 
	 
	 	5.3	 	No Beneficiary Designation	 	 	8	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE 6. Termination and Amendment	 	 	9	 
	 
	 	6.1	 	Termination of Plan	 	 	9	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE 7. Administration	 	 	9	 

 

 

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Page	 
	 
	 	7.1	 	Committee Duties	 	 	9	 
	 
	 	7.2	 	Agents	 	 	10	 
	 
	 	7.3	 	Binding Effect of Decisions	 	 	10	 
	 
	 	7.4	 	Indemnity of Committee	 	 	10	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE 8. Other Benefits and Agreements	 	 	10	 
	 
	 	8.1	 	Coordination with Other Benefits and Agreements	 	 	10	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE 9. Claims Procedures	 	 	10	 
	 
	 	9.1	 	Presentation of Claim	 	 	10	 
	 
	 	9.2	 	Notification of Decision	 	 	11	 
	 
	 	9.3	 	Review of a Denied Claim	 	 	11	 
	 
	 	9.4	 	Decision on Review	 	 	12	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE 10. Miscellaneous	 	 	12	 
	 
	 	10.1	 	Status of Plan	 	 	12	 
	 
	 	10.2	 	Unsecured General Creditor	 	 	12	 
	 
	 	10.3	 	Company’s Liability	 	 	13	 
	 
	 	10.4	 	Nonassignability	 	 	13	 
	 
	 	10.5	 	Not a Contract of Employment	 	 	13	 
	 
	 	10.6	 	Furnishing Information	 	 	13	 
	 
	 	10.7	 	Terms	 	 	14	 
	 
	 	10.8	 	Captions	 	 	14	 
	 
	 	10.9	 	Governing Law	 	 	14	 
	 
	 	10.10	 	Notice	 	 	14	 
	 
	 	10.11	 	Withholding	 	 	14	 
	 
	 	10.12	 	Successors	 	 	15	 
	 
	 	10.13	 	Spouse’s Interest	 	 	15	 
	 
	 	10.14	 	Validity	 	 	15	 
	 
	 	10.15	 	Incompetent	 	 	15	 
	 
	 	10.16	 	Insurance	 	 	15	 

 

 

COUNTRYWIDE FINANCIAL CORPORATION

EXECUTIVE CONTRIBUTION ACCOUNT PLAN

Purpose

      The purpose of this Plan is to provide specified benefits to certain key employees of
Countrywide Financial Corporation (the “Company”) (and participating subsidiaries) who are expected
to contribute materially to the continued growth, development and future business success of the
Company. This Plan shall be unfunded for tax purposes and for purposes of Title I of ERISA.

ARTICLE 1.

Definitions

      Unless otherwise clearly apparent from the context, the following phrases or terms shall have
the following meanings:

	1.1	 	“Account” shall mean, on any date, the sum of (i) the Initial Account Balance, (ii) the
Company’s annual contributions hereunder, and (iii) earnings credited or debited to the
Account, less (iv) any distributions made to the Participant or his Beneficiary hereunder.
The Account shall be a bookkeeping entry only and shall be utilized solely as a device for
the measurement and determination of the amounts payable hereunder.
	 
	1.2	 	“Beneficiary” shall mean one or more persons, trusts, estates or other entities,
designated in accordance with Article 5, to receive benefits under this Plan upon a
Participant’s death.
	 
	1.3	 	“Beneficiary Designation Form” shall mean the form established from time to time by the
Committee to designate one or more Beneficiaries.
	 
	1.4	 	“Benefit Distribution Date” shall mean the date upon which a Participant becomes
entitled to a distribution of his vested Account balance. Except with respect to Key
Employees, a Participant’s Benefit Distribution Date shall be the date which is sixty (60)
days following the date on which he has a Termination of Employment (including by reason of
Retirement, death or Disability). A Key Employee’s Benefit Distribution Date shall be the
last day of the six-month period immediately following the date on which the Participant has
such a Termination of Employment.
	 
	1.5	 	“Board” shall mean the board of directors of the Company.

 

 

	1.6	 	“Change in Control” shall mean the first to occur of any of the following events:

	 	(a)	 	An acquisition (other than directly from the Company) of any common stock or
other “Voting Securities” (as hereinafter defined) of the Company by any “Person” (as
the term person is used for purposes of Section 13(d) or 14(d) of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”)), immediately after which such
Person has “Beneficial Ownership” (within the meaning of Rule 13d-3 promulgated under
the Exchange Act) of twenty five percent (25%) or more of the then outstanding shares
of the Company’s common stock or the combined voting power of the Company’s then
outstanding Voting Securities; provided, however, in determining whether a Change in
Control has occurred, Voting Securities which are acquired in a “Non-Control
Acquisition” (as hereinafter defined) shall not constitute an acquisition which would
cause a Change in Control. For purposes of this Agreement, (1) “Voting Securities”
shall mean the Company’s outstanding voting securities entitled to vote generally in
the election of directors and (2) a “Non-Control Acquisition” shall mean an acquisition
by (i) an employee benefit plan (or a trust forming a part thereof) maintained by (A)
the Company or (B) any corporation or other Person of which a majority of its voting
power or its voting equity securities or equity interest is owned, directly or
indirectly, by the Company (for purposes of this definition, a “Subsidiary”), (ii) the
Company or any of its Subsidiaries, or (iii) any Person in connection with a
“Non-Control Transaction” (as hereinafter defined);
	 
	 	(b)	 	The individuals who, as of September 13, 1996 are members of the Board (the
“Incumbent Board”), cease for any reason to constitute at least two thirds of the
members of the Board; provided, however, that if the election, or nomination for
election by the Company’s common stockholders, of any new director was approved by a
vote of at least two-thirds of the Incumbent Board, such new director shall, for
purposes of this Agreement, be considered as a member of the Incumbent Board; provided
further, however, that no individual shall be considered a member of the Incumbent
Board if such individual initially assumed office as a result of either an actual or
threatened “Election Contest” (as described in Rule 14a-11 promulgated under the
Exchange Act) or other actual or threatened solicitation of proxies or consents by or
on behalf of a Person other than the Board (a “Proxy Contest”) including by reason of
any agreement intended to avoid or settle any Election Contest or Proxy Contest; or
	 
	 	(c)	 	The consummation of:

	 	(i)	 	A merger, consolidation or reorganization involving the
Company, unless such merger, consolidation or reorganization is a “Non-Control
Transaction.” A “Non-Control Transaction” shall mean a merger, consolidation
or reorganization of the Company where:

2

 

	 	(A)	 	the stockholders of the Company, immediately
before such merger, consolidation or reorganization, own directly or
indirectly immediately following such merger, consolidation or
reorganization, at least seventy percent (70%) of the combined voting
power of the outstanding Voting Securities of the corporation resulting
from such merger, consolidation or reorganization (the “Surviving
Corporation”) in substantially the same proportion as their ownership
of the Voting Securities immediately before such merger, consolidation
or reorganization;
	 
	 	(B)	 	the individuals who were members of the
Incumbent Board immediately prior to the execution of the agreement
providing for such merger, consolidation or reorganization constitute
at least two-thirds of the members of the board of directors of the
Surviving Corporation, in the event that, immediately following the
consummation of such transaction, a corporation beneficially owns,
directly or indirectly, a majority of the Voting Securities of the
Surviving Corporation; and
	 
	 	(C)	 	no Person other than (i) the Company, (ii) any
Subsidiary, (iii) any employee benefit plan (or any trust forming a
part thereof) maintained by the Company, the Surviving Corporation, or
any Subsidiary, or (iv) any Person who, immediately prior to such
merger, consolidation or reorganization had Beneficial Ownership of
twenty five percent (25%) or more of the then outstanding Voting
Securities or common stock of the Company, has Beneficial Ownership of
twenty five percent (25%) or more of the combined voting power of the
Surviving Corporation’s then outstanding Voting Securities or its
common stock;

	 	(ii)	 	A complete liquidation or dissolution of the Company; or
	 
	 	(iii)	 	The sale or other disposition of all or substantially all of
the assets of the Company to any Person (other than a transfer to a
Subsidiary).

Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any
Person (the “Subject Person”) acquired Beneficial Ownership of more than the permitted amount of
the then outstanding common stock or Voting Securities as a result of the acquisition of common
stock or Voting Securities by the Company which, by reducing the number of shares of common stock
or Voting Securities then outstanding, increases the proportional number of shares Beneficially
Owned by the Subject Persons; provided, however, that if a Change in Control would occur (but for
the operation of this sentence) as a result of the acquisition of common stock or Voting Securities
by the Company, and after such share acquisition by the Company, the Subject Person becomes the
Beneficial Owner of any additional common stock or Voting Securities which increases the percentage
of the then outstanding common stock or Voting Securities Beneficially Owned by the Subject Person,
then a Change in Control shall occur.

3

 

	1.7	 	“Code” shall mean the Internal Revenue Code of 1986, as it may be amended from time to
time and any related regulations or other guidance issued thereunder.
	 
	1.8	 	“Committee” shall mean the committee described in Article 10.
	 
	1.9	 	“Company” shall mean Countrywide Financial Corporation, a Delaware corporation, and any
successor thereto.
	 
	1.10	 	“Compensation” shall mean the sum of a Participant’s base salary and any cash incentive
paid to the Participant during any Plan Year, in each case, before reduction for
compensation deferred pursuant to all qualified, non-qualified and Code Section 125 plans,
up to a maximum aggregate amount of three million dollars ($3,000,000).
	 
	1.11	 	“Disability” or “Disabled” shall mean a “disability”, as such term is defined in Code
Section 409A.
	 
	1.12	 	“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as it may be
amended from time to time, and any related regulations or other guidance issued thereunder.
	 
	1.13	 	“Initial Account Balance” of a Participant shall mean the amount set forth on the schedule attached hereto.
	 
	1.14	 	“Key Employee” shall mean any Participant who is a “key employee” within the meaning of
Code Section 409A.
	 
	1.15	 	“Participant” shall mean any employee of the Company (or any participating subsidiary)
who becomes a Participant in accordance with Section 2.1 hereof.
	 
	1.16	 	“Plan” shall mean the Countrywide Financial Corporation Executive Contribution Account Plan.

4

 

	1.17	 	“Plan Year” shall mean the calendar year.
	 
	1.18	 	“Retirement”, “Retire(s)” or “Retired” shall mean a Participant’s separation from
service with the Company on or after the earlier of the attainment of (a) age sixty-five
(65) or (b) age fifty-five (55) with eleven (11) Years of Service.
	 
	1.19	 	“SERP” shall mean the Countrywide Financial Corporation Supplemental Executive
Retirement Plan.
	 
	1.20	 	“Termination of Employment” shall mean a Participant’s separation from service with the
Company for any reason other than Retirement, Disability, death or an authorized leave of
absence (as determined in accordance with Code Section 409A).
	 
	1.21	 	“Unforeseeable Financial Emergency” shall mean an unforeseeable emergency that is
caused by an event beyond the control of the Participant that would result in severe
financial hardship to the Participant resulting from (i) a sudden and unexpected illness or
accident of the Participant, the Participant’s spouse, or a dependent (as defined in Code
Section 152(a)) of the Participant, (ii) a loss of the Participant’s property due to
casualty, or (iii) such other similar extraordinary and unforeseeable circumstances arising
as a result of events beyond the control of the Participant, all as determined in the sole
discretion of the Committee, which shall interpret such term consistent with Code Section
409A.
	 
	1.22	 	“Years of Plan Participation” shall mean the total number of full Plan Years a
Participant has been a Participant in the Plan prior to his or her Termination of
Employment.
	 
	1.23	 	“Years of Service” shall mean the total number of full years in which a Participant has
been employed by the Company. The Committee shall make a determination, in its sole
discretion, as to whether any partial year of employment shall be counted as a Year of
Service.

5

 

ARTICLE 2.

Participation

	2.1	 	Participation. Any employee of the Company (or any participating subsidiary)
who, on January 1, 2006, is (a) a Managing Director (or is employed in a more senior
position) or (b) an Executive Vice President who has completed at least five (5) Years of
Service as an Executive Vice President as of December 31, 2005, automatically shall become a
Participant on January 1, 2006. On or after January 1, 2006, anyone who becomes a Managing
Director (or is employed in a more senior position) or who completes five (5) Years of
Service as an Executive Vice President automatically shall become a Participant on the first
day of the calendar month next following the date on which the individual attains such
status. Any employee who is a Participant in the SERP shall not be eligible to participate
herein.

ARTICLE 3.

Accounts

	3.1	 	Initial Account Balance. As of January 1, 2006, each Participant shall be
credited with his or her Initial Account Balance, if any.
	 
	3.2	 	Company Contributions.

	 	(a)	 	For each Plan Year, the Company shall make the following contribution to a
Participant’s Account:

	 	 	 	 	 
	 	 	Percentage of
	Position	 	Compensation
	Senior Managing Director and above
	 	 	5	%
	 
	 	 	 	 
	Managing Director
	 	 	2	%
	 
	 	 	 	 
	Executive Vice President
	 	 	1	%

Such contribution shall be made no later than March 15th of the year following
the year in which it is earned.

	 	(b)	 	Notwithstanding the foregoing, the Company shall make no contribution for any
Participant who (i) Retires or incurs a Termination of Employment prior to December
31st of the year with respect to which the contribution is being made, or
(ii) incurs a Termination of Employment following December 31st but before
the

6

 

	 	 	 	date on which the contribution is actually made, unless such Participant is fully
vested in his Account as of the date of such Termination of Employment.

	 	(c)	 	The Company shall have the right, but not the obligation, in its sole
discretion, to make an additional contribution in any year, based upon its attainment
of certain performance goals or targets set by the Compensation Committee of the Board
of Directors (the “Compensation Committee”) for that year and communicated to the
affected Participants. Any such targets and the amount of the discretionary
contribution, if any, shall be established by the Compensation Committee within ninety
(90) days of (i) the beginning of the applicable Plan Year or (ii) the date on which an
individual first becomes a Participant.

	3.3	 	Paid Leave of Absence. If a Participant is authorized by the Company to take a
paid leave of absence or takes an unpaid leave of absence with the Company’s consent he shall
continue to be entitled to a Company contribution while on such leave.
	 
	3.4	 	Vesting. A Participant shall vest in the balance in his Account upon (a)
attaining age 65, or his death, or Disability while employed or (b) the completion of ten
(10) Years of Service with the Company, plus the attainment of the earlier of age 55 or five
Years of Plan Participation. Notwithstanding the foregoing, Participants shall vest in the
balance in their Accounts upon a Change in Control.
	 
	3.5	 	Investment of Accounts. Each Participant shall be entitled to direct the
investment of the amount in his Account in the manner and time, and among the investment
media permitted under, the Company’s Executive Deferred Compensation Plan, and/or any other
investment vehicle selected by the Company’s Investment Committee for Employee Benefit Plans
(or any successor thereto). Notwithstanding the foregoing, such investments are for
measurement purposes only, and a Participant’s election of any such investment fund, the
allocation of his Account balance thereto, and the crediting or debiting of earnings
thereon, shall not be considered or construed in any manner as an actual investment of his
Account balance in any such investment media but shall at all times be a bookkeeping entry
only. The Participant shall at all times remain an unsecured creditor of the Company.

ARTICLE 4.

Distributions

	4.1	 	Payment of Benefit.

	 	(a)	 	Upon a Participant’s death or Disability, he (or his estate or legal
representative, as applicable) shall receive his vested Account balance in a single
lump sum beginning on, and determined as of, his Benefit Distribution Date.

7

 

	 	(b)	 	A Participant shall have the right to elect to receive his vested Account
balance upon Retirement or Termination of Employment in either (i) a single lump sum or
(b) an annuity payable in equal monthly installments over a period of five (5), ten
(10) or fifteen (15) years, in each case, beginning on his Benefit Distribution Date.
Such election shall be made in accordance with procedures established by the Committee,
including any form the Committee deems appropriate. If a Participant does not make an
election with respect to the payment of his benefit, he shall be deemed to have elected
to receive a lump sum payment.

	4.2	 	In-Service Distributions. Notwithstanding the foregoing, a Participant shall be
entitled to an immediate distribution of all or a portion of his vested Account balance upon
the occurrence of an Unforeseeable Financial Emergency, provided that the amount that may be
distributed shall be limited to the lesser of the amount needed to relieve such
Unforeseeable Financial Emergency or the maximum amount permitted by Code Section 409A (as
determined by the Committee, in its sole discretion). No other in-service distributions are
permissible, except to the extent such distribution is permitted by Code Section 409A.

ARTICLE 5.

Beneficiary Designation

	5.1	 	Beneficiary. At the time an Employee becomes a Participant, he shall have the
right to designate and/or change primary and/or contingent beneficiaries to receive any
benefits payable under the Plan upon his death by completing and submitting a Beneficiary
Designation Form to the Committee, together with any other form or information required by
the Committee. The Beneficiary Designation hereunder may be the same as or different from
such designation under any other plan of the Company. Upon the acceptance by the Committee
of a new Beneficiary Designation Form, all Beneficiary designations previously filed shall
be canceled.
	 
	5.2	 	Acknowledgment. No designation or change in designation of a Beneficiary shall
be effective until received and acknowledged in writing by the Committee or its designated
agent.
	 
	5.3	 	No Beneficiary Designation. If a Participant fails to designate a Beneficiary
or, if all designated Beneficiaries predecease the Participant or die prior to complete
distribution of the Participant’s benefits, the Participant’s designated Beneficiary shall
be deemed to be his surviving spouse, or, if none, the executor or personal representative
of the Participant’s estate.

8

 

ARTICLE 6.

Termination and Amendment

	6.1	 	Termination and Amendment.

	 	(a)	 	The Company reserves the right at any time, or from time to time, to amend or
terminate the Plan by action of the Compensation Committee of the Board. Following a
termination of the Plan, the balances in each Participant’s Account shall remain in the
Plan until the Participant becomes eligible for a distribution in accordance with the
terms of the Plan. Notwithstanding the foregoing, to the extent permissible under Code
Section 409A and other applicable law, following a Change in Control, the Company shall
be permitted to (i) terminate the Plan by action of the Board, and (ii) distribute the
vested Account balances to Participants in a lump sum no later than twelve (12) months
after a Change in Control, within the meaning of Section 409A of the Code.
	 
	 	(b)	 	Notwithstanding anything herein to the contrary, no amendment or modification
shall decrease the value of a Participant’s vested Account balance at the time the
amendment or modification is made.
	 
	 	(c)	 	Notwithstanding any provision of the Plan to the contrary, in the event that
the Company, in its sole discretion, determines that any provision of the Plan may
cause amounts deferred under the Plan to become immediately taxable to any Participant
under Code Section 409A, the Company may (i) adopt such amendments to the Plan and
appropriate policies and procedures, including amendments and policies with retroactive
effect, that the Company determines necessary or appropriate to preserve the intended
tax treatment of the Plan benefits provided by the Plan, and/or (ii) take such other
actions as the Company determines necessary or appropriate to comply with the
requirements of Code Section 409A.

ARTICLE 7.

Administration

	7.1	 	Committee Duties. Except as otherwise provided herein, the Plan shall be
administered by the Company’s Administrative Committee for Employee Benefit Plans. The
Committee shall also have the discretion and authority to (i) make, amend, interpret, and
enforce all appropriate rules and regulations for the administration of the Plan, and (ii)
decide or resolve any and all questions, including benefit entitlement determinations and
interpretations of the Plan, as may arise in connection with the Plan. A Committee member
may be a Participant hereunder, but shall not vote or act on any matter relating solely to
himself. When making a determination or calculation, the Committee shall be entitled to
rely on

9

 

	 	 	information furnished by a Participant or the Company (including the Board or the
Compensation Committee).
	 
	7.2	 	Agents. The Committee may, from time to time, employ agents and delegate to
them such administrative duties as it sees fit (including acting through a duly appointed
representative), and may from time to time consult with counsel.
	 
	7.3	 	Binding Effect of Decisions. The decision or action of the Committee with
respect to any question arising out of or in connection with the administration,
interpretation and application of the Plan and the rules and regulations promulgated
hereunder shall be final and conclusive and binding upon all persons having any interest in
the Plan.
	 
	7.4	 	Indemnity of Committee. The Company shall indemnify and hold harmless the
members of the Committee, any employee to whom the duties of the Committee may be delegated,
against any and all claims, losses, damages, expenses or liabilities arising from any action
or failure to act with respect to this Plan, except in the case of willful misconduct by the
Committee, any of its members, or any such employee.

ARTICLE 8.

Other Benefits and Agreements

	8.1	 	Coordination with Other Benefits and Agreements. The benefits provided for a
Participant (or Beneficiary, as applicable) under the Plan are in addition to any other
benefits available to such Participant (or Beneficiary) under any other plan, program or
agreement maintained by the Company. The Plan shall supplement and shall not supersede,
modify or amend any other such plan, program or agreement, except as may otherwise be
expressly provided.

ARTICLE 9.

Claims Procedures

	9.1	 	Presentation of Claim. No claim for benefits under the Plan is necessary for
payment to be made. Any Participant or Beneficiary of a deceased Participant who believes
that he has not received timely all benefits to which he is entitled under the Plan (a
“Claimant”) may deliver to the Committee a written claim for a determination with respect to
such claim. If such a claim relates to the contents of a notice received by the Claimant,
the claim must be made within sixty (60) days after such notice was received by the
Claimant. All other claims must be made within one hundred and eighty (180) days of the
date on which the event

10

 

	 	 	that caused the claim to arise occurred. The claim must state with particularity the
determination desired by the Claimant.
	 
	9.2	 	Notification of Decision. The Committee shall consider a Claimant’s claim
within a reasonable time, but no later than ninety (90) days after receiving the claim. If
the Committee determines that special circumstances require an extension of time for
processing the claim, written notice of the extension shall be furnished to the Claimant
prior to the termination of the initial ninety (90) day period. In no event shall such
extension exceed a period of ninety (90) days from the end of the initial period. The
extension notice shall indicate the special circumstances requiring an extension of time,
and the date by which the Committee expects to render the benefit determination. The
Committee shall notify the Claimant in writing:

	 	(a)	 	that the Claimant’s requested determination has been made, and that the claim
has been allowed in full; or
	 
	 	(b)	 	that the Committee has reached a conclusion contrary, in whole or in part, to
the Claimant’s requested determination, in which case such notice must set forth, in a
manner calculated to be understood by the Claimant:

	 	(i)	 	the specific reason(s) for the denial of the claim, or any part
of it;
	 
	 	(ii)	 	specific reference(s) to pertinent provisions of the Plan upon
which such denial was based;
	 
	 	(iii)	 	a description of any additional material or information
necessary for the Claimant to perfect the claim, and an explanation of why such
material or information is necessary;
	 
	 	(iv)	 	an explanation of the claim review procedure set forth in
Section 9.3 below; and
	 
	 	(v)	 	a statement of the Claimant’s right to bring a civil action
under ERISA Section 502(a) following an adverse benefit determination on
review.

	9.3	 	Review of a Denied Claim. On or before sixty (60) days after receiving a notice
from the Committee that a claim has been denied, in whole or in part, a Claimant (or the
Claimant’s duly authorized representative) may file with the Committee a written request for
a review of the denial of the claim. The Claimant (or the Claimant’s duly authorized
representative):

	 	(a)	 	may, upon request and free of charge, have reasonable access to, and copies of,
all documents, records and other information relevant (as defined in applicable ERISA
regulations) to the claim for benefits;

11

 

	 	(b)	 	may submit written comments or other documents; and/or
	 
	 	(c)	 	may request a hearing, which the Committee, in its sole discretion, may grant.

	9.4	 	Decision on Review. The Committee shall render its decision on review promptly,
and no later than sixty (60) days after the Committee receives the Claimant’s written
request for a review of the denial of the claim. If the Committee determines that special
circumstances require an extension of time for processing the claim, written notice of the
extension shall be furnished to the Claimant prior to the termination of the initial sixty
(60) day period. In no event shall such extension exceed a period of sixty (60) days from
the end of the initial period. The extension notice shall indicate the special
circumstances requiring an extension of time and the date by which the Committee expects to
render the benefit determination. In rendering its decision, the Committee shall take into
account all comments, documents, records and other information submitted by the Claimant
relating to the claim, without regard to whether such information was submitted or
considered in the initial benefit determination. The decision must be written in a manner
calculated to be understood by the Claimant, and it must contain:

	 	(a)	 	specific reasons for the decision;
	 
	 	(b)	 	specific reference(s) to the pertinent Plan provisions upon which the decision
was based;
	 
	 	(c)	 	a statement that the Claimant is entitled to receive, upon request and free of
charge, reasonable access to and copies of, all documents, records and other
information relevant (as defined in applicable ERISA regulations) to the Claimant’s
claim for benefits; and
	 
	 	(d)	 	a statement of the Claimant’s right to bring a civil action under ERISA Section
502(a).

ARTICLE 10.

Miscellaneous

	10.1	 	Status of Plan. The Plan is intended to be a plan that is not qualified within
the meaning of Code Section 401(a), and that “is unfunded and is maintained by an employer
primarily for the purpose of providing deferred compensation for a select group of
management or highly compensated employees” within the meaning of ERISA Sections 201(2),
301(a)(3) and 401(a)(1). The Plan shall be administered and interpreted (i) in a manner
consistent with that intent, and (ii) in accordance with Code Section 409A.
	 
	10.2	 	Unsecured General Creditor. Participants and their Beneficiaries, heirs, successors and assigns shall have no legal
or equitable rights, interests or claims in any property or assets of the Company (or any
subsidiary). For purposes of the payment of benefits under this Plan, any and all of the
assets of the Company (and its subsidiaries) shall be, and remain, general, unpledged and
unrestricted assets. The Company’s obligation under the Plan shall be merely that of an
unfunded and unsecured promise to pay money in the future.

12

 

	10.3	 	Company’s Liability. The Company’s liability for the payment of benefits shall
be defined only by the Plan, and it shall have no obligation to a Participant or Beneficiary
under the Plan except as expressly provided in the Plan.
	 
	10.4	 	Nonassignability. Neither a Participant nor any other person shall have any
right to commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise
encumber, transfer, hypothecate, alienate or convey in advance of actual receipt, the
amounts, if any, payable hereunder, or any part thereof, which are, and all rights to which
are expressly declared to be, unassignable and non-transferable. No part of the amounts
payable shall, prior to actual payment, be subject to seizure, attachment, garnishment or
sequestration for the payment of any debts, judgments, alimony or separate maintenance owed
by a Participant or any other person, be transferable by operation of law in the event of a
Participant’s or any other person’s bankruptcy or insolvency or be transferable to a spouse
as a result of a property settlement or otherwise.
	 
	10.5	 	Not a Contract of Employment. The terms and conditions of the Plan shall not
be deemed to constitute a contract of employment between the Company (or any subsidiary) and
any Participant. Such employment is hereby acknowledged to be an “at will” employment
relationship that can, subject to applicable law, be terminated at any time for any reason,
or no reason, with or without cause, and with or without notice, unless expressly provided
in a written employment agreement. Nothing in the Plan shall be deemed to give a
Participant the right to be retained in the service of the Company (or any subsidiary), in
any capacity or to interfere with the right of the Company (or any subsidiary) to discipline
or discharge the Participant at any time.
	 
	10.6	 	Furnishing Information. A Participant or his Beneficiary will cooperate with
the Committee by furnishing any and all information requested by the Committee and take such
other actions as may be requested in order to facilitate the administration of the Plan and
the payments of benefits

13

 

	 	 	hereunder, including but not limited to, the Participant taking such physical examinations
as the Committee may deem necessary.
	 
	10.7	 	Terms. Whenever any words are used herein in the masculine, they shall be
construed as though they were in the feminine in all cases where they would so apply; and
whenever any words are used herein in the singular or in the plural, they shall be construed
as though they were used in the plural or the singular, as the case may be, in all cases
where they would so apply.
	 
	10.8	 	Captions. The captions of the articles, sections and paragraphs of the Plan
are for convenience only and shall not control or affect the meaning or construction of any
of its provisions.
	 
	10.9	 	Governing Law. Subject to ERISA, the provisions of the Plan shall be construed
and interpreted according to the internal laws of the State of California without regard to
its conflicts of laws principles.
	 
	10.10	 	Notice. Any notice or filing required or permitted to be given to the
Committee under the Plan shall be sufficient if in writing and hand-delivered, or sent by
registered or certified mail, to the address below:

Countrywide Financial Corporation

4500 Park Granada

Calabasas, CA 91302

Attn: Chief Administrative Officer

	 	 	Such notice shall be deemed given as of the date of delivery or, if delivery is made by
mail, as of the date shown on the postmark on the receipt for registration or certification.
	 
	 	 	Any notice or filing required or permitted to be given to a Participant under the Plan shall
be sufficient if in writing and hand-delivered, or sent by mail, to the last known address
of the Participant, as reflected in the Company’s records.
	 
	10.11	 	Withholding. The Company shall withhold from any payments to be made to a
Participant (or Beneficiary) under this Plan all federal, state and local income, employment
and other taxes required to be withheld in connection with such payments, in amounts and in
a manner to be determined in the Company’s sole discretion.

14

 

	10.12	 	Successors. The provisions of the Plan shall bind and inure to the benefit of
the Company and its successors and assigns and the Participant and the Participant’s
designated Beneficiaries.
	 
	10.13	 	Spouse’s Interest. The interest, if any, in the benefits hereunder of a
spouse of a Participant who has predeceased the Participant shall automatically pass to the
Participant and shall not be transferable by such spouse in any manner, including but not
limited to such spouse’s will, nor shall such interest pass under the laws of intestate
succession.
	 
	10.14	 	Validity. In case any provision of the Plan shall be illegal or invalid for
any reason, said illegality or invalidity shall not affect the remaining parts hereof, but
this Plan shall be construed and enforced as if such illegal or invalid provision had never
been inserted herein.
	 
	10.15	 	Incompetent. If the Committee determines, in its sole discretion, that a
benefit under the Plan is to be paid to a minor, a person declared incompetent or to a
person incapable of handling the disposition of that person’s property, the Committee may
direct payment of such benefit to the guardian, legal representative or person having the
care and custody of such minor, incompetent or incapable person. The Committee may require
proof of minority, incompetence, incapacity or guardianship, as it may deem appropriate
prior to distribution of the benefit. Any payment of a benefit shall be a payment for the
account of the Participant and the Participant’s Beneficiary, as the case may be, and shall
be a complete discharge of any liability under the Plan for such payment amount.
	 
	10.16	 	Insurance. The Company, on its own behalf or on behalf of the trustee of the
Trust, and, in its sole discretion, may apply for and procure insurance on the life of any
Participant, in such amounts and in such forms as the Trust may choose. The Company or the
trustee of the Trust, as the case may be, shall be the sole owner and beneficiary of any
such insurance. The Participant shall have no interest whatsoever in any such policy or
policies, and at the request of the Employers shall submit to medical examinations and
supply such information and execute such documents as may be required by the insurance
company or companies to whom the Company has applied for insurance.

15

 

IN WITNESS WHEREOF, the Company has signed this Plan document as of April 13, 2006.

	 	 	 	 	 
	 

	 	 	 	 
	 

	 	Countrywide Financial Corporation	 	 
	 
	 	 	 	 
	 

	 	/s/ Marshall Gates	 	 
	 

	 	 	 	 
	 

	 	Marshall Gates,	 	 
	 

	 	Senior Managing Director,	 	 
	 

	 	Chief Administrative Officer	 	 

16exv10w1

 

EXHIBIT 10.1

SMITH INTERNATIONAL, INC.

EXECUTIVE OFFICER ANNUAL INCENTIVE PLAN

(Effective as of January 1, 2006)

 

 

TABLE OF CONTENTS

	 	 	 	 	 
	 	 	Page	 
	ARTICLE I DEFINITIONS
	 	 	2	 
	 
	 	 	 	 
	ARTICLE
II ADMINISTRATION
	 	 	5	 
	 
	 	 	 	 
	ARTICLE
III ELIGIBILITY
	 	 	6	 
	 
	 	 	 	 
	ARTICLE
IV ESTABLISHMENT OF INCENTIVE COMPENSATION TARGETS
	 	 	6	 
	4.1 Incentive Compensation Award Target
	 	 	6	 
	4.2 Reduction of Incentive Compensation
	 	 	6	 
	 
	 	 	 	 
	ARTICLE V DETERMINATION OF GOALS FOR INCENTIVE COMPENSATION

	 	 	6	 
	
5.1 Establishment of Performance Goals
	 	 	6	 
	5.2 Determination.
	 	 	6	 
	5.3 Committee Discretion.
	 	 	7	 
	 
	 	 	 	 
	ARTICLE
VI PAYMENT OF INCENTIVE COMPENSATION
	 	 	7	 
	6.1 Form and Time of Payment
	 	 	7	 
	6.2 Forfeiture Upon Termination Prior to Date of Payment
	 	 	7	 
	6.3 Pro Rata Payment for Involuntary Termination without Cause, Death,
Disability, or Retirement
	 	 	7	 
	6.4 Payment Upon Change in Control
	 	 	7	 
	 
	 	 	 	 
	ARTICLE VII PERFORMANCE CRITERIA
	 	 	7	 
	 
	 	 	 	 
	ARTICLE VIII MISCELLANEOUS PROVISIONS
	 	 	8	 
	8.1 Non-Assignability
	 	 	8	 
	8.2 No Right to Continue in Employment
	 	 	8	 
	8.3 Indemnification of Committee Members
	 	 	8	 
	8.4 No Plan Funding
	 	 	9	 
	8.5 Governing Law
	 	 	9	 
	8.6 Binding Effect
	 	 	9	 
	8.7 Construction of Plan
	 	 	9	 
	8.8 Integrated Plan
	 	 	9	 
	8.9 Compliance with Code Section 409A
	 	 	9	 
	 
	 	 	 	 
	ARTICLE IX AMENDMENT OR DISCONTINUANCE
	 	 	9	 
	 
	 	 	 	 
	ARTICLE X EFFECT OF THE PLAN
	 	 	9	 
	 
	 	 	 	 
	ARTICLE XI TERM
	 	 	9	 

 

 

SMITH INTERNATIONAL, INC.

EXECUTIVE OFFICER ANNUAL INCENTIVE PLAN

(Effective as of January 1, 2006)

Purpose

     The purpose of the Smith International, Inc. Executive Officer Annual Incentive Plan (the
“Plan”) is to advance the interests of Smith International, Inc., a Delaware Corporation, (the
“Company”) and its shareholders by providing designated officers with incentive compensation that
is correlated with the achievement of specified performance goals. The Plan is intended to provide
annual incentive compensation, primarily to Executives who are considered to be “covered employees”
within the meaning of Section 162(m)(3) of the Internal Revenue Code of 1986, as amended (the
“Code”), that is considered “performance-based compensation” under Code Section 162(m) and thus not
subject to the annual compensation deduction limit under Section 162(m).

ARTICLE I

DEFINITIONS

     For purposes of the Plan, unless the context requires otherwise, the following terms shall
have the meanings indicated:

     1.1 “Base Salary” means the regular, annual, base salary payable by the Employer for a
Performance Period to a Participant for services rendered, including salary a Participant could
have received in lieu of (a) contributions made on such Participant’s behalf to a retirement plan
that is qualified under Code Section 401(a) or to a cafeteria plan under Code Section 125 and (b)
deferrals of compensation made at the Participant’s election pursuant to a plan or arrangement of
the Employer, but excluding Incentive Compensation payable under the Plan, income derived from
stock options, restricted stock awards, fringe benefits, and any bonuses, incentive compensation,
special awards or other extraordinary remuneration. The Committee shall stipulate a Participant’s
Base Salary for purposes of computing Incentive Compensation awarded under the Plan to the
Participant.

     1.2 “Beneficiary” means the beneficiary or beneficiaries designated to receive any amounts
payable under the Plan pursuant to Section 8.3 upon the Participant’s death.

     1.3 “Board” means the Board of Directors of the Company.

     1.4 “Business Unit” means any operating or administrative unit of the Employer which is
identified and designated by the Committee, in its discretion, as a separate business unit.

     1.5 “Business Unit Performance Goal” means (a) the selected Performance Criteria and (b) the
objective goals established relative to such Performance Criteria, as determined in the discretion
of the Committee for any Performance Period of a Business Unit.

     1.6 “Cause” when used in connection with the termination of a Participant’s Employment, shall
mean the termination of the Participant’s Employment by the Company or any Subsidiary by reason of
(a) the conviction of the Participant by a court of competent jurisdiction as to which no further
appeal can be taken of a crime involving moral turpitude or a felony; (b) the proven commission by
the Participant of a material act of fraud upon the Company or any Subsidiary, or any customer or
supplier thereof; (c) the misappropriation of any funds or property of the Company or any
Subsidiary, or any customer or supplier thereof; (d) the willful and continued failure by the
Participant to perform the material duties assigned to him that is not cured to the reasonable
satisfaction of the Company within 30 days after written notice of such failure is provided to
Participant by the Board or CEO (or by another officer of the Company or a Subsidiary who has been
designated by the Board or CEO for such purpose); (e) the knowing engagement by the Participant in
any direct and material conflict of interest with the Company or any Subsidiary without compliance
with the Company’s or Subsidiary’s conflict of interest policy, if any, then in effect; or (f) the
knowing engagement by the Participant, without the written approval of the Board or CEO, in any
material activity which competes with the business of the Company or any Subsidiary or which would
result in a material injury to the business, reputation or goodwill of the Company or any
Subsidiary.

     1.7 “Change in Control” means the occurrence of any one or more of the following events:

- 2 -

 

(a) The acquisition by any individual, entity or group (a “Person”) (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Exchange Act) of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of twenty percent (20%) or more of
either (i) the then outstanding shares of common stock of the Company (the “Outstanding
Company 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 the following acquisitions shall not
constitute a Change in Control: (i) any acquisition directly from the Company or any
Subsidiary, (ii) any acquisition by the Company or any Subsidiary or by any employee benefit
plan (or related trust) sponsored or maintained by the Company or any Subsidiary, or (iii)
any acquisition by any corporation pursuant to a reorganization, merger, consolidation or
similar business combination involving the Company (a “Merger”), if, following such Merger,
the conditions described in Section 1.6(c) (below) are satisfied;

(b) Individuals who, as of the Effective Date, constitute the Board of Directors of the
Company (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
Effective Date 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 either an actual or threatened election contest (as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents by or on behalf of a Person other than the
Board;

(c) Consummation of a reorganization, merger or consolidation, or sale or other disposition
of all or substantially all of the assets of the Company (a “Business Combination”), in each
case, unless, following such Business Combination, (1) all or substantially all of the
individuals and entities who were the beneficial owners, respectively, of the Outstanding
Company Stock and Outstanding Company Voting Securities immediately prior to such Business
Combination beneficially own, directly or indirectly, more than sixty percent (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 Stock and Outstanding Company
Voting Securities, as the case may be, (2) 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, twenty percent (20%) 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 (3) 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 the action of the Board, providing for such Business
Combination;

(d) The adoption of any plan or proposal for the liquidation or dissolution of the Company;
or

(e) Any other event that a majority of the Board, in its sole discretion, determines to
constitute a Change in Control hereunder.

Notwithstanding the foregoing provisions of this Section 1.6, to the extent that any
payment or acceleration hereunder is subject to Code Section 409A as deferred compensation,
the term Change in Control shall have the meaning set forth in Code Section 409A(2)(A) as
incorporated herein by this reference, but only to the extent inconsistent with the
foregoing definition of Change in Control for this particular purpose as determined by the
Committee.

- 3 -

 

     1.8 “Code” means the Internal Revenue Code of 1986, as amended. References herein to any
Section of the Code shall also refer to any successor provision thereof, and the regulations and
other authority issued thereunder by the appropriate governmental authority.

     1.9 “Committee” means the Compensation and Benefits Committee of the Board. The Committee
shall be comprised solely of two (2) or more non-Employee members of the Board who qualify to
administer the Plan as “disinterested directors” under Rule 16b-3 of the Exchange Act, and as
“outside directors” under Code Section 162(m).

     1.10 “Company” means Smith International, Inc., a Delaware corporation, or its successor in
interest.

     1.11 “Company Performance Goal” means (a) the selected Performance Criteria and (b) the
objective goals established relative to such Performance Criteria, as determined by the Committee
for any Performance Period of the Company.

     1.12 “Disability” means, as determined by the Committee in its discretion exercised in good
faith, a physical or mental condition of the Participant that would entitle Participant 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 Participant 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 Code. A
determination of Disability may be made by a physician selected or approved by the Committee and,
in this respect, the Participant 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.

     1.13 “Effective Date” means January 1, 2006, the initial effective date of the Plan.

     1.14 “Employee” means an individual who is employed by and is on the payroll of the Company or
a Subsidiary, and whose wages are reported on an IRS Form W-2 subject to FICA withholding.

     1.15 “Employer” means the Company and any Subsidiary.

     1.16 “Employment” means that the individual is employed as an Employee. In this regard,
neither the transfer of a Participant from Employment by the Company to Employment by any
Subsidiary, nor the transfer of a Participant from Employment by any Subsidiary to Employment by
the Company, shall be deemed to be a termination of the Participant’s Employment. Moreover, the
Participant’s Employment shall not be deemed to have been terminated because of an approved leave
of absence from active Employment on account of temporary illness, authorized vacation or granted
for reasons of professional advancement, education, or health, or during any period required to be
treated as a leave of absence by virtue of any applicable statute, personnel policy or written
agreement. All determinations regarding Employment, and any termination of Employment hereunder,
shall be made by the Committee.

     1.17 “Exchange Act” means the Securities Exchange Act of 1934, as amended.

     1.18 “Executive” means an officer of the Company, a Subsidiary or a Business Unit.

     1.19 “Incentive Compensation” means the compensation approved by the Committee to be awarded
to a Participant for any Performance Period under the Plan.

     1.20 “Participant” means an Executive who is selected by the Committee to participate in the
Plan pursuant to Article III for any Performance Period.

     1.21 “Performance Criteria” means the business criteria that are specified by the Committee
pursuant to Article VII.

     1.22 “Performance Goal” means a Business Unit Performance Goal or a Company Performance Goal,
whichever is applicable.

     1.23 “Performance Period” means the Company’s fiscal year or such other period selected by
the Committee for the award of Incentive Compensation.

- 4 -

 

     1.24 “Plan” means the Smith International, Inc. Executive Officer Annual Incentive Plan, as it
may be amended from time to time.

     1.25 “Retirement” means the voluntary termination of Employment by an Employee constituting
retirement for age (a) on any date after the Employee attains the normal retirement age of 65
years, or (b) an earlier retirement date as expressly agreed to by the Committee prior to the
Employee’s termination of Employment.

     1.26 “Subsidiary” means any corporation (whether now or hereafter existing) which constitutes
a “subsidiary” of the Company, as defined in Code Section 424(f), and any limited liability
company, partnership, joint venture, or other entity in which the Company controls more than fifty
percent (50%) of its voting power or equity interests.

ARTICLE II

ADMINISTRATION

     Subject to the terms and conditions of this Article II, the Plan shall be administered
by the Committee. The Committee shall have the power, in its discretion, to take such actions as
may be necessary to carry out the provisions of the Plan and the authority to control and manage
the operation and administration of the Plan. In order to effectuate the purposes of the Plan, the
Committee shall have the discretionary power and authority to construe and interpret the Plan, to
supply any omissions therein, to reconcile and correct any errors or inconsistencies, to decide any
questions in the administration and application of the Plan, and to make equitable adjustments for
any mistakes or errors made in the administration of the Plan. All such actions or determinations
made by the Committee, and the application of rules and regulations to a particular case or issue
by the Committee, in good faith, shall not be subject to review by anyone, but shall be final,
binding and conclusive on all persons ever interested hereunder.

     In construing the Plan and in exercising its power under provisions requiring the Committee’s
approval, the Committee shall attempt to ascertain the purpose of the provisions in question, and
when the purpose is known or reasonably ascertainable, the purpose shall be given effect to the
extent feasible as determined by the Committee. Likewise, the Committee is authorized to determine
all questions with respect to the individual rights of all Participants under the Plan, including,
but not limited to, all issues with respect to eligibility. The Committee shall have all powers
necessary or appropriate to accomplish its duties under the Plan including, but not limited to, the
power and duty to:

	 	(a)	 	designate the Executives who are eligible to participate in the Plan as
Participants;
	 
	 	(b)	 	maintain records of all Plan transactions and other data in the manner
necessary for proper administration of the Plan;
	 
	 	(c)	 	adopt rules of procedure and regulations necessary for the proper and efficient
administration of the Plan, provided the rules and regulations are not inconsistent
with the terms of the Plan as set out herein;
	 
	 	(d)	 	enforce the terms of the Plan and the rules and regulations it adopts;
	 
	 	(e)	 	review claims and render decisions on claims for benefits under the Plan;
	 
	 	(f)	 	furnish the Company or the Participants, upon request, with information that
the Company or the Participants may require for tax or other purposes;
	 
	 	(g)	 	employ agents, attorneys, accountants or other persons (who also may be
employed by or represent the Company) for such purposes as the Committee deems
necessary or desirable in connection with its duties hereunder; and
	 
	 	(h)	 	perform any other acts necessary or appropriate for the proper management and
administration of the Plan.

- 5 -

 

     The Committee may delegate to designated officers or other employees of the Company any of its
administrative duties under the Plan pursuant to such conditions or limitations as the Committee
may establish from time to time by directive or practice; provided, however, the Committee cannot
delegate to any other person or entity the power, authority or duty to (i) award Incentive
Compensation under the Plan or (ii) to take any action which would contravene the requirements of
Code Section 162(m) or the Sarbanes-Oxley Act of 2002.

ARTICLE III

ELIGIBILITY

     For each Performance Period, the Committee shall select the particular Executives of the
Employers to whom Incentive Compensation may be awarded under the Plan for such Performance Period.
Executives who participate in the Plan may also participate in other incentive or benefit plans
maintained by an Employer.

ARTICLE IV

ESTABLISHMENT OF INCENTIVE COMPENSATION TARGETS

     4.1 Incentive Compensation Award Target. For each award of Incentive Compensation for
a Performance Period, the Committee will establish the level or levels of targeted Incentive
Compensation for each Participant within the first ninety (90) days of the Performance Period (or
within such shorter deadline as may apply under Code Section 162(m) if the Performance Period is
less than 12 months). The Incentive Compensation targets for each Participant that are established
by the Committee will be expressed as a percentage of such Participant’s Base Salary; provided,
however, in no event will a Participant’s Incentive Compensation exceed five million dollars
($5,000,000) for any single Performance Period. The actual payment of a Participant’s Incentive
Compensation may be reduced or eliminated by the Committee pursuant to Section 4.2.

     4.2 Reduction of Incentive Compensation. The Incentive Compensation for any
Participant may be reduced or eliminated by the Committee, in its sole discretion, prior to
payment. Under no circumstances may the amount of any Incentive Compensation awarded to any
Participant for a specified Performance Period be increased by the Committee without requisite
shareholder approval to the extent required by Code Section 162(m).

     Once the Committee has determined the amount of a Participant’s Incentive Compensation
pursuant to this Article IV for a Performance Period, and upon certification required under
Section 6.1, the Committee shall approve the Participant’s Incentive Compensation award
pursuant to such procedures as the Committee may adopt under Article II.

ARTICLE V

DETERMINATION OF GOALS FOR INCENTIVE COMPENSATION

     5.1 Establishment of Performance Goals. For each Performance Period for which the
Committee determines to establish potential Incentive Compensation awards for one or more
Participants, the Committee, within the first ninety (90) days of such Performance Period (or
within such shorter deadline as may apply under Code Section 162(m) if the Performance Period is
less than 12 months), will set forth in writing all of the terms and conditions of such Incentive
Compensation awards, including: (a) the Performance Goals for the Performance Period, including the
Performance Criteria and the objective goals established relative to such Performance Criteria,
which may include a threshold, minimum and maximum level of achievement, and the relative weighting
of each Performance Goal in determining the Participant’s actual Incentive Compensation; provided,
however, the outcome of such Performance Goals must be substantially uncertain at the time they are
established by the Committee; and (b) with respect to each Participant, the maximum percentage of
his Incentive Compensation payable upon attaining each level of achievement of the Performance
Goals. Notwithstanding any provision herein to the contrary, the Committee may, in its discretion
pursuant to Section 4.2, reduce or eliminate a Participant’s Incentive Compensation that
can be earned for a Performance Period based on its assessment of the Participant’s individual
performance for the Performance Period.

     5.2 Determination. Within a reasonable period of time after the end of each
Performance Period, the Committee shall determine the extent to which the Performance Goals
assigned to each Participant were achieved for the Performance Period, and based solely on
such achievement, shall approve the calculation of the Participant’s actual Incentive Compensation
award. No Incentive Compensation is payable hereunder unless at least the designated threshold
level or levels for such Performance Goals have been achieved, as determined by the Committee.

- 6 -

 

     5.3 Committee Discretion. The Committee shall have sole discretion to approve the
amount of Incentive Compensation, if any, to be paid to each Participant for a Performance Period,
but shall have no discretion to approve an amount of Incentive Compensation to be paid under the
Plan that is in excess of the pre-established Incentive Compensation maximum target for the
applicable Performance Period.

ARTICLE VI

PAYMENT OF INCENTIVE COMPENSATION

     6.1 Form and Time of Payment. Subject to Sections 6.2 and 6.3, a
Participant’s Incentive Compensation for each Performance Period, if any, shall be paid in a cash
lump sum (net of applicable tax and other required withholdings) as soon as practicable after (a)
the results for such Performance Period have been finalized and (b) the Committee has certified, in
writing, that the applicable Performance Goals have been satisfied for the Performance Period. The
Incentive Compensation shall be paid under the Plan within two and one-half (21/2) months after the
end of the calendar year in which such Incentive Compensation is earned by the Participant.

     6.2 Forfeiture Upon Termination Prior to End of Performance Period. If a
Participant’s Employment terminates for any reason other than involuntary termination without
Cause, death, Disability, or Retirement prior to the end of a Performance Period, then such
Participant shall immediately forfeit and relinquish any and all rights and claims to receive any
Incentive Compensation hereunder for such Performance Period. If a Participant’s Employment
terminates for any reason except for Cause after the end of a Performance Period but prior to the
date of actual payment pursuant to Section 6.1, then such Participant shall be entitled to
the Incentive Compensation payment.

     6.3 Pro Rata Payment for Involuntary Termination without Cause, Death, Disability, or
Retirement. If during a Performance Period a Participant’s Employment is terminated by reason
of involuntary termination without Cause, death, Disability, or Retirement, such Participant shall
be eligible to receive a pro-rata portion of the Incentive Compensation that would have been
payable if such Participant had remained employed for the full Performance Period that is based, to
the extent determined by the Committee, on achievement of the applicable Performance Goals that
were set for the Participant to the date of his termination of Employment. Such Incentive
Compensation shall be paid at the time and in the manner described in Section 6.1.

ARTICLE VII

PERFORMANCE CRITERIA

     As determined by the Committee, Incentive Compensation payable under the Plan is subject to
the performance objectives relating to one or more of the following Performance Criteria, within
the meaning of Code Section 162(m), in order to qualify for the performance-based compensation
exception under Code Section 162(m):

	 	(a)	 	profits (including, but not limited to, profit growth, net operating profit or
economic profit);
	 
	 	(b)	 	profit-related return ratios;
	 
	 	(c)	 	return measures (including, but not limited to, return on assets, capital,
equity, investment or sales);
	 
	 	(d)	 	cash flow (including, but not limited to, operating cash flow, free cash flow
or cash flow return on capital or investments);
	 
	 	(e)	 	earnings (including, but not limited to, total shareholder return, earnings per
share or earnings before or after taxes);
	 
	 	(f)	 	net sales growth;
	 
	 	(g)	 	net earnings or income (before or after taxes, interest, depreciation and/or
amortization);
	 
	 	(h)	 	gross, operating or net profit margins;

- 7 -

 

	 	(i)	 	productivity ratios;
	 
	 	(j)	 	share price (including, but not limited to, growth measures and total
shareholder return);
	 
	 	(k)	 	turnover of assets, capital, or inventory;
	 
	 	(l)	 	expense targets;
	 
	 	(m)	 	margins;
	 
	 	(n)	 	measures of health, safety or environment;
	 
	 	(o)	 	operating efficiency;
	 
	 	(p)	 	customer service or satisfaction;
	 
	 	(q)	 	market share;
	 
	 	(r)	 	credit quality; and
	 
	 	(s)	 	working capital targets.

     Performance Criteria may be stated in absolute terms or relative to comparison companies or
indices to be achieved during a Performance Period.

     The Committee shall establish one or more Performance Criteria for each award of Incentive
Compensation to a Participant. In establishing the Performance Criteria for each award of
Incentive Compensation, the Committee may provide that the effect of specified extraordinary or
unusual events will be included or excluded (including, but not limited to, all items of gain, loss
or expense determined to be extraordinary or unusual in nature or infrequent in occurrence or
related to the disposal of a segment of business or related to a change in accounting principle,
all as determined in accordance with standards set by Opinion No. 30 of the Accounting Principles
Board (APB Opinion 30) or other authoritative financial accounting standards). The terms of the
stated Performance Criteria for each applicable award of Incentive Compensation must preclude the
Committee’s discretion to increase the amount payable to any Participant that would otherwise be
due upon attainment of the Performance Criteria. The Performance Criteria specified need not be
applicable to all awards of Incentive Compensation, and may be particular or unique to an
individual Participant’s function, duties or Business Unit.

ARTICLE VIII

MISCELLANEOUS PROVISIONS

     8.1 Non-Assignability. A Participant cannot alienate, assign, pledge, encumber,
transfer, sell or otherwise dispose of any rights or benefits under the Plan prior to the actual
receipt thereof; and any attempt to alienate, assign, pledge, sell, transfer or assign prior to
such receipt, or any levy, attachment, execution or similar process upon any such rights or
benefits, shall be null and void.

     8.2 No Right to Continue in Employment. Nothing in the Plan confers upon any Employee
the right to continue in Employment, or interferes with or restricts in any way the right of the
Employer to discharge any Employee at any time (subject to any contract rights of such Employee).

     8.3 Indemnification of Committee Members. Each person who is or was a member of the
Committee shall be indemnified by the Company against and from any damage, loss, liability, cost
and expense that may be imposed upon or reasonably incurred by him in connection with or resulting
from any claim, action, suit, or proceeding to which he is or may be a party, or in which he may be
involved, by reason of any action taken or failure to act under the Plan, except for any such act
or omission constituting willful misconduct or gross negligence. Each such person shall be
indemnified by the Company for all amounts paid by him in settlement thereof, with the Company’s
approval, or paid by him in satisfaction of any judgment in any such action, suit, or proceeding
against him, provided he shall give the Company an opportunity, at its own expense, to handle and
defend the same before he undertakes to handle and defend it on his own behalf. The foregoing right
of indemnification shall not be

- 8 -

 

exclusive of any other rights of indemnification to which such
persons may be entitled from the Company, as a matter of law, or otherwise, or any power that the
Company may have to indemnify them or hold them harmless.

     8.4 No Plan Funding. The Plan shall at all times be entirely unfunded and no
provision shall be made with respect to segregating any assets of any Employer for payment of any
amounts due hereunder. No Participant, Beneficiary, or other person or entity shall have any
interest in any particular assets of an Employer by reason of the right to receive any Incentive
Compensation under the Plan until such payment is actually received by such person. Participants
and Beneficiaries shall have only the rights of general unsecured creditors of the Company.

     8.5 Governing Law. The Plan shall be construed in accordance with the laws of the
State of Texas without regard to its conflicts of law provisions.

     8.6 Binding Effect. The Plan shall be binding upon and inure to the benefit of the
Employer and its successors and assigns, and the Participants and their Beneficiaries, heirs, and
personal representatives.

     8.7 Construction of Plan. The captions used in the Plan are for convenience of
reference only and shall not be construed in interpreting the Plan. Whenever the context so
requires, the masculine shall include the feminine and neuter, and the singular shall also include
the plural, and conversely.

     8.8 Integrated Plan. The Plan constitutes the final and complete expression of
agreement among the parties hereto with respect to the subject matter hereof.

     8.9 Compliance with Code Section 409A. The Plan is not intended to provide for the
payment of any nonqualified deferred compensation that is subject to Code Section 409A. However,
to the extent that any payment under the Plan is determined by the Committee to be nonqualified
deferred compensation subject to Section 409A, the Plan is intended to comply with Section 409A.
If any provision herein results in the imposition of an excise tax on any Participant or
Beneficiary under Section 409A, such provision will be reformed to the extent necessary to avoid
such imposition as the Committee determines is appropriate to comply with Section 409A.

ARTICLE IX

AMENDMENT OR DISCONTINUANCE

     The Committee may at any time, and from time to time, without the consent of any Participant,
amend, revise, suspend, or discontinue the Plan, in whole or in part, subject to any shareholder
approval required by law; provided, however, the Committee may not amend the Plan to change the
method for determining Incentive Compensation or the Performance Goals under Articles IV and
V without the approval of the majority of votes cast by the shareholders of the Company in a
separate vote to the extent required by Code Section 162(m).

ARTICLE X

EFFECT OF THE PLAN

     Neither the adoption of the Plan, nor any action of the Board or the Committee hereunder,
shall be deemed to give any Participant any right to be granted Incentive Compensation hereunder.
In addition, nothing contained in the Plan, and no action taken pursuant to its provisions, shall
be construed to (a) give any Participant any right to any
compensation, except as expressly provided herein; (b) be evidence of any agreement, contract
or understanding, express or implied, that any Employer will employ a Participant in any particular
position or for any particular duration; (c) give any Participant any right, title, or interest
whatsoever in, or to, any assets or investments which the Employee may make to aid it in meeting
its obligations hereunder; (d) create a trust or fund of any kind; or (e) create any type of
fiduciary relationship between an Employer and a Participant or any other person.

ARTICLE XI

TERM

     The Plan shall be effective as of January 1, 2006, contingent upon its approval by the
Company’s shareholders in a manner consistent with the shareholder approval requirements of Code
Section 162(m).

[Signature page follows]

- 9 -

 

     IN WITNESS WHEREOF the Company has caused this Plan to be duly executed in its name and on its
behalf by its duly authorized officer, on this _28th___day of April,
2006, to be effective as of January 1, 2006.

	 	 	 	 	 	 	 	 	 
	ATTEST:	 	 	 	SMITH INTERNATIONAL, INC.
	 
	 	 	 	 	 	 	 	 
	By:

	 	/s/ PAMELA L. KUNKEMOELLER
	 	 	 	By:
	 	/s/ RICHARD E. CHANDLER, JR.
	 
	 	 	 	 	 	 	 	 
	Name:

	 	Pamela L. Kunkemoeller
	 	 	 	Name:
	 	Richard E. Chandler, Jr.
	 
	 	 	 	 	 	 	 	 
	Title:

	 	Senior Corporate Counsel
	 	 	 	Title:
	 	Senior Vice President, General Counsel
	 

	 	   and Assistant Secretary
	 	 	 	 	 	   and Secretary
	 
	 	 	 	 	 	 	 	 
	Date:

	 	April 28, 2006
	 	 	 	Date:
	 	April 28, 2006

- 10 -

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00102-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00102-of-00352.parquet"}]]