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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
VARCO INTERNATIONAL, INC.
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(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
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VARCO INTERNATIONAL, INC.
----------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 16, 1996
----------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Varco
International, Inc. (the "Company") will be held at the Doubletree Hotel, 100
The City Drive, Orange, California, on Thursday, May 16, 1996 at 10:00 a.m.,
local time, for the following purposes:
1. To elect eleven directors to serve until the next annual meeting and
until their successors are elected and qualified. In connection
therewith, the Company's Board of Directors intends to nominate for
election George Boyadjieff, Talton R. Embry, Andre R. Horn, Maurice E.
Jacques, Jack W. Knowlton,Leo J. Pircher, Walter B. Reinhold, Carroll W.
Suggs, Robert A. Teitsworth, Eugene R. White and James D. Woods.
2. To consider and act upon a proposal to approve certain amendments to the
Company's 1990 Stock Option Plan described in the accompanying Proxy
Statement.
3. To consider and act upon a proposal to ratify the selection of Ernst &
Young LLP as the Company's independent auditors for the annual period
ending December 31, 1996.
4. To transact such other business as may properly come before the meeting.
Holders of Common Stock of record at the close of business on March 20,
1996, will be entitled to vote at the meeting and any adjournment thereof.
By Order of the Board of Directors
Donald L. Stichler
Secretary
Orange, California
April 4, 1996
SHAREHOLDERS WHO DO NOT EXPECT TO ATTEND THE MEETING IN PERSON ARE REQUESTED
TO SIGN, DATE AND RETURN THE ACCOMPANYING PROXY AS PROMPTLY AS POSSIBLE IN THE
ENCLOSED ENVELOPE TO WHICH NO POSTAGE NEED BE AFFIXED IF IT IS MAILED IN THE
UNITED STATES.
<PAGE>
VARCO INTERNATIONAL, INC.
----------------
PROXY STATEMENT
----------------
SOLICITATION AND REVOCATION OF PROXIES
Your proxy on the enclosed form is solicited by the Board of Directors of
Varco International, Inc., a California corporation (the "Company"), for use
at the Annual Meeting of Shareholders to be held on May 16, 1996, and at any
adjournment thereof. The cost of this proxy solicitation will be borne by the
Company. Proxy materials will be provided for distribution through brokers,
custodians, and other nominees or fiduciaries to the beneficial owners of the
Company's Common Stock. The Company expects to reimburse such parties for
their charges and expenses in connection therewith. In addition to
solicitation by mail, directors, officers and regular employees of the
Company, who will receive no additional compensation for their services, may
solicit proxies by telephone, telegraph or personally.
Any shareholder giving the accompanying proxy has the power to revoke it
prior to its exercise by filing with the Secretary of the Company a revoking
instrument or a duly executed proxy bearing a later date. A proxy may also be
revoked by giving written notice to the Company of the shareholder's death or
incapacity prior to the counting of the vote. Giving the accompanying proxy
will not affect your right to vote in person should you find it convenient to
attend the Annual Meeting.
Unless you revoke your proxy or attend the meeting and elect to vote in
person, your shares will be voted in accordance with your instructions or, if
no choices are specified, will be voted (1) FOR the election as directors of
the eleven nominees named below, (2) FOR approval of the proposed amendments
to the 1990 Stock Option Plan, and (3) FOR the ratification of the selection
of Ernst & Young LLP as the Company's independent auditors for 1996. The Board
of Directors is not aware of any other matters to be brought before the Annual
Meeting. However, if any other matters properly come before the Annual Meeting
it is the intention of the proxies named in the enclosed proxy card to vote in
accordance with their best judgment on such matters.
This proxy statement and the accompanying proxy are being mailed to
shareholders on or about April 5, 1996. The mailing address of the principal
executive offices of the Company is 743 North Eckhoff Street, Orange,
California 92668. The Company's telephone number is (714) 978-1900.
VOTING AT MEETING
The close of business on March 20, 1996 has been fixed by the Board of
Directors as the record date for determining the shareholders entitled to
notice of and to vote at the Annual Meeting. As of the record date the Company
had outstanding 30,229,046 shares of Common Stock. The presence, either in
person or by proxy, of the holders of a majority of the shares entitled to
vote is necessary to provide a quorum at the Annual Meeting. Abstentions and
"non-votes" are counted as present in determining whether the quorum
requirement is satisfied but are not considered as having voted for the
purposes of determining the outcome of a vote. A "non-vote" occurs when a
nominee holding shares for a beneficial owner votes on one proposal, but does
not vote on another proposal because the nominee does not have discretionary
voting power and has not received instructions from the beneficial owner.
In the election of directors, shareholders are entitled to cumulate their
votes for candidates if such candidates' names have been placed in nomination
prior to the voting and a shareholder has given notice at the Annual Meeting
prior to the voting of his or her intention to cumulate votes. If votes for
directors may be cumulated, each share has a number of votes equal to the
number of directors to be elected, which votes may be cast for one candidate
or distributed among two or more candidates. The eleven nominees for director
receiving the highest number of votes at the Annual Meeting will be elected.
In all matters other than the election of directors, each share has one vote.
<PAGE>
ELECTION OF DIRECTORS
NOMINEES
Eleven directors, constituting the entire Board of Directors of the Company,
are to be elected at the 1996 Annual Meeting. The persons to be elected as
directors at the 1996 Annual Meeting will hold office until the 1997 Annual
Meeting and until their successors are elected and qualified.
The proxies solicited by the Company's Board of Directors will be voted for
the election of the nominees named below and votes will be cumulated, if
applicable, in such manner as the proxy holders may determine in their
discretion, unless and to the extent authority to do so is withheld in the
enclosed proxy. If for any reason one or more of the nominees should be unable
to serve or refuse to serve as director (an event which the Board of Directors
does not anticipate), the persons named in the enclosed proxy will vote for
another candidate or candidates nominated by the Board of Directors, and
discretionary authority to do so is included in the proxy.
Certain information with respect to each nominee is presented below. The
Board of Directors recommends shareholders vote FOR the election of each
nominee as a director of the Company.
WALTER B. REINHOLD, Chairman of the Board, has been a director of the
Company since 1970. He served as Chief Executive Officer of the Company from
1970 until April 1991, and prior thereto he served as Executive Vice
President. He has been employed by the Company since 1949. Mr. Reinhold is a
director of Amdahl Corporation and Revco Drug Stores, Inc. Mr. Reinhold
received a Bachelor of Arts degree from Stanford University. Age 71.
GEORGE BOYADJIEFF, a director of the Company since 1976, is the President
and Chief Executive Officer of the Company. He has served as President since
1981 and has been Chief Executive Officer since April 1991. Mr. Boyadjieff
served as Chief Operating Officer from 1979 until April 1991. Prior to his
election as President, he was Senior Vice President--Operations. He has been
employed by the Company since 1969.Mr. Boyadjieff is a director of Unit
Instruments, Inc. Mr. Boyadjieff received Bachelor of Science and Master of
Science degrees from the University of California at Berkeley. Age 57.
TALTON R. EMBRY, is owner, Chairman and Chief Investment Officer of Magten
Asset Management Corporation ("Magten") which he founded in 1978. Mr. Embry is
Co-Chairman of the Board of Directors of Revco Drug Stores, Inc. Mr. Embry is
also a director of Combined Broadcasting, Capsure Holdings Corp., TSX
Corporation, BDK Holdings, Inc. and Thermadyne Holdings Corp. Mr. Embry
received a Bachelor of Arts degree from Rutgers University. Mr. Embry served
as a director of the Company from May 1986 through August 1986 and from May
1987 until present. Age 49.
On September 9, 1993, Mr. Embry and Magten, without admitting or denying the
allegations in a complaint by the Securities and Exchange Commission (the
"Commission"), consented to the entry of judgments enjoining them from
violating (and, in the case of Mr. Embry, aiding and abetting violations of)
anti-fraud and other provisions of the Securities Exchange Act of 1934, as
amended, the Investment Advisers Act of 1940, as amended, and the Investment
Company Act of 1940, as amended. The Commission's complaint alleged
principally that Mr. Embry failed to advise clients of certain personal trades
relevant to the clients' holdings, to obtain certain consents required under
applicable law in connection therewith, and to comply with certain reporting
requirements. The complaint did not involve the securities of the Company. Mr.
Embry made a $1 million payment for the benefit of certain of Magten's clients.
ANDRE R. HORN, a director of the Company since July, 1987, retired from Joy
Manufacturing Co. in 1985 where he served as a director and Chairman of the
Board. Mr. Horn was Chairman of the Board of Needham & Co., Inc. ("Needham"),
investment bankers, from 1985 until March 31, 1991. He is a director of
Western Digital Corporation, GTI Corporation and Remec, Inc. Mr. Horn is a
graduate of the University of Paris. Age 67. Member: Audit Committee
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MAURICE E. JACQUES, a director of the Company since 1982, was elected as
Vice President of Sales and Marketing of the Company's Varco Drilling Systems
Division in May 1989. He served as Vice President of the Company from May 1984
until April 1991. He served as Vice President--Marketing of Varco Oil Tools
from 1977 to 1979 and has been employed by the Company since 1975. Mr. Jacques
received his Bachelor of Science and Master of Science degrees from the
University of California at Berkeley and his Master of Business Administration
degree from Loyola University of Chicago. Age 59.
JACK W. KNOWLTON, a director of the Company since 1975, is the President and
owner of The Knowlton Company, which provides consulting services to the oil
service industry. From 1987 to 1989 Mr. Knowlton was President and a director
of Sub Sea Systems, a manufacturer of underwater camera devices. From 1983 to
1986 Mr. Knowlton was Senior Vice President--Technology and Marketing of Smith
International, Inc., prior to which he served as a Group Vice President. Prior
to 1977 Mr. Knowlton was President of Martin Decker Company, a subsidiary of
Gardner-Denver Company. Mr. Knowlton is a director of The O'Malley Company.
Mr. Knowlton received a Bachelor of Science degree from Stanford University.
Age 69. Member: Audit Committee; Compensation Committee
LEO J. PIRCHER, a director of the Company since 1970, has been a member of
Pircher, Nichols & Meeks, general counsel for the Company, since November
1983. Mr. Pircher is a graduate of the University of California at Berkeley
and the University of California Boalt Hall School of Law. Age 63.
CARROLL W. SUGGS, a director of the Company since August 1993, is the
Chairman of the Board, President and Chief Executive Officer of Petroleum
Helicopters, Inc., a provider of helicopter services to companies engaged in
offshore oil and gas exploration, development and production. She has been
Chairman of the Board of Petroleum Helicopters, Inc. since March 1990 and
Chief Executive Officer since July 1992 and was Vice Chairman of the Board
from September 1989 to March 1990. Age 57.
ROBERT A. TEITSWORTH, a director of the Company since 1979, has been an
independent oil and gas producer since 1986. From 1983-1986 he was co-owner
and Chief Executive Officer of Trio Petroleum Inc. From 1959 to 1983 Mr.
Teitsworth was employed by Occidental Oil and Gas Corporation. From 1971 to
1983 he was Chairman and Chief Executive Officer of Occidental Oil and Gas
Corporation. During the same period Mr. Teitsworth also served as an Executive
Vice President and on the Board of Directors of Occidental Petroleum
Corporation. Mr. Teitsworth received Bachelor of Science and Master of Science
degrees from Stanford University. Age 65. Member: Audit Committee;
Compensation Committee
EUGENE R. WHITE, a director of the Company since October 1990, retired from
Amdahl Corporation in 1994. Mr. White held various positions at Amdahl
Corporation. He served as the Vice Chairman of Amdahl Corporation from 1987 to
1994 and he served as Chairman of the Board from 1979 to 1987 and Chief
Executive Officer from 1979 to 1983. Mr. White was Deputy Chairman of the
Board and was Amdahl's President from 1974 to 1977. He is a director of
Antares Alliance Group and Needham & Co. Mr. White received a Bachelor of
Science in physics from the University of Maine. Age 64.
JAMES D. WOODS is the Chairman and Chief Executive Officer of Baker Hughes
Incorporated ("Baker Hughes"). He has been CEO since April 1987 and Chairman
since January 1989. Baker Hughes is a provider of products and services to the
oil, gas and process industries. Mr. Woods serves on the Board of Directors
for The Kroger Co. and Wynn's International, Inc. Mr. Woods received a
Bachelor of Arts degree from California State University, Fullerton. Mr. Woods
served as a director of the Company from October 1988 through May 1990 and
from December 1990 until present. Age 64. Member: Compensation Committee
On September 29, 1988, the Company acquired the BJ Machinery Division from
Baker Hughes pursuant to the provisions of an Asset Purchase Agreement dated
as of August 10, 1988 (the "Purchase Agreement") between the Company and Baker
Hughes. Pursuant to the Purchase Agreement, the Company agreed to use its best
efforts to cause a designee of Baker Hughes to be elected to the Company's
Board of Directors until the
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<PAGE>
earlier of (i) the date on which the Company shall have paid to Baker Hughes
royalty payments, based on sales of a defined group of products, in the
aggregate amount of $15,000,000 after discounting each payment back to the
closing of the acquisition, applying a discount rate of 12 1/2% (subject to
certain exceptions) and (ii) September 29, 1996. If the Company's Board of
Directors fails to name Baker Hughes' designee as a nominee for election at
any annual meeting of shareholders or the Company's management fails to vote
any proxies granting it the power to vote for Baker Hughes' designee, Baker
Hughes may increase the applicable rate used in calculating the discounted
value of the royalty payments from 12 1/2% to 13%. Mr. Woods is Baker Hughes'
designee for election as a director of the Company.
BOARD MEETINGS AND COMMITTEES
During 1995, the Board of Directors of the Company held a total of five
meetings. All directors attended at least 75% of the total number of meetings
of the full Board of Directors and of committees of which such directors were
members.
The committees of the Board of Directors are the Audit Committee and the
Compensation Committee. Messrs. Horn (chairman), Knowlton and Teitsworth are
presently the members of the Audit Committee. The members of the Compensation
Committee are Messrs. Woods (chairman), Knowlton and Teitsworth.
The Audit Committee meets at least annually with the Company's independent
auditors and the Company's management to inquire as to the manner in which the
respective responsibilities of these groups and individuals are being
discharged. Reports of the Audit Committee's findings are made to the Board of
Directors. The Audit Committee makes recommendations to the Board of Directors
with respect to the scope of the audit conducted by the independent auditors
of the Company and the related fees; the accounting principles being applied
by the Company in financial reporting; and the adequacy of internal controls.
The Audit Committee met two times in 1995.
The Compensation Committee meets periodically to review the Company's
executive compensation policies. The Compensation Committee administers the
executive compensation program, makes recommendations to the Board of
Directors from time to time concerning the Company's compensation and benefits
practices generally, and is the administrator of the Company's employee stock
option plans, stock bonus plan, and stock purchase plan. The Compensation
Committee met twice in 1995.
The Company does not have a nominating committee. Nominations for the Board
of Directors are made and considered by the Board of Directors as a whole.
DIRECTOR COMPENSATION
For their services rendered on the Board of Directors, directors other than
Messrs. Reinhold, Boyadjieff, and Jacques receive an annual fee of $13,000
plus $2,000 for each meeting of the Board of Directors attended (other than
meetings attended by means of telephonic conference equipment) and $500 for
each meeting of any Committee of the Board of Directors attended (other than a
Committee meeting held in conjunction with a meeting of the Board of Directors
and other than Committee meetings attended by means of telephonic conference
equipment).
On August 11, 1994 (the "Approval Date"), the Board of Directors of the
Company adopted the 1994 Directors' Stock Option Plan (the "Directors' Plan"),
and on May 18, 1995, the Directors' Plan was approved by the shareholders of
the Company. The Directors' Plan provides for the automatic grant of "initial"
options and "annual" options. Initial options were granted to each non-
employee director on the Approval Date and will be granted to each
subsequently-elected non-employee director on the date of his or her initial
election as a director. Annual options will be granted to each non-employee
director on the second Thursday of August in each year through 2003. Each
option granted under the Directors' Plan (1) is for 5,000 shares of the
Company's Common Stock; (2) has a per share exercise price equal to the fair
market value of the Company's Common
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Stock on the date of grant; (3) generally becomes exercisable in two equal
annual installments on the first and second anniversaries of the date of
grant; and (4) is for a term of 10 years, subject to earlier termination in
accordance with the terms of the Directors' Plan. Pursuant to the Directors'
Plan, each current non-employee director was granted an option to purchase
5,000 shares of the Company's Common Stock at an exercise price of $10.75 on
August 10, 1995.
On August 2, 1994, the Board of Directors approved the Director Savings Plan
(the "Director Savings Plan"), which is designed to provide supplemental
retirement income benefits to the Company's non-employee directors by enabling
participants to defer up to 100% of their annual fee and meeting fees.
Participants in the Director Savings Plan may also participate in the
Company's "split-dollar" life insurance program pursuant to which the Company
will purchase a life insurance policy for a premium equal to the amounts
deferred plus any additional amount required to provide a minimum death
benefit. Amounts payable to a participant under the Director Savings Plan are
offset by any benefits paid under the participant's life insurance policy. In
addition to providing death benefits, the life insurance policies are intended
to provide security for the payment of benefits under the Director Savings
Plan (a) in the event of (1) the termination of a director's service on the
Board of Directors (including a failure to renominate a director for election)
where such director has indicated his or her willingness to serve and the
termination is not the result of his or her removal for cause or (2) a
termination by a director of his or her service on the Board within three
years after a "Change in Control" and following a reduction in directors' fees
not agreed to by such director; (b) at the participant's election upon two
years' advance notice; or (c) in the event of the disability of a director. A
Change in Control occurs in the event (1) any person or group becomes the
beneficial owner of more than 20% of the Company's Common Stock; (2) a change
within a two-year period in a majority of the Board of Directors without the
approval of two-thirds of the directors; (3) certain mergers of the Company;
(4) the sale or other disposition of substantially all of the Company's
assets; or (5) the liquidation or dissolution of the Company. Due to the
reduction in the number of outstanding shares of the Company's Common Stock as
a result of the completion in April of 1995 of the Company's "Dutch auction"
type tender offer (the "Tender Offer") pursuant to which the Company purchased
3,150,560 shares of its Common Stock, Baker Hughes became the owner of more
than 20% of the Company's Common Stock, which resulted in a Change in Control
under the "split-dollar" life insurance program.
COMPLIANCE WITH THE SECURITIES EXCHANGE ACT
The Securities Exchange Act of 1934, as amended, requires the Company's
directors and executive officers to file reports of ownership and changes in
ownership of the Company's Common Stock with the Securities and Exchange
Commission and the New York Stock Exchange. Based on Company records and
written representations from the Company's executive officers and directors,
the Company believes that all such filing requirements applicable to its
directors and executive officers during 1995 were complied with except that
Robert A. Teitsworth, a director of the Company, filed one late report
reporting one transaction; Roger D. Morgan, an executive officer of the
Company, failed to file one report reporting two transactions; Maurice E.
Jacques, a director of the Company, failed to file one report reporting one
transaction; and Marshall G. Bailey, an executive officer of the Company,
filed one late initial report of no beneficial ownership of the Company's
securities.
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<PAGE>
BENEFICIAL OWNERSHIP OF VARCO SECURITIES
The following table sets forth the beneficial ownership of Varco's Common
Stock by the beneficial owners of more than 5% percent thereof, by each
director of Varco, by certain executive officers and by all directors and
executive officers of Varco as a group, as of March 1, 1996. Except as
indicated in the table, there is no person known to the Company who owns
beneficially 5% or more of Varco's Common Stock.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL PERCENT OF
NAME OF BENEFICIAL OWNER(A) OWNERSHIP(B) CLASS
--------------------------- ----------------- ----------
<S> <C> <C>
George Boyadjieff............................ 341,347(c) 1.1%
Talton R. Embry.............................. 12,600(d) *
Robert J. Gondek............................. 37,151(e) *
Andre R. Horn................................ 13,500(d) *
Maurice E. Jacques........................... 41,272(f) *
Richard A. Kertson........................... 74,559(g) *
Jack W. Knowlton............................. 16,400(h) *
Roger D. Morgan.............................. 31,594(i) *
Leo J. Pircher............................... 355,448(h)(j)(k) 1.2%
Walter B. Reinhold........................... 1,118,167(k)(l) 3.7%
Carroll W. Suggs............................. 3,000(h) *
Robert A. Teitsworth......................... 13,500(h) *
Eugene R. White.............................. 27,500(m) *
James D. Woods............................... 6,357,541(h)(n) 21.0%
Baker Hughes Incorporated.................... 6,346,041 21.0%
FMR Corp. ................................... 1,674,400(o) 5.5%
All Directors and Executive Officers as a
Group....................................... 8,480,170(p) 27.6%
</TABLE>
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* Less than 1% of the shares of Common Stock outstanding on March 1, 1996.
(a) The address of each individual named in the table is c/o the Company, 743
North Eckhoff Street, Orange, California 92668. The address of Baker
Hughes Incorporated ("Baker Hughes") is 3900 Essex Lane, Suite 1200,
Houston, Texas 77210. The address of FMR Corp. is 82 Devonshire Street,
Boston, Massachusetts 02109. All individuals named in the table are
directors or executive officers of the Company.
(b) The named beneficial owners have sole voting and investment power with
respect to the listed shares except as otherwise indicated in the
footnotes below.
(c) Includes 224,000 shares issuable upon exercise of options. Also includes
400 shares held for the benefit of Mr. Boyadjieff's children; Mr.
Boyadjieff disclaims beneficial ownership of such shares.
(d) Includes 7,500 shares issuable upon exercise of options.
(e) Includes 30,000 shares issuable upon exercise of options.
(f) Includes 19,400 shares issuable upon exercise of options.
(g) Includes 56,706 shares issuable upon exercise of options.
(h) Includes 2,500 shares issuable upon exercise of options.
(i) Includes 30,353 shares issuable upon exercise of options.
(j) Includes 269,248 shares held by trusts of which Mr. Pircher is the sole
trustee and has sole voting and investment power. Mr. Pircher disclaims
beneficial ownership of such shares.
(k) Includes 78,400 shares held by a trust of which Mr. Pircher and Mr.
Reinhold are trustees and share voting and investment power. Messrs.
Pircher and Reinhold disclaim beneficial ownership of such shares.
(l) Includes 200 shares Mr. Reinhold owns jointly with his spouse, with
respect to which he shares voting and investment power with his spouse.
Also includes 45,020 additional shares, all owned by Mr. Reinhold's
spouse, with respect to which Mr. Reinhold shares voting and investment
power and disclaims beneficial
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ownership. Does not include 58,292 shares with respect to which Mr.
Reinhold's spouse acts as custodian and with respect to which she has sole
voting and investment power and Mr. Reinhold disclaims beneficial
ownership.
(m) Includes 7,500 shares issuable upon exercise of options and 20,000 shares
held by a trust of which Mr. White and his spouse are trustees and share
voting and investment power.
(n) Includes the 6,346,041 shares owned by Baker Hughes with respect to which
Mr. Woods shares voting and investment power and disclaims beneficial
interest.
(o) Fidelity Management & Research Company ("Fidelity"), a wholly-owned
subsidiary of FMR Corp., is the beneficial owner of 1,538,900 shares as a
result of acting as investment adviser to various registered investment
companies (the "Funds") and as sub-adviser to Fidelity American Special
Situations Trust ("FASST"). The investment adviser of FASST is a wholly-
owned subsidiary of Fidelity International Limited ("FIL"). Edward C.
Johnson 3d, FMR Corp. and the Funds each has sole power to dispose of the
1,531,000 shares owned by the Funds, and FIL, FMR Corp. and FASST each has
sole power to vote and to dispose of the 7,600 shares held by FASST.
Fidelity Management Trust Company, a wholly-owned subsidiary of FMR Corp.
and a bank, is the beneficial owner of 135,500 shares as a result of
serving as investment manager of certain institutional accounts. Mr.
Johnson and FMR Corp. each has sole voting and dispositive power over the
135,500 shares owned by such institutional accounts. The foregoing
information is taken from a Schedule 13G, dated February 14, 1996, filed
by FMR Corp. with the SEC.
(p) Includes 483,332 shares issuable upon exercise of options by eight
executive officers and eight directors of the Company.
Walter B. Reinhold, Baldwin Reinhold, Jr., the estate of Charlotte Reinhold
Lorenz, deceased, and Baldwin T. Reinhold, the son of Baldwin Reinhold, Jr.,
are parties to an Agreement dated as of June 11, 1981 (the "Shareholders'
Agreement") imposing certain restrictions on transfers of shares of Common
Stock owned by them at the time the Shareholders' Agreement became effective
and any additional voting securities of the Company issued with respect
thereto by way of stock dividend, stock split or other distribution.
Specifically, the Shareholders' Agreement prohibits any transfer except (1)
any transfer pursuant to a registration statement under the Securities Act of
1933, as amended (the "Securities Act"), (2) the sale by any party of not more
than 20,000 shares (adjusted to reflect any stock dividends, stock splits or
reverse stock splits) during any 12-month period pursuant to Rule 144
promulgated under the Securities Act, (3) inter vivos gifts provided that the
aggregate value given by any party to any one person during any 12-month
period does not exceed $50,000 ($500,000 in the case of direct or indirect
gifts to a member of the donor's family or the donor's former spouse), (4)
bequests or inter vivos gifts, direct or indirect, to charitable institutions
provided that the aggregate value given by any party to charitable
institutions during any 12-month period does not exceed $2,000,000, (5)
transfers by will or the laws of descent and distribution, or (6) transfers
with the written consent of the holders of 80% of the shares then subject to
the Shareholders' Agreement. Any transferee under clause (3) or (6) above must
agree to be bound by the provisions of the Shareholders' Agreement restricting
transfers unless, in the case of any transfer under clause (6), otherwise
agreed by the parties approving such transfer, and any transferee under
clause(5) above other than a charitable institution is deemed to be bound by
such provisions.
Unless sooner terminated by the parties, the foregoing restrictions
terminate on May 22, 1996. Approximately 3,200,000 shares of Common Stock, or
10.6% of the shares outstanding at March 1, 1996, are currently subject to the
Shareholders' Agreement.
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COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors is responsible for
reviewing and approving the Company's overall compensation and benefit
programs, and for administering the compensation of its executive officers.
The objective of the Company's executive compensation program is to attract,
motivate and retain executive officers by ensuring that appropriate total
compensation is paid for positions of equivalent responsibility compared to
its peer companies. Peer company compensation practices are determined from
surveys conducted specifically for the Company as well as published studies.
Principal among the former is a survey of approximately 50 industrial
companies having revenue and market capitalization similar to that of the
Company ("Comparable Company" survey). Published surveys considered are mainly
those specifically covering the oilfield services industry and include a
number of companies having a market capitalization substantially larger than
the Company. The Peer Group used for comparative purposes in the Stock
Performance Graph is Standard & Poors industry group 395, Oil Well Equipment
and Services. The companies included in that index are all much larger than
the Company, and are not part of the Comparable Company survey.
Compensation for executive officers consists of three components: base
salary, incentive compensation and stock options.
SALARY
Salaries of executive officers other than the Chairman and the Chief
Executive Officer are based upon the Salary Grade to which their position is
assigned, and such factors as experience, qualifications, and individual
performance. Salary ranges for each Salary Grade are primarily based on
similar positions in Comparable Companies and are reviewed annually. The
midpoint of each Salary Grade is targeted at approximately the 75th percentile
of the Comparable Company sample. Rather than using a Salary Grade, the CEO's
salary is compared to the actual salaries of CEO's in the Comparable Company
group as well as other oilfield service companies. The CEO's salary is
targeted at approximately the 75th percentile of the Comparable Company group,
and is more subjectively compared to his peers in other oilfield service
companies. The salary of the Chairman has not been increased since 1992, as he
no longer serves as Chief Executive Officer of the Company.
The actual salary for each executive officer is established by the
Compensation Committee, considering the relative position of his/her current
salary within the range for the Salary Grade, and the executive's performance
rating. That performance rating is a subjective evaluation, taking into
account such factors as: financial performance of the business unit for which
the executive is responsible (as measured principally by Operating Profit and
Operating Profit Return on Average Net Assets Employed, in each case as
compared to the Annual Financial Plan), achievement of that unit's annual
goals, attainment of the executive's personal goals, and his/her overall
contribution to the Company's performance.
For executive officers other than the Chairman and the CEO, 1995 base
salaries averaged 103.8% of the applicable Salary Grade midpoint, with a low
of 91.4% and a high of 114.2%.
INCENTIVE COMPENSATION
The purpose of the Company's Management Incentive Bonus Plan is to provide
incentive compensation in the form of cash and stock bonuses to those
employees who have a substantial impact on financial performance, for the
achievement of above average financial results. The plan includes executive
officers, managers and other selected key employees. Division participants'
cash incentive bonuses are based on Division financial performance, and
Corporate management's cash incentive bonuses are based on overall Company
financial results.
The general criteria for measuring financial performance are profitability
and return on investment. At the consolidated total Company level the specific
criteria are Earnings Per Share and Cash Flow Return on Average Net
Investment. At the Division level they are Operating Profit and Operating
Profit Return on Average Net Assets Employed. For 1995 profitability measures
and return on investment measures carried equal weighting.
8
<PAGE>
At the beginning of each year, the Compensation Committee establishes, for
each Division as well as the overall Company, a series of performance levels
for each financial performance criteria. These performance levels are based
primarily on the Annual Financial Plan, also taking into account previous
financial results, industry and market conditions, and long-term financial
goals.
The Compensation Committee also establishes bonus percentages at each
performance level for every Salary Grade. In establishing this percentage the
Committee considers the total potential bonus payout at each performance
level, in relation to the associated pre-tax income amount, also taking into
account the bonus-to-salary relationship in the Comparable Company survey. For
1995, bonus percentages at the "target" or mid-range performance level were
approximately 60 per cent of the average cash bonus among Comparable
Companies. No bonus is payable unless a minimum financial performance level is
achieved.
An individual participant's potential bonus is calculated by multiplying
his/her annual salary by the bonus percentage for his/her Salary Grade at the
performance level achieved. This potential bonus may be adjusted based on
superior individual performance and contribution, subject to a maximum
increase of 25%.
For 1995 one Division was at and one Division was slightly above its
"target" performance level, and eligible employees received cash bonuses
averaging approximately those payable at the target level. Three Divisions
fell short of the target performance level, and eligible employees received
cash bonuses 10-50% below the amount available at the target performance
level. The overall Company performance was slightly below the target level,
and Corporate Officers' cash bonuses averaged approximately 10 per cent below
the target amount. No discretionary adjustments to executive officer bonuses
were made for 1995.
The Compensation Committee administers the Company's Stock Bonus Plan and is
authorized to provide additional compensation to executive officers and other
key employees in the form of awards of Common Stock ("Stock Awards"). Such
Stock Awards are generally granted to all participants in the Management
Incentive Bonus Plan based upon overall Company financial performance, i.e.
Earnings Per Share and Cash Flow Return on Average Net Investment. For 1995,
the Compensation Committee granted Stock Awards to each participant in the
Management Incentive Bonus Plan with a value (based on the $10.25 mean between
the high and low sales prices of the Company's Common Stock on the date of
grant) equal to one-third of the Management Incentive Plan bonus amount
associated with such individual's Salary Grade at the overall Company
performance level actually achieved.
STOCK OPTIONS
The Company's 1990 Stock Option Plan is intended to encourage key employees
of the Company to continue in the employment of the Company and to contribute
to its growth and success by providing such employees a favorable opportunity
to participate in the ownership of the Company by acquiring its Common Stock.
The Stock Option Plan permits the granting of incentive stock options, non-
statutory stock options and stock appreciation rights. The Compensation
Committee is authorized to designate the optionees, to determine the number of
shares for each optionee, and to fix the exercise price (which may not be less
than the fair market value at the date of grant), the term and the vesting
schedule.
Stock Options are generally granted annually, and generally are extended
from executive management through supervisory and senior professional levels.
The total pool of shares to be granted is determined by the Compensation
Committee after considering the number of shares available under the Stock
Option Plan and the current market price. In 1995 the number of shares granted
to each executive officer was determined based upon the aggregate current
market value of such shares, expressed as a percentage of the individual
executive officer's 1994 base salary. The market value of option shares so
determined ranged from 50 to 75 per cent of base salary. For non-executives
shares are allocated among participants based upon each optionee's salary
grade. A limited number of subjective adjustments are made to reflect
significant variations in individual contribution and performance. The total
dollar value (based on current market value as well as on an option pricing
model) of
9
<PAGE>
options granted to each executive officer, expressed as a percentage of annual
salary, is evaluated against the compensation practices of the Comparable
Company sample. The value of awards to executive officers, expressed as a
percentage of base salary, are typically below the average of that group.
CHIEF EXECUTIVE OFFICER'S COMPENSATION
Consistent with all other executive officers, the CEO's 1995 compensation
was based on a combination of individual performance and overall Company
performance. Mr. Boyadjieff's total compensation includes base salary,
incentive compensation and stock options.
Mr. Boyadjieff's salary for fiscal 1994 was $415,000 His salary was
increased to $460,000 effective January 2, 1995. In establishing this level,
the Committee took into consideration the fact that Mr. Boyadjieff's 1994
salary was slightly below the 75th percentile of salaries for CEO's in the
Comparable Company sample. Additionally, the Committee considered the actual
salaries of the Chief Executive Officers of other public companies in the
oilfield services industry of comparable size to the Company.
The Compensation Committee considers Mr. Boyadjieff's leadership to be
instrumental to the past and continued success of the Company. They also take
note of his recognition within the industry as a leading authority on the
application and development of new technology to drilling equipment, and his
role as chief technical officer for the Company.
Based on the criteria established for the Management Incentive Bonus Plan
and the Company's 1995 financial performance, Mr. Boyadjieff was eligible for
a cash bonus equivalent to 27% of his 1995 base salary. Since the Company's
financial performance was slightly below the "target" level, this bonus amount
was approximately 10% below the amount available at the "target" performance
level. In accordance with the awards described above, Mr. Boyadjieff also
received a Stock Bonus having a value equal to one-third of the base bonus
amount. For fiscal 1994 Mr. Boyadjieff received an incentive bonus equal to
33% of his base salary. In each of 1994 and 1995 Mr. Boyadjieff's cash bonus,
expressed as a per cent of base salary, was below the average of bonuses
granted to CEO's of the Comparable Companies.
Mr. Boyadjieff was granted options to purchase 50,000 shares of Common Stock
in 1995. The current market value of such shares at the date of grant was
approximately 75 per cent of his 1994 base salary. These options were granted
at an exercise price equal to the fair market value of the Company's Common
Stock at the date of grant and have a term of ten years with a five-year
vesting schedule. Using an option pricing model, the value of these options,
expressed as a percent of base salary, was between the 25th and 50th
percentile of CEO's in the Comparable Company group.
CONCLUSION
The Compensation Committee believes that the Company's executive
compensation programs are effective in attracting, motivating and retaining
outstanding executives and that they are consistent with the long-term
interests of the Company and its shareholders.
The Compensation Committee
James D. Woods, Chairman
Jack W. Knowlton
Robert A. Teitsworth
10
<PAGE>
EXECUTIVE COMPENSATION
COMPENSATION AND STOCK OPTION INFORMATION
The following table sets forth information regarding the compensation of the
Company's Chief Executive Officer and its four other highest paid executive
officers for the years indicated. Two additional tables provide detailed
information about these employees' stock options.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL
COMPENSATION(A)(B) AWARDS
------------------- ------------
SECURITIES
NAME AND PRINCIPAL UNDERLYING ALL OTHER
POSITION YEAR SALARY BONUS(C) OPTIONS COMPENSATION(D)
- ------------------ ---- --------- --------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
George Boyadjieff........ 1995 $ 460,000 $ 165,559 50,000 $4,916
Chief Executive Officer 1994 $ 415,000 $ 182,595 30,000 $4,185
1993 $ 380,000 $ 146,860 30,000 $5,520
Walter B. Reinhold....... 1995 $ 250,000 $ 89,978 $4,181
Chairman 1994 $ 250,000 $ 109,995 $3,976
1993 $ 250,000 $ 90,000 $5,520
Richard A. Kertson....... 1995 $ 225,000 $ 59,985 23,529 $5,655
Vice President-Finance
and Chief 1994 $ 200,000 $ 64,001 15,000 $4,417
Financial Officer 1993 $ 180,000 $ 48,000 15,000 $4,244
Roger D. Morgan.......... 1995 $ 200,000 $ 29,867 21,765 $4,349
Vice President and Pres-
ident-Varco 1994 $ 185,000 $ 64,136 15,000 $3,976
Drilling Systems Divi-
sion 1993 $ 170,000 $ 51,560 15,000 $4,032
Robert J. Gondek......... 1995 $ 195,000 $ 41,600 20,000 $4,181
Vice President and Pres-
ident-Martin 1994 $ 175,000 $ 60,666 15,000 $3,976
Decker/TOTCO Instrumen-
tation Division 1993 $ 160,000 $ 37,325 15,000 $3,622
</TABLE>
- --------
(a) Perquisites are excluded as their aggregate value did not meet the
reporting threshold of the lesser of $50,000 or 10% of salary plus bonus.
(b) In August of 1994 the Company adopted a deferred compensation plan (the
"Executive Management Savings Plan") whereby officers of the Company and
its subsidiaries can defer up to 50% of their salary and 100% of their
bonus. Mr. Boyadjieff deferred $20,000 of his 1995 bonus; Mr. Kertson
deferred $45,000 of his 1995 bonus; and Mr. Morgan deferred $5,290 of his
1995 salary. Amounts reported include the deferred amounts.
(c) Consists of cash bonuses under the Management Incentive Bonus Plan and the
fair market value at the date of award of Common Stock awarded under the
Stock Bonus Plan. The cash bonuses and stock awards were paid in the first
quarter of the subsequent year for services rendered in the year
indicated.
(d) For 1994 and 1995 such amounts represent allocations (including the
Company's contribution and forfeitures) pursuant to the Profit Sharing
Retirement Plan and the dollar value of the benefit from premiums paid on
"split-dollar" life insurance policies. For 1993 such amounts represent
allocations (including the Company's contribution and forfeitures)
pursuant to the Profit Sharing Retirement Plan. With the exception of Mr.
Reinhold, all individuals named above are also participants in the
Supplemental Executive Retirement Plan (the "Supplemental Plan"), which
provides for retirement, death and disability benefits. The Supplemental
Plan provides for a total benefit (the "normal retirement benefit"), which
vests
11
<PAGE>
at the rate of 10% per year of service, is fully vested upon death, and is
prorated in the event of early retirement but not in the event of
disability. The normal retirement benefit is payable in 120 equal monthly
installments commencing upon the earlier of retirement or death or, in the
case of disability or early retirement, generally commencing at age 65. In
the event of a change in ownership of the Company, as defined in the
Internal Revenue Service regulations for "golden parachute payments",
benefits become fully vested subject to the limitation that the increase in
benefits may not be greater than three times the participant's salary. At
December 31, 1995, the normal retirement benefits for the named participants
were as follows: Mr. Boyadjieff, $1,237,500; Mr. Morgan, $650,000; Mr.
Kertson, $575,000; and Mr. Gondek, $530,000. With the exception of Mr.
Gondek, whose vested normal retirement benefit was $265,000, all of the
foregoing individuals were fully vested at December 31, 1995. The
Supplemental Plan is unfunded.
On August 12, 1994, the Board of Directors approved the Executive Management
Savings Plan (the "Executive Savings Plan"), which is designed to provide
supplemental retirement income benefits to the Company's executive and
divisional officers by enabling participants to defer up to 50% of their salary
and up to 100% of their bonuses. Participants in the Executive Savings Plan may
also participate in the Company's "split-dollar" life insurance program
pursuant to which the Company will purchase a life insurance policy for a
premium equal to the amounts deferred plus any additional amount required to
provide a minimum death benefit. Amounts payable to a participant under the
Executive Savings Plan are offset by any benefits paid under the participant's
life insurance policy. In addition to providing death benefits, the life
insurance policies are intended to provide security for the payment of benefits
under the Executive Savings Plan (a) in the event that (1) the participant's
employment is terminated without cause or (2) the participant terminates his or
her employment for "Good Reason" within three years following a "Change in
Control"; (b) at the participant's election upon two years' advance notice; or
(c) in the event of the participant's disability. "Good Reason" is defined as
one of the following events without the participant's consent: (a) a
significant adverse change in the participant's position or a change of more
than 50 miles in the participant's business location; (b) a reduction in the
participant's base salary; or (c) the elimination or reduction of benefit plans
by the Company without providing substitutes therefor. The term Change in
Control has the same definition as under the Director Savings Plan described
above under the caption "Director Compensation." Due to the reduction in the
number of outstanding shares of the Company's Common Stock as a result of the
completion of the Tender Offer, Baker Hughes became the owner of more than 20%
of the Company's Common Stock, which resulted in a Change in Control under the
"split-dollar" life insurance program.
OPTION GRANTS IN 1995
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------
POTENTIAL REALIZABLE VALUE
NUMBER OF AT ASSUMED ANNUAL
SECURITIES % OF TOTAL RATES OF STOCK PRICE
UNDERLYING OPTIONS APPRECIATION
OPTIONS GRANTED EXERCISE FOR OPTION TERM (C)
GRANTED TO EMPLOYEES PRICE EXPIRATION ---------------------------
(A) IN 1995(B) PER SHARE DATE 5% 10%
---------- ------------ --------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
G. Boyadjieff........... 50,000 17.26% $6.375 2/14/05 $ 200,813 $ 506,813
R. Kertson.............. 23,529 8.12% $6.375 2/14/05 94,498 238,496
R. Morgan............... 21,765 7.51% $6.375 2/14/05 87,414 220,615
R. Gondek............... 20,000 6.90% $6.375 2/14/05 80,325 202,725
</TABLE>
<TABLE>
<CAPTION>
ASSUMED PRICE
APPRECIATION
--------------------------
5% 10%
------------ ------------
<S> <C> <C>
Assumed price per share at 2/14/2005............... $ 10.39 $ 16.51
Gain on one share valued at $6.375 at 2/14/1995.... $ 4.02 $ 10.14
Gain on all shares (based on 30,223,796 shares
outstanding at 3/1/96)............................ $121,386,321 $306,355,952
Gain for all 1995 optionees (based on 289,657
options).......................................... $ 1,163,335 $ 2,936,036
Optionee gain as a percentage of total shareholder
gain.............................................. 0.96% 0.96%
</TABLE>
12
<PAGE>
- --------
(a) All options were granted pursuant to the 1990 Stock Option Plan and have a
term of 10 years. The exercise price of the options is the mean between
the high and low sales prices of the Company's Common Stock as reported on
the New York Stock Exchange Consolidated Transactions Tape on the date of
grant. The options are incentive stock options subject to the limitation
on amount set forth in Section 422 of the Internal Revenue Code of 1986,
as amended. The options become exercisable in five equal annual
installments of 20% commencing one year after the date of grant. Options
terminate upon termination of employment other than by death or
retirement. In the event of death, the options may be exercised by the
employee's personal representative for a period of up to 12 months to the
extent vested at the time of death. In the event of normal retirement, the
options become fully vested and are exercisable for a period of up to
three months following retirement.
(b) The total number of options granted in 1995 was 289,657.
(c) Represents aggregate appreciation of 63% and 159% for assumed annual rates
of appreciation of 5% and 10%, respectively, compounded annually for the
ten-year option term.
AGGREGATED OPTION EXERCISES IN 1995
AND 1995 YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS IN-THE-MONEY OPTIONS
AT DECEMBER 31, 1995 AT DECEMBER 31, 1995 (A)
------------------------- -------------------------
SHARES
ACQUIRED
ON VALUE
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
G. Boyadjieff........... 0 194,000 106,000 $1,466,629 $643,076
R. Kertson.............. 0 42,000 51,529 292,792 312,896
R. Morgan............... 26,000 $186,972 16,000 49,765 82,320 292,163
R. Gondek............... 6,000 $ 38,622 16,000 48,000 82,320 302,532
</TABLE>
- --------
(a)Represents the closing price for Varco Common Stock on December 31, 1995 of
$12.25 less the exercise price for all exercisable and unexercisable
options for which the exercise price is less than such closing price.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee are James D. Woods, Jack W.
Knowlton and Robert A. Teitsworth, none of whom is an officer or employee of
the Company or any of its subsidiaries.
During 1995, no executive officer of the Company served as a director or
member of the compensation committee (or other committee serving an equivalent
function) of any other entity, one of whose executive officers served as a
director or member of the Compensation Committee of the Company.
13
<PAGE>
STOCK PERFORMANCE INFORMATION
The following graph presents the cumulative, five-year total return for
Varco Common Stock compared with the S&P 500 Stock Index and a peer group of
companies index. The Company uses the S&P Oil Equipment and Service Index for
its peer group of companies index.
The graph assumes that the value of the investment in Varco Common Stock,
the S&P 500 Stock Index and the peer group of companies index each was $100 on
December 31, 1990 and that all dividends were reinvested.
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN
AMONG VARCO INTERNATIONAL, INC.
S&P 500 INDEX AND S&P GROUP INDEX
[GRAPH]
<TABLE>
<CAPTION>
DECEMBER 31, 1990 1991 1992 1993 1994 1995
- ------------ ---- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Varco International................ $100 $ 68.12 $ 53.62 $ 69.57 $ 72.46 $142.03
S & P 500.......................... 100 130.48 140.46 154.62 156.66 215.54
Peer Group(1)...................... 100 94.09 92.41 100.33 92.19 127.72
</TABLE>
- --------
(1) The Peer Group is the S&P industry group 395, oil well equipment and
services group. The companies included in the SP Group Index are all much
larger than the Company, and accordingly did not constitute significant
factors in the compensation surveys considered by the Compensation
Committee.
14
<PAGE>
CERTAIN TRANSACTIONS AND RELATIONSHIPS
The Company's facilities in Orange, California are leased under two leases,
each of which includes certain officers, directors and shareholders of the
Company as lessors. One lease is a net ground lease (as amended, the "Plant
Lease"), which covers approximately nine acres on which the Company's
warehousing and manufacturing facilities are located, and the other lease is a
net lease (the "Office Lease") which covers an office building (the "Office
Facility") containing approximately 36,000 square feet.
The lessors under the Plant Lease are Walter B. Reinhold; G. J. Becker and
Ruth M. Becker, trustees of The G. J. Becker Family Trust; Howard P. Lorenz,
executor of the estate of Charlotte Lorenz, deceased; B. Reinhold Jr., and
Mary E. Reinhold, trustees of The Reinhold Trust; Howard P. Lorenz, trustee of
The Charlotte L. Tedhams Irrevocable Trust; and Leo J. Pircher. The lessors
under the Office Lease are Walter B. Reinhold; G. J. Becker and Ruth Becker,
trustees of The G. J. Becker Family Trust; Howard P. Lorenz, executor of the
estate of Charlotte Lorenz, deceased; Baldwin T. Reinhold and Carol Anne
Reinhold, trustees of The Reinhold Family Trust and Leo J. Pircher. The land
subject to the Plant Lease was acquired in March 1975 for approximately
$446,000 and leased to Varco on March 7, 1975.
The term of the Plant Lease expires December 31, 2012, and the Plant Lease
provides for an upward (but not downward) adjustment of rental based on fair
rental value in the years 1982, 1987, 1992, and 2002. The rent under the Plant
Lease is currently $40,000 per month, as adjusted in 1987; no adjustment was
required in 1992. In addition to rent, the Company is obligated to pay real
estate taxes, insurance and other expenses. The Company has the right to
purchase the property covered by the Plant Lease from the lessors each year
during the term of such Lease at the greater of the original cost of the
property to the lessors or the fair market value at the time of exercise as
agreed upon by the Company and the lessors or, if they fail to agree, as
determined by an independent appraisal.
The land and office building subject to the Office Lease were purchased by
the lessors thereunder and leased to the Company effective September 29, 1988.
The purchase price for such property was approximately $2,000,000. In
addition, such lessors paid the amount of $560,000 to the Company representing
the estimated cost of tenant improvements required by the Company.
In order to accommodate the Company's requirement for an expansion of the
Office Facility by approximately 10,000 square feet (the "Expansion"), the
Office Lease was amended in January 1996 (the "Office Lease Amendment").
Pursuant to the Office Lease Amendment, the Office Lease was amended to (1)
extend the termination date from December 31, 1998 to December 31, 2005 and
(2) increase the monthly rental from approximately $24,000 to approximately
$29,000. The lessors under the Office Lease contributed $625,000 for the
Expansion, which approximated its cost. In connection with the Office Lease
Amendment and related matters, the Company paid legal fees of the lessors
under the Office Lease of approximately $83,000.
The rent under the Office Lease is subject to adjustment on May 1, 1996,
November 1, 1998, May 1, 2001 and November 1, 2003, based on any increase in
the consumer price index, subject to a minimum increase of 3% per annum and a
maximum increase of 7% per annum. The Company is also obligated to pay real
estate taxes, insurance and other expenses.
The Company has an option to extend the Office Lease for 60 months at a
monthly rental equal to 95% of fair market rent (but not less than the then
current monthly rental) at the commencement of the option period. The monthly
rental during the option period is subject to adjustment during the 30th month
of the option period based on any increase in the consumer price index and
subject to the same minimum and maximum as applicable during the primary term
of the Office Lease.
Management believes that the terms of both the Plant Lease and the Office
Lease are reasonable and no less favorable to the Company than the terms which
it would have been able to obtain if the respective properties subject thereto
had been leased from unrelated parties.
Leo J. Pircher is a member of Pircher, Nichols & Meeks, general counsel for
the Company. The fees paid by the Company to Pircher, Nichols & Meeks for 1995
did not exceed 5% of such firm's 1995 gross revenues.
15
<PAGE>
AMENDMENT OF 1990 STOCK OPTION PLAN
INTRODUCTION
The 1990 Stock Option Plan (the "1990 Plan") was adopted by the Board of
Directors and approved by the shareholders of the Company in 1990. The 1990
Plan provides for the grant of incentive stock options ("ISO's") within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), options which are not intended to be ISO's ("Nonstatutory Options")
and stock appreciation rights ("SAR's"). The closing price of the Company's
Common Stock, as reported on the New York Stock Exchange Consolidated
Transactions Tape on March 29, 1996, was $12.125.
On February 13, 1996, the 1990 Plan was amended by the Board of Directors
(1) to increase the number of shares subject to the 1990 Plan from 1,000,000
to 3,000,000, (2) to eliminate the provisions of the 1990 Plan which limit the
number of shares of Common Stock with respect to which options may be granted
to any one individual during any five-year period to 150,000 shares and (3) to
make a clarifying change to Section 6(c)J of the 1990 Plan to conform with the
limitations on ISO's contained in Section 422 of the Code (the "Proposed
Amendments"). Immediately prior to the adoption of the Proposed Amendments,
the number of shares available for the grant of options under the 1990 Plan
was 20,193.
The purpose of the first amendment to the 1990 Plan is to make additional
shares available for the grant of options or SAR's under the 1990 Plan, and
the purpose of the second amendment to the 1990 Plan is to give the
Compensation Committee additional flexibility in granting options to
individuals under the 1990 Plan. The purpose of the third amendment is to
conform the 1990 Plan limitation on amount of ISO's to the provisions of
Section 422 of the Code. The purpose of the 1990 Plan is to promote the
interests of the Company and its subsidiaries by providing key employees with
a favorable opportunity to acquire Common Stock of the Company and to
participate in its appreciation and in the overall growth and success of the
Company, thereby encouraging them to continue in the employ of the Company and
to contribute to its success.
On February 12, 1996, the Compensation Committee granted options to the
following individuals and groups for the number of shares indicated:
<TABLE>
<CAPTION>
NUMBER
OF
NAME AND PRINCIPAL POSITION SHARES
--------------------------- -------
<S> <C>
George Boyadjieff, Chief Executive Officer.......................... 67,317
Richard A. Kertson, Vice President--Finance and Chief Financial
Officer............................................................ 21,951
Roger D. Morgan, Vice President and President--Varco Drilling
Systems Division................................................... 19,512
Robert J. Gondek, Vice President and President--Martin Decker/TOTCO
Instrumentation Division........................................... 19,024
Michael W. Sutherlin, Vice President and President--Varco BJ Oil
Tools.............................................................. 18,048
All current executive officers as a group........................... 183,709
All employees, including non-executive officers, as a group......... 330,709
</TABLE>
All such options (1) have a term of ten years, (2) have an exercise price of
$10.25 per share, which is equal to the mean between the high and low sales
prices of the Company's Common Stock as reported on the New York Stock
Exchange Consolidated Transactions Tape on the date of grant, (3) are ISO's,
subject to the limitation on amount set forth in Section 422 of the Code and
(4) become exercisable cumulatively over five years, commencing one year after
the date of grant, in an amount equal to the greater of 20% or 200 shares.
Due to the facts that (a) the number of option shares granted to Mr.
Boyadjieff, together with the options granted to him over the prior four years
would exceed the limitation on the number of option shares which may be
granted to any one individual during any five-year period and (b) the
aggregate number of option shares, together with prior option grants under the
1990 Plan, would exceed the maximum number of shares available under the 1990
Plan, all such grants were made subject to shareholder approval of the
Proposed Amendments. If approval is not obtained, all such options will be
void.
The vote required for approval of the Proposed Amendments is the affirmative
vote of a majority of the shares of the Common Stock of the Company present,
or represented and entitled to vote, at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE PROPOSED
AMENDMENTS.
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PRINCIPAL TERMS OF THE 1990 PLAN
The principal terms of the 1990 Plan, as amended by the Proposed Amendments,
are summarized below.
Shares Subject to the 1990 Plan
As amended, the maximum number of shares which may be issued upon the
exercise of options or SAR's under the Plan is 3,000,000, subject to
adjustment by the Compensation Committee in the event of stock dividends,
split-ups, consolidations, recapitalizations, reorganizations or similar
events. Any shares subject to options which expire or terminate without
exercise (other than shares subject to an option surrendered in connection
with the exercise of an SAR) again become available for issuance under the
1990 Plan.
Administration
The 1990 Plan is administered by the Compensation Committee. The
Compensation Committee has the authority, subject to certain limitations set
forth in the 1990 Plan, to determine (a) the key employees of the Company to
whom options shall be granted, (b) the number of shares to be subject to each
option, (c) the exercise price per share of the shares subject to each option,
(d) the period or periods within which an option may be exercised, and (e)
whether an option will be an ISO or a Nonstatutory Option.
Eligibility
Key employees of the Company and its subsidiaries (including officers and
directors who are also key employees) may be granted options and SAR's under
the 1990 Plan. The Company estimates that there are approximately 250 key
employees who are eligible for selection to participate in the 1990 Plan. As
amended, there is no limitation on the number of shares with respect to which
options may be granted under the 1990 Plan to any one employee. The third
Proposed Amendment amends Section 6(c)J of the Plan, to read as follows:
J. Limitation on Amount. Subject to the further limitations set forth in
Section 4 hereof, the aggregate Fair Market Value (determined at the time
the option is granted) of the Common Stock with respect to which Incentive
Stock Options are exercisable for the first time by an employee in any
calendar year (under the Plan and all other incentive stock option plans of
the Company and any parent or subsidiary of the Company) shall not exceed
$100,000.
The amendment inserts the phrase "for the first time" in Section 6(c)J in
order to conform this Section with Section 422 of the Code.
Terms of Options
The purchase price under each option granted under the 1990 Plan may not be
less than the fair market value of the Common Stock on the date the option is
granted, or in the case of an ISO granted to a shareholder who owns more than
10% of the total combined voting power of all classes of stock of the Company,
110% of such fair market value. The option price is payable in full at the
time of exercise of an option. The Compensation Committee is authorized to
permit the option price to be payable, in whole or in part either in cash or
by delivery of Common Stock of the Company valued at its fair market value on
the date of exercise. Both the exercise price and the number of shares subject
to each option is subject to adjustment in the event that the number of shares
subject to the 1990 Plan is adjusted.
The term of any option granted may not exceed 10 years (five years in the
case of an ISO granted to a shareholder owning more than 10% of the combined
voting power of the Company). In addition, an ISO may not be exercisable with
respect to any shares earlier than one year from the date of grant. At the
Compensation Committee's discretion and subject to the foregoing, options may
be exercisable in full at any time during the term of the option or
exercisable in such installments and at such times during such term as the
Committee may determine.
Unexercised options and any related SAR's terminate upon termination of
employment for reasons other than death or retirement. No option or related
SAR is transferable except by will or the laws of descent and distribution,
and an option is exercisable during an employee's lifetime only by him or her.
The 1990 Plan
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provides for the exercise of options and SAR's by (i) a deceased employee's
legal representative for such period (not to exceed 12 months) following such
employee's death as may be specified in his or her option agreement and (ii)
by a retired employee for such period (not to exceed three months) following
such employee's retirement as may be so specified.
Stock Appreciation Rights
Eligible employees may be granted SAR's by the Compensation Committee. Each
SAR would relate to, and be granted in connection with, a specific option
granted under the 1990 Plan. An SAR granted in connection with an ISO may only
be granted at the time the ISO is granted; an SAR granted in connection with a
Nonstatutory Option may be granted either when the option to which it relates
is granted or at any time prior to the date which is six months from the date
of expiration of the related option. Subject to conditions specified by the
Compensation Committee, the holder of an SAR could surrender to the Company
the SAR together with the underlying option (or unexercised portion thereof)
to which the SAR related and receive from the Company property with an
aggregate fair market value equal to the excess of (i) the fair market value
of the shares of Common Stock subject to such option (or the unexercised
portion thereof) over (ii) the exercise price for such shares of Common Stock.
Such property may be in the form of cash, shares of Common Stock, or a
combination of cash and shares.
Amendment and Termination
The Board of Directors of the Company may amend or terminate the 1990 Plan
at any time, but no such amendment or termination shall affect any option or
SAR granted prior to such termination or amendment. In addition, shareholder
approval is required for any amendment which would (a) increase the number of
shares of Common Stock subject to the 1990 Plan, (b) increase the number of
shares with respect to which options may be granted to an individual employee,
(c) provide for an exercise price per share less than 100% of the fair market
value of the Common Stock on the date of grant, (d) extend the term of any
option beyond 10 years, (e) change the eligible class of employees or (f)
limit or reduce the amendments which require shareholder approval.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the Federal income tax consequences to the
Company and the employee of ISO's, Nonstatutory Options and SAR's under the
1990 Plan and the use of Common Stock as payment for shares received upon the
exercise of options granted thereunder.
Incentive Stock Options
Under current law, no taxable income is recognized by an employee when he or
she is granted, or exercises, an ISO. If an employee exercises an ISO and does
not make a "disposition" (within the meaning of Section 424(c) of the Code) of
the shares so obtained within the later of (i) two years after the date the
ISO was granted or (ii) one year after the date the ISO was exercised, the
gain on any subsequent sale will be taxed as a long-term capital gain. The
employee's basis in a share obtained by the exercise of an ISO is equal to the
option price. The Company will not be entitled to a deduction by reason of the
grant or exercise of an ISO if the employee satisfies the holding period
requirements described above.
If an employee makes a disposition of the shares obtained by the exercise of
an ISO without satisfying such holding period requirements and such
disposition is a taxable sale or exchange, he or she will generally recognize
ordinary income in the year of disposition in an amount equal to the lesser of
(i) the difference between the fair market value of the shares on the date of
exercise and the option price and (ii) the difference between the amount
realized in respect of such sale and the option price. Any gain realized on
the disposition of such shares in excess of the amount recognized as ordinary
income would be eligible for capital gains treatment. The Company will be
entitled to a deduction in an amount equal to the amount recognized by the
employee as ordinary income.
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Under current law, for purposes of the alternative minimum tax, the
difference (the "spread") between the fair market value of the shares at the
time of exercise of an ISO and the option price will be included in an
employee's alternative minimum taxable income in the year of exercise except
where such shares are disposed of in the same taxable year. If the shares are
so disposed of, the spread will be included in the employee's regular taxable
income and excluded from the alternative minimum taxable income.
Nonstatutory Options
Under current law, a Nonstatutory Option results in no taxable income to the
employee and no deduction to the Company at the time it is granted. An
employee exercising a Nonstatutory Option will generally recognize ordinary
income in an amount equal to the difference between the fair market value of
the shares at the time of exercise and the option price, and the Company will
be entitled to a deduction in a like amount. Such income is subject to income
tax withholding requirements. The employee's basis in such shares generally
would be the fair market value of the shares on the date the Nonstatutory
Option is exercised, and the gain or loss resulting from the sale of the
shares would generally be a capital gain or loss.
Use of Common Stock as Payment
If an employee elects to pay all or a portion of the option price in
connection with the exercise of an ISO by delivering shares of Common Stock,
the transfer of such Common Stock will, under certain circumstances, be
treated as a disposition thereof, with the result that the provisions
described above (relating to the recognition of ordinary income and/or capital
gain to the employee and the availability of a deduction to the Company) will
apply. Specifically, gain or loss will be recognized upon the transfer of a
share of Common Stock in connection with the exercise of an ISO where (i) the
Common Stock so transferred was acquired through the exercise of a qualified
option, an ISO, an option granted under an employee stock purchase plan or a
restricted stock option (collectively, "statutory option stock") and (ii) the
applicable statutory holding period with respect to the Common Stock so
transferred (i.e., the holding period or periods required in order for the
employee not to recognize any ordinary income on the disposition of such
Common Stock) had not been met before such transfer. In such event, the
transfer of such Common Stock in connection with the exercise of an ISO will
be viewed as a disposition of such Common Stock, and the tax consequences of
such disposition to the employee and to the Company will be as described
above.
If Common Stock is being delivered in connection with the exercise of a
Nonstatutory Option, no gain or loss will be recognized by the employee (and
the Company will not be entitled to a deduction) in respect of the disposition
of such Common Stock. Additionally, if such Common Stock constitutes statutory
option stock, then such employee should not be treated as having made a
"disposition" of such Common Stock for purposes of determining whether the
holding periods applicable to such Common Stock have been met. Nevertheless,
upon the exercise of a Nonstatutory Option in whole or in part by the
employee's delivery of Common Stock, the employee will generally be subject to
tax on (and the Company will receive a deduction equal to) the difference
between the fair market value of the Common Stock acquired pursuant to such
exercise and the option price, as described above. A portion of the newly-
acquired shares of Common Stock will assume the basis of the shares of Common
Stock so transferred and have a "tacked" holding period which includes the
period during which such shares of Common Stock so transferred were held. The
remainder of the newly-acquired shares will have a basis equal to their fair
market value, and the holding period for such shares of Common Stock will
begin on the date of such exercise.
Stock Appreciation Rights
Upon the grant of an SAR to an employee, such employee would not recognize
any income and the Company would not be entitled to any deduction. Upon
exercise of an SAR, the employee would recognize ordinary income in an amount
equal to the sum of the cash and the Fair Market Value of any shares of Common
Stock which he or she received upon surrender of the SAR. The Company would,
in general, be entitled to a deduction at such time, and in such amount, as
the employee recognizes ordinary income.
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RATIFICATION OF SELECTION OF AUDITORS
The Board of Directors has selected the firm of Ernst & Young LLP as
independent auditors of the Company for the annual period ending December 31,
1996. If the shareholders do not ratify this appointment, the Board of
Directors will consider whether the appointment of other independent auditors
is in the best interests of the Company. The Company anticipates that
representatives of Ernst & Young LLP will be in attendance at the Annual
Meeting, and that such representatives will have an opportunity to make a
statement if they so desire and will be available to respond to appropriate
questions.
The Company's Audit Committee and Board of Directors recommend a vote FOR
the ratification of the appointment of Ernst & Young LLP. Ratification of such
selection requires the affirmative vote of the holders of a majority of the
outstanding shares of Common Stock represented and entitled to vote at the
Annual Meeting.
OTHER MATTERS
While the Board of Directors has no reason to believe that any other
business will be presented, if any other matters should properly come before
the Annual Meeting, the proxies will be voted as to such matters in accordance
with the best judgment of the proxy holders.
SHAREHOLDER PROPOSALS FOR 1997 ANNUAL MEETING
Shareholder proposals intended to be presented at the 1997 Annual Meeting
must be received no later than December 5, 1996, to be considered for
inclusion in the Company's proxy statement and form of proxy relating to such
meeting, and should be addressed to the Secretary of the Company at the
Company's principal executive office.
VARCO INTERNATIONAL, INC.
Donald L. Stichler
Secretary
Orange, California
April 4, 1996
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APPENDIX A
VARCO INTERNATIONAL, INC.
1990 STOCK OPTION PLAN
(AS AMENDED)
1. PURPOSE
This 1990 Stock Option Plan (the "Plan") is established for the purpose of
promoting the interests of Varco International, Inc. ("Varco") and its
Subsidiaries (as hereinafter defined) (Varco and its Subsidiaries being
hereinafter collectively called the "Company") by providing to key employees
of the Company who are primarily responsible for the management, growth and
success of its business a favorable opportunity to acquire and to participate
in the appreciation of the Common Stock of Varco ("Common Stock") and to
participate in the overall growth and success of the Company, thereby
providing such employees with an incentive to remain in the employ of the
Company and to contribute to its success. The Plan seeks to achieve this
purpose by providing for the grant of incentive stock options ("Incentive
Stock Options") within the meaning of Section 422A of the Internal Revenue
Code of 1986, as amended (the "Code"), options other than Incentive Stock
Options ("Nonstatutory Options") and stock appreciation rights ("SAR's").
Unless provided to the contrary, all references to "options" in this Plan
shall include both Incentive Stock Options and Nonstatutory Options. As used
in the Plan, the term "Subsidiary" shall have the meaning set forth in Section
425(f) of the Code.
2. ADMINISTRATION OF THE PLAN
A. The Plan shall be administered by a committee (the "Committee") appointed
by the Board of Directors of Varco (the "Board"), which shall consist of not
less than three directors of Varco, each of whom shall be a "disinterested
person" within the meaning of Rule 16b-3 adopted by the Securities and
Exchange Commission pursuant to the Securities Exchange Act of 1934, as such
Rule may be amended from time to time. The members of the Committee shall
serve at the pleasure of the Board. The Board may designate its Compensation
Committee, if any, as the Committee provided that the members of the
Compensation Committee meet the foregoing criteria.
B. Subject to the provisions of the Plan, the Committee shall have the sole
authority to determine:
(1) The employees of the Company to whom options to purchase and SAR's
with respect to Common Stock shall be granted;
(2) The number of shares of Common Stock to be optioned to each employee;
(3) The number of SAR's to be granted to each employee;
(4) The price to be paid for the shares upon the exercise of each option;
(5) The period within which each option or SAR may be exercised; and
(6) The terms and conditions of each stock option agreement and SAR
agreement entered into between Varco and any employee.
In addition, the Committee shall have the sole authority to determine, at
the time of grant, that an option which otherwise satisfies the criteria for
treatment as an Incentive Stock Option will not be treated as an Incentive
Stock Option.
C. The Committee shall have full power and authority to interpret and
construe any and all provisions of the Plan and all option agreements and SAR
agreements executed pursuant thereto, and to adopt rules and regulations for
the administration of the Plan. Decisions of the Committee shall be final and
binding upon all parties having an interest in the Plan.
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3. ELIGIBILITY
The persons who shall be eligible to be granted options to purchase shares
of Common Stock and SAR's under the Plan shall be such key employees of the
Company (including officers and directors who are also key employees of the
Company) as the Committee shall determine from time to time, provided,
however, that no member of the Committee shall be eligible to be granted
options or SAR's under the Plan while serving as a member of the Committee.
4. COMMON STOCK SUBJECT TO PLAN
Subject to adjustment as provided in Section 8 hereof, the aggregate number
of shares of Common Stock which may be issued upon the exercise of options or
SAR's under the Plan shall not exceed three million (3,000,000). Such shares
shall be authorized but unissued shares. If any option granted under the Plan
shall expire or terminate for any reason without having been exercised in
full, the unpurchased shares subject thereto shall again become available for
the purposes of the Plan except that the shares subject to any option (or
portion thereof) surrendered upon the exercise of an SAR shall not again
become available for the purposes of the Plan.
5. [DELETED]
6. TERMS OF OPTIONS
6(a). IN GENERAL. Each option granted under the Plan shall be evidenced by a
stock option agreement between the employee to whom such option is granted and
Varco.
6(b). NONSTATUTORY OPTIONS. Each stock option agreement evidencing a
Nonstatutory Option shall provide that such Option is subject to the following
terms and conditions and to such other terms and conditions not inconsistent
therewith as the Committee may deem appropriate in each case:
A. Option Price. The price to be paid for each share of Common Stock upon
the exercise of each Nonstatutory Option shall be determined by the
Committee at the time such Option is granted, but shall in no event be less
than one hundred percent (100%) of the Fair Market Value (as hereinafter
defined) of the Common Stock on the date such Option is granted. As used in
this Plan, "Fair Market Value" of the Common Stock on any date shall mean
(i) the mean of the high and the low sales prices of shares of Common Stock
reported by the New York Stock Exchange (or any other national stock
exchange on which the Common Stock is listed or admitted to unlisted
trading privileges) on such date (or if there was no sale on such date, the
highest asked price for Common Stock on such date), (ii) if the Common
Stock is not listed on the New York Stock Exchange (or listed or admitted
to unlisted trading privileges on any other national stock exchange) on
such date, the mean of the last reported "bid" and "asked" prices on such
date, as reported by the National Association of Securities Dealers
Automated Quotation System, or if not so reported, as furnished by the
National Quotation Bureau, Inc., or if such firm at the time is not engaged
in the business of reporting such prices, as furnished by any similar firm
then engaged in such business as selected by the Committee, or if there is
no such firm, as furnished by any member of the National Association of
Securities Dealers, Inc. selected by the Committee; or (iii) if the Common
Stock is not listed or admitted to unlisted trading privileges on any
national stock exchange and bid and asked prices are not so reported, Fair
Market Value shall be determined by the Committee based upon such evidence
as it may deem necessary or appropriate.
B. Period of Option. The period or periods within which a Nonstatutory
Option may be exercised shall be determined by the Committee at the time
such Option is granted, but shall in no event exceed ten (10) years from
the date such Option is granted. In this connection, the Committee shall
have authority in its
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discretion to prescribe in any related option agreement that such Option
shall be exercisable in full at any time or from time to time during the
term thereof, or to provide for the exercise thereof in such installments
at such times during said term as the Committee may determine.
C. Payment for Stock. The option price for each share of Common Stock
purchased under a Nonstatutory Option shall be paid in full at the time of
purchase. The Committee may provide that the option price be payable at the
election of the employee, with the consent of the Committee, in whole or in
part, either in cash or by delivery of Common Stock in transferable form,
such Common Stock to be valued for such purpose at its Fair Market Value on
the date on which such Option is exercised. No share of Common Stock shall
be issued until full payment therefor has been made, and no employee shall
have any rights as an owner of shares of Common Stock until the date of
issuance to him of the stock certificate evidencing such shares.
D. Death. Upon the death of an employee, any Nonstatutory Option which he
holds may be exercised, to the extent it was exercisable on the date of his
death, within such period after the date of his death (not to exceed twelve
(12) months) as the Committee shall prescribe in his option agreement, by
the employee's representative or by the person entitled thereto under his
will or the laws of intestate succession. However, such Option shall in no
event be exercised more than ten years from the date it was granted.
E. Retirement. Upon the retirement of an employee (either pursuant to the
Varco International, Inc. Profit Sharing Plan or pursuant to the approval
of the Committee), a Nonstatutory Option may be exercised by him with
respect to all or any portion of the balance of the shares of Common stock
subject thereto within such period after the date of his retirement (not to
exceed three (3) months) as the Committee shall prescribe in his option
agreement. Such Option shall terminate upon the expiration of such period
unless the employee dies prior thereto, in which event he shall be deemed
to have died on the date of his retirement; provided, however, in no event
shall such Option be exercised more than ten years from the date such
Option is granted.
F. Other Severance. In the event an employee leaves the employ of the
Company for any reason other than as set forth in paragraphs D and E above,
any Nonstatutory Option which he holds shall terminate at the earlier of
the date his employment terminates or the date he receives written notice
that his employment is or will be terminated.
G. Transfer to Related Corporation. In the event that an employee leaves
the employ of Varco to become an employee of any Subsidiary or an employee
leaves the employ of a Subsidiary to become an employee of Varco or another
Subsidiary, such employee shall be deemed to continue as an employee for
all purposes of this Plan.
H. Nontransferability. Each Nonstatutory Option shall be nontransferable
except by will or the laws of descent and distribution and shall be
exercisable during an employee's lifetime only by him.
I. Agreement to Serve. Each employee shall agree that he will remain in
the service of the Company for a period of at least two (2) years from the
date of the grant of a Nonstatutory Option or until his earlier death or
retirement. However, nothing in this Plan or in any option granted
hereunder shall affect the Company's right to terminate at any time and for
any reason the employment of any employee who has been granted an option
hereunder.
6(c). INCENTIVE STOCK OPTIONS. Each stock option agreement evidencing an
Incentive Stock Option shall provide that the option is subject to the
following terms and conditions and to such other terms and conditions not
inconsistent therewith as the Committee may deem appropriate in each case:
A. Option Price. The price to be paid for each share of Common Stock upon
the exercise of each Incentive Stock Option shall be determined by the
Committee at the time such Option is granted, but shall in no event be less
than one hundred percent (100%) of the Fair Market Value of the Common
Stock on the
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date such Option is granted or not less than 110% of the fair market value
of such shares on the date such Option is granted in the case of an
employee then owning (within the meaning of Section 425(d) of the Code)
more than 10% of the total combined voting power of all classes of stock of
the Company or of its parent or subsidiary corporations.
B. Period of Option. The period or periods within which an Incentive
Stock Option may be exercised shall be determined by the Committee at the
time such Option is granted, but shall in no event exceed ten (10) years
from the date such Option is granted or five (5) years in the case of an
employee owning (within the meaning of Section 425(d) of the Code), at the
time such option was granted, more than 10% of the total combined voting
power of all classes of stock of the Company or of its parent or subsidiary
corporations, except that no Incentive Stock Option shall be exercisable
with respect to any of the shares subject thereto earlier than the date
which is one year from the date of its grant nor later than the date which
is ten years after the date of grant. Subject to the foregoing limitations,
the Committee shall have the authority in its discretion to prescribe in
any related option agreement that such Option shall be exercisable in full
at any time or from time to time during the term thereof, or to provide for
the exercise thereof in such installments at such times during said term as
the Committee may determine.
C. Payments for Stock. The option price for each share of stock purchased
under an Incentive Stock Option shall be paid in full at the time of
purchase. The Committee may provide that the option price be payable at the
election of the employee with the consent of the Committee in whole or in
part either in cash or by delivery of Common Stock in transferable form,
such Common Stock to be valued for such purpose at its Fair Market Value on
the date on which such Option is exercised. No share of Common Stock shall
be issued until full payment therefor has been made, and no employee shall
have any rights as an owner of Common Stock until the date of issuance to
him of the stock certificate evidencing such Common Stock.
D. Death. Upon the death of an employee, any Incentive Stock Option which
he holds may be exercised, to the extent it was exercisable at the date of
his death, within such period after the date of his death (not to exceed
twelve (12) months) as the Committee shall prescribe in his option
agreement, by the employee's representative or by the person entitled
thereto under his will or the laws of intestate succession. However, such
Option shall in no event be exercised more than ten years from the date it
was granted.
E. Retirement. Upon the retirement of an employee (either pursuant to the
Varco International, Inc. Profit Sharing Plan or pursuant to the approval
of the Committee), an Incentive Stock Option may be exercised by him with
respect to all or any portion of the balance of the shares of Common Stock
subject thereto within such period after the date of his retirement (not to
exceed three (3) months) as the Committee shall prescribe in his option
agreement. Such Option shall terminate upon the expiration of such period
unless the employee dies prior thereto, in which event he shall be deemed
to have died on the date of his retirement; provided, however, in no event
shall such Option be exercised more than ten years from the date such Option
is granted.
F. Other Severance. In the event an employee leaves the employ of the
Company for any reason other than as set forth in paragraphs D and E above,
any Incentive Stock Option which he holds shall terminate at the earlier of
the date his employment terminates or the date he receives written notice that
his employment is or will be terminated.
G. Transfer to Related Corporation. In the event that an employee leaves
the employ of Varco to become an employee of any Subsidiary or an employee
leaves the employ of a Subsidiary to become an employee of Varco or another
Subsidiary, such employee shall be deemed to continue as an employee for
all purposes of this Plan.
H. Nontransferability. An Incentive Stock Option shall be nontransferable
except by will or the laws of descent and distribution and shall be
exercisable during an employee's lifetime only by him.
I. Agreement to Serve. Each employee shall agree that he will remain in
the service of the Company for a period of at least two (2) years from the
date of the grant of an Incentive Stock Option or until his
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earlier death or retirement. However, nothing in this Plan or in any option
granted hereunder shall affect the Company's right to terminate at any time
and for any reason the employment of any employee who has been granted an
option hereunder.
J. Limitation on Amount. Subject to the further limitations set forth in
Section 4 hereof, the aggregate Fair Market Value (determined as of the
time the option is granted) of the Common Stock with respect to which
Incentive Stock Options are exercisable for the first time by an employee
in any calendar year (under the Plan and all other incentive stock option
plans of the Company and any parent or subsidiary of the Company) shall not
exceed $100,000.
7. STOCK APPRECIATION RIGHTS
Each option granted under the Plan may, at the discretion of the Committee,
include an SAR. Each SAR shall be evidenced by an SAR agreement (which may be
included in the related stock option agreement) between the employee to whom
such SAR is granted and Varco. Each SAR agreement shall provide that each SAR
thereunder is subject to the following terms and conditions and to such other
terms and conditions not inconsistent therewith as the Committee may deem
appropriate in each case:
A. Grant. Each SAR shall be granted in connection with, and shall relate
to, a specific option granted under the Plan, and, in the discretion of the
Committee, shall be granted either concurrently with the grant of such
option or at any time prior to the date six months preceding the date of
the expiration of such option except that an SAR granted in connection with
and relating to an Incentive Stock Option may only be granted concurrently
with the grant of such Incentive Stock Option.
B. Entitlement of Holder. Subject to such conditions, limitations and
restrictions as the Committee shall specify, each SAR which relates to an
option granted under the Plan shall entitle the holder, upon surrender to
Varco of the SAR together with such option or any portion thereof to the
extent unexercised, to receive from Varco shares of Common Stock, cash or a
combination of shares of Common Stock and cash, as the Committee shall
determine. The amount of cash and/or the Fair Market Value of the Common
Stock received upon exercise of an SAR shall, in the aggregate, be equal to
the amount by which the Fair Market Value (on the date of surrender) of the
shares of Common Stock subject to the option (or portion thereof)
surrendered exceeds the option price of such shares of Common Stock.
C. Limitations. Subject to subsection D below, an SAR granted hereunder
shall be exercisable only at such time or times, and only to the extent
that, the related option is exercisable and shall not be transferable
except to the extent that such related option may be transferable.
Specifically, but not by way of limitation of the foregoing, in the case of
an SAR granted in connection with, and with respect to, an Incentive Stock
Option, the following conditions must be met:
(1) the expiration date of the SAR does not extend beyond the
expiration date of the underlying Incentive Stock Option;
(2) the SAR is transferable only when such Incentive Stock Option is
transferable and under the same conditions;
(3) the SAR is exercisable only when such Incentive Stock Option is
exercisable; and
(4) the SAR is exercisable only when the Fair Market Value of the
shares of Common Stock subject to such Incentive Stock Option exceeds
the option price of such option.
D. Manner of Exercise. Each SAR granted hereunder may be exercised by
written notice to Varco at its corporate headquarters. Except in the case
of the death or disability of the holder of such right, each SAR granted
pursuant to the Plan shall in no event be exercisable prior to the
expiration of six months after the date of grant of such SAR. If, on the
date when an option expires, the option price under such option is less
than the Fair Market Value of the Common Stock on such date and any portion
of such option has not been exercised or surrendered, then any SAR included
in such option shall automatically be deemed to be exercised as of such
date with respect to such portion.
A-5
<PAGE>
E. Maximum Payment. At the time of the grant of an SAR hereunder, the
Committee may (in its sole discretion) determine the maximum amount payable
with respect to such SAR.
8. ADJUSTMENT OF SHARES
A. In the event of changes in the outstanding Common Stock by reason of
stock dividends, split-ups, consolidations, recapitalizations, reorganizations
or like events (as determined by the Committee), an appropriate adjustment
shall be made by the Committee in the number of shares available for issuance
under the Plan, in the number of shares set forth in Section 5 hereof, and in
the number of shares and the option price per share specified in any stock
option agreement with respect to any unpurchased shares. The determination of
the Committee as to what adjustments shall be made shall be conclusive.
B. Subsection A above to the contrary notwithstanding, in the event of any
merger, consolidation or other reorganization of Varco in which Varco is not
the surviving or continuing corporation (as determined by the Committee) or in
the event of the liquidation or dissolution of Varco, all options and SAR's
granted hereunder shall terminate on the effective date of the merger,
consolidation, reorganization, liquidation or dissolution unless the agreement
with respect thereto provides otherwise. Any other provision of this Plan to
the contrary notwithstanding, all outstanding options and SAR's granted
hereunder shall be fully exercisable for a period of thirty (30) days prior to
the effective date of any such merger, consolidation, reorganization,
liquidation or dissolution unless, in the case of a merger, consolidation or
reorganization, such options and SAR's are assumed by the continuing or
surviving corporation.
C. Neither the action of Varco in establishing the Plan, nor any action
taken by the Committee under the Plan, nor any provision of the Plan shall
affect the right or power of Varco to make or authorize any adjustments,
recapitalizations, or other changes in Varco's capital structure or business,
any merger or consolidation, any issuance of bonds, debentures, preferred
shares or common shares, the dissolution or liquidation of Varco or any
Subsidiary, any sale of all or any part of Varco's or any Subsidiary's assets
or business or any other act whether or not similar to the foregoing events.
9. AMENDMENT, EXTENSION AND RENEWAL OF OPTIONS AND SAR'S
Subject to the limitation of the Plan, the Committee may modify, extend or
renew outstanding options or may accept the cancellation of outstanding
options (to the extent not previously exercised) in return for the grant of
new options at the same or a different price. Notwithstanding the foregoing,
no modification of an option shall, without the consent of the optionee, alter
or impair his rights or obligations under such option.
10. WITHHOLDING TAXES
Varco or the Subsidiary that employs any employee shall have the right to
deduct any sums that federal, state or local tax law requires to be withheld
with respect to the exercise of any option or SAR, or as otherwise may be
required by such laws. Varco or such Subsidiary may require as a condition to
issuing shares upon the exercise of an option or making any payment upon the
exercise of an SAR that the employee or other person exercising the option or
SAR pay any sums that federal, state or local tax law requires to be withheld
with respect to such exercise.
11. REGULATORY REQUIREMENTS
A. The Committee may require an employee, as a condition of either the grant
or the exercise of an option or an SAR to represent and establish to the
satisfaction of the Committee that all shares of Common Stock acquired upon
the exercise of such option or SAR will be acquired for investment and not for
resale. The Committee may prevent the sale or other disposition of any shares
acquired pursuant to any such representation until it is satisfied that such
sale or other disposition would not be in contravention of applicable state or
Federal securities laws.
A-6
<PAGE>
B. No option granted pursuant to this Plan shall be exercisable in whole or
in part, nor shall an employee receive any shares of Common Stock upon
exercise of an SAR if at any time the Committee shall determine in its
discretion that the listing or qualification of the shares of Common Stock
subject to such option on any securities exchange or under any applicable law,
or the consent or approval of any governmental regulatory body, is necessary
or desirable as a condition of, or in connection with, the granting of such
option or the issue of shares thereunder, unless such listing, qualification,
consent or approval shall have been effected or obtained free of any
conditions not acceptable to the Committee.
12. AMENDMENT
The Board may amend the Plan at any time, except that without shareholder
approval:
A. The number of shares of Common Stock subject to the Plan shall not be
increased except as provided in Section 8 hereof;
B. The number of shares of Common Stock which may be optioned to any one
employee may not be increased;
C. The option price per share of Common Stock may not be fixed at less
than 100 percent of the Fair Market Value of a share of Common Stock of the
Company on the date the option is granted;
D. The maximum period of ten years during which the options may be
exercised may not be extended;
E. The class of employees eligible to receive options under the Plan as
set forth in Section 3 shall not be changed; and
F. This Section 11 may not be amended in a manner which limits or reduces
the amendments which require shareholder approval.
13. TERMINATION
The Board may at any time terminate the Plan by appropriate corporate
resolution. Unless sooner terminated, the Plan shall terminate automatically
on March 5, 2000. The termination of the Plan shall not affect the validity of
any option or SAR outstanding at the date of such termination, but no option
or SAR shall be granted after such date.
14. EFFECTIVE DATE
The Plan was adopted by the Board on March 6, 1990 and shall be effective as
of such date. Options and SAR's may be granted but not exercised prior to
shareholder approval of the Plan by a majority of the holders of the Common
Stock present or represented and entitled to vote at a meeting duly called and
held in accordance with the laws of the State of California. If such
shareholder approval shall not have been obtained on or before September 30,
1990, any options and SAR's therefore granted shall terminate retroactive as
of the date they were granted, and no additional options or SAR's shall be
granted under the Plan.
A-7
<PAGE>
PROXY PROXY
VARCO INTERNATIONAL, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby appoints WALTER B. REINHOLD, GEORGE BOYADJIEFF and
RICHARD A. KERTSON, and any of them, proxies of the undersigned, with full
power of substitution, to vote the stock of the undersigned at the annual
meeting of shareholders of Varco International, Inc., to be held at the
Doubletree Hotel, 100 The City Drive, Orange, California on Thursday, May 16,
1996 at 10:00 a.m. for the purposes set forth on the reverse side.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR THE ELECTION AS A DIRECTOR OF EACH NOMINEE NAMED ON THE REVERSE SIDE
(AND VOTES WILL BE CUMULATED, IF APPLICABLE, IN SUCH MANNER AS THE PROXY HOLD-
ERS MAY DETERMINE IN THEIR DISCRETION) AND FOR PROPOSALS 2 AND 3.
PLEASE MARK, SIGN, DATE AND MAIL THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
(Continued and to be signed on reverse side.)
<PAGE>
VARCO INTERNATIONAL, INC.
IMPORTANT: PLEASE MARK BOXES TO GIVE VOTING INSTRUCTIONS. [X]
[ ]
1. ELECTION OF DIRECTORS WITHHELD FOR ALL
(INSTRUCTION: TO WITHHOLD AUTHORITY TO For all from all except
VOTE FOR ANY INDIVIDUAL NOMINEE STRIKE nominees nominees as marked.
A LINE THROUGH THE NOMINEE'S NAME IN [_] [_] [_]
THE LIST BELOW.)
G. Boyadjieff, T. Embry, A. Horn,
M. Jacques, J. Knowlton, L. Pircher,
W. Reinhold, C. Suggs, R. Teitsworth,
E. White, J. Woods
2. PROPOSAL TO APPROVE AMENDMENTS TO THE For Against Abstain
COMPANY'S 1990 STOCK OPTION PLAN. [_] [_] [_]
(The Board of Directors recommends a
vote FOR.)
3. PROPOSAL TO RATIFY THE APPOINTMENT OF For Against Abstain
ERNST & YOUNG LLP AS THE INDEPENDENT [_] [_] [_]
AUDITORS OF THE COMPANY. (The Board
of Directors recommends a vote FOR.)
4. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
The undersigned acknowledges receipt
of the Notice of Annual Meeting of
Shareholders and of the Proxy
Statement.
Dated: _______________________, 1996
Signature(s)________________________
____________________________________
PLEASE SIGN EXACTLY AS YOUR NAME
APPEARS. JOINT OWNERS SHOULD EACH
SIGN PERSONALLY. WHERE APPLICABLE,
INDICATE YOUR OFFICIAL POSITION OR
REPRESENTATION CAPACITY.
