CHANGE-OF-CONTROL EMPLOYMENT AGREEMENT
Employment Agreement
 
EXHIBIT 10.11
 
                              EMPLOYMENT AGREEMENT
 
         THIS EMPLOYMENT AGREEMENT (the "Agreement"), made this 10th day of
December, 1987, is entered into by SMITH INTERNATIONAL, INC., a Delaware
corporation with its principal place of business at Newport Beach, California
(the "Company"), and DOUG ROCK, residing at Houston, Texas (the "Executive").
 
         The Company desires to employ the Executive, and the Executive desires
to be employed by the Company. In consideration of the mutual covenants and
promises contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged by the parties hereto,
the parties hereto agree as follows:
 
         1.      TERM OF EMPLOYMENT.
 
                 1.1      The Company hereby agrees to employ the Executive
because of the extraordinary and unique services the Executive can render to
the Company, and the Executive accepts employment with the Company, upon the
terms set forth in this Agreement, for the period commencing on January 1, 1988
(the "Commencement Date") and ending on December 31, 1990, unless sooner
terminated in accordance with the provisions of Section 4.
 
                 1.2      At each anniversary ("Anniversary Date") of the
Commencement Date, the period of employment hereunder (the "Employment Period")
shall be extended for one additional year, but, provided the Executive is still
employed hereunder, the Employment Period shall end forthwith at the earlier of
the Executive attaining the age of 65 years or if the Executive begins to
receive benefits under any pension or retirement income plan provided by the
Company or any of its subsidiaries.
 
         2.      TITLE; CAPACITY; DUTIES. The Executive shall serve as
President and Chief Operating Officer or in such other position as the
Company's Board of Directors (the "Board") may determine from time to time. The
foregoing description of Executive position shall not limit the Company from
assigning to Executive other duties and functions in addition to or in
substitution for those described above. The Executive shall be subject to the
supervision of, and shall have such authority as is delegated to him by the
Board, the Company's Chief Executive Officer or such other senior executive(s)
as the Board or the Chief Executive Officer shall determine.
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         3.      COMPENSATION AND BENEFITS
 
                 3.1.     SALARY. The Company shall pay the Executive, in
regular periodic installments, consistent with the Company's general pay
practices, an annual base salary of $225,000 for each one year period,
commencing on the Commencement Date, during the Employment Period.  Such salary
shall be subject to adjustment as determined by the Board in its annual review
of Executive's performance hereunder. Executive specifically acknowledges that
Company has no obligation to increase said salary as a result of such review.
 
                 3.2.     FRINGE BENEFITS AND BONUS. The Executive shall be
entitled to participate in all bonus, stock purchase, warrant, stock option and
any other form of benefit programs that the Company establishes and makes
available to its executive employees, if any, to the extent that Executive's
position, tenure, salary, age, health and other qualifications make him
eligible to participate.
 
                 3.3.     REIMBURSEMENT OF EXPENSES. The Company shall
reimburse the Executive for all reasonable travel, entertainment and other
expenses incurred or paid by the Executive in connection with, or related to,
the performance of his duties, responsibilities or services under this
Agreement, upon presentation by the Executive of documentation, expense
statements, vouchers and/or such other supporting information as the Board of
Directors may request.
 
         4.      EMPLOYMENT TERMINATION. The employment of the Executive by the
Company pursuant to this Agreement shall terminate upon the occurrence of any
of the following:
 
                 4.1.     At the election of the Company, for cause,
immediately upon written notice by the Company to the Executive. For the
purposes of this Section 4.1, cause for termination shall be deemed to exist
upon (a) the conviction of the Executive of, or the entry of a pleading of
guilty or nolo contendere by the Executive to, any crime involving moral
turpitude or any felony; or (b) any theft, embezzlement, fraud or other act of
dishonesty whether or not involving the Company, which, in the good faith
finding of the Board, will have a material adverse effect on the Company if
Executive's employment by the Company were to continue.
 
                 4.2.     Upon the Executive's death or in accordance with the
Company's policies applicable to Executive in the event of the inability of the
Executive to provide services due to illness, disability, or physical or
emotional incapacity.
 
                 4.3.     If for any reason the Executive's position is
eliminated or otherwise becomes redundant, or his responsibilities are
substantially decreased, whether because of merger, acquisition, sale of
business or assets, dissolution, tender offer, or any other reason.
 
 
 
 
 
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                 4.4.     The expiration of the Employment Period in accordance
with Section 1.2.
 
         5.      EFFECT OF TERMINATION.
 
                 5.1.     TERMINATION PURSUANT TO SECTION 4.1 OR 4.4. In the
event the Executive's employment is terminated pursuant to Section 4.1 or 4.4,
the Company shall pay to the Executive the compensation and benefits otherwise
payable to him under Section 3 through the last day of his actual employment by
the Company. Any compensation previously earned by Executive hereunder but not
yet paid to him shall be accelerated and shall become payable in a lump sum
upon termination of employment.
 
                 5.2.     TERMINATION PURSUANT TO SECTION 4.2 OR 4.4. If the
Executive's employment is terminated pursuant to Section 4.1 or 4.4, the
Company shall pay to the Executive or his personal representative, as the case
may be, the compensation which would otherwise be payable to the Executive
under Section 3 in a lump sum, equal to the amounts in effect under Section 3
through the end of the Employment Period. Any compensation previously earned by
Executive hereunder but not yet paid to him shall be accelerated and shall
become payable in a lump sum upon termination of employment.
 
                 5.3.     NO DUTY TO MITIGATE. If the Executive's employment is
terminated pursuant to Section 4.3 or under circumstances constituting a breach
of this Agreement by the Company, the payments and benefits provided in Section
5.2 shall be payable without regard to Executive's other income or his ability
to obtain other employment, and Executive shall be under no duty to mitigate
the amount payable hereunder.
 
                 5.4.     SURVIVAL. The provisions of Sections 6, 7 and 8 shall
survive the termination of this Agreement.
 
         6.      BREACH OF CONTRACT BY EXECUTIVE. Executive recognizes that the
Company is entering into this Agreement in order to obtain the exclusive use of
his personal services during the term hereof, that Executive's services are of
a special, unique, unusual, extraordinary, creative and intellectual character,
and that the commercial success of the enterprise for which Executive has been
hired depends primarily upon the unique character of his services. Executive
therefore agrees that the termination of employment by the Executive or the
diversion of a substantial portion of the Executive's services to unrelated
endeavors during the Employment Period, in violation of this Agreement and
without consent of the Company, shall be a material breach of this Agreement.
The Executive understands that such loss or diversion of his services could
neither be cured by the hiring of other executives nor could damages be
reasonably or adequately calculated and recovered in an action at law, and
therefore Executive further agrees that, to the extent permitted by law, any
material breach of this Agreement may, without limiting any other remedies, be
prevented or cured by an action
 
 
 
 
 
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<PAGE>   4
for specific performance or injunctive relief, without the need for the Company
to post bond or other security.
 
         7.      NON-COMPETITION.
 
                 (a)     During the Employment Period, the Executive will not
directly or indirectly:
 
                         (i)      As an individual proprietor, partner, 
stockholder, officer, executive, director, joint venturer, investor, lender, or
in any other capacity whatsoever (other than as a holder of not more than one
percent (1%) of the total outstanding stock of a publicly held company), engage
in the business of developing, producing, marketing or selling, whether at
wholesale or at retail, or of performing, providing, or offering, products
and/or services of the kind or type developed or being developed, produced,
marketed, sold, offered, provided or performed by the Company while the
Executive was employed by the Company; or
 
                         (ii)     recruit, solicit or induce, or attempt to 
induce, any executive or executives of the Company or any other person or
entity having any continuing or periodic relationship with the Company to
terminate their employment with, or otherwise cease their relationship with,
the Company; or
 
                         (iii)    solicit, divert or take away, or attempt to 
divert  or to take away, the business or patronage of any of the customers or
accounts, or prospective customers or accounts, of the Company which were
contacted, solicited or served by the Executive while employed by the Company.
 
                 (b)     If any restriction set forth in this Section 7 is 
found by a court of competent jurisdiction to be unenforceable because it
extends for too long a period of time or over too great a range of activities
or in too broad a geographic area, it shall be interpreted to extend only over
the maximum period of time, range of activities or geographic areas as to which
it may be enforceable.
 
                 (c)     The restrictions contained in this Section 7 are 
necessary for the protection of the business and goodwill of the Company and
are considered by the Executive to be reasonable for such purpose. The
Executive agrees that any breach of this Section 7 will cause the Company
substantial and irrevocable damage and therefore, the Company shall have the
right, in addition to any other remedies it may have, to seek specific
performance and injunctive relief, without the need to post a bond or other
security.
 
 
 
 
 
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<PAGE>   5
         8.      PROPRIETARY INFORMATION AND DEVELOPMENTS.
 
                 8.1.     PROPRIETARY INFORMATION.
 
                          (a)     Executive agrees that all information and
know-how, whether or not in writing, of a private, secret or confidential
nature concerning the Company's business or financial affairs, business
methods, suppliers or customers (collectively, "Proprietary Information") is
and shall be the exclusive property of the Company. Executive will not disclose
any Proprietary Information to others outside the Company or use the same for
any unauthorized purposes without written approval by the Board, either during
or after his employment, unless and until such Proprietary Information has
become public knowledge without fault of the Executive.
 
                          (b)     Executive agrees that all files, letters,
memoranda, reports, records, data, sketches, drawings, flow charts, business
methods, promotional materials, video or sound recordings, program listings, or
other written, photographic, or other tangible material containing Proprietary
Information, whether created by the Executive or others, which shall come into
his custody or possession, shall be and are the exclusive property of the
Company to be used by the Executive only in the performance of his duties for
the Company.
 
                          (c)     Executive agrees that his obligation not to
disclose or use information, know-how and records of the types set forth in
paragraphs (a) and (b) above, also extends to such types of information,
know-how, records and intangible property of customers of the Company or
suppliers to the Company or other third parties who may have disclosed or
entrusted the same to the Company or to the Executive in the course of the
Company's business.
 
                 8.2.     DEVELOPMENTS.
 
                          (a) Executive. will make full and prompt disclosure
to the Company of all inventions, improvements, discoveries, methods,
developments, software and works of authorship, whether or not patentable or
copyrightable, which are created, made, conceived or reduced to practice by the
Executive or under his direction or jointly with others during his employment
by the Company, whether or not during normal working hours or on the premises
of the Company (all of which are collectively referred to in this Agreement as
"Developments").
 
                          (b) Executive agrees to assign and does hereby assign
to the Company (or any person or entity designated by the Company) all his
right, title and interest in and to all Developments and all related patents,
patent applications, copyrights and copyright applications. However, this
Section 8.2(b) shall not apply to Developments which do not relate to the
present or planned business or research and development of the Company and
which are made and conceived by the Executive not
 
 
 
 
 
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<PAGE>   6
during normal working hours, not on the Company's premises and not using the
Company's tools, devices, equipment or Proprietary Information.
 
                          (c) Executive agrees to cooperate fully with the
Company, both during and after his employment with the Company, with respect to
the procurement, maintenance and enforcement of copyrights, patents and other
intellectual and intangible property rights (both in the United States and in
foreign countries) relating to Proprietary Information and Developments.
Executive shall sign all papers, including, without limitation, copyright
applications and/or assignments, patent applications and/or assignments,
declarations, oaths, formal assignments, assignments of proprietary rights, and
powers of attorney, which the Company may deem necessary or desirable in order
to protect its rights and interests in any Proprietary Information or
Development.
 
                 8.3.     OTHER AGREEMENTS. Executive hereby represents that he
is not bound by the terms of any agreement with any previous employer or other
party to refrain from using or disclosing any trade secret or confidential or
proprietary information in the course of his employment with the Company or to
refrain from competing, directly or indirectly, with the business of such
previous employer or any other party. Executive further represents that his
performance of all the terms of this Agreement and as an Executive of the
Company does not and will not breach any agreement to keep in confidence
proprietary information, knowledge or data acquired by him in confidence or in
trust prior to his employment with the Company.
 
         9.      NOTICES. All notices required or permitted under this
Agreement shall be in writing and shall be deemed effective upon personal
delivery or upon deposit in the United States Post Office, by registered or
certified mail, postage prepaid, addressed to the other party at the address
shown above, or at such other address or addresses as either party shall
designate to the other in accordance with this Section 9. A copy of all notices
given by Executive to the.Company shall be sent to each member of the Board.
 
         10.     PRONOUNS. Whenever the context may require, any pronouns used
in this Agreement shall include the corresponding masculine, feminine or neuter
forms, and the singular forms of nouns and pronouns shall include the plural,
and vice versa.
 
         11.     ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties and supersedes all prior agreements and
understandings, whether written or oral, relating to the subject matter of this
Agreement.
 
         12.     AMENDMENT. This Agreement may be amended or modified only by a
written instrument executed by both the Company and Executive.
 
 
 
 
 
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         13.     GOVERNING LAW. This Agreement shall be construed, interpreted
and enforced in accordance with the law of the State of California.
 
         14.     SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and inure to the benefit of both parties and their respective successors and
assigns, including any corporation with which or into which the Company may be
merged or which may succeed to its assets or business, provided, however, that
the obligations of Executive are personal and shall not be assigned by him.
 
         15.     MISCELLANEOUS.
 
                 15.1.    No delay or omission by the Company in exercising any
right under this Agreement shall operate as a waiver of that or any other
right. A waiver of consent given by the Company on any one occasion shall be
effective only in that instance and shall not be construed as a bar or waiver
of any right on any other occasion.
 
                 15.2.    The captions of the sections of this Agreement are
for convenience of reference only and in no way define, limit or affect the
scope or substance of any section of this Agreement.
 
                 15.3.    In case any provision of this Agreement shall be
invalid, illegal or otherwise unenforceable, the validity, legality and
enforceability of the remaining provisions shall in no way be affected or
impaired thereby.
 
         IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year set forth above.
 
                                             SMITH INTERNATIONAL, INC.
 
                                             By: /s/ H. NOAK ROLLINS
                                                 Its: Chairman and C.E.O
 
                                             EXECUTIVE: /s/ DOYLE T. ROCK 2-1-88
 
TOP OF DOCUMENT
 
 

 

EXHIBIT 10.2

CHANGE-OF-CONTROL EMPLOYMENT AGREEMENT

AGREEMENT, entered into as of the ___day of ___, 20___, by and between Smith International, Inc., a Delaware Corporation (the “Company”) and                     (the “Executive”).

[WHEREAS, the Executive and the Company are parties to that certain employment agreement dated                      (the “Original Agreement”); and

WHEREAS, the Executive and the Company desire to amend and restate the Original Agreement; and]

WHEREAS, the Board of Directors of the Company (the “Board”), has determined that it is in the best interests of the Company and its shareholders to assure that the Company will have the continued dedication of the Executive, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined below) of the Company. The Board believes it is imperative to diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control and to encourage the Executive’s full attention and dedication to the Company currently and in the event of any threatened or pending Change of Control, and to provide the Executive with compensation and benefits arrangements upon a Change of Control which ensure that the compensation and benefits expectations of the Executive will be satisfied and which are competitive with those of other corporations. Therefore, in order to accomplish these objectives, the Board has caused the Company to enter into this Agreement.

NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:

                    1. [Other Agreements. In addition to the Original Agreement, the Company and the Executive are parties to an Amendment to Employment Agreement Dated as of ___(the “Amendment”). Upon full execution and delivery of this Agreement, the parties agree that the Amendment shall be cancelled and of no force and effect as of ___. The terms of the Original Employment Agreement, as written, without giving effect to the Amendment, shall remain in force and effect; provided that in the event of a Change of Control, the terms of this Agreement shall control, except with respect to any Accrued Obligations, as defined herein.]

                    2. Certain Definitions. (a) The “Effective Date”, shall mean the first date during the Change of Control Period (as defined in Section l (b)) on which a Change of Control (as defined in Section 2) occurs. Anything in this Agreement to the contrary notwithstanding, if a Change of Control occurs and if the Executive’s employment with the Company is terminated prior to the date on which the Change of Control occurs, and if it is reasonably demonstrated by the Executive that such termination of employment (i) was at the request of a third party who has taken steps reasonably calculated to effect a Change of Control or (ii) otherwise arose in connection with or anticipation of a Change of Control, then for all purposes of this Agreement the “Effective Date” shall mean the date immediately prior to the date of such termination of employment. Notwithstanding the foregoing, the Executive and the Company acknowledge that, except as may otherwise be provided under this Agreement or any other written agreement between the Executive and the Company, the employment of the Executive by the Company is “at will.”

                    (b) The “Change of Control Period” shall mean the period commencing on the date hereof and ending on the third anniversary of the date hereof; provided, however, that commencing on the date one year after the date hereof, and on each annual anniversary of such date (such date and each annual anniversary thereof shall be hereinafter referred to as the “Renewal Date”), unless previously terminated, the Change of Control Period shall be automatically extended so as to terminate three years from such Renewal Date, unless at least 60 days prior to the Renewal Date the Company shall give notice to the Executive that the Change of Control Period shall not be so extended.

                    3. Change of Control. For the purpose of this Agreement, a “Change of Control” shall mean:

                    (a) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (i) the then outstanding shares of common stock of the Company (the “Outstanding Company Common Stock”) or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from the Company, (ii) any acquisition by the Company, (iii) any

 


 

acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of this Section 2; or

                    (b) Individuals who, as of the date hereof, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or

                    (c) Consummation of a reorganization, merger, statutory share exchange or consolidation or similar transaction involving the Company or any of its subsidiaries, a sale or other disposition of all or substantially all of the assets of the Company, or the acquisition of assets or stock of another entity by the Company or any of its subsidiaries (each, a “Business Combination”), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 60% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 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 (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or

                    (d) Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company.

                    4. Employment Period. The Company hereby agrees to continue the Executive in its employ, and the Executive hereby agrees to remain in the employ of the Company subject to the terms and conditions of this Agreement, for the period commencing on the Effective Date and ending on the third anniversary of such date (the “Employment Period”).

                    5. Terms of Employment. (a) Position and Duties. (i) During the Employment Period, (A) the Executive’s position (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned at any time during the 120-day period immediately preceding the Effective Date and (B) the Executive’s services shall be performed at the location where the Executive was employed immediately preceding the Effective Date or any office or location less than 35 miles from such location.

                    (ii) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive’s reasonable best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive’s responsibilities as an employee of the Company in accordance with this Agreement. It is expressly understood and agreed that to the extent that any such activities have been conducted by the Executive prior to the Effective Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Effective Date shall not thereafter be deemed to interfere with the performance of the Executive’s responsibilities to the Company.

 


 

                    (b) Compensation. (i) Base Salary. During the Employment Period, the Executive shall receive an annual base salary (“Annual Base Salary”), which shall be paid at a monthly rate, at least equal to twelve times the highest monthly base salary paid or payable, including any base salary which has been earned but deferred, to the Executive by the Company and its affiliated companies in respect of the twelve-month period immediately preceding the month in which the Effective Date occurs. During the Employment Period, the Annual Base Salary shall be reviewed no more than 12 months after the last salary increase awarded to the Executive prior to the Effective Date and thereafter at least annually. Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. Annual Base Salary shall not be reduced after any such increase and the term Annual Base Salary as utilized in this Agreement shall refer to Annual Base Salary as so increased. As used in this Agreement, the term “affiliated companies” shall include any company controlled by, controlling or under common control with the Company.

                    (ii) Annual Bonus. In addition to Annual Base Salary, the Executive shall be awarded, for each fiscal year ending during the Employment Period, an annual bonus (the “Annual Bonus”) in cash (i) under the Company’s Annual Incentive Plan based upon meeting the targets in the Annual Incentive Plan, provided that the Executive’s target bonus percentage shall be at least equal to the Executive’s target bonus percentage for the fiscal year prior to the Effective Date or equal to an increase in the target bonus percentage given to any similarly situated executive after the Effective Date, or, if higher, (ii) under any annual incentive plan or discretionary award by the Company to similarly situated executives which is enacted or approved after the Effective Date. Each such Annual Bonus shall be paid no later than the end of the third month of the fiscal year next following the fiscal year for which the Annual Bonus is awarded, unless the Executive shall elect to defer the receipt of such Annual Bonus.

                    (iii) Incentive, Savings and Retirement Plans. During the Employment Period, the Executive shall be entitled to participate in all incentive, savings and retirement plans, practices, policies and programs applicable generally to other peer executives of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with incentive opportunities (measured with respect to both regular and special incentive opportunities, to the extent, it any, that such distinction is applicable), savings opportunities and retirement benefit opportunities, in each case, less favorable, in the aggregate, than the most favorable of those provided by the Company and its affiliated companies for the Executive under such plans, practices, policies and programs as in effect at any time during the 120-day period immediately preceding the Effective Date or if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies.

                    (iv) Welfare Benefit Plans. During the Employment Period, the Executive and/or the Executive’s-family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other peer executives of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with benefits which are less favorable, in the aggregate, than the most favorable of such plans, practices, policies and programs in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies.

                    (v) Expenses. During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the most favorable policies, practices and procedures of the Company and its affiliated companies in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies.

                    (vi) Fringe Benefits. During the Employment Period, the Executive shall be entitled to fringe benefits, including, without limitation, tax and financial planning services, payment of club dues, and, if applicable, use of an automobile and payment of related expenses, in accordance with the most favorable plans, practices, programs and policies of the Company and its affiliated companies in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies.

                    (vii) Office and Support Staff. During the Employment Period, the Executive shall be entitled to an office or offices of a size and with furnishings and other appointments, and to exclusive personal secretarial and other assistance, at least equal to the most favorable of the foregoing provided to the Executive by the Company and its affiliated companies at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the

 


 

Executive, as provided generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies.

                    (viii) Vacation. During the Employment Period, the Executive shall be entitled to paid vacation in accordance with the most favorable plans, policies, programs and practices of the Company and its affiliated companies as in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies.

                    6. Termination of Employment. (a) Death or Disability. The Executive’s employment shall terminate automatically upon the Executive’s death during the Employment Period. If the Company determines in good faith that the Disability of the Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to the Executive written notice in accordance with Section 12(b) of this Agreement of its intention to terminate the Executive’s employment. In such event, the Executive’s employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the “Disability Effective Date”), provided that, within the 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive’s duties. For purposes of this Agreement, “Disability” shall mean the absence of the Executive from the Executive’s duties with the Company on a full-time basis for 180 consecutive business days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive’s legal representative.

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

                    (i) the willful and continued failure of the Executive to perform substantially the Executive’s duties with the Company or one of its affiliates (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Executive by the Board or the Chief Executive Officer of the Company which specifically identifies the manner in which the Board or Chief Executive Officer believes that the Executive has not substantially performed the Executive’s duties, or

                    (ii) the willful engaging by the Executive in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company.

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

                    (c) Good Reason. The Executive’s employment may be terminated by the Executive for Good Reason. For purposes of this Agreement, “Good Reason” shall mean:

                    (i) the assignment to the Executive of any duties inconsistent in any respect with the Executive’s position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 4(a) of this Agreement, or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities (including as a result of the Company’s ceasing to be a publicly traded entity), excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive;

 


 

                    (ii) any failure by the Company to comply with any of the provisions of Section 4(b) of this Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive;

                    (iii) the Company’s requiring the Executive to be based at any office or location other than as provided in Section 4(a)(i)(B) hereof or to travel on Company business to a substantially greater extent than required immediately prior to the Effective Date;

                    (iv) any purported termination by the Company of the Executive’s employment otherwise than as expressly permitted by this Agreement; or

                    (v) any failure by the Company to comply with and satisfy Section 11(c) of this Agreement.

For purposes of this Section 5(c), any good faith determination of “Good Reason” made by the Executive shall be conclusive. Anything in this Agreement to the contrary notwithstanding, a termination by the Executive for any reason during the 30-day period immediately following the first anniversary of the Effective Date shall be deemed to be a termination for Good Reason for all purposes of this Agreement. The Executive’s mental or physical incapacity following the occurrence of any of the circumstances described in clauses (i) through (v) shall not affect the Executive’s ability to terminate employment for Good Reason. Notwithstanding anything herein to the contrary, the Executive’s resignation under this Agreement with or without Good Reason shall in no way affect the Executive’s ability to terminate employment by reason of the Executive’s retirement or to be eligible to receive benefits under any retirement or pension plan of the Company and its affiliates.

                    (d) Notice of Termination. Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 12(b) of this Agreement. For purposes of this Agreement, a “Notice of Termination” means a written notice which indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than thirty days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive’s or the Company’s rights hereunder.

                    (e) Date of Termination. “Date of Termination” means (i) if the Executive’s employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, (ii) if the Executive’s employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies the Executive of such termination and (iii) if the Executive’s employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be.

                    7. Obligations of the Company upon Termination. (a) Good Reason; Other Than for Cause, Death or Disability. If, during the Employment Period, the Company shall terminate the Executive’s employment other than for Cause or Disability or the Executive shall terminate employment for Good Reason:

                    (i) the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts:

         A. the sum of (1) the Executive’s Annual Base Salary through the Date of Termination to the extent not theretofore paid, (2) the product of (x) the higher of (I) the highest Annual Bonus paid to the Executive for the last three full fiscal years prior to the Effective Date and (II) the Annual Bonus paid or payable, including any bonus or portion thereof which has been earned but deferred (and annualized for any fiscal year consisting of less than twelve full months or during which the Executive was employed for less than twelve full months), for the most recently completed fiscal year during the Employment Period, if any (such higher amount being referred to as the “Highest Annual Bonus”) and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365 and (3) any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not

 


 

theretofore paid (the sum of the amounts described in clauses (1), (2), and (3) shall be hereinafter referred to as the “Accrued Obligations”); and

         B. the amount equal to the product of (1) the Termination Multiple (as defined below) and (2) the sum of (x) the Executive’s Annual Base Salary and (y) the Highest Annual Bonus; and

         C. an amount equal to the excess of (a) the actuarial equivalent of the benefit under any excess or supplemental retirement plan in which the Executive participates (the “SERP”) which the Executive would receive if the Executive’s employment continued for a number of years after the Date of Termination equal to the Termination Multiple, assuming for this purpose that all accrued benefits are fully vested, and, assuming that the Executive’s compensation in each of such years is that required by Section 4(b)(i) and Section 4(b)(ii), over (b) the actuarial equivalent of the Executive’s actual benefit (paid or payable), if any, under the SERP as of the Date of Termination;

                    (ii) for a number of years after the Executive’s Date of Termination equal to the Termination Multiple, or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue benefits to the Executive and/or the Executive’s family at least equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in Section 4(b)(iv) of this Agreement if the Executive’s employment had not been terminated or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies and their families, provided, however, that if the Executive becomes reemployed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility. For purposes of determining eligibility (but not the time of commencement of benefits) of the Executive for retiree benefits pursuant to such plans, practices, programs and policies, the Executive shall be considered to have remained employed until a number of years after the Date of Termination equal to the Termination Multiple and to have retired on the last day of such period;

                    (iii) the Company shall, at its sole expense as incurred, provide the Executive with outplacement services the scope and provider of which shall be selected by the Executive in his sole discretion; and

                    (iv) to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies (such other amounts and benefits shall be hereinafter referred to as the “Other Benefits”).

Notwithstanding the foregoing provisions of this Section 6(a), to the extent required in order to comply with Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), amounts and benefits to be paid or provided under this Section 6(a) shall be paid or provided to the Executive on the first business day after the date that is six months following the Date of Termination. To the extent that the benefits to be provided to the Executive under Section 6(a)(ii) are so delayed, the Executive shall be entitled to COBRA continuation coverage under Section 4980B of the Code (“COBRA Coverage”) during such period of delay, and the Company shall reimburse the Executive for any Company portions of such COBRA Coverage in the seventh month following the Date of Termination.

For purposes of this Section 6, “Termination Multiple” shall mean (x) three, if the Date of Termination occurs on or prior to the first anniversary of the Effective Date, (y) two, if the Date of Termination occurs after the first anniversary of the Effective Date and on or prior to the second anniversary of the Effective Date and (z) one, if the Date of Termination occurs after the second anniversary of the Effective Date and on or prior to the third anniversary of the Effective Date.

                    (b) Death. If the Executive’s employment is terminated by reason of the Executive’s death during the Employment Period, this Agreement shall terminate without further obligations to the Executive’s legal representatives under this Agreement, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive’s estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 6(b) shall include, without limitation, and the Executive’s estate and/or beneficiaries shall be entitled to receive, benefits at least equal to the most favorable benefits provided by the Company and affiliated companies to the estates and beneficiaries of peer executives of the Company and such affiliated companies under such plans, programs, practices and policies relating to death benefits, if any, as in effect with respect to other peer executives and their beneficiaries at any time during the 120-day period immediately preceding the Effective Date or, if more-favorable to the Executive’s estate and/or the Executive’s beneficiaries, as in effect on the date of the Executive’s death with respect to other peer executives of the Company and its affiliated companies and their beneficiaries.

 


 

                    (c) Disability. If the Executive’s employment is terminated by reason of the Executive’s Disability during the Employment Period, this Agreement shall terminate without further obligations to the Executive, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 6(c) shall include, and the Executive shall be entitled after the Disability Effective Date to receive, disability and other benefits at least equal to the most favorable of those generally provided by the Company and its affiliated companies to disabled executives and/or their families in accordance with such plans, programs, practices and policies relating to disability, if any, as in effect generally with respect to other peer executives and their families at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive and/or the Executive’s family, as in effect at any time thereafter generally with respect to other peer executives of the Company and its affiliated companies and their families.

                    (d) Cause; Other than for Good Reason. If the Executive’s employment shall be terminated for Cause during the Employment Period, this Agreement shall terminate without further obligations to the Executive other than the obligation to pay to the Executive (x) his Annual Base Salary through the Date of Termination, (y) the amount of any compensation previously deferred by the Executive, and (z) Other Benefits, in each case to the extent theretofore unpaid. If the Executive voluntarily terminates employment during the Employment Period, excluding a termination for Good Reason, this Agreement shall terminate without further obligations to the Executive, other than for Accrued Obligations and the timely payment or provision of Other Benefits. In such case, all Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination.

                    8. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit the Executive’s continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which the Executive may qualify, nor, subject to Section 12(g), shall anything herein limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company or any of its affiliated companies. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement.

                    9. Full Settlement. The Company’s obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any setoff, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and such amounts shall not be reduced whether or not the Executive obtains other employment. The Company agrees to pay as incurred, to the full extent permitted by law, all legal fees and expenses which the Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company, the Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Code.

                    10. Certain Additional Payments by the Company. (a) Anything in this Agreement to the contrary notwithstanding and except as set forth below, in the event it shall be determined that any payment or distribution by the Company or its affiliates to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 9) (a “Payment”) would be subject to excise or other similar tax, or federal income tax above the rate ordinarily applicable to wages and salaries paid in the ordinary course of business, whether as a result of the provisions of Sections 280G and 4999 of the Code, any similar or analogous provisions of any statute or regulation adopted subsequent to the date hereof, or otherwise, or any interest or penalties are incurred by the Executive with respect to such tax (such excise tax, other similar tax or federal income tax, together with any such interest and penalties, are hereinafter collectively referred to as the “Excise Tax”), then the Executive shall be entitled to receive an additional payment (a “Gross-Up Payment”) in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing provisions of this Section 9(a), if it shall be determined that the Executive is entitled to a Gross-Up Payment, but that the Payments do not exceed 110% of the greatest amount (the “Reduced Amount”) that could be paid to the Executive such that the receipt of Payments would not give rise to any Excise Tax, then no Gross-Up Payment shall be made to the Executive and the Payments, in the aggregate, shall be

 


 

reduced to the Reduced Amount. The reduction of the amounts payable hereunder, if applicable, shall be made by first reducing the payments under Section 6(a)(i)(B), unless an alternative method of reduction is elected by the Executive, and in any event shall be made in such a manner as to maximize the Payments actually made to the Executive. For purposes of reducing the Payments to the Reduced Amount, only amounts payable under this Agreement (and no other Payments) shall be reduced. If the reduction of the amount payable under this Agreement would not result in a reduction of the Payments to the Reduced Amount, no amounts payable under the Agreement shall be reduced pursuant to this Section 9(a). The Company’s obligation to make Gross-Up Payments under this Section 9 shall not be conditioned upon the Executive’s termination of employment.

                    (b) Subject to the provisions of Section 9(c), all determinations required to be made under this Section 9, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by a certified public accounting firm as may be designated by the Executive (the “Accounting Firm”) which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, the Executive shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 9, shall be paid by the Company to the Executive within five days of the receipt of the Accounting Firm’s determination. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made (“Underpayment”), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 9(c) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive.

                    (c) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which the Executive gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that the Company desires to contest such claim, the Executive shall:

                    (i) give the Company any information reasonably requested by the Company relating to such claim,

                    (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an. attorney reasonably selected by the Company,

                    (iii) cooperate with the Company in good faith in order effectively to contest such claim, and

                    (iv) permit the Company to participate in any proceedings relating to such claim;

provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 9(c), the Company shall control all proceedings taken in connection with such contest and, at its sole discretion, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the applicable taxing authority in respect of such claim and may, at its sole discretion, either pay the tax claimed to the appropriate taxing authority on behalf of the Executive and direct the Executive to sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company pays such claim and directs the Executive to sue for a refund, the Company shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such

 


 

payment or with respect to any imputed income with respect to such payment; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company’s control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority.

                    (d) If, after the receipt by the Executive of a Gross-Up Payment or payment by the Company of an amount on the Executive’s behalf pursuant to Section 9(c), the Executive becomes entitled to receive any refund with respect to the Excise Tax to which such Gross-Up Payment relates or with respect to such claim, the Executive shall (subject to the Company’s complying with the requirements of Section 9(c), if applicable) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after payment by the Company of an amount on the Executive’s behalf pursuant to Section 9(c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then the amount of such payment shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid.

                    (e) Notwithstanding any other provision of this Section 9, the Company may, in its sole discretion, withhold and pay over to the Internal Revenue Service or any other applicable taxing authority, for the benefit of the Executive, all or any portion of any Gross-Up Payment, and the Executive hereby consents to such withholding.

                    11. Confidential Information. The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Executive during the Executive’s employment by the Company or any of its affiliated companies and which shall not be or become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). After termination of the Executive’s employment with the Company, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provisions of this Section 10 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement.

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

                    (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns.

                    (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, “Company” shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise.

                    13. Miscellaneous. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Texas, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives.

                    (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:

If to the Executive:

                                                            

                                                            

 


 

                                                            

                    or at the most current address set forth in his personnel file at Smith International, Inc.

If to the Company:

                    Smith International, Inc.

                    16740 Hardy Street

                    Houston, TX 77032

                    Fax: (281) 233-5996

                    Attention: General Counsel

or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee.

                    (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.

                    (d) The Company may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation.

                    (e) The Executive’s or the Company’s failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Section 5(c)(i)-(v) of this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement.

                    (f) If any compensation or benefits provided by this Agreement may result in the application of Section 409A of the Code, the Company shall, in consultation with the Executive, modify the Agreement in the least restrictive manner necessary in order to, where applicable, (i) exclude such compensation from the definition of “deferred compensation” within the meaning of such Section 409A or (ii) comply with the provisions of Section 409A, other applicable provision(s) of the Code and/or any rules, regulations or other regulatory guidance issued under such statutory provisions and to make such modifications, in each case, without any diminution in the value of the payments to the Executive.

                    [(g) From and after the Effective Date this Agreement shall supersede any other agreement between the parties with respect to the subject matter hereof.]

IN WITNESS WHEREOF, the Executive has hereunto set the Executive’s hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name on its behalf, this ___day of ___,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

[Executive Name]

 

 

 

 

 

 

 

 

 

 

 

SMITH INTERNATIONAL, INC.

 

 

 

 

 

 

 

 

 

 

 

By:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Doug Rock

 

 

 

 

 

 

President, CEO & Chairman of

 

 

 

 

 

 

the Board

 

 

 

 

 

 

 

EXHIBIT 10.1

EMPLOYMENT AGREEMENT

WITH

NON-COMPETITION PROVISION

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

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

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

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

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

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

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

4. Compensation and Benefits.

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

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

 


 

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

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

4.4 Welfare Benefit Plans. During the Employment Period, Executive and/or Executive’s-family, as the case may be, shall continue to be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other senior executives of the Company and its affiliated companies.

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

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

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

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

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

5.1 Death or Disability. Executive’s employment shall terminate automatically upon Executive’s death during the Employment Period. If the Company determines in good faith that a Disability of Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to Executive written notice of its intention to terminate Executive’s employment. In such event, Executive’s employment with the Company shall terminate effective on the 30th day after receipt of such notice by Executive (the “Disability Effective Date”), provided that, within the 30 days after such receipt, Executive shall not have returned to full-time performance of Executive’s duties. For purposes of this Agreement, “Disability” shall mean the absence of Executive from Executive’s duties with the Company on a full-time basis for 180 consecutive business days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to Executive or Executive’s legal representative.

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

5.2.1 The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 30% or more of either (i) the then outstanding shares of common stock of the Company (the “Outstanding Company Common Stock”) or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that for purposes of this subparagraph, the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from the Company, (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the

 


 

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

5.2.2 Individuals who, as of the date hereof, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or

5.2.3 Consummation of a reorganization, merger, statutory share exchange or consolidation or similar transaction involving the Company or any of its subsidiaries, a sale or other disposition of all or substantially all of the assets of the Company, or the acquisition of assets or stock of another entity by the Company or any of its subsidiaries (each, a “Business Combination”), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 60% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 30% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or

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

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

5.3.1 The willful and continued failure of Executive to perform substantially Executive’s duties with the Company or one of its affiliates (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to Executive by the Board or the Chief Executive Officer of the Company which specifically identifies the manner in which the Board or Chief Executive Officer believes that Executive has not substantially performed Executive’s duties;

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

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

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

 


 

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

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

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

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

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

5.8 Payment Upon Termination.

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

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

6. Protection of Information.

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

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

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

 


 

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

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

7. Noncompetition Obligations

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

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

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

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

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

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

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

8. Successors.

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

8.2 Of the Company. This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to

 


 

all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, “Company” shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise.

9. Miscellaneous.

9.1 Choice of Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Texas, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives.

9.2 Notices. All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:

 

 

 

If to Executive:

 

 

 

 

 

 

 

At the address set forth in his personnel file at Smith International, Inc.

 

 

 

If to the Company:

 

 

 

 

 

 

 

Smith International, Inc.
16740 Hardy Street
Houston, TX 77032
Fax: (281) 233-5996
Attention: General Counsel

or to such other address as either Party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee.

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

9.4 No Waiver. Executive’s or the Company’s failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right Executive or the Company may have hereunder shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement.

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

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

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

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

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

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

 


 

requirements of Section 409A of the Code and is not exempted from such requirements, if at the time of Executive’s termination of employment with the Company, Executive is a “specified employee” within the meaning of Section 409A of the Code, no payment or benefit that results from Executive’s termination of employment will be provided until the date which is six months after the date of Executive’s termination of employment. Payments to which Executive would otherwise be entitled during the six-month period described above will be accumulated and paid in a lump sum on the first day of the seventh month after the date of Executive’s termination of employment. For purposes of this paragraph 9.10 and, only to the extent that this Agreement is subject to the requirements of Section 409A of the Code and is not exempted from such requirements, paragraphs 5.1, 5.3, 5.4, 5.5, 5.7(ii), 5.7(iii) and, subparagraph 5.8.2, “terminate”, “termination” or “termination of employment” shall have the same meaning as “separation from service” as set forth in Treasury Regulation Section 1.409A-1(h)(1). All reimbursements and in-kind benefits provided under this Agreement that constitute deferred compensation within the meaning of Section 409A of the Code shall be made or provided in accordance with the requirements of Section 409A of the Code, including, without limitation, that (i) in no event shall reimbursements by the Company under this Agreement be made later than the end of the calendar year next following the calendar year in which the applicable fees and expenses were incurred, provided, that Executive shall have submitted an invoice for such fees and expenses at least 10 days before the end of the calendar year next following the calendar year in which such fees and expenses were incurred; (ii) the amount of in-kind benefits that the Company is obligated to pay or provide in any given calendar year shall not affect the in-kind benefits that the Company is obligated to pay or provide in any other calendar year; (iii) Executive’s right to have the Company pay or provide such reimbursements and in-kind benefits may not be liquidated or exchanged for any other benefit; and (iv) in no event shall the Company’s obligations to make such reimbursements or to provide such in-kind benefits apply later than Executive’s remaining lifetime (or if longer, through the 20th anniversary of the Effective Date).

SIGNATURE PAGE FOLLOWS

 


 

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

 

 

 

 

 

 

SMITH INTERNATIONAL, INC.
 

 

 

By:  

   

 

 

Name:  

Malcolm W. Anderson 

 

 

Title:  

Senior Vice President, Human Resources 

 

 

 

EXECUTIVE

 

 

 

 

 

 

 

   

 

 

Doug Rock